Remy Cointreau Sa Ord

Hello and welcome to the Remy Contreaux full year results 2021 to 2022. My name is Josh and I will be your coordinator for today's event. Please note that this conference is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Marc-Elias Dubré, Chairman, to begin. Thank you.

Good morning, everyone. And thank you for being with us this morning for Rémi Cointreau's full year results. I'm here with Éric Vallard, CEO, and Luca Marotta, CFO. 2021 was an historic year for Rémi Cointreau, and I would like to thank and congratulate our 2,000 people around the world. Once again, they have demonstrated their expertise, passion, and strong commitment. The group achieved record financial KPIs, including sales growth, gross margin, current operating profit margin, and earning per share. In 2021, all stars have shined for this historic performance. and we strongly outperformed the worldwide wine and spirits market. Rémy Cointreau gained market share in all regions and on most of our brands. But beyond these spectacular figures, we have continued to prepare the future, sticking to our long-term vision by investing in our strategic inventories, capital expenditures, and more importantly, behind our brands. As you know, this represents an important step up compared to the past, including now all our global brands. We are also proud of our CSR performance. which reflects our ambition to grow responsibly and share value with all our stakeholders. This includes our employees, of course, as Eric will explain, but also all our equity shareholders through a dynamic shareholders return policy this year, including The 1 million shares buyback program launched in June 2021 and 2.85 euros of dividend per share that will be proposed by the board of directors at the next shareholder meeting on July 21 this year. Up by more than 50% compared to last year This would represent the highest dividend ever paid. So now, I will turn it over to Eric, who will take you through the fiscal year business review.

Thank you, Mark, and good morning, everyone. Thank you for joining us today, and a special thanks to our English participants. As I know, today is a bank holiday with the Queen's Jubilee. I am happy to take the mic now to share with you our solid progress on our strategic journey and our overall results. Luca will then, obviously, as usual, go further into detail. I am now moving to slide five. As Mark explained, we hit new records this year. Beyond the absolute value, I would like to stress that they have been achieved thanks to an outstanding end record growth of our sales compared to last year, but also to 2019, as you've seen from the press release this morning. Back in April, you saw our sales numbers. We talked about a 27% organic sales growth. Thanks to the very strong contribution of all regions, with a plus 29% of organic growth versus 2019, our sales ended the year well above the pre-pandemic level. In terms of profitability, the COP, current operating profit, stood at 334 million euros, up almost 40% on an organic basis, representing 25.5% margin. As mentioned by Mark, this is the highest level ever. COP grew by 57% compared to 2019. This performance has been driven by a strong increase of the gross margin, 1.5% more organically, to 68.6%, and a good control of our overhead costs while investing massively, and I'll get back to it, behind our brands to prepare tomorrow. Finally, net debt stood at 353 million, leading to a very healthy air ratio of 0.79, down 0.54 versus last year. We rely on a very sound basis, which gives us a strong flexibility to further expand in the midterm. Our record results have been achieved thanks to record growth. But more importantly, in this challenging environment, our growth is probably healthier than it has ever been, as shown in slide 6. First, it is driven by favorable consumer trends which are going to last. To quote only one of them, the up-trading trend, the trend of drinking less but better, pre-existed COVID and has accelerated sharply. We have gained years. It is no secret that with our portfolio of brands, we are well positioned to take advantage of it. Second, the key to success, whether you speak volumes or value, is the desirability of our brands. And the motivation of our clients is both rational with the quality of the product and emotional with the storytelling and the values of our brands. We've always paid great attention to our products and we keep doing so. There is not much you can do if your product is not great. But we are now boosting the desirability of our brands by scaling up the activations, building on their strong stories and values with good results overall. I will share some examples in the next slide. As a consequence of these favorable trends combined with leveled-up investments, our growth is driven by end demand. This is why also we call it healthy. We are in a real pool mode, which is much healthier and fits better our D2C approach to the business. Allow me to also say a word about pricing, which has sharply improved in the past two years. We took advantage