Pernod Ricard Revenue Falls 7% Amid China Market Hardening

The Tip Desk · December 31, 2013 · 2 min read

The wines and spirits producer reported a decline in half-year revenue driven by currency headwinds and a difficult environment in China.

Pernod Ricard reported consolidated revenue of 4,570 million euros for the first half of the 2013/2014 fiscal year, a 7% decrease from 4,907 million euros in the same period the previous year. The company said the decline resulted from a 6% negative currency effect and a 1% impact from the divestment of certain Scandinavian and Spanish activities.

Performance was heavily impacted by the Chinese market, where internal revenue growth fell 18%. This downturn was primarily driven by a decline in Martell sales in China, which created a -4% mix effect on the Top 14 strategic brands. Excluding China, the Asia-Rest of World zone grew 2%. In other regions, Europe saw a 4% internal growth in revenue, while the Americas returned to growth supported by the United States.

Despite the revenue decline, the company improved its gross margin rate to 63.6% from 63.1%. Pernod Ricard attributed this increase to the pursuit of Premiumisation, favorable price effects from tariff hikes, and the control of costs, which increased by less than 2% excluding mix effects. In the Americas, Premiumisation in the United States specifically drove a 5% internal growth in gross margin.

Current operating result fell 7% to 1,359 million euros. However, the company reported an internal growth of 2% for this metric compared to the first half of 2012/2013. The operating margin rate remained stable at 29.7%, representing an improvement of 34 basis points on an internal growth basis.

Regional operating results diverged. Europe reported a 7% internal growth in current operating result. The Americas saw a 5% internal growth in current operating result, which outpaced its 3% internal revenue growth. Conversely, the Asia-Rest of World region saw a 4% internal decline in current operating result, which the company said was in line with revenue trends in China and impacted by a very unfavorable comparison base of 19% internal growth in the first half of 2012/2013.

Net income attributable to the Group was 828 million euros, a 2% decrease from the previous year. This resulted in a basic earnings per share of 3.15 euros, compared to 3.21 euros in the prior period. Net financial debt stood at 8,626 million euros as of December 31, 2013, down from 8,727 million euros on June 30, 2013.

Pernod Ricard expects a difficult situation in China for the remainder of the 2013/2014 fiscal year. The company has set a new target for internal growth of the current operating result between 1% and 3% for the full year.