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Pernod Ricard slashes profit predictions due to Covid-19

French drinks group Pernod Ricard has said that the Covid-19 outbreak will have “widespread repercussions” on business, and expects operating profit to fall by 20% in FY20.

In a statement published yesterday, Pernod Ricard updated its original guidance on the Covid-19 pandemic which it had posted on 13 February.

The company had initially expected that the virus could cause a 2% fall in its FY2020 sales.

However, it said that there had now been “significant evolution” with the disease now causing disruption in the Asia Pacific, Europe and the Americas.

To fight the outbreak, the drinks group has converted a number of its production sites to the production of hand sanitiser and has also donated pure alcohol to sanitiser producers to help ease shortages.

The group now expects that its organic profit from recurring operations will fall by 20% this year.

In China, it has conducted very limited business in February and March, and is predicting a slow recovery from April.

The travel retail sector has been particularly hard hit, with a predicted 80% decline in business from February to the end of June 2020.

In other markets, Pernod Ricard is expecting a 10% reduction in performance in the off-trade from mid-March to the end of June.

The on-trade, however, has effectively shut down, with no sales from mid-March to the end of June as outlets have closed.

The group said that the health and safety of its employees and business partners remains its primary concern.

The drinks group repaid a bond of €850m plus interest on 23 March. It’s next significant bond redemption of US$1 billion is due in April 2020.

Pernod Ricard says it has €3.4 billion of credit lines secured with banks, of which it has drawn €0.3 billion.

Alexandre Ricard, chairman and chief executive officer, said that while the situation had “very significantly deteriorated” since the company’s last statement, he was confident in Pernod Ricard’s “ability to bounce back and its growth potential”.

He added: “Our business model and strategy are resilient. Our three-year plan Transform & Accelerate has been very successful, as demonstrated by the FY19 and H1 FY20 results, and will continue to positively impact the business as we move through the Covid-19 crisis.

“We are encouraged to see that, thanks to the implementation of strong measures, China appears to be starting to make a gradual recovery. While we cannot predict the duration and extent of the impact, we remain confident in our strategy. Our priority is to ensure the health and safety of our employees and business partners.

“I would like to praise the exemplary behaviour of our teams during this very difficult time. With the revised assumptions linked to Covid-19, we are providing guidance of an organic decline in Profit from Recurring Operations for full-year FY20 of c. -20%. We are staying the strategic course while implementing a comprehensive action plan to mitigate costs.”

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