Rémy Cointreau’s Profit Is Hit by China Slowdown; Beijing’s Measures to Scale Back Gift Giving Hurt Drinks Makers

Rémy Cointreau’s Profit Is Hit by China Slowdown

Beijing’s Measures to Scale Back Gift Giving Hurt Drinks Makers

RUTH BENDER

Updated Nov. 26, 2013 2:18 p.m. ET

PARIS—After years of steady growth, Rémy Cointreau

SA RCO.FR -8.31% warned that China’s crackdown on extravagant gifts is set to hit the company’s profit sharply this year and dent sales for some time, the latest sign of how major liquor makers face broad fallout from the shift in policy. The French company has suffered along with rivals in recent quarters as the Chinese government has scaled back on sponsored banquets and gift giving, which for years had propelled sales of high-end spirits and other luxury goods.“The situation in China is clearly weighing on our outlook,” Chief Executive Frederic Pflanz said Tuesday during a conference call with analysts. “We do not expect any improvement in the Chinese market in the coming months.”

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Rémy Cointreau said it expected that current operating profit would drop at least 20% for the year ending March 31. The warning battered its shares and those of rivals such as Pernod Ricard

SARI.FR -2.60% .

“The group is being very cautious for the 2013-2014 year,” Christine Ropert, an analyst with Gilbert Dupont, wrote to investors. Analysts had expected Rémy Cointreau to predict flat growth.

Mr. Pflanz said sales in China proved disappointing during key events recently, such as the midautumn festival, and that he didn’t expect the coming Lunar New Year sales season to be positive.

Rémy Cointreau’s warning came a month after Pernod Ricard said the situation in China will weigh on profit for fiscal 2014, highlighting how companies increasingly are running into obstacles in a market that had been one of their brightest hopes. Diageo DGE.LN -1.60%PLC also has flagged the shift in Chinese government policy as weighing on sales.

Rémy Cointreau over the past years has posted double-digit increases in full-year operating profit, boosted mainly by strong demand for ultraexpensive cognacs and other spirits in China.

Despite the current slowdown, Rémy Cointreau continues to invest in high-end drinks, marketing and promotional activity in China to be ready for when growth returns to normal, Mr. Pflanz said. “We are confident China will still grow in the medium and long term,” he said.

Rémy Cointreau said net profit fell 20% to €69.3 million ($93.7 million) for the six months ended Sept. 30 from €86.6 million a year earlier. Higher charges also weighed on the company’s results.

Operating profit fell 6.2% to €132.7 million from €141.5 million, hurt by slowing cognac sales in China. Operating profit for the Rémy Martin cognac brand declined 12% after years of double-digit growth.

The company last month posted a 6.3% drop in sales for the half as strong growth in the U.S. couldn’t offset the slowdown in China. Part of the decline stemmed from Chinese retailers getting rid of large inventories after disappointing sales during this year’s Lunar New Year, a phenomenon that is set to continue through Rémy Cointreau’s third quarter.

Shares in Rémy Cointreau fell 8.3% to €66 in Paris. Pernod Ricard’s share price sank 2.6% to ¥84.33.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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