French spirits group Pernod Ricard reported a bigger-than-expected decline in third-quarter sales but said it was confident of delivering a strong performance over the 2022/2023 full year, predicting "very strong" sales in the fourth quarter.
Details
Pernod, the world's second-biggest spirits group after Diageo DGE.L, said that it expected consumer demand to recover further in China following the lifting of COVID restrictions.
It also banked on more favourable comparables in the United States and in China, where it planned further price increases.
Finance Chief Helene de Tissot told Reuters the group was "very confident" about prospects for demand for its premium Martell cognac in China in the fourth quarter of its fiscal year after a March rebound. Price increases planned for Martell in China in May would be in a mid-single to high-single digit range, she said.
The owner of Mumm champagne, Absolut vodka and Martell cognac predicted organic growth of about 10% in group profit from recurring operations in its full financial year ending June 30, with some expansion in operating margin.
"We keep increasing our prices. It gives us confidence we can protect gross margins," Tissot told analysts.
While cost inflation was expected to stay high in the final quarter of the fiscal year, logistics and distribution costs would moderate, she added.
Pernod Ricard reported sales of €2.391 billion in the three months to March 31 - a 2.2% decline on a like-for-like basis, which was below analysts' expectations of 0.5% growth.
The third-quarter performance reflected high year-ago comparables in the United States and inventory adjustments after soft demand for Martell cognac during the festive season in China. Martell sales, however, rebounded strongly in March, it said. Group sales for the nine-months reached €9.507 billion, a like-for-like rise of 7.6%.
In the key growth market of India where sales rose 15% in the nine months, Pernod Ricard remained "very ambitious for the short and long term" despite the regulatory challenges it faces.
Pernod was "hopeful" it would obtain the renewal of a liquor sale licence in New Delhi, that city authorities had rejected earlier this month.
FACTBOX-French Spirits Giant Pernod's Challenges In India
The above news was followed by news that from tax notices to allegations of illegally boosting market share, French liquor giant Pernod Ricard faces business and regulatory challenges in India, which it says is "among the top three must-win markets".
The maker of Chivas Regal and Absolut vodka is the second-largest spirits company globally and in India. It accounts for 17% of the alcohol market by volume in India, where its competitors include Diageo, IWSR Drinks Market Analysis says.
* LEADERSHIP CHALLENGE
Pernod Ricard's managing director for India Paul-Robert Bouhier resigned from his position, a decision that sources said was announced internally on April 26.
Bouhier only took over the India job in January. He joined Pernod Ricard in 1995.
* DELHI CITY INVESTIGATION
Pernod has since last year been under scrutiny from India's Enforcement Directorate as part of an investigation into how retailers, manufacturers and politicians allegedly colluded to illegally profit from the 2021 auction of liquor retail licences in New Delhi.
The capital city's liquor policy prohibited manufacturers from participating in retail sales, directly or indirectly. Pernod was "in contravention" as it effectively used bank guarantees to invest in retailers, the agency says.
The agency also accuses Pernod of illegally making profits of $23 million by giving false price information to Delhi authorities.
Pernod has strongly denied the allegations.
* SHUT OUT OF DELHI MARKET
New Delhi city authorities in April rejected Pernod's application to renew its liquor sale licence, citing ongoing investigations into the company. Pernod told a Delhi court it has been "suffering massive losses" as its brands have not been available in the city for six months.
Pernod has challenged the rejection and says it is "keen to restart supplies as soon as possible".
* FEDERAL TAX DEMAND
Pernod faces a nearly $250 million federal demand for allegedly undervaluing imports for over a decade to avoid full payment of duties.
India's customs authority in a court filing last year called the company a "habitual litigant" and accused it of a conspiracy "to defraud the Government of India of its legitimate revenue".
Pernod, which challenged the demand, says it has "always endeavoured to act with full transparency" and complies with all local laws.
* IMPACT ON INVESTMENTS, BUSINESS
Pernod says that since 1994, its tax disputes have made it tough to do business in the country.
In a letter written to Prime Minister Narendra Modi in 2021, the company said that "ever-lasting litigation has been a big strain on our ease of doing business and has inhibited fresh investment by our group headquartered in Paris (France) for expansion of business in India".
In July 2022, Pernod wrote a letter to the federal tax authority saying it was "facing significant business continuity challenges" and that operational challenges were choking its supply chain.
* HIGH IMPORT TAXES
India's alcohol market is heavily regulated and Pernod - like much of the industry - has been concerned about the 150% tax on imported liquor.
In April last year, the company urged the government to drop the tax it said poses a "large challenge" for Pernod Ricard and puts many of its drinks out of reach of consumers.
Pernod's revenue from operations in India stood at $2.4 billion in 2020-21, but taxes and duties - which include federal, import and state levies - accounted for 79% of that. Its India net profit for the year stood at $130 million.
Read More: Pernod Ricard Eyes More Price Hikes In Second Half, Confident On China
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