China pain hits Remy Cointreau's first-half profit

[PARIS] French spirits group Remy Cointreau reported a 14.6 per cent fall in first-half current operating profit on Thursday, as a Chinese government crackdown on ostentatious spending slammed demand for its premium cognac.

The maker of Remy Martin cognac, Cointreau liqueur and Mount Gay Rum said that while the global economic climate remained"mixed" it was sticking to its forecast of delivering organic growth in full-year sales and operating profit.

Like its global rivals Diageo Plc and Pernod Ricard , Remy has been hit by a Chinese government crackdown on gift-giving and personal spending by civil servants, as well as slowing economic growth in the world's second-biggest economy. All three have however forecast improving sales this year.

Current operating profit for the six months to September 30 reached 102.1 million euros (US$127.7 million), down 14.6 per cent like-for-like from a year ago. It however was above analysts'expectations for 89 million euros in operating profit, according to a Thomson Reuters I/B/E/S poll.

The decline reflected destocking efforts in China, notably in premium cognac, and a rise in commercial expenses to beef up the group's distribution network, Remy said in a statement.

Remy Cointreau's focus has been on deluxe drinks like Louis XIII cognac, which sells for 2,500 euros a bottle. This has made it more vulnerable than its rivals to China's crackdown.

Cognac represented 59 per cent of Remy's sales in the first-half and 76 percent of its operating income, with China accounting for roughly half of that chunk of profit.

The China slowdown contributed to a 27.7 per cent fall in first-half operating profit for the Remy Martin cognac division, to 78 million euros.

Remy's liqueurs and spirits division, where operating profit jumped 44.6 per cent in the first half, was a bright spot as Cointreau sales grew in the United States and in key European markets. The Metaxa liquor had double-digit sales growth and the Bruichladdich Scotch whisky doubled its sales, Remy said.

REUTERS