Chairman & Chief Executive Officer, Pernod Ricard SA
Gradual China Recovery May Start in March, Says Pernod Ricard CEO
Feb.27 -- Alexandre Ricard, chief executive officer at Pernod Ricard SA, discusses the impact of coronavirus on business, the main beverage lines that are hit and sector consolidation. He speaks exclusively on “Bloomberg Markets: European Open.” (Corrects month in headline from April to March.)
About Alexandre Ricard
In February 2020, Alexandre Ricard stated that Pernod Ricard assumed a gradual recovery in China would begin in March, with a return to a "somewhat normal situation" by June, excluding Hubei province. He noted that China is the company's second-largest market and that the main beverage lines affected were Martell cognac and Chivas scotch whiskey. Ricard emphasized that the assumptions were not market predictions but were provided for transparency. He also said the company was following local health and safety guidelines and remained focused on delivering its three-year strategic plan, "Transform and Accelerate," which he described as delivering on expectations with diversified growth across regions and brands. Ricard indicated that Pernod Ricard would continue to pursue bolt-on acquisitions and partnerships, as it had done with brands like Malfi gin and Jefferson's bourbon, while also disposing of assets that no longer fit its strategy.
Transcript (14 segments)
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Interviewer0:00
Let me just ask you, you know, how your view of the impact has developed because certainly the market has taken this virus more and more seriously over the last six trading sessions than it did last month.
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Alexandre Ricard0:14
Well, isn't that a couple of weeks ago when we issued our statement, we decided to be extremely transparent in terms of the assumptions we took into account for our business model and therefore for our revised guidance. These were pure assumptions, they are assumptions, they're not market predictions. We don't know what is really going to happen, but we gave enough information to the markets for them to update their models as things develop. And that's what we decided to do given that we don't know what tomorrow is made of.
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Interviewer0:55
So what is the main concern in terms of your drinks? It's not the Ricard pastis that your grandfather invented 70, 90 years ago. What's the main beverage lines that are hit?
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Alexandre Ricard1:09
Well, so far, of course, and based on the assumptions we took, China is our second largest market and it's mainly our Martell cognac and our Chivas scotch whiskey to start with. And our assumption there is a gradual recovery starting during the month of March to get back to somewhat of a normal situation in June, obviously excluding the Hubei province. And second is our third largest market, which is global travel retail, obviously with Chinese passengers that have dropped quite significantly. We're assuming again a gradual recovery starting probably in April to reach something normal by June.
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Interviewer1:58
Alexandre, good morning. You mentioned recovery outside of Hubei province, recovery in March. Do you see signs of that coming yet? Because we heard yesterday some specifics from Diageo about bars being closed, restaurants being closed, about life grinding to a halt. Do you see signs that things are going to be different in March because we're close to March now?
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Alexandre Ricard2:20
Yeah, we're close to March, but for the month of February we assumed everything would be closed, which is the case by the way. So we'll see what happens. You know, these things change on a really daily basis. I think what is important for us is to be fully transparent with the markets, and first and foremost, health and safety for our employees. So we've taken a number of clear measures internally, not just in Asia but globally. And second, to stay roughly committed to deliver our strategic plan. At the end of the day, we need to remain focused on our business as well. And the good thing about Pernod Ricard is that we're very diversified, both geographically to start with Europe, America, and Asia, and as well in terms of brands. You know, I was talking about Martell and Chivas, but we have 13 strategic brands, a lot of brands in a lot of locations.
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Interviewer3:14
But as we see the global spread, China was the focus, now South Korea has become something of a focus, Italy in Europe is now a focus. As you see that global spread, how are you tackling this internally as a business? Do you set up special teams to deal with it? Do you just have to respond in each country as it comes up? And how do you set about game planning what you do?
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Alexandre Ricard3:37
Well, from a pure health and safety point of view, absolutely, that's something we've put in place. We have some strict rules internally, we also follow local authorities guidelines ruthlessly. Then from a purely business point of view, we're still working on delivering our strategic plan, which has nothing to do with COVID-19 of course.
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Interviewer4:04
OK, what are you, speaking of that strategic plan, outside of the coronavirus, what do you see as the revenue streams and profitability of your drinks in 2020?
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Alexandre Ricard4:20
So we're in year two of our three-year strategic plan 'Transform and Accelerate'. What we are seeing is continued diversification of our sources of growth. All regions are growing, all sub-regions are growing. Our strategic international brands are growing, our local strategic brands are growing, our specialty brands are growing. Our wine business is stabilizing based on a value strategy. Our pricing for the second year in a row is pretty strong at 2% pricing. So far, the plan is delivering as expected. Of course there's the current situation, but putting that situation aside, the plan is fully developed and delivering as expected.
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Interviewer5:04
And what about one of your newer shareholders, Elliott Management, of course taking a stake in the business? What meetings have you had? What are they asking for?
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Alexandre Ricard5:11
First of all, they're not new anymore. They've been here for over a year now. And as we do with our other investors, we have ongoing discussions on a regular basis, just as we do with our key other investors. They're not asking for anything different from other investors. Overall, what our investors want to see is a well-run business, continued expansion of our margin, which we are delivering. But at the end of the day, Pernod Ricard is a story of top-line growth, and the fact that we are today, for a second year in a row, growing literally everywhere in terms of regions and preferences, is a good testimony to the successful development of our strategic plan.
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Interviewer5:59
Alexandre, what about M&A? Are there any brands out there that you think you could pick up at a good price right now? If I look at your competitors, Rémy Cointreau, Diageo, Heineken, all of the distillers and brewers have dropped over the past few weeks and months. Does that create an opportunity for you?
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Alexandre Ricard6:23
Listen, we have been quite busy in terms of bolt-on acquisitions over the last 12 months. We've made a series of partnerships and acquisitions with the likes of Malfy gin, Rabbit Hole bourbon, TX Texas whiskey, and Jefferson's bourbon. You should expect to see us continue to be quite active on that front. At the same time, we try to continue to dispose of assets which no longer fit our strategy.