of the tailwind and strong demand not only to invest more behind our brand. We also took some strong decisions to reinforce the consistency of our pricing worldwide beyond price increases themselves, improving gross margin, of course, and controlling our route to markets better overall. This puts us also in a very healthy situation. And lastly, as part of our portfolio management priority, we have improved commercial efficiency and strengthened partnerships with key distributors, allowing for better visibility and piloting of our business overall. We still have work to do, of course, a lot, but we are clearly less blind than we were. As I said, and moving on to slide seven, these remarkable results have been led by a strong step up in our ANP investments. We are proud to have launched several powerful campaigns that will help and are helping already to unleash the potential of our global priority brands. At Lutresc, to start with our king, we have launched the Believe in Time campaign, which is highlighting the unique relationship to time of Lutresc. It will be relayed by more D2C investments in the future as our goal is to turn around the business model in the next 10 years, making it a pioneer of D2C in the industry. The aim at Rémy Martin has always been and remains to create value by improving the mix and leveraging our pricing power. The Team Up for Excellence campaign with Usher fostering 1738 has proven great success and contributed to our fast growth in the U.S. where we continue to gain market shares. We also launched a new campaign to relaunch EXO in China in January. With the lockdown, it's too early to assess the results, but we are confident in our ability to regain our fair market share on EXO with the 360 activations that have been designed. Third, Cointreau. Cointreau refocused on cocktails in 2017, leveraging a trend that is only gaining momentum. Its communication has been smart and consistent since then, with the margarita as a clear drink hero. Consistent and crowned by great results, not only in the US, but also in the UK, or in Australia, to name a few countries. We partnered with Jessica Alba, as shown on the slide, but more to come soon. On the botanist, we know we have a hidden jewel, and it's not anymore such a hidden jewel. The liquid is truly fantastic. If you try it, you buy it. Hence the challenge on awareness and desirability of the brand. Being part of our global priority brands, the botanist will benefit from accelerated investments, as shown already with the ad for the Super Bowl. More to come soon as well. And last but not least, we are very proud of our latest We Also Make Whiskey campaign for Brookladie, which is very thoughtful, like the brand is. It has been launched only a few weeks ago, but the first results are extremely promising. Just for those who haven't seen it, it says a number of things about Brookladie, like we like starting small but being big, thinking big. We also make whiskey. So this is basically the approach, telling a lot about the brand and, of course, highlighting the fact that we do an exceptional whiskey. And if we do it, it's because of the way we do it, our values and our relationship to Terroir. This should also help us accelerate and leverage even more a key category, which is now also booming in China. This stellar year is also the result of the strong progress on our four strategic priorities, which I guess you all know by heart now. I am on page 8 here. As you may recall, the first priority is to increase value per case. Throughout the year, we have continued to leverage up-trading consumer trends, being fully focused on retail prices through price increases and product mix. The results are tangible and very promising. We recorded a positive mixed price sales effect of 9.2 points at group level, driven by an increase of 13.8 points in cognac and 7.1 in liquors and spirits. So even in liquors and spirits, the price mix has played a big role. These great results for Rémy Martin are mostly driven by the success of our intermediate quality products in cognac such as 1738 in the US and Club in China. 1738 grew at more than 60% in 21-22 and its contribution to VSOP sales rose by 12 points versus 18-19 which is massive. Meanwhile, club grew at more than 30% this year and its contribution to total sales grew by 13 points versus 18-19 in China. We know who our champions are. And if you look beyond retail price, the gross margin increased by 1.5 points organically, as I said, versus last year at group level. This has been achieved thanks to the investment behind our creative and strategic brands, both in cognac and liqueurs and spirits, and the improvement of our gross-to-net management. Priority number two, enhance portfolio management. As you know, we have assigned clear roles to each brand and we have split them in three groups with a clear set of priorities for each. Global priority brands, regional power brands and incubator brands. The ultimate objective is, of course, to maximize our gross margin by growing our most accretive brands while improving the metrics of