Pernod Ricards Martell on fire in China

Pernod Ricard's Martell on fire in China

Pernod Ricard's CEO has said that China's thirst for Cognac and Scotch whisky will soon see it overtake the drinks giant's native France to become its second largest market in 2011. 

Pernod Ricard today (17 February) raised its profits guidance after reporting a 7% rise in like-for-like sales for the six months to the end of December.

A 32% leap in Martell Cognac sales, driven by China, led the group's performance. Its Scotch whisky brands Chivas Regal, Ballantine's and Royal Salute, also performed well in China, where Pernod claims to constitute around 50% of the Scotch whisky market by volume.

Pernod's CEO, Pierre Pringuet, told journalists that China is on-course to become the company's second biggest market in terms of net sales, behind the US. "China is soon going to rank higher than France," Pringuet said during the group's results press conference in Paris. "It could happen maybe this year," he added.

China accounted for 9% of Pernod Ricard's net sales in the half-year period. France accounted for 10% of the group's net sales in its last fiscal year, to the end of June 2010.

Chinese consumers' thirst for premium drinks shows no sign of abating, according to Pringuet.

"Obviously there will be ups and downs, but, in the forseeable future, I believe that the expansion of China will continue," he said, adding: "We don't sell any standard brands in China. Chinese consumers are very demanding." The group claims to constitute 41% of China's Cognac market by volume.

Despite the country's strong potential, Pernod said today that it expects sales in China to slow in its second half. For one, the earlier timing of Chinese New Year skewed high-end Cognac sales towards the first half, unlike last year.

Pringuet said that slower momentum in China will take some of the shine off Martell, in particular. "Our [Martell] sales will increase by 20% over the full-year, rather than 32% we achieved in the first half of the year," he said.

Pernod's share price dropped by around 4% in early trading today, after the group narrowly missed most analysts' estimates for earnings before interest and tax. However, many analysts remained upbeat on the Absolut vodka producer's prospects.

"These results clearly demonstrate strong trading momentum and operational leverage," said Evolution Securities in a note. Analyst group Sanford C Bernstein added: "We note that organic results were much better than Diageo at the top and bottom-line, particularly in Europe."

Pernod's net profits rose by 10% for the half-year, to EUR666m.