Remy Cointreau upbeat as demand in China and U.S. improves

PARIS (Reuters) - French spirits group Remy Cointreau RCOP.PA expressed confidence in year-end profit targets on Thursday after a recovery in demand for cognac in China and in its main U.S. market boosted half-year results.

A glass of cognac is pictured on a bar in the Manhattan borough of New York City, November 13, 2015. REUTERS/Mike Segar

The maker of Remy Martin cognac and Cointreau liquor, which is trying to sell more of its higher-priced spirits to boost profitability, said it planned to accelerate advertising and promotional spending in the coming five years to boost sales.

“We are only at the start of an adventure that will be more sustainable and healthier,” Chief Executive Valerie Chapoulaud-Floquet told reporters.

Chief Financial Officer Luca Marotta said he was “comfortable” with the consensus of analysts’ estimates for full-year like-for-like operating profit growth of 8-9 percent, after first-half operating profits rose seven percent.

Chapoulaud-Floquet said she was “very confident” on the group’s prospects in China for the rest of the year.

“The Mid-Autumn festival was good. We are seeing an acceleration on superior brands and starting new battles to boost sales of Cointreau and Botanist gin in China,” she said.

The first ever store the group has dedicated to its $3,000 per bottle Louis XIII cognac in Beijing was performing “well above targets”, two months after its opening, she added.

Demand was also picking up in Russia as consumer confidence improved in that country, although it was more subdued in Africa, Chapoulaud-Floquet said.

Remy shares, up around 14 percent so far in 2016, were up 1.4 percent in mid-session trading, beating a flat Paris SBF-120 .SBF120 equity index.

“Remy is well-placed to benefit from the global premiumisation trend in spirits. China may be turning the corner at last,” said analysts at brokerage Liberum analysts.

Similar to other spirits makers, including larger rivals Diageo DGE.L and Pernod Ricard PERP.PA, Remy Cointreau has faced pressure on sales of cognac and other luxury goods in China following a government crackdown on luxury gift-giving and personal spending by Chinese civil servants.

The Remy Martin cognac division, which accounts for 80 percent of group profit, saw operating profit rise 9.1 percent on a like-for-like basis to 101.9 million euros, with brands such as 1738 Accord Royal and Louis XIII performing well in the United States and China.

The Chinese government’s crackdown has led to significant changes across the group, with Remy Cointreau moving more toward the United States, which now contributes 38 percent of group sales compared to around 20 percent for China.

While Remy is pushing higher priced products, rival Pernod Ricard has taken the opposite approach in launching less-expensive brands in China.

Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta and Elaine Hardcastle