Rémy warns China will cause profits to plunge

French drinks group Rémy Cointreau has warned that its full-year operating profits will plummet 35-40% as China continues to crackdown on extravagant spending.

Rémy Cointreau has warned that its full-year profits will plunge up to 40% due to China’s continuing campaign of austerity

The announcement comes as the group, producer of Rémy Martin Cognac and Mount Gay rum, reveals its full-year net sales for 2013-14 dropped 13.5% overall to 1.03 billion.

In particular, sales of Rémy Martin, which accounts for almost three-quarters of the group’s total sales, fell 23%.

This was blamed on the destocking of the spirit in China as the country’s government continues its campaign of austerity and anti-gifting measures in order to counter claims of corruption.

Overall, organic sales dropped 35% in the Asia Pacific markets from 2013-14, reflecting similar difficulties today admitted by Diageo in the region.

A statement from the company read: “Rémy Martin was adversely affected throughout the financial year by the Chinese government’s anti-extravagance policy, which had a negative impact on the consumption of premium spirits.

“Furthermore, the decline in sales was intensified by the group’s desire to reduce inventory levels in its Chinese distribution channels. This effort gathered significant momentum during the second half of the financial year.”

The group had previously revised its profit forecast for 2013, but this recent announcement demonstrates further difficulties, raising the forecasted 20% decline to up to 40%.

However, a better performance was noted in the US, which experienced a 7.7% organic sales increase. Russia, Japan and Africa also reported strong growth.

Other liqueurs and spirits brands in the group’s portfolio, such as Cointreau liqueur, Mount Gay rum, St Rémy brandy, and Bruichladdich single malt Scotch, sat stagnant.

As a result of this disappointing financial result, Rémy Cointreau has revised its earnings outlook for 2013-14, predicting “significant double-digit decline” of up to 40%.

This recent announcement exceeds previous anticipated declines by Remy Cointreau.