our regional power brands. After two years, we can say that we have unlocked the growth potential of our global priority brands beyond cognac. Cointreau sales were up at more than 35% versus last year worldwide and at more than 40% versus two years ago. The botanist grew at around 50% versus last year. And finally, our single malt whiskeys increased by more than 30% versus last year and by more than 45% versus two years ago. Which explains why, for the first time since long, our liquors and spirits division grew faster than our cognac division. In parallel, transformation is also on its way for our regional power brands. Among our regional power brands, Telmon Champagne is the one we have taken the farthest. In a little over a year, we have totally rethought its positioning and are already starting to reap the benefits. The third priority is to implement client-centric model, as you may remember. We have accelerated sharply on e-commerce with the opening of more than 10 e-boutiques this year, leveraging a new common platform. I will come back to that later. In the meantime, we also now rely on eight boutiques, including the last one in Hainan for Rémi Martin, and alongside a solid opening roadmap for the coming years. The results are particularly visible in China, where our direct sales grew way faster than the non-direct sales at 40%. And finally, our fourth priority which is achieving responsible growth around three pillars, preserving our terroir, acting for our people and committing through time, but I'll get back to it in the following slides. We are today allocating an important level of investments, 80 million euros over the next 10 years, that will be invested in terms of CAPEX, but also OPEX. Beyond sales, the slide lines precisely allows me to stress that we are even more proud of the progress we made on CSR-related matters. What makes me proud, actually, is the commitment of everyone in the team now on a daily basis and whatever the position in the organization. I believe this has been achieved thanks to a new and much more granular organization with the nomination of around 100 sustainability champions throughout the organization. This is how we will make it. On terroir, as you can see on the slide, 78% of our agricultural land is now engaged in responsible and sustainable certification, which confirms the steady increase observed over the past five years from 36% in 17-18. Sharp acceleration. Certifications are an important first step towards responsible and sustainable agriculture, but we also want to accelerate further on the protection of our terroir by 2030. For that, we will deploy the project New Generation Terroir, which is twofold. First, we need to make sure our soils are ready to face more heat waves and less water. And answer to that is agroecology that puts soil health at the core of its farming methods. It is proven regenerated and healthy soils are more resilient to face climate change in the years to come. They are also fantastic carbon sinks. So we are part of the solution in a way that can capture more CO2 from the atmosphere. The goal is to gradually install more transversal and scientific indicators that will measure the actual soil health of our terroirs. You progress only on what you measure properly. Second, we will continue to invest in R&D so that by 2030 we have identified 100% of climate resilient varieties ready to be planted. On people, we welcome three more women in our COMEX this year. So now the proportion is 30% women at COMEX, coming from 10%. But also among the top managers positioned within the group, regional and worldwide, women also account for 35% of the key positions versus 30% last year. Work in progress, but good progress. To drive engagement among our employees, as Marc said, we also launched an employee shareholder plan in France last June 2021 that was subscribed by as much as 77% of our employees versus an average of 52% in France. So we will now be launching it in our international markets. We have also decided to accelerate on responsible consumption, of course, by launching our internal responsible drinking ritual. which is being spread worldwide. And last but not least, on time, we are on track when it comes to the reduction of our carbon footprint. Our CO2 footprint per bottle is down 9% in 2021-2022 versus last year. We are well on track to achieve our minus 50% reduction target by bottle by 2030. As an example, 44% also of the energy in our distilleries, our own distilleries and production sites, is now renewable versus 26% last year. This sizable increase was largely driven by the switch to biogas, particularly in Cognac and Angers. And the goal is to reach 100% by 2030. Other and last example I would like to share is the removal of secondary packaging gift boxes. 