Cognac sales headache for Remy Cointreau

NIGEL COPE

Remy Cointreau, the French drinks group, reported a fall in operating profits yesterday as a result of lower sales of its Remy Martin brand of cognac and the effects of currency fluctuations. The company also announced plans to reduce its Fr8.8bn (pounds 1.15bn) debt mountain to Fr6bn by converting debt into equity stakes.

Reporting figures for the nine months between April and December, the company said sales of cognac were 10 per cent down on the same period last year after the company introduced a price rise in July. The company lost market share to other cognac producers which cut prices or kept them constant.

However, Remy said rival producers were increasing prices and Remy Martin was beginning to claw back the lost ground. Sales had fallen sharply in China, though sales of champagnes such as Krug and Pieper Heidsieck had increased. Remy Cointreau's joint managing director, Marc Heriar Dubreuil, said: "You can tell the mood of a country by how much cognac it drinks."

Countries such as Vietnam, Korea and Russia were in a good mood, he said, while spirits (and sales) were deflated in France and Germany. The UK was performing steadily.

The company also said that the French government's controversial nuclear tests in the Pacific Rim last year had led to local boycotts that dented sales of its champagnes and wines. Local action was particularly strong in Scandinavia and Germany, as well as in Japan. However, sales in Britain had not been affected. Sales had also been disrupted by the recent strikes in Paris though this had not been serious.

While sales of cognac fell, champagne sales were up by 30 per cent in the period. Liqueur, wine and spirit sales were almost 10 per cent up. However, group profits were lower as the margins on champagnes and wines are slimmer. Currency fluctuations had also moved against the company.

Sales of Passoa, a passion fruit liqueur launched seven years ago, were growing strongly with sales up 30 per cent on last year.

In the six months to June, group operating profits fell from Fr394m to Fr216m. However, pre-tax profit increased from Fr135m to Fr217m due to Fr256m of exceptional items relating to the transfer of the Picon brand trading rights to Grand Metropolitan's IDV subsidiary last June.

As part of the group's policy to reduce debts its main shareholder, Orpar, has exercised its convertible bond for Fr836m creating 6 million new shares. Orpar is 70 per cent-owned by the Dubreil family which controls the group with the remaining 30 per cent held by Highland Distilleries.