Chairman & Chief Executive Officer, Pernod Ricard SA
Pernod Ricard Chairman Talks Sale of Premium Spirits | Bloomberg Talks
Pernod Ricard Chairman/CEO Alexandre Ricard speaks on the declining demand for premium spirits and future outlook for the company with Bloomberg's Dani Burger
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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 (23 segments)
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Interviewer0:00
Now for Pernod Ricard, shares are falling today. The French maker of Absolut Vodka and Jameson Whiskey expects sales in the U.S. to decline in the first quarter as a boom in demand for premium spirits loses steam. Joining us now from the company's headquarters in Paris is Alexandre Ricard, the CEO of Pernod Ricard. Alexandre, thank you so much for joining us this morning. Look, shares are down about 4.4 percent. I'm sure you're going to tell me that you don't care about one-day price moves, which is fair enough, but what do you make of what seems to be a sense of investor disappointment in this set of results?
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Alexandre Ricard0:34
Listen, I have to say I'm a bit surprised indeed. I don't look at share price day to day, you're right. That being said, coming out of a very strong set of results, very strong performance for the year with double-digit growth, top line 10% organic growth coming from all regions, very broad-based growth coming from basically all our spirit categories with six key spirit categories driving more than 85% of our growth, and very strong as well profit growth with profit from recurring operations growing double digit, 11%, with some margin expansion and a clear protection of our gross margin. So very strong set of results. Maybe markets are currently focused on very short-term deliverables because we did indicate that we were expecting a soft Q1. You mentioned the US. The underlying consumption in the US, just to be clear, is resilient. Then there's phasing and technical issues which will lead us to believe we'll have a soft Q1 in the US, but a positive outlook for the full year in the US, of course.
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Interviewer1:46
How would you characterize the American consumer right now?
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Alexandre Ricard1:50
Well, the American consumer is resilient. I mean, premiumization is still ongoing, although there is a slowdown in the pace of premiumization given the global environment, but at the end of the day we do see a resilience for the American consumer.
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Interviewer2:08
The American consumer trading down or simply buying less? How are their spending habits changing?
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Alexandre Ricard2:16
Spending is still growing. The U.S. market is a four to five percent value growth market on average over time. We've just come out of an amazing period of double that growth rate per annum. So the last three years post-COVID have grown on average for our industry around eight percent. So what we're seeing is a normalization based on a high basis, but the market is still growing. We believe it's growing in the low single digit, maybe around one and two percent, and the real question is the rate of recovery to that longer term trend of four to five percent. So still positive dynamics with a lot of inventory management happening after a couple years of supply chain disruption.
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Interviewer3:06
Can you continue to pass on some of the increasing input prices that you've seen to consumers, or are they kind of hitting a wall here, especially in the United States?
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Alexandre Ricard3:15
Listen, to be fair, inflation has been there. We've been hit by inflation in terms of our costs, and therefore we were driven by price increases to cover for inflation. We do believe, when we look specifically at ourselves, that inflation is going to ease and has started easing, especially regarding transportation, and therefore you should expect a more normal behavior and more normal, I would say, pricing.
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Interviewer3:52
I'm just looking over some analyst notes on your earnings at the moment. One bright spot, at least from Citi, they're pretty excited about this buyback that you've announced for 2024, 500 million to 800 million euros. They said it was unexpectedly large, should soften any blow of other concerns. Talk to me about the upper end of that, the 800 million euros. How ambitious do you see that as being?
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Alexandre Ricard4:11
Well, over the last two years we've done share buyback programs of 750 million. So we just came out of a 750 million share buyback program over the fiscal year '23. We've guided a 500 to 800 million euro share buyback for this current year, which now started. This current year we'll see. We have the flexibility, and as we go through the year we'll see where we end up between 500 and 800 million.
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Interviewer4:46
Alexander, I'm also told by one of our producers that you just returned from a trip in China. What was it like over there? What kind of conversations were you having?