76% of the group's bottles are now naked compared to only 21% in 1920, which gives you an idea of the magnitude of the progress which was achieved there. Our goal is to have 85% naked bottles by 2025, so we keep moving forward. Beyond the organization, which I briefly referred to, I believe the great progress was also achieved because we now have turned our vision into tangible and more granular objectives, which are measurable and which are tangible for all our teams. There are nine of them, as shown in this slide 10, split evenly between terroir people and time. These nine objectives, which I am not going to read, otherwise I'd be way too long, but will define our roadmap for the coming years. To conclude on this ESG chapter with the slide 11 now, you have certainly noticed that we are the first spirits group to be carbon neutral. We're very proud of it. We achieved it thanks to six projects in China and in the U.S. which are truly relevant and in line with our values. These projects will secure carbon neutrality for the next four years. But this is only the beginning as the real challenge for us is to reduce our own emissions, which we much prefer to compensation, of course, and which, as you've seen, we are working hard on. We are making good progress, as I said, but I would also like to say that it's still a long way to go. We have to acknowledge it. And that beyond CO2, we are now also tackling some critical topics like water usage and diversity when it comes to people. So more to come and to share next year on this ESG topic. Let me now take you through a quick business review before giving the mic to Luca. And I'm moving to slide 13, which gives me the opportunity to remind you of our full year sales number by division. I will be quick as they were already detailed by Luca in April. Cognac, which represented 72% of our sales, grew 26% organically and 31% versus 19-20. Liquors and spirits. which contributed to 25% of our sales, recorded a 32% increase and a 27% increase on a two-year basis. And lastly, our partner brands, 3% of the group sales were up 15% this year. On slide 14, now just a word on the regions. The slide shows that total growth is well balanced across regions with all of them contributing to the overall performance. America has generated an excellent growth of 30%, up 52% compared to 1920, confirming a new paradigm that is being installed. In APAC, the solid growth was of 26%, representing a 20% increase in sales compared to 1920, despite a collapse of the travel retail activity. And finally, EMEA benefited from the economic recovery and the strong momentum of the on-trade channel. Being up 22% this year, the region is now on track to quickly return to its 1920 activity levels. Let's now focus on the cognac division profitability, whose great key figures are summarized here on slide 15. COP grew by 44% on an organic basis, so 59% versus two years ago, representing an increase of the margin of four points to 34% over the year. This is a record. This breaks down into an organic increase of 4.2 points, a slight negative currency effect of 0.2 points, and a neutral scope effect. The organic improvement reflects a strong gross margin improvement of 1.4 points, resulting from a well-balanced contribution in volume and mixed price. On top of the price increases, we benefited from the strong performance of our top-end portfolio, including intermediate quality products such as 1738 and Clements. These gross margin gains have been reinvested behind our brands in ANP, which were up circa 25%, particularly in the U.S. and in China. The stable ratio reflects the fact that we continued to invest to grow the awareness of our brands and fuel their future growth. The strong operating leverage of the division has thus largely absorbed the significant increase in investments in marketing and communication. The ratio contribution is up 2.6 points. Let's now have a look at the Decourse and Spirits Profitability Division whose key figures are encapsulated on slide 16. COP grew by 10.6% on an organic basis, 16.5% versus two years, representing a margin of 10.6, down 2.7 points. This performance reflects a decline of two points in organic terms, alongside a negative scope effect of 0.8, linked to the consolidation of Belle de Brier in May 2020 and Telmon in October 2020, and a favorable currency effect of 0.3 points. Being ahead of its strategic roadmap, the group has decided to reinvest a large part of its gross margin gains, 1.5% versus 2021 and 3.5% versus 2020, in marketing and communication to increase the awareness and the desirability of our brands, particularly Cointreau, The Botanist and Broke Lady, and to prepare tomorrow. botanist campaign in the u.s is probably the best example to illustrate the botanist is one of our priority brands and we invested far more than its current u.s market share would typically warrant but it was commensurate to our hopes for this unique gene and we will continue to mobilize all necessary resources to achieve our goal to become the undisputed leader in high-end gene with obviously a short-term impact on profitability but again The investments of today are the sales of tomorrow. At the same time, the group maintained strict control of its structural costs, so the ratio contribution was up 1.7 points overall. And let me now give the mic to Luca, who will take you more into details.

