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Shift to premium spirits helps Remy weather China lockdowns

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By Dominique Vidalon

PARIS (Reuters) - France's Remy Cointreau on Thursday predicted a strong start to its new financial year, as broad demand for its premium spirits helps to offset inflationary pressures and the impact of COVID lockdowns in China.

The maker of Remy Martin cognac and Cointreau liquor made the upbeat comments after reporting higher-than-expected operating profit growth for its financial year ended March 31.

"On the strength of our progress against our strategic goals, new consumption trends and our robust pricing power, we are starting the year 2022-23 with confidence," CEO Eric Vallat said in a statement.

The pandemic has helped Remy's long-term drive towards higher-priced spirits to boost profit margins, accelerating a shift towards premium drinks, at-home consumption, cocktails and e-commerce.

Vallat told journalists that for the new fiscal year, Remy expected "solid profitable growth" as price increases and cost control would help mitigate inflationary pressures.

Finance chief Luca Marotta told analysts he was "comfortable" with the market consensus for 10.2% organic sales growth for the full year 2022/23.

In the short term, Vallat said: "I can confirm we are expecting double-digit organic sales growth in the first quarter despite the lockdown in China and high comparables."

With China accounting for 15-20% of group sales, growth in the quarter would be led by demand from other regions, notably the United States.

CONFIDENT ABOUT CHINA

Vallat told analysts that COVID restrictions in China since early April had had a "very severe" impact on business in the country. On the positive side, he said there would be pent-up demand in China as consumers emerge from such lockdown restrictions.

"I am quite confident that we will see demand bouncing back," he said.

Strong demand for its premium cognac in China and the United States, along with tight cost management, lifted the company's 2021/22 organic operating profit by 39.9% to 334.4 million euros ($356.3 million), beating the 38.6% forecast by analysts.

Reflecting its confidence, Remy said it would pay shareholders an ordinary dividend of 1.85 euros per share in cash and an exceptional dividend of 1 euro.

"Remy guides to another year of strong growth and margin improvement, led by its strong pricing power, which suggests upside to consensus organic EBIT of +10%," Credit Suisse analysts said in a note.

Remy Cointreau shares opened up 3%, before handing back some gains. They had bounced back, up 3.9%, by 0900 GMT.

The company reiterated its 2030 goals for a gross margin of 72% and an operating margin of 33%. That compares with the 68.6% and 25.5% achieved respectively in 2021/22.

($1 = 0.9385 euros)

(Reporting by Dominique Vidalon Editing by Sherry Jacob-Phillips and Mark Potter)

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