Pernod warns China could stay weak until 2015

Thu Mar 27, 2014 2:05pm EDT
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By Dominique Vidalon

PARIS (Reuters) - French drinks group Pernod Ricard (PERP.PA: Quote) expects its underlying operating profit in Asia to decline this fiscal year, warning that demand in China could remain sluggish until 2015.

It, however, said it believed the medium and long-term growth potential for Asia remained intact and that it could deliver strong sales growth in China in the future.

Like rivals Diageo (DGE.L: Quote) and Remy Cointreau (RCOP.PA: Quote), Pernod has been hit by a government crackdown on luxury gift-giving and personal spending by civil servants in China, as well as by slowing economic growth in the world's second-biggest economy.

The owner of Martell cognac, Mumm champagne, Ballantine's whisky and Absolut vodka predicted underlying operating profit in Asia would fall by a low single-digit percentage in its 2013/14 fiscal year which ends on June 30.

"The first-half (China) impact is likely to last through fiscal year 2013/14, possibly to the end of calendar year 2014," Pierre Coppere, CEO for Asia, said during a call on the region.

"If our assumptions are correct and if the market rebounds, we should be in a position to deliver high single-digit (sales) growth in China in the medium and long-term," he added, without being more specific about the timeframe.

The world's No.2 spirits group by sales after Britain's Diageo makes 12 percent of sales and 15 percent of profits in China, its second-biggest market after the United States.

Sales and underlying profit in Asia both fell 4 percent in the first half ended December 31, hit by an 18 percent drop in sales in China.   Continued...

Pierre Pringuet, Chief Executive Officer of French drinks maker Pernod Ricard, poses before the presentation of the group's 2013/14 half-year sales and results in Paris February 13, 2014. REUTERS/Benoit Tessier