Breakingviews - Rémy Cointreau tariff fix will leave long hangover
DUBLIN, June 4 (Reuters Breakingviews) - Rémy Cointreau (RCOP.PA), opens new tab requires a stiffer cure for its tariff woes. On Wednesday, the $3 billion cognac maker revealed it had scrapped its 2030 sales guidance, citing trade war uncertainty and weakness in China. The group is cutting costs, but incoming CEO Franck Marilly's best hope will be to spend more to win customers and develop new products, even if it means sacrificing shareholder rewards.
Rémy is not alone in ditching its longer-term sales guidance. In February, $60 billion Guinness-maker Diageo (DGE.L), opens new tab scrapped its 5% to 7% annual revenue growth target, citing uncertainty caused by possible tariffs imposed by the U.S. on Canada and Mexico, while $26 billion Pernod Ricard (PERP.PA), opens new tab also recently cut its sales guidance. Rémy had been promising a 'high single-digit' percent annual growth in revenue between 2025/2026 and 2029/2030, but now is not giving investors any steer.
On the face of it, these goals may have been too ambitious to begin with. In Diageo and Rémy's cases the punchy sales targets were set during the pandemic when spirits were enjoying an unprecedented boost. But in the past two years, inflation, a continued drop-off in drinking in younger consumers and the spectre of tariffs have dampened that trend. And with the U.S. and China, the two largest drink markets in the world, showing increased signs of weakness, analysts now expect Rémy to grow sales by less than 5% each year between 2025 and 2030, Visible Alpha data shows. That's one reason why the company's valuation has shrunk, even if it still enjoys a premium multiple to Diageo and Pernod Ricard.
To recover some of the lost fizz, Marilly needs to make tough choices. The new boss who will take the reins at the end of this month will have to increase spending on marketing to boost new products and gain market share. Back in 2022, the company spent 433 million euros on ad campaigns and promotions, but that figure is expected to be just 286 million euros this year, Visible Alpha data shows. Marilly will also need to cut Rémy's rising debt, which is currently equivalent to 2.4 times trailing EBITDA. To do both, he may need to scrap the company's dividend, expected to be around 80 million euros this year. That might rile shareholders, but if Marilly manages to reverse the rot, they will eventually thank him.
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Reuters
13 hours ago
- Reuters
China says it is working with France on trade differnces, no sign yet of a cognac deal
BEIJING/PARIS, June 6 (Reuters) - China and France have agreed to resolve their trade disputes through dialogue, China's foreign ministry said on Friday, though there was no indication that agreement had been reached in talks on lifting Chinese levies on European brandy. Talks to resolve the cognac dispute accelerated this week with China's commerce minister Wang Wentao meeting his French counterpart in Paris on the sidelines of an OECD conference, and technical talks on the matter taking place in Beijing. The latest round of negotiations have raised hopes of a settlement, two industry sources with knowledge of the discussions said. "The two sides have reached consensus on resolving economic and trade issues through dialogue and consultation", the Chinese foreign ministry said after a call between the Chinese and French foreign ministers. Chinese anti-dumping measures that applied duties of up to 39% on imports of European brandy - with French cognac bearing the brunt - have strained relations between Paris and Beijing. The brandy duties were enforced days after the European Union took action against Chinese-made electric vehicle imports to shield its local industry, prompting France's President Emmanuel Macron to accuse Beijing of "pure retaliation". The Chinese duties have dented sales of brands including LVMH's ( opens new tab Hennessy, Pernod Ricard's ( opens new tab Martell and Remy Cointreau ( opens new tab. Beijing was initially meant to make a final decision on the duties by January, but extended the deadline to April and then again to July 5. China is seeking to strengthen trade ties with the 27-member bloc as relations with the United States have soured in the escalating trade war. "France will not compromise on ... the protection of its industries, such as cognac," French trade minister Laurent Saint-Martin said after talks with Wang on Wednesday. Chinese officials, meanwhile, signalled to industry officials during three rounds of technical meetings in Beijing this week they wanted to settle the matter, one of the sources said, but added some sticking points remained. With annual imports of around $1.7 billion last year, China is the French brandy industry's most important measured by value and the second-largest by volume after the United States.
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The Herald Scotland
2 days ago
- The Herald Scotland
Owner of Scotch whisky giant Bruichladdich scraps target
However, shares in the Paris-listed closed up more than 5%, after Remy signalled the 'excellent execution' of cost-cutting plans, with €85 million achieved compared with €50m expected. Remy said it has now saved €230m over the last two years. The savings partially offset a sharp decline in sales at the company, which fell by 4.8% last year to €984.6m. Operating profit tumbled by 30.5% to €217m. The decision to withdraw a long-term growth target set in 2020 underlines the continuing turbulence in the global spirits market that has arisen from a slowdown in major markets such as the US and China and the ongoing uncertainty sparked by President Donald Trump's trade tariffs. That took a further turn this week when the President doubled US tariffs on foreign aluminium and steel to 50%, although the UK has so far secured an exemption. Remy Cointreau, which is perhaps best known for its Cognac and brandy, is the latest big-name Scotch whisky distiller to highlight the impact of tariffs on business, following Diageo and Pernod Ricard. Diageo reported last month that US tariffs may hit profits by up to $150m per year, having withdrawn its guidance earlier in the year amid tariff uncertainty, although that was before it was ruled by the US Court of International Trade that the Trump administration did not have the authority to impose sweeping tariffs on other countries. The ruling, which covered the 10% global baseline tariff and the 50% tariff threatened against the European Union, has been appealed. Remy Cointreau said yesterday: 'Given the continued lack of macroeconomic visibility, the geopolitical uncertainties surrounding US-China tariff policies, and the absence to date of a recovery in the US market based on improving underlying trends… Remy Cointreau believes the conditions requited to maintain its 2029-2030 targets are no longer in place. 'As a result, the group has opted to withdraw its objectives for 2029/30 originally issued in June 2020. 'This decision also reflects the arrival of a new chief executive officer, who will establish his own strategic roadmap while remaining aligned with the value strategy implemented by the group for decades.' The removal of the long-term target was announced as Remy, which has appointed Franck Marilly as its new chief executive, replacing Eric Vallat, reported that sales and profits tumbled in its 2024/2025 financial year. However, it expects to return to growth in the current year. Excluding any increase in customs duties in China and the US, it expects operating profit to increase in the high single-digit to low double-digit [percentage] range. The company estimates that potential increases in duties will have a maximum gross impact of €100m on operating profit (€60m in China and €40m in the US) but said it could offset this by 35% through its own action plan, reducing the maximum net impact to €65m. These estimates are based on additional anti-dumping duties of 38.1% on Cognac imports arriving in China, and custom duties of 20% on imports from the EU and 10% from the UK and Barbados on goods entering the US. Remy said it factored in 10% custom duties on all imports to the US for the April-June 2025, corresponding to the 90-day grace period. Shares in Remy Cointreau, which trade on the Paris stock market, were trading up 4% at €48.8 around 5.30pm last night.
