February 13, 2020 / 6:46 AM / 11 days ago

China's coronavirus hit clubs prompt Pernod to cut profit growth forecast

PARIS (Reuters) - Shuttered Chinese clubs and bars led French spirits group Pernod Ricard (PERP.PA) to warn on Thursday that the coronavirus outbreak would have a severe impact on its third-quarter.

FILE PHOTO: A logo is seen on a bottle of the Ricard aniseed-flavoured beverage displayed during French drinks maker Pernod Ricard news conference to announce the company annual results in Paris, France, August 29, 2018. REUTERS/Christian Hartmann/File Photo

The Martell cognac owner, the biggest international spirits maker in China and the world’s second-biggest behind Diageo (DGE.L), also cut its full-year profit growth outlook, but was confident over its medium-term Chinese prospects.

“Night clubs and night bars are all closed in China and those bars and restaurants that are not closed are empty,” Chairman and CEO Alexandre Ricard told Reuters.

Ricard, whose third quarter runs to the end of March, said the safety of 2,000 employees in China was a priority for the group, which had re-opened its offices on Feb.10 after a week-long closure. Staff could work from home and those who wanted to return to work were wearing masks.

Pernod Ricard is assuming a gradual recovery in bars and restaurants from March in China, its second largest market after the United States, and a return to normal in June, with a recovery in March in spirits sales from stores.

“Our mid-term ambition remains intact. Fundamentals in China are extremely solid,” Ricard said.

China accounts for around 10% of sales at Pernod Ricard, which has been banking on a growing middle class and young population to grow sales at a high single digit to low double digit rate, after 21% sales growth there last year.

The coronavirus outbreak, which has killed more than 1,300 people in China, has hit tourism, retail and airport duty-free sales. Pernod Ricard expects a gradual sales recovery from April in its Travel Retail Asia and a return to normal in June.

SHARES RISE

Pernod, under pressure from U.S. hedge fund Elliott to improve profit margins and corporate governance, said it is now targeting an organic rise of 2% to 4% in profit from recurring operations for the year to June 30, 2020, compared with a previous forecast of 5% to 7%.

The group posted forecast-beating first-half results, helped by cost cuts and shipments tied to the earlier timing of the Chinese New Year, driving its stock 1.9% higher by 1033 GMT.

“The downgrades from the coronavirus could put some pressure on the shares though the better Q2 2020/H1 2020 showing should please,” JP Morgan analysts said in a note.

Pernod Ricard said first-half profit from current operations reached 1.788 billion euros ($1.9 billion), an organic rise of 4.3%, above analysts’ expectations for a 3% increase.

Sales reached 5.474 billion euros in the six months to Dec. 31, an organic rise of 2.7%, which was also above analysts’ expectations for 2.1% growth.

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This reflected an 11% rise in revenues in China, driven by double-digit growth in Martell sales in the second quarter.

Lost sales in China, which credit rating agency Moody’s said consumes 26% of global alcoholic beverage volumes, and from the Asia travel retail market could cut 2% off Pernod’s 2020 sales and 3% from its profit from recurring operations.

Asia Pacific is a key growth driver for Pernod Ricard, which accounts for 44% of its sales.

Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta, Jan Harvey and Alexander Smith

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