Pernod Ricard hit by Chinese slump

27-Aug-2014 - Last updated on 28-Aug-2014 at 13:53 GMT

Jameson Irish Whiskey saw an 'excellent performance'

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Pernod Ricard says a slump in China, and unfavourable foreign exchange effect, is responsible for an overall 7% fall in sales, as it released its full year 2013/14 results today.

The French spirits and wine giant said the 23% decline in Chinese sales was due to a sharp decline in traditional KTVs (Chinese karaoke and entertainment venues) and the gifting business.

However, the company’s overall results saw the operating margin rate increased +52 bps in organic terms, reported to be the strongest increase in four years. As a result, profit from recurring operations recorded organic growth of 2% to €2,056m ($2.710m).

Pernod Ricard, whose brands include Absolut Vodka, Ricard Pastis, Jameson Irish whiskey, and Jacob’s Creek, reported total sales for the 2013/14 financial year at €7,945m ($10,474m), which it describes as ‘broadly stable.’

China woes

The company labelled China as a ‘particularly challenging environment in 2013/2014.’

Pierre Pringuet, vice-chairman of the board of directors and CEO, Pernod Ricard, told BeverageDaily.com the 23% drop [in sales] was due to a macro-economic slowdown, and ‘stricter measures against conspicuous consumption.’ The company also attributed the decline to its destocking policy, with stocks down 20% in value compared to June 2013.

Pernod Ricard says it has seen a sharp decline in sales traditional KTVs – Chinese karaoke and entertainment bars – and the gift business. Earlier this year, analysts warned an official anti-extravagance drive was posing a threat to companies such as Pernod Ricard.

Thailand also saw a big decline against the backdrop of political and economic instability, and an increase in excise duty.

Outside China

But Pernod Ricard reported ‘good resilience’ elsewhere. In particular, Australia saw ‘strong growth’ with good performance for its main brands: Jacob’s Creek up 9%, Chivas up 12%, and Mumm up 41%.

Double digit growth was seen in Africa and the Middle East, driven by South Africa, Turkey, and travel retail.

The US market saw a slower sales growth of 1%, and the company reports premium brands and innovation are driving this market.

Brands

Jameson Irish Whiskey saw ‘excellent performance,’ up 12%, and the company projects double sales to more than €1bn ($1.3bn) by 2020.

Pernod Ricard Groupe is the world’s second largest spirits group, behind Diageo, according to Euromonitor statistics.