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An employee holds a glass of cognac at the Remy Martin distillery in Cognac, southwestern France, October 8, 2012. As overall cognac sales have recovered from the 2008/09 downturn, discerning Chinese looking for an aspirational tipple are causing a surge in shipments of Remy Martin's 2,500-euro Louis XIII cognac and other deluxe spirits. The trend is good news for Remy Martin, which is much more focused than its rivals on high-end brands, and suggests that a slowdown in China's overall economic growth rate may not dampen the country's appetite for some luxury goods, even if some sectors have sounded warnings. To match Feature COGNAC-REMY/ Picture taken October 8, 2012. REUTERS/Regis Duvignau
Reuters/Regis Duvignau
The glass is not half full.
LOW SPIRITS

Rémy Cointreau went on a bender in China and now it has a hangover

China
Gwynn Guilford
By Gwynn Guilford

Reporter

The numbers: Grim. For the six months ended Sep. 30, 2013, Rémy Cointreau’s net sales were €558.0 million ($756 million), down 3.6% on the same period the previous year, when accounting for exchange-rate fluctuations. This is hasn’t yet gnawed into the French alcohol conglomerate’s margins, though. At €132.7 million, operating profit was down 7.3% compared with Apr.-Sep. 2012, but margins stayed roughly steady at 23.8% of sales.

The takeaway: ”Strong momentum in the US and Europe… did not offset the slowdown recorded in China,” said the group in its earnings statement. Mind you, that’s not exactly surprising. Yesterday, we touched on how China’s dragging down earnings for everyone from Coca-Cola to Corning. But it’s worse for Rémy Cointreau, since it’s not just the good ol’ “China slowdown” that’s hurting sales. A government crackdown on extravagance has targeted the gift-giving culture whose choice currency was fancy spirits. Sales of Rémy Martin, the company’s ritzy brand of cognac and a Chinese cadre fave, fell 11.7%. That’s bad given that Rémy Martin typically contribute around nine-tenths of the group’s operating profit. Will China’s austerity campaign let up any time soon? Not likely, says China expert Bill Bishop. “Remember those claims this campaign couldn’t last?” he wrote on his Sinocism blog earlier today. “It actually seems to be intensifying, almost a year into it.” At least the company isn’t deceiving itself. “We don’t expect any short-term change in this situation as far as governmental measures are concerned,” it said in today’s earnings call.

What’s interesting: As if the company didn’t have enough China headaches, it’s also struggling with its 27% stake in Dynasty Fine Wines, a Chinese winemaker that has failed to cough up paperwork after warning shareholders in Feb. 2013 of a loss for 2012. Rémy Cointreau recognized an impairment charge of €10.9 million for Apr.-Sep. 2013, adding to the €15.9 million it accepted for the prior half-year. The company says it hasn’t been able to see Dynasty’s financial reports for 2012, nor its 2013 interim results. ”So we can’t do anything. We’re in there, we can’t get out, we can’t get in. We have to wait until the investigation is complete until the results of the audit will be published,” said a company representative said in the call, according to an unedited FactSet transcript. “[W]e don’t have access to the accounts because everything is blocked by this investigation.”

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