Remy Faces Potential 20% Profit Drop on China

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Nov. 26 (Bloomberg) -- Frederic Pflantz, CEO at Remy Contreau, discusses the company’s forecast for a substantial drop in profits from China due to a crackdown on lavish spending by the government and acquisitions that may interest the company. He speaks on Bloomberg Television’s “The Pulse.”

Contraction in consumption in china.

Is the market going to recover in any shape or form in the foreseeable horizon?

Does it get worse?

Walk us through your expectations.

Thank you.

Hello guy, hello francine.

I'm pleased to be with you this morning.

As you know, we have published our financial results of the first half year which were strongly influenced by the china situation at the moment.

We were in a situation where we had good growth in the united states, good growth in europe and naturally that slowed down in china.

What we know today is that the market is indeed down because of the high stock levels that we have today.

A consequence of the sedashese behaviors measured in china.

Down versus the year before.

We are looking ahead naturally at the chinese new year, which is the festive season in china coming at the end of january.

Indeed, we don't necessarily expect a bettering of the situation in the few months to come.

That is something in the short term naturally that will hinder our performance and our results will indeed be down in double digit fission.

Minus 20 or more.

On the other hand, we are very confident in the chinese market because we knee the con sthauges we have today is -- know that the con sthauges we have is people who like to drink our high-end product and we know they will come back one day.

When you say you're confident about the chinese market, when are we going to see a return to organic top line growth?

Is it this year?

You have had a period of destocking.

Are we at the end of that now?

Yes, well, indeed, as i said just now, i don't expect a bettering of our sales situation on the chinese market for the two cars that still lie -- quarters that still lie ahead of us.

From january until march.

Until the financial year, we indeed expect sales to be down in the chinese market and we think that is a combination of two things.

One of them is the stock levels which are still high in the distribution and secondly, we don't expect a a restarting of the consumption.

We expect the second half will be lower as well.

For the moment, we don't know how the chinese new year will come out because that is too early to say.

It is only the end of january.

We are in gear to be ready as soon it is a market starts again to be taking profit from that situation due to our distribution strength strength.

You are very dependent on cognac for historical reasons.

Many analysts say you need to change that and go out and buy other brands.

Are you in talks with other companies about such moves and which kind of spirits would you be looking at?

Yes, well, thank you for that question.

Indeed, it is something that we have started a year ago.

To date, 60% of our sales are linked to remy and all other brands about 40. we have always been diverse geographically.

As you said, indeed, we have a strong dependence in terms of results on cognac today and remy in particular.

We have been doing acquisitions.

Last year we acquired a very high end and very specific single malt scotch whiskey brand in the north of scotland and we have very strong hopes for that company.

On the other hand, for future acquisitions, you will understand that at the moment i cannot talk about them because naturally, the situation would then probably be more difficult to acquire that.

What we think, what we need to do is when we have companies that will join us, we need to make sure their d.n.a. is what our company is.

Value, high end, very strong craftsmanship and if any company will join us or any brand will join us, it would be according to that d.n.a. that is what we are looking at.

I just want to get more information on what exactly you are interested in buying.

Would you, for example, if one of your largest competitors has to sell off some of their scotch would you be interested in that?

Yes, well, the information has gotten out yesterday from what i understand.

We're in the process of integrating it into our company.

The information is a year old.

We don't want to rush things.

We believe we need to take our time to do things right first.

We're integrating it and we have doubled production.

We're moving in the right direction i think.

I don't think the question is on the table for us today.

A brief question about europe.

As a c.e.o. of a french company, how do you see europe developing as a market and can you give me your sense of what it is currently like to operate in a country that does seem to have an anti-business buyer as some would suggest?

We're proud of our french heritage, especially when we talk about our brands, remy from the heart of the cognac region and cointreau.

We're talking about more.

On the other hand, we need to make sure that we have the future of our growth in other markets in the world, which are growing economically.

Now today, france is in an environment that is tough.

The environment is very much geared by the policies that are linked to fiscal, linked to the budgeting problems we face today.

It touches us because we have over the last two years had increases in our tax rate.

We believe that france will find a way of getting out of the difficulties that we're in today and what we need to do mostly is we are very proud of our french heritage, craftsmanship coming from the history but we derive most of our sales from the rest of the world.

The united states is 1/3. asia and pacific is another 40%. europe today is only basically 27% of our sales.

And france is a relatively small part of that.

So for our business development, we're very much geared to diversify geographically.

We had an increase in our tax rate at the moment.

Yes.

Thank you so much for that.

Quickly, what is your favorite drink?

If you want to have a drink, i would suggest you have one of the greatest drinks historicfully the world.

If you have one, it is remy martin naturally and you have some cointreau and just a slice of lime and you would be perfectly set for the day.

Suggesting you have it for breakfast.

I'm impressed.

You're invited to the studio next time you're on.

Coming up, "surveillance" with tom keene.

I know you're a big fan of cocktails.

What do you make of that?

I've never had a side car.

This text has been automatically generated. It may not be 100% accurate.

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