Remy Cointreau's profits boosted by China's thirst for cognac

[PARIS] Remy Cointreau achieved higher-than-expected annual profits, helped by strong demand for its premium cognacs in China, and predicted more earnings growth this year.

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

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

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

The private consumption of drinks and spirits has been recovering in China, offsetting the impact from the country's anti-corruption crackdown over the past few years which had hit sales of premium brand drinks.

Remy Cointreau added it aimed to increase operating profits on a like-for-like basis in the current financial year that started on April 1.

Operating profits for the year ended March 31 rose to 236.8 million euros (S$371.1 million). This translated into a margin of 22 per cent of sales at constant exchange rates and scope, marking a gain of 1.3 percentage points from the previous year.

This was above the consensus of analysts' forecasts for profits of 235.5 million euros, and a prediction for organic profit growth of 12.9 percent.

Remy Martin cognac, which makes 86 per cent of group profits, achieved a margin of 26.9 per cent of sales, representing an organic increase of 1.3 percentage points.

Demand was strong in Greater China, Singapore and Japan as well as the United States, Russia, and in travel retail outlets.

Remy Cointreau said it now expected a cumulative increase of 2.4-3.0 percentage points in current operating margin on a like-for-like basis, up from a previous target of 0.8-1.8 points, for the financial years up to 2020.

Remy Cointreau's stock market valuation is closer to that of many luxury good stocks, rather than food and drinks stocks.

Its shares, up some 10 per cent so far in 2018, trade at 38.6 times on their 12-month forward earnings (P/E), compared to P/E ratios of 23.4 for Pernod and 21.9 for Diageo.

REUTERS