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Pernod Plunges as China Extravagance Crackdown Softens Sales

Pernod Ricard SA (RI), France’s biggest distiller, slumped in Paris trading after reporting “softness” in revenue over Chinese New Year, an important festival for sales of high-priced cognacs and whiskies.

Pernod shares fell 4.4 percent, the most since Sept. 5, 2011, after Pierre Coppere, who heads the Paris-based company’s Asian unit, said he expected Chinese sales in the nine months through March to show “double-digit growth, albeit at the lower end.” The maker of Martell cognac reported that first-half organic sales gained 18 percent in China.

Coppere, speaking today on a webcast with analysts, said the distiller still saw “high single-digit volume growth” over Chinese New Year for Martell cognac, but that demand for whisky was affected by measures implemented by China’s new government to limit excessive gift-giving and banqueting.

Distillers including Pernod and Remy Cointreau SA (RCO) have benefited from demand for their higher-priced spirits in China, particularly cognac, as sales growth becomes tougher to achieve in the straitened economies of Europe. Chinese President Xi Jinping has been cracking down on extravagant gift-giving and feasting by businessmen and government officials.

Pernod shares declined 4.43 euros to 95.57 euros. Remy, the maker of Remy Martin cognac, declined 2.2 percent. Diageo Plc (DGE), which has an alcohol joint venture in China with LVMH Moet Hennessy Louis Vuitton SA (MC), slid 1 percent in London.

‘Great Potential’

“Asia offers great mid-term growth potential, but China’s recovery could actually take a little bit more time than the market expects,” Laetitia Delaye, an analyst at Kepler Capital Markets in Paris, wrote today in a note. “We think this could continue to weigh on Pernod’s business trends for a few months before seeing volumes -- and more importantly, pricing power -- coming back.” Delaye has a hold rating on Pernod.

Pernod, which claims it’s the biggest seller of cognac in China, said it can still raise the price of the spirit in the country, even as the decline in gifts and banquets drags on sales of higher-end alcohols. Cognac suffered less than whisky over Chinese New Year as it has a “much deeper, larger penetration” in the country, Coppere said. Whisky sales declined by a “double-digit” percentage, he said.

To contact the reporter on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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