Chinese curbs harm Remy

A CLAMPDOWN in China on extravagant entertaining in a drive against corruption was cutting deeply into sales of brandy, French drinks group Remy Cointreau reported this week, warning of a profit slump.

The company, which owns several brands of spirits, said that group sales slumped 13.5% in the year to March mainly because its Remy Martin brandy had lost favour in China.

The brand accounts for about half of the group’s business, and this is the latest sign of the effect of the Chinese authorities’ campaign against extravagant entertaining and gift-giving.

“Remy Martin was adversely affected throughout the financial year by the Chinese government’s anti-extravagance policy, which had a neg- ative impact on the consumption of premium spirits,” the company said.

The sales fall also reflected the company’s decision to reduce stock levels in its Chinese distribution chain.

Sales of Remy Martin brandy fell 23.4% to à551.2million (about R8-billion) in the year. Group sales fell to à1- billion.

Big players in the luxuryproducts business have reported being affected to some extent by a change in purchasing patterns in China, notably Swiss makers of expensive watches, which were popular as gifts.

Remy Cointreau warned that the sales fall was likely to have a big negative effect on its underlying profits for the year to March.

The family controlled company said it was sticking to its forecast that current operating profit would show a significant two-digit fall, signalling that this could amount to 35%-40%, and would increase net debt.

Meanwhile, sales of Remy Martin rose strongly in the US, Russia, Japan and Africa.

Overall sales of the group’s other brands also edged up.

At Bank of America Merrill Lynch, stocks analysts commented that they expected sales of cognac in China to recover only modestly because the Beijing government was stepping up its measures against ostentatious spending.

The company could counter that trend only partly with sales elsewhere.

Brokers Bryan Garnier said that Chinese policy “continues to weigh heavily on sales of cognac”.—