Despite a good first half-year, Pernod Ricard has revised downward its annual target of current operating income to be organic because of the epidemic of coronavirus in China, second largest market of the group, which generates 10% of its sales. “Taking as a hypothesis a very significant impact of the COVID-19, mainly in the third quarter, we anticipate at this stage an internal growth of current operating income (ROC) for the fiscal year 2019/20 of between 2% and 4%, against 5% to 7% previously, said on Thursday the world’s number two spirits in a press release. Sales at airports will also be significantly affected by the restrictions of movement imposed on the chinese people since the beginning of the epidemic. For the first six months, the ROC amounted to € 1.8 billion, with a growth of 4.3%.
“We expect, obviously, what the Covid-19 has a severe impact on the third quarter, from January to march, since at the time when I speak to you all night clubs, all night bars are closed in China until further notice”, and among the cafés, hotels and restaurants that are open, “they are quite empty, the people are at home, and rightly so,” said AFP CEO Alexandre Ricard. Pernod Ricard has re-opened its offices in Shanghai earlier this week and the CEO has commended “the exemplary attitude of the employees that strictly comply with the instructions of the government.” But Alexandre Ricard has assured “that, once this painful episode and unhappy past, the fundamentals do not move. We will return to the levels of growth that it has experienced in the past.”
7 to 14% growth in cruise speed
“Our medium-term goal is to achieve in China a growth of between 7% and 14% at cruising speed, linked to the emergence of a middle class, urbanisation and the penetration of imported spirits, with the ambition of moving from 1% to 2% of all spirits consumed in China and we are very much on track for this strategic plan”, he added, assuming “a gradual recovery in sales since march and a return to normal in June.”
The analysts of Moody’s have underlined the risk represented by the coronavirus to the manufacturers of spirits worldwide, while China accounts for 26% of global consumption by volume of alcohol. But if the crisis of the coronavirus similar to the SARS (severe acute respiratory Syndrome, atypical pneumonia) in 2003, “reduction of the earnings of companies will probably be significant, but also very brief”, indicate in a footnote. The title Pernod Ricard was up 1.46%, to 163 euros, with the opening of the Paris stock Exchange Thursday morning, in a market in slight decline.
Growth 1S driven by China
Furthermore, the group has published its results for the first half of its non-calendar fiscal year 2019/2020 with an increase of 1% in net income to 1 billion euros, and a growth of 5.6% in sales to 5.4 billion euros. Before the crisis of the sars coronavirus, the sales growth was mainly driven by China ( 11%) who experienced a very good first half, “promoted by the advance of the chinese New Year”. “Before all this starts, shelving and promotional plans were well prepared”, and all shipments had already been made for the chinese New Year, according to Alexandre Ricard.
India has seen its turnover increase by 5% United States 4%, thanks to the whiskies. With an increase of 3%, Europe is also a “good growth” with improving trends, driven by Germany, the United Kingdom, and an acceleration in eastern Europe. But the group points to “the continued difficulties in France,” whose sales were down 6%.
“This is a market that is structurally in decline”, but it “has accelerated following the law Egalim which has led to an increase in the purchase price of 10%”, passing the bottle of Ricard at over 20 euros and that is “unacceptable to the consumer”, says Alexandre Ricard. “In regard to the spirits, it is a price increase that does not benefit anyone,” says Alexandre Ricard, who denounces agreement a “lose-lose” (lose-lose).