Thank you, Eric. Now let's move on on the detailed analysis of the financial statement and begin with the full year income statement. So, as already mentioned, organic sales were up 27.3%. On that basis, gross profits increased by 30.2% in organic terms, implying a plus 1.5 organic improvement in gross margin, i.e. 2.1 points on a two-year basis, reaching an all-time high. This good performance was driven by a well-balanced combination of, first of all, a strong volume effect of 92.1 million euro, led by cognac division in our key markets, U.S. and China, but as well, even stronger, mixed price effect of more than 100 million, 113 million, including splitting between a pure mixed effect, 60.1 million euro, resulting from our value strategy, as well as a pure pricing effect, 52.9 million euro, following price increases in all regions. Sales and marketing expenses were up 24% in organic terms overall, reflecting our decision to reinforce our investment behind our brands. But within this total, we have to split between, first of all, the AMP expenses that grew 37.4% organically, i.e. an organic increase of around 50% plus 45.8% on a two-year basis. So much more than our organic sales growth. Being head of our long-term plan, we have decided to reinvest most of our gross margin gains in AMP to unlock on a long-term basis our brand's mid-term growth potential and by developing their awareness and visibility. Most of the increase comes from the, technically speaking, above-the-line part, i.e., classic media, digital, and PR, around 70% of the total. Beside that, around 40% of our total all-nature considered AMP spending was digital. In parallel, second element, distribution costs increased by only 7% organically, But even more important, that means an organic reduction, organic decrease of around 4% on a two-year basis, reflecting an increase this last year in terms of key accounts in our international subsidiary, as well as some strategic OPEX to accelerate on retail, direct-to-client, commercial excellence, and optimization of the gross-to-net, net revenue management. This was partially offset by some efficient savings initiated during the pandemic. Administrative expenses increased by 28.2% on an organic basis, meaning plus 24% on a two-year basis, in line with our sales growth. This evolution, however, includes some specific costs. First of all, this year, two million euro of donation to the Rémy Cointreau Foundation, and second, around 5 million, 4.9, of charges related to mid- and long-term retention measure, profit-sharing programs, and the employee stock ownership plan. And then the remaining part was mainly composed by brands OPEX that reflects some additional accounts and some key investment in e-commerce, CRM and brands development and protection. All in all, current operating profit reached a whole-time high at 334.4 million euro, up 39.9% on an organic basis, and even more on a reported basis, plus 41.6%. After taking into account a favorable currency impact of 6.4 million on the bottom line and a negative impact of 2.4 million linked to the scope effects. More important, on a two-year basis, this represents, on organic basis, an increase of 56.9%. Operating profit margin stood at 25.5%, up to 2013, 2.3 points on organic basis versus last year, and up 4.6 points versus two years ago. Now, let's move to the analysis of the group current operating margin, which is an important and synthetic slide. It was up 2.1 points to reach 25.5 over the full year. Again, this is an all-time high, an all-time record. This breaks down into an organic increase of 2030 points, a neutral currency effect, a slightly negative scope effect at 0.2 point point, linked to the consolidation of Brier in May and Telmon in October 2020. The organic improvement of the current operating margin basically reflects a strong increase of the gross margin, first driver now and for the future year, fully reinvested into AMP, and an excellent control of our global distribution and structure cost ratios. In more details, first of all, gross margin was up 1.5 points as a result of a well-balanced strong volume and price-mix contribution. Second point, as said, AMP ratio increased in the same proportion at minus 1.5 as an impact on the bottom line. The acceleration AMP was a particular focus in our key markets, U.S. and China, and largely dedicated to our global priority brands. And at the end, as a last element, the ratio of distribution structure cost decreased by 2030 base point, reflecting an excellent control over cost despite a strong recovery of the business and despite some strategic investment on that line as well. Now, let's take a look at the rest, the remaining part of the income statement. So what's happening between operating profit and net result? Other non-recurring operating expenses stood at 14.1 million euro, representing essentially provision for international custom risk related to prior prayers and books already in H1 2001-2022. Second important element, the reported