Wine Industry Report

Highlights

22% organic growth in profit from operations
Net profit up 76.5%

Rémy Cointreau has recorded 21.9% organic growth in profit from operations to €61.9 million, on turnover of €354.4 million for the first six months of the 2006/07 financial year. This excellent growth, achieved for the third consecutive year, is fully in line with the Group’s profitable and long-term growth strategy, with its refocused and lasting brand portfolio.

(*) After reclassification of Poland’s results in discontinued operations
(**) Organic growth is determined after restating the effect of currency movements and any change in the Group’s structure.

Cognac - Rémy Martin continued to develop premium and super premium qualities in order to prioritise profitability. Turnover grew organically by 4.2%, whereas profit from operations of €38.7 million represented organic growth of 38.1%.

Liqueurs & Spirits - The division registered overall organic growth of 2.7% in turnover, while profit from operations grew by 9.1%. Over the first six months of the year, Cointreau in the US with its new “Be Cointreauversial” campaign, and Passoa in Europe, performed particularly well.

Champagne - An excellent performance by Piper-Heidsieck throughout the first six months of the year enabled the brand to record organic growth of 10.8% in turnover. Profit from operations recorded sharp 48.7% organic growth, due to higher selling prices and increased volumes, as well as an improved product/market mix.

Partner Brands - Following the cessation of a number of distribution contracts, turnover declined by 17.1% to €45.7 million, resulting in an operating loss of €1 million, after allocation of distribution and central costs.

Consolidated results

Turnover of €354.4 million represented overall organic growth of 1.3%. Group brands increased by 4.8%.

Profit from operations totalled €61.9 million, a 12.8% increase, after including a €4.9 million impact due to the unfavourable euro/dollar exchange rate.  Organic growth was 21.9%.  Profit from operations margin improved by 2 pp compared with the same period of the previous financial year (15.5%).

Operating profit increased by 7.3% to €58.9 million. This includes a €3 million non-recurring expense relating to a demand for business and property tax arrears, recognised under “other operating income and expenses”.

Financial charges of €20 million were a significant €11.6 million improvement, due to the substantial effect of debt reduction (from €838 million at 30 September 2005 to €641 million at 30 September 2006).  At 30 September 2006, the net indebtedness to EBITDA ratio was 3.65 (3.93 at 30 September 2005).

Net profit from continuing activities totalled €34 million, an increase of 86.8% compared with the first six months of 2005. This result includes a lower taxation charge and the reversal of a provision no longer required for tax payable.

Net profit from discontinued activities of €42.1 million included net capital gains from the disposal of Dutch and Italian liqueurs at the end of March 2006, with a cash effect in April, together with Cognac de Luze and Bols Hungary, which were sold in July 2006.

Net profit (Group share) amounted to €75.7 million.

Total net indebtedness fell by 17.4% to €637.3 million, a reduction of €134.2 million compared with the end of March 2006. This decrease was a result of operations sold and a continued improvement in working capital requirements. 

Maxxium

On 23 November 2006, Rémy Cointreau announced its decision to terminate the Maxxium Global Distribution Agreement with effect from 30 March, 2009. This strategic decision will enable Rémy Cointreau to consider alternative distribution options in priority markets such as Asia.

The financial consequences anticipated as a result of terminating the Maxxium distribution agreements are as follows:

1. Payment by Rémy Cointreau of compensation estimated at €240 million before tax.  A provision relating to the compensation will be recognised at 31 March 2007, with effective payment in 2009.
2. After 30 March 2009, the planned exit of Rémy Cointreau as a Maxxium shareholder, with disposal on a contractual basis of its stake in Maxxium’s equity, after deducting restructuring costs, if applicable

For information, Rémy Cointreau’s equity share amounted to €76.9 million at 30 September 2006

Outlook

Rémy Cointreau confirms its target of double-digit organic growth in profit from operations for the 2006/07 financial year ending 31 March 2007.