DRINKS giant Pernod Ricard has admitted its Scotch whisky business is “still suffering” in China, despite the growth of Cognac sales stabilising its overall position in the lucrative market.
The owner of Paisley-based Chivas Brothers highlighted its steady recovery in the world’s second biggest economy as it served up a four per cent rise in profits from recurring operations at €1.5 billion (£1.28bn) at the half-year stage, ahead of consensus.
Pernod reported organic sales up four per cent to €5.01 billion, driven by growth of five per cent in the US, the world’s most valuable market for Scotch whisky. However growth slowed in India amid the ongoing depreciation of the rupee.
Alongside Diageo and Remy Cointreau, Paris-listed Pernod has come under pressure in China since government officials ushered in austerity measures in 2012. Luxury Cognac and Scotch whisky have been particularly affected. But recent updates have suggested the market is beginning to bounce back. Diageo signalled it has reached the bottom of the downturn in China when it unveiled its first half results last month, flagging that it was now optimistic about its fortunes in the market.
However, Pernod’s results for the half year were boosted by the recent Chinese New Year celebrations. Adjusting for the event, Pernod said its profit from recurring operations had grown by three per cent over the period.
Additionally, not all parts of the Pernod portfolio have returned to full health in China. While sales of Martell Cognac were up 10 per cent in China, and all other brands in growth in the market, the company admitted its Scotch whiskies are “still suffering”.
James Edwardes Jones, an analyst at Royal Bank of Canada said: “China – always slightly nerve-racking with Pernod Ricard – did ok, with sales up four per cent in H1, a notable acceleration from -1 per cent in Q1. That said, H1’s performance was flat after adjusting for the timing of Chinese of year. In contrast to Diageo, Pernod Ricard’s main Scotch brand, Chivas, performed un-inspiringly with sales -1 per cent, but sales of Martell rose by seven per cent, driven by 10 per cent in China.”
Analysts at Societe Generale added that China was now at an “inflexion” point for the drinks firm. Its analysts said that although the country was now a “stable market” for the company, the impact brought by the Chinese New Year celebrations “flattered the numbers”.
Highlighting the performance of its individual brands, Pernod said sales of Chivas Regal were down one per cent. It said challenging market conditions in China and Brazil were “tempered” by a strong performances in the UK, France and Spain. Ballantine’s saw six per cent growth, driven by an eight per cent uptick on Ballantine’s Finest and progress in Russia, France and Poland, as well as South Africa. Sales of Royal Salute were up three per cent, driven by India and Taiwan, though sales of The Glenlivet were flat.
Alexandre Ricard, chairman and chief executive officer at Pernod Ricard, said the distiller expects to lift profit from recurring operations for the full year by two and four per cent, in line with guidance. He said: “Our half-year results are strong, delivering a continued performance improvement. Our strategy remains consistent and is driving results.”
Pernod completed the acquisition of a majority stake in US bourbon maker Smooth Ambler during the period.
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