tax rate decreased from 35.1% last year to 31.1% in 2021-22, benefiting, profiting from the drop in tax rate in France as well as a positive geographical mix. But excluding non-recurring elements and items, the effective tax rate was 29.3% for the year to be compared to the 33.5% clean tax rate of last year. At this stage, we expect the tax rate to be around 30% in 2022-2023, alongside the gradual decrease of the tax rate in France. As a result, net profit share came in at €212.5 million, up plus 47% on a reported basis. but excluding non-recurring items, net profit came in at 228.1 million euro, up more than 50%, 52.6% organically, i.e. almost doubling, plus 82.4% on a two-year basis. Net margin excluding non-recurring items stood a very strong level 2, an all-time high of 17.4%, up plus 2.9 points versus last year, and plus 5.2 points versus two years ago. Last but not least, a very important financial element, excluding no recurring items, clean APS came out at 4.52 euros, up plus 52.8% on a reported basis and 81.5% versus two years ago. Now, slide 21, let's move to the analysis of the non-recurring items, i.e., the reconciliation table spreadsheet between net profit and net profit excluding non-recurring items. No recurring items in 21-22, mainly integrating three components. First of all, as said, 14.1 million euro provision, which mostly essentially reflect the provision for international customers relating to the prior periods and a minor goodwill impairment on DHG for 0.5 million euro. Second element, €3.4 million of positive non-recurring tax items linked to this provision. And third, a net €4.9 million charges on deferred taxes related to the impact of three sub-elements. First of all, the decrease of the legal tax rate in France on deferred tax assets. So the switch from 28.4 this year to 25.8 has some negative, no recurring implication in terms of revalorization of the deferred tax asset. And on the opposite, the increase of the legal tax rate in the U.K. on deferred tax liabilities from 19% to 25%. And third element, the decrease of the legal tax rate in Greece on deferred tax liabilities on trademark from 24 to 22. All in all, these elements have been neutralized for the non-recurring and clean profit. Now, one of the most important slides, land 22, the analysis of the cash flow generation and adept. Free cash flow generation stood at 90.4 million euro in 2021-22 compared to 123 last year. This evolution reflects, first of all, a huge, spectacular increase of the EBITDA, plus 110.9 million euro, on the back, as you have seen, of a significant operating profit growth, more than offset by a strong increase of the total working capital outflows. This increase of these outflows needs to be split between First of all, another strong increase of the co-working capital outflow related to ODB and spirits in aging process. This is the consequence, as said many times, of a higher level of purchases in cognac, ODB, and other aging liquids to prepare and to secure and to feed the future, compensated by a huge level of demand, especially in the U.S., Second element, important, other working capital items, outflows that were up more than 100 million, 118.4. And we have three elements that need to be detailed to explain this evolution. First of all, the base of comp. 2021 was not a normative year, but this is demonstrated by this positive variation last year of 35.8 million euro. Second, a meaningful increase of occurrence receivable of 43.3 million linked to a lower level of factoring. This year, end of this year, only around 15 million, 14.7 receivable, were subject to early collection via factory programs as of 31st of March 2022 to be compared to 55 million end of March one year ago. And third element, an increase of 30.2 million in other stock excluding ODV and other strategic aging liquids for the remaining part to avoid any product disruption in a contest marked by continued logistic and supply tensions. Second element to explain the freakish flow generation is clearly the increase of 17.1 million euro of the tax outflow reflecting the higher level of profits. This is a mathematical consequence. In the meantime, capital expenditure and investment of flow were stable, more or less minus 0.4 million, and below our initial expectation due to the pandemic that limited the physical execution of some capex problems. In parallel, other non-operating cash flow decreased versus last year. Once again, we need to explain a bit because we recorded an outflow of 129.3 million in 2021-22 versus an inflow of 13.6 million last year, so a swing. This was largely driven by the payment in cash of the dividend, 94 million more or less, then share by back, 170 million, partially offset on a positive side by the early redemption of 58% of the OCEAN. for 155 million, more or less. As a result, at the end of March, our net financial debt stood at 353.3 million euro, up from 314.3 in March 2021, leading to a decrease of the euro ratio from 133 to 0.79. So slide number 