Pernod Ricard hit by China crackdown
Pernod Ricard warned that growth in full-year operating profit would be lower than expected, as weak sales in China continued to weigh on the group’s overall performance. The world’s second-largest spirits maker by sales said that growth in operating profit on an organic basis would now be between 1 per cent and 3 per cent for the full business year, which ends in June. That is down from previous guidance of 3-5 per cent. The lower forecast comes as Pernod Ricard, which produces Jameson whisky and Absolut vodka, said that the Chinese government’s crackdown on conspicuous spending by officials was weighing heavily on business activity. Spirits and cognac manufacturers, including Rémy Cointreau, Pernod’s French rival, have been hit hard by the crackdown. Luxury groups have also reported significantly weaker sales because of China’s policy shift. The group’s first-half sales were €4.6bn, matching sales during the same period a year earlier on an organic basis. The figure was just shy of consensus forecasts. But Pernod Ricard also said that sales in China during the period fell 18 per cent. The Chinese market, which had seen vigorous growth in recent years thanks to abundant gift-giving by government officials and company executives, accounts for about 12 per cent of group sales and 15 per cent of operating profit. On a conference call on Thursday, Pierre Pringuet, Pernod Ricard’s chief executive, said: "We thought the difficulties in China would be over by Chinese new year, but today we say that it will take the full fiscal year to enjoy a better situation there." The Paris-based company announced a cost savings programme that it said would deliver €150m a year in savings within three years. It said that some of those savings would be reinvested, but provided few details. Operating profit for the first half of its business year was €1.4bn, up 2 per cent on an organic basis from the same period a year earlier – but 7 per cent lower on a reported basis because of the negative impact of exchange rates during the period. The shares closed 2 per cent higher at €84.87 in Thursday trading, suggesting that the market had largely anticipated the lower profit forecast for the full year. Citigroup said in a note: "The results overall are a bit better than we anticipated . . . we doubt the results will change investors’ view on the stock."