Pernod Ricard predicts ‘severe’ impact from coronavirus

French firm Pernod Ricard has reported an organic sales growth of 2.7% in the first half of its fiscal year, and expects the coronavirus outbreak to have a “severe” impact on its China and travel retail business.

Pernod Ricard unveiled significant investment in China last year with plans to build the country’s first malt whisky distillery

In the six months to 31 December 2019, Absolut vodka owner Pernod Ricard saw reported sales grow by 5.6% to €5.47 billion (US$5.95bn).

Organic profit grew 4.3% to €1.78bn (US$1.93bn), while free cash flow sits at €570 million (US$620.4m).

“H1 FY20 demonstrated solid growth and resilience of our business model,” said Alexandre Ricard, chairman and CEO. “Our three-year plan Transform & Accelerate is driving success, as evidenced by the diversification of the sources of growth in terms of geographic footprint and categories, continued strong pricing and ultimately the improvement in operating leverage.

The French drinks group said it had witnessed “diversified growth” across its regions with “robust performances” in its “must-win” markets of the US, India and China, which were “further enhanced” by the earlier timing of Chinese New Year.

The US market grew 4%, with “good growth” from its whiskies and speciality brands.

China was up 11%, boosted by the earlier Chinese New Year, while India grew by 5% “in a volatile context”.

Travel retail declined 1% due to phasing in the Americas and “Brexit-related opening stocks” in Europe. The group also said there was “robust sell-out” with sales driven by Martell, Jameson, Royal Salute and Beefeater.

Performance by brand

Pernod Ricard reported a “dynamic performance” for its strategic international brands, mainly Jameson Irish whiskey, Martell Cognac, Scotch brands The Glenlivet, Ballantine’s and Royal Salute, Malibu liqueur, and Beefeater gin.

Jameson increased by 9% boosted by double-digit growth in key US states and double-digit growth in Europe.

Martell was up by 4% with double-digit growth in China ahead of Chinese New Year and “strong pricing”. US sales fell 11% due to a “very high basis of comparison”.

The group’s Scotch portfolio witnessed a 4% rise with double-digit growth from The Glenlivet (+15%) and Royal Salute (+17%).

Absolut vodka dropped by 1% with a decline driven by phasing in travel retail Americas, while Absolut’s US sales fell 6%. Pernod Ricard said its strategy for the brand is to “expand beyond vodka to become the natural choice of an experience-seeking generation”.

Beefeater gin grew by 13% with “triple-digit growth” in Brazil, “good growth” in the US, and “improvement” in Spain.

Europe helped to boost Havana Club rum’s sales, growing by 6%. Malibu rum liqueur was up 13% driven by double-digit growth in the Americas and the Asia-rest of the world region. It returned to growth in Europe.

The firm’s speciality brands portfolio increased by 17% led by Aberlour Scotch whisky which grew 40% in the US and 4% in the “difficult market” of France.

Coronavirus impact

Pernod Ricard released its predictions for the impact that the 2019 coronavirus disease (Covid-19) will have on its business.

In China, the group said on-trade outlets will close in February until the end of June in the Hubei province, the centre of the outbreak. The firm expects a “gradual recovery” from March, returning to normal in June.

Pernod Ricard expects “significant impact” on China’s traditional and modern off-trade outlets in late January and early February.

For its Q3 travel retail Asia, Pernod Ricard assumes “significant impact on passenger traffic” in early February. The group predicts a “gradual recovery” from April and a return to normalcy by June.

Pernod Ricard cut its guidance for organic growth in profit from recurring operations for fiscal 2020 to 2%-4%, from previous expectations of 5%-7%.

Ricard added that the group “will stay the strategic course and maintain priority investments in order to continue maximising long-term value creation”.

In August 2019, Pernod Ricard pledged US$150m to build China’s first malt whisky distillery, which is scheduled to open next year.

“Looking to H2 FY20, the environment remains particularly uncertain from a geopolitical standpoint, with the additional pressure related to the Covid-19 outbreak,” said Ricard.

“While we cannot currently predict the duration and extent of the impact, we remain confident in our strategy. Our first priority is to ensure the safety and wellbeing of our employees and business partners. I would like to praise the exemplary behaviour of our teams during this difficult time. We fully support their efforts, as well as those of the Chinese people and authorities to contain the epidemic.

Ricard added that the group will “continue to closely monitor our environment”.