Remys Cognac is still finding profits

Remy's Cognac is still finding profits

What China giveth, China also taketh away, was the lesson for Rémy Cointreau in its full-year results this week.

The company has benefited more than most from the country's thirst for high-end Cognac and now generates 40% of its operating profits from Cognac sales in China, according to the Financial Times. And what riches there have been. Last year's operating profits jumped by 25% to crack the EUR200m barrier while this year saw a further 18% hike.

All would appear rosy in the Rémy garden, and the FT quoted analysts praising the “resilience of the Cognac category in Asia”.

Executives were also upbeat, as is their nature - “Underlying growth in China is still there,” said finance head Frederic Pflanz.

Admittedly, CEO Jean-Marie Laborde did acknowledge not everything in China was going Rémy's way, with the crackdown on gift giving hampering luxury sales and inventory issues from a weak Chinese New Year affecting wholesaler shipments.

But Laborde made sure he stayed clear of the word “slowdown”, opting instead for “soft” and “lacklustre”.

Others were not so constrained. “We know that the top end of the Chinese market has been hardest hit by the slowdown and almost certainly that has put a bit of a squeeze on margins in the second half on China,” Bernstein analyst Trevor Stirling said, raising concerns over Rémy's high-value Cognac such as Rémy Martin's Louis XIII.

According to Stirling, Rémy Martin's fiscal H1 operating margins grew by 2.1 percentage points, while H2 margins fell back by 1.2 percentage points, leading to the conclusion that Rémy's continuing profits jumps are now being fuelled by lower prices instead of higher sales.

Rémy's problems don't end there, however. The Paris-based firm confirmed that Famous Grouse-maker Edrington is to end a 28-year distribution agreement for its brands in the US, at an estimated cost to the company of EUR1.5m. Its St Rémy brandy brand has also lost a valuable ally in the shape of EU subsidies, leaving it far more exposed to the vagaries of the US market it is mainly sold in.

So should Rémy be worried? Here's Laborde to answer that question. "I am not at all worried about the future of Cognac and whisky in China," he told a press conference.  

So far, so unequivocal. 

But with some analysts predicting the slowdown could last beyond the end of the year, Laborde's certainty may not be so absolute in private.