Recovery at Remy lifts Highland share price: Margins at cognac and champagne group will be boosted by one-third drop in grape prices

PROFITS have started to recover at Remy Cointreau and the cognac, champagne and liqueurs company is optimistic of further progress.

The news lifted the share price of Highland Distillers, maker of Famous Grouse whisky which has an indirect 15 per cent holding in Remy, by 14p to 373p. Remy distributes more than 50 per cent of Famous Grouse around the world.

One of the biggest future gains for Remy will arise from a one-third drop in grape prices, which will improve profit margins on cheap champagnes in two years and on more expensive brands after five years.

Francois and Marc Dubreuil, brothers and joint managing directors of the family-controlled French company, said the rise in half-year pre-tax profits from Fr104m to Fr129m ( pounds 14.6m) reflected improvements in all divisions.

The worldwide picture for cognac remains mixed, and prices in local currencies are stable apart from Japan, where discount retailers are increasingly filling their shelves with alcoholic drinks.

Japanese wholesalers are now paying the international price for cognac, having previously paid three times the going rate. Remy expects volume sales in Japan to increase.

Francois Dubreuil said the Japanese move to discount pricing was good because 'we have always been advocates of selling in every country at the same price'.

Asia consumes 60 per cent of the cognac produced by Remy, with China alone accounting for 20 per cent. Sales in China, however, have recently been affected by the introduction of 17 per cent VAT. Nevertheless, Remy is set to benefit in the final quarter, with the Chinese celebrating their new year next month.

Remy also produced turnover figures for the nine months to the end of December, showing a 5 per cent rise in cognac sales to Fr1.93bn. It said the increase had seen Remy displace Martell as the world's second biggest seller of cognac.

Champagne sales, which had been flattened by the slump in consumer spending on luxury goods, climbed 9.1 per cent in the nine months to Fr557m.

However, profit margins on Remy's champagnes, which include the Krug, Charles Heidsieck and Piper Heidsieck brands, are being held back by the high prices paid for grapes grown three years ago.

Grape growers, who were making taxable profits of about pounds 8,000 an acre two years ago, have seen the market price drop from Fr30 to Fr20 a kilo since then.

While champagne is still largely a European product, sales to the US and Asia are growing.

So are sales of Cointreau, the liqueur, which enjoyed its first turnover increase in 10 years. Annual sales are running at about 1.3 million cases.

Remy said a change in its marketing approach had made Cointreau more appealing to younger drinkers.

Total sales of liqueurs and spirits in the nine months grew by 5.4 per cent to Fr1.31bn. Whisky sales, in particular, improved strongly.

(Photograph omitted)