Pernod Ricard cuts annual profit growth goal on weak Chinese demand

Thursday 13 February 2014 08.05
Jameson was one of Pernod Ricard's better performing brands during the six month period
Jameson was one of Pernod Ricard's better performing brands during the six month period

French spirits group Pernod Ricard has cut its annual profit growth goal as it warned demand in China, its second-largest market, would remain weak through June.

The owner of Jameson whiskey, which had expected Chinese demand to start recovering from the second half of its financial year, said it remained confident over the long-term potential of the country, however.

The world's number two spirits group behind Britain's Diageo said it now expected a rise of between 1% and 3% in full-year underlying operating profit against an October forecast of 4-5% growth.

A Reuters poll of six analysts showed Pernod Ricard was seen to be on course for 2.3% growth.

First-half underlying sales were flat at €4.57 billion, reflecting an 18% sales fall in China, while underlying operating profit rose 2% to €1.359 billion, thanks mostly to cost control.

Second-quarter sales showed a sequential improvement, however, rising 2% after falling 1% in the previous three months. 

This came mostly from a robust performance in Europe and a return to sales growth in the United States.

Jameson was one of its better performing brands during the six month period, seeing a 16% increase in net sales compared to an average 1% decline across its top 14 products.

Pernod Ricard makes 12% of its sales in China, its second-biggest market after the US.

Like rivals Diageo and Remy Cointreau, it has been hit by a government crackdown on luxury gift-giving and personal spending by civil servants in China, as well as slowing economic growth in the world's second-biggest economy.

Pernod has today unveiled a plan to improve operational efficiency that it said would save an annual €150 million over three years and whose proceeds would be partly reinvested to support brand development.

At the end of last year, net debt was cut by €102 million to €8.6 billion.

Pernod shares are up 0.5% this year, outperforming a 1.9% decline in the European food and beverage sector .

Pernod trades at 16.8 times 12-month forward earnings, against 23.4 times for Remy and 17.22 times for Diageo, a discount that already prices in some of the Chinese woes.