Pernod Ricard still ‘extremely optimistic’ about China despite 23% drop
Despite taking a 23% hit in China, according to Pernod Ricard’s year-end financial results, the company is still “extremely optimistic” about the potential of the Chinese market moving forward.
Pierre Pringuet, Pernod Ricard’s vice chairman of the board and the chief executive officer, speaking a London press conference this morning said: “We will face a gradual improvement in the coming year. But mid to long term we are optimistic. The fundamentals including economic growth, an increasing middle class, our brands that are affordable to a vast majority of the growing middle class, and the depth of our portfolio in turn will translate into growth.”
Pernod Ricard, he stressed, had been hit like every other global drinks player with exposure in China after austerity measures were introduced 18 months ago by the Chinese government to curb extravagant and luxury gift giving.
Pringuet admitted the impact of the austerity measures were more severe than the company initially expected. He said: “It was a bit deeper and wider than we anticipated.”
Despite the challenges Pernod Ricard’s leadership is more optimistic about 2015 and the Chinese market long term.
“China is the second largest market for Pernod Ricard in terms of sales and volume. It is a rich country,” said Pringuet.
Pernod Ricard appears to have weathered the toughest part of the storm to date. Excess inventories are moving through China and overall inventory numbers are improving. “There was an evolution in the last quarter and the declines are slowing,’ said Pringuet.
Pernod Ricard expects the overall economic environment to remain challenging and is particularly concerned about sanctions in to Russia. ”This is the only market we are worried about. Sanctions are possible and it could happen at anytime. We are importing as much as we can right now. There is little we can do,” said Pringuet.
But even with its challenges in emerging markets and unfavourable exchange rates, the company’s operating margin had the strongest increase in four years which was up +52 basis points (bps).