China crackdown continues to stifle Pernod sales

Pernod Ricard has once again suffered China’s curb on extravagant gift-giving, revealing that its sales have dropped in the first nine months of its financial year.

Pernod Ricard has announced its sales fell 7% in the first nine months of its financial year, but confirmed profits are expected to rise

The French drinks company reported today that sales to 31 March totalled €6.19 million, a 7% drop compared to the same period last year.

This decline was attributed to a “highly unfavourable foreign exchange rate” as well as the company’s destocking efforts in China – a result of the country’s ongoing campaign of austerity.

At the end of 2012, President Xi Jinping announced a series of anti-gifting measures and a ban on hedonistic banqueting among military and government officials in order to counter claims of corruption.

As a result Pernod Ricard, maker of Martell Cognac and The Glenlivet Scotch, experienced a 3% slaes decline in the Asia/ROW region. However, excluding China, the area saw sales growth of 5%.

The Americas and US regions both enjoyed organic growth of 4% while Europe experienced a 2% sales increase, underpinned by a “stable” market in the West and 9% growth in the East.

The group’s top 14 brands were described as “virtually stable” with a 1% sales decline and its local brands posted “strong growth” of 5%.

Irish whiskey Jameson saw a solid sales increase of 13%, while its Royal Salute blended Scotch and Martell Cognac both declined 9%.

Despite an overall decline, the group confirmed that its overall operating profits would show an increase of 1-3%. In February this year, Pernod revealed that it would be revising its initial profit forecast of a 3-4% increase.

This prediction comes just days after fellow French drinks group Rémy Cointreau warned that the slowdown of the market in China would cause its own profits to plunge 35-40%.

Pernod Ricard noted the gradual implementation of Project Allegro – its operational streamlining programme which the group confirmed will likely involve job cuts.

The group also announced “tactical acquisition” of a premium California vineyard Kenwood.

Pierre Pringuet, CEO of Pernod Ricard, said: “In an environment that remains challenging, our performance over the nine months was in line with the half-year and with our annual guidance.

He added that he was “pleased” with the “strengthened” partnership with the company’s two largest US distributors, reinforcing its “portfolio and execution capability” in the region.