Remy Cointreau profits down 25%: Drinks group hit by higher costs and lower sales

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PROFITS at Remy Cointreau, the cognac, champagne and liqueurs company, slumped by a quarter in the year ended 31 March, continuing the stream of bad news from luxury goods suppliers, writes Robert Cole.

Some of the decline in profits stemmed from lower sales. But the French company's margins also suffered from a sharp rise in the cost of champagne grapes that proved impossible to hand on to consumers.

After-tax profits of Fr202m ( pounds 23.5m) came in 25 per cent below last year's Fr271m.

Operating profits were 16 per cent lower on turnover that fell 10 per cent and profit margins fell from 16.1 per cent to 15 per cent.

Most of the damage occurred in champagne, where the operating profit margins of 15 per cent enjoyed in 1992 were halved during 1993.

LVMH, the French luxury goods maker in which Guinness has a stake, has warned of lower profits and Dunhill Holdings recently suffered a setback.

Remy said turnover suffered because of three factors. A drinks distribution contract with Grand Metropolitan was terminated, resulting in a drop in sales of Cointreau; sales were also hit by unfavourable exchange rate movements; and turnover declined because the company decided to run down stocks held in US distribution companies. Shortening inventories meant that distributors took fewer Remy products.

Remy has Fr5.1bn of debt - most of which was incurred when the Remy family bought out the Cointreau family interests after many years' internecine strife.

Yesterday the company said there might be some sales of peripheral assets but Remy is pledged to retain all its brand names.

As well as Remy Martin cognac and Cointreau orange liqueur the company owns Krug Charles Heidsieck and Piper Heidsieck champagnes, and Galliano. It also handles part of the overseas distribution of Famous Grouse Scotch whisky.

Michael Jackaman, chairman of Allied-Lyons - the drinks group that owns Tetley bitter and Courvoisier cognac - fuelled speculation about a price war in the UK beer market yesterday. He told the annual shareholder meeting that Allied beer volumes were under pressure.

He also called for the harmonisation of excise duties across Europe. Tax on alcoholic drink in Britain is above the EC average.