Has Remy Cointreaus China crisis got further to run?

Has Remy Cointreau's China crisis got further to run?

The hangover for Remy Cointreau in China is set to last longer than one analyst had expected, with the company maintaining that Chinese New Year in 2014 will be "key".

Earlier today (18 July), the French company posted a slight fall in first-quarter sales, with "one-off factors in China" being blamed for the slip. Authorities in the country introduced a clampdown on gifting to civil servants and a ban on alcohol at luxury banquets late last year.

The ban has hit international spirits companies particularly hard, especially Pernod Ricard and Remy Cointreau, as Cognac has borne the brunt.

Following Remy's results announcement, Melissa Earlham at UBS Investment Research suggested that the company's Chinese malaise ran deeper than she had forecast. "De-stocking in China was more severe than anticipated," said Earlham in a note to clients, "and is expected to continue into Q2FY and be completed by September/October – longer than we had thought."

Meanwhile, Ian Shackleton at Nomura noted that the company is targetting next year for a full turnaround. "The company sees next Chinese New Year as key, but has not put a timetable in place for any recovery in depletions," he said.

Shackleton also suggested that Remy has "material firepower" for further M&A activity, with access to up to EUR1bn. "(Remy) has ruled out a further Scotch deal for now, and has fairly narrow criteria for future acquisitions (must be high value), which may make it difficult to achieve," Shackleton said.

Remy completed its purchase of Scotch whisky producer Bruichladdich for GBP58m (US$90.3m) last year.