Pernod Ricard Sees Flat Profits on Consumption Crackdown in China

Pernod Ricard announced that its last six months of operating profit in 2014 remained flat as the drinks group based in Paris contended with the government of China’s crackdown on consumption.

The second largest spirits company in the world said its sales across China during the final six months of 2014 dropped by 6% when making an adjustment for the calendar due to the Chinese Lunar New Year. Before factoring in that adjustment, sales dropped by 16%.

The CEO and chairman of the group, Alexandre Ricard said the drop in China was having its impact. One industry analyst said he did not see things improving in China though the new year timing in China did have a particularly strong impact this year.

Like most luxury spirits and wines groups, Pernod Ricard experienced a ramp of sales in China the past few years due to the rapid economic expansion in the country and the subsequent spread of wealth amongst it very large population.

Today, the spirits group, which is the producer of Absolut vodka and Martell cognac relies on the region of Asia for over one third of its overall sales and for 43% of its operating profit.

In addition, China represents 12% of the company’s annual sales, which makes it the second largest market following the U.S.

Richard, who became the CEO and chairman after a meeting of the board this week, said optimism was rearing its head in China, partly because of gradual return of sales growth at bars and in sales of spirits for consumption at home.

However, Ricard said that karaoke clubs as well as restaurants in China were still showing a decline in sales of double-digits.

Total sales over the six months through December 21 were 4.6 billion euros an increase of 1% over the same period a year ago. The company’s operating profit for the same period was 1.36 billion euros, which was flat compared to the same period one year earlier.

Profit margins fell 22 basis points due mainly from the decline in gross margins.

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