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Alexandre Ricard4:53
Well, listen, first of all, a lot of excitement. I met all our teams in China. They're excited because of the end of the zero-COVID strategy, so therefore they're happy to be a little bit like us now. So we did experience a bit of revenge conviviality starting March, it's fair to say that. And obviously the macroeconomic situation in China has slowed down, and it is having somewhat of an impact on consumer demand, in particular in the late night trade, nightclubs. But we are seeing the emergence of live bars where you have live entertainment. We are seeing the development of the cocktail culture as well. We do expect, because of the environment, somewhat of a soft start for sure this quarter in China. Bear in mind we're lapping a very strong Mid-Autumn Festival last year, which was a record year for us, and a previous year which was even stronger. So we're lapping two years of very strong growth. It was 23% Q1 two years ago, it was 9% again last year. So we do expect a soft Q1.
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Interviewer6:10
I gotta ask, the cocktail culture, what's the favorite drink out there?
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Alexandre Ricard6:16
So listen, you have many, many cocktails because you have mixologists that are really happy to experience all the different cocktails, whether it's based with cognac and the leading brand which is our brand Martell, but as well for instance Absolut Cosmos, you see that as well, and whiskey-based cocktails. So it's basically cognac-based cocktails, whiskey-based cocktails, and vodka-based cocktails.
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Interviewer6:41
Interesting. Let me take you back to the data and the numbers and what you're seeing. You're talking about a soft Q1 expected in China. How long do you think that's going to last? Because what some analysts are telling us is the consumer hasn't really fully felt the impact of some of this housing downturn and some of the weaker data we're seeing out of China.
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Alexandre Ricard7:04
Well, we expect improvement as of Q2, and again in part amplified by favorable comps. So contrary to Q1 where we're lapping a very strong year last year, bear in mind you had lockdowns and COVID impacts in China in our Q2, October, November, December, and then we had a very poor Chinese New Year because the zero-COVID strategy stopped just ahead of Chinese New Year and it was a big mess for Chinese New Year. So we'll have a very favorable comp entering in our Q2 as of October.
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Interviewer7:42
You know, it's not an enormous, it's never been an enormous piece of your business, Russia, but you did get some flack for saying you'd resume market exports to Russia and then kind of did an about-face after there was a bunch of consumer pressure. Talk me through the decision making there. I understand that it's still going to take some time to kind of wind down those operations. What made you do the about-face?
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Alexandre Ricard8:09
Listen, we stopped shipments to Russia last April and we stopped definitively. So we're winding down the inventory, but there's not much left, and we're closing our operations in Russia, which our distribution basically will end up with a rep office. We're well underway with this, and that's basically it. You're either in or out, and in our case we made that decision back in April, May of this year.
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Interviewer8:42
We're in the environment right now here in Europe. We're extremely concerned about stagflation given higher inflation data that's come in and weakening growth. Given your exposure and what you see to the consumer, do you see any hints of that, of undue inflation yet, consumers and an economy that's slowing down or halting at the same time?
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Alexandre Ricard9:03
As well as in Europe, so far delivered, by the way, the last 12 months in Europe have been very strong. Europe delivered 8% net sales growth. This for Europe is quite high, obviously. I don't think this kind of level of growth is sustainable forever, of course, but we do see a resilience. People reserve some part of their discretionary spend to go out and to celebrate together, and because the environment, to be fair, is of course not the most celebratory environment we know for many reasons, but people still want to keep that discretionary spend for their gatherings with family and friends at affordable levels.
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Interviewer9:52
Alexander, before we let you go, I have to say there's one question that I've really been dying to ask, so you've got to forgive me for this one. But it used to be that celebrities would launch perfume, cologne brands. Now it seems like everybody wants to have an alcohol brand, from Clooney to Kendall Jenner. What do you make of that trend? Is that sustainable? Are they making good stuff?
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Alexandre Ricard10:13
Listen, it's a great question. We've always, by the way, had celebrity endorsement for some brands, leveraged some celebrities on other brands, or some celebrities can be actors, can be famous people, can be singers, and so on and so forth. What it does mean is the spirits, the premium spirits industry is so attractive that a lot of people want to get into it. And like in anything, some will succeed and others won't. But bear in mind, it does require a strong expertise in terms of marketing, of course, in terms of execution, in terms of sales execution, and so on.
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Interviewer10:55
Really great to get your thoughts today. That's Alexandre Ricard, CEO of Pernod Ricard.