Why Remy Cointreau is hoping Chinese history doesn't repeat itself – analysis

Everything in Remy Cointreau's garden is coming up roses at the moment, but the group has been here before. What chance, then, that the spirits company's sales take another buffeting out east, as was the case earlier this decade?

This week, Remy Cointreau posted a near-8% increase in sales from its fiscal-2019. The performance marked a second consecutive year of circa-7% top-line growth, cementing a recovery after the dark days of 2014 and 2015, when the international spirits segment in China took an administration-led battering.

The introduction of an anti-corruption programme by President Xi Jinping in late-2012 hit Remy hardest among the international spirits community. Since then, the group has recalibrated its efforts in the country to such an extent that, according to analysts at Barclays this week, Remy's Louis XIII Cognac brand is posting annual growth in the country of around 35%. Indeed, Barclays estimates the marque accounted for 30% of the company's total sales in China in fiscal-'19.

"We estimate that the brand will make up 35% of sales in full-year 2020 and will be key for Remy's continued growth in the region," Barclays' analyst team wrote in a client note this week.

Will the good times continue? According to Barclays, it seems likely, with the bank's analysts forecasting a 3.4% rise in group sales in its next fiscal year, before kicking on in fiscal-2021 to an estimated 7.9% rise.

A year ago, Xi removed term limits for the post of president in China. Aged only 65, we can expect him to carry on in the role for the foreseeable future: some political observers have gone as far to position Xi as the most powerful leader since Mao Zedong.

A possible cloud on the horizon, then, is that Xi takes another swing at high-living in the country. "Risks to the downside include a sharp downturn in high-end Cognac in China through … political revamp of the bribery investigations," Barclays warns.

Trevor Stirling at Bernstein concurs: "A new wave of anti-extravagance measures from the Chinese Government could depress demand for superior Cognac," he writes in his client note this week.

As Xi consolidates his position, Remy and its international spirits peers would do well to remain wary.

Remy Cointreau performance trends 2013-2017 - results data

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