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UPDATE 2-Remy Cointreau profits up as China regains taste for cognac
June 8, 2017 / 6:38 AM / 4 months ago

UPDATE 2-Remy Cointreau profits up as China regains taste for cognac

* Predicts further profit growth in FY 17/18

* Raises medium-term profitability goals

* Looks to raise prices on Louis XIII, Remy Martin cognacs (Recasts with CEO comments, shares)

By Dominique Vidalon

PARIS, June 8 (Reuters) - Remy Cointreau achieved higher-than-expected annual profits and predicted more profit growth this year after Chinese customers regained a taste for its premium cognacs, sending its shares to a record high.

The maker of Remy Martin cognac and Cointreau liqueur, said its strategy of selling higher-priced spirits to boost profit margins was delivering faster-than-expected results, and the company raised its medium-term profitability forecasts.

Remy Cointreau has been focusing on selling spirits priced at $50 a bottle or more, as part of a strategy that has benefited from a rebound in Chinese demand.

“The business is back in China, especially in the high-qualities,” Chief Executive Valerie Chapoulaud Floquet told a news conference.

Remy’s strategy differs from that of rival Pernod Ricard , which has launched less expensive brands in China.

For its current financial year, which started on April 1, the group will boost spending on advertising and promotion to develop its Cointreau brand in a number of countries, including Russia, China, the United States, France, Britain, and Australia.

“We are very confident on Cointreau. We need to invest. We need to polish the diamond,” she said.

RECORD-HIGH

Remy’s operating profit for the year ended March 31 rose to 226.1 million euros ($254.50 million), representing growth of 13.8 percent.

This was above the company-compiled consensus of analysts’ forecasts for a profit of 211.5 million euros, and above a prediction for growth of 10.6 percent.

“The high-end nature of Remy’s portfolio means the group benefits from rebounding spirits consumption in China and trading-up trends in global spirits” Liberum analysts said.

They said Remy’s valuation looked quite stretched versus its spirits rivals and are keeping their “sell” recommendation.

By 1016 GMT, Remy shares were up 1.88 percent at 99 euros, after touching a record high of 103.45 euros earlier in the day.

Its earnings were boosted by robust sales in the United States and in China of higher-priced spirits such as Louis XIII cognac, which sells for $3,000 a bottle, and Remy Martin cognac.

Chapoulaud-Floquet said business at its Beijing store dedicated to Louis XIII cognac was “very solid” ten months after its opening. Overall, the group was looking at price increases for Louis XIII and Remy Martin cognacs globally, she said.

“At $3,000, when compared with other luxury goods, it’s a good deal,” Chapoulaud-Floquet said of Louis XIII.

Remy Cointreau, Pernod and British drinks group Diageo have all faced pressure on sales in China following a crackdown on luxury gift-giving and personal spending by Chinese civil servants.

Remy shifted its focus to the United States, which is now its top market for cognac, but demand in Greater China has come back, with sales up in double-digit terms for 2016/17.

In June 2015, Remy Cointreau had said its strategy to sell higher-priced spirits would drive its current operating margin to 18-20 percent of sales by 2020.

Having reached a margin of 20.7 percent of sales in financial year 2016/17, Remy Cointreau said it now expected a margin of between 21.5 percent and 22.5 percent by 2019/20.

It reiterated a target that high-end spirits would make 60-65 percent of its sales by 2020 from 51 percent now.

($1 = 0.8884 euros)

Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Jane Merriman

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