In the Spotlight - Rémy Cointreau
Champagne and Cognac group Rémy Cointreau watched its full-year sales slip by 11.6% this week as demand for premium alcohol continued to drop. Michelle Russell assesses the group's prospects.
As Rémy joins the growing list of drinks companies decrying destocking by wholesalers, the figures represent the company's final year as a member of the Maxxium distribution venture.
Sales for the 12 months to the end of March fell to EUR714m (US$939.7m). Excluding partner brands, sales fell by 10.5% to EUR633.6m. The company's Champagne sales fell by 9% for the year, despite "satisfactory" growth in Asia and the UK.
In addition to wholesale destocking, the French drinks firm suffered from reduced stocks following its exit from the Maxxium venture.
"This was much worse than expected and fourth quarter sales were really, really bad," Severine Ble, an analyst at Fortis, told Bloomberg. "The exit from Maxxium impacted negatively and the rest is explained by the economic situation."
Rémy exited Maxxium on 1 April, leaving remaining shareholders Beam Global Spirits & Wine and The Edrington Group to form a new distribution partnership. Vin & Sprit, the fourth member of Maxxium, departed last year after being acquired by Pernod Ricard.
Rémy attributed a 41% decline in its fourth quarter revenues to its departure from Maxxium. It also said that around EUR25m of lower sales were due to the company selling less to Maxxium ahead of the changeover, and that EUR25m was due to having to buy back remaining stocks held by Maxxium at the end of that period.
The company remained positive this week, arguing that striking out on its own will give it more flexibility and more control over sales.
Ble, however, disagreed. "It's very risky," the analyst said, arguing that large players like Pernod Ricard have the "necessary muscle", in terms of "experience, brand name and volumes", to pursue a distribution strategy. "It would be far more challenging for a firm like Rémy Cointreau, which is far smaller and has six brands to its name, to do the same," she said.
Rémy is not completely on its own, however.
The partnership will see Rémy Martin, St Rémy, Louis XIII, Charles Heidsieck, Piper Heidsieck, Mount Gay, Cointreau and Passoa added to the First Drinks portfolio. Isolabella sambuca will join the portfolio on 1 June 2009.
The company has also expanded its partnership with Roust Inc, one of the leading premium spirits distributors in Russia. The company added Metaxa, Cointreau, and St Rémy to its existing portfolio of Rémy Cointreau brands.
Still, in the current environment, Rémy's strategy looks like a gamble.
Demand for premium alcohol, including Cognac and Champagne, has dropped in key markets like the US and Russia. This could hit Rémy harder than other firms due to its position as a premium-only drinks producer.
Rémy is predicting a 15% drop in annual operating profits for its most recent fiscal year, while larger rivals Diageo and Pernod Ricard have both predicted operating profits growth, albeit in lower single digits, for their fiscal 2008/09.
Rémy "will continue to face weak US trading for Cognac and Champagne and negative shipments in Russia," Melissa Earlam, a UBS AG analyst, said in a note before the results. She had a "neutral" recommendation on the stock.
Rémy CEO Jean-Marie Laborde remained positive this week. He said the company's new distribution network will enable it to "directly control over 80% of turnover", due to its "own subsidiaries or 50/50 joint ventures".
"Our organisation, which is closer to its markets, now provides the group with the necessary strength and responsiveness to fulfil its top of the range value strategy and positioning," Laborde said.
Investors are not so sure. Rémy's stock has lost a third of its value in the last 12 months and its shares fell 6% EUR18.59 in Paris trading on Wednesday (15 April), following its results announcement.
At that price, could we be heading for more takeover speculation on Rémy over the next year? Diageo is thought to have sniffed around the group in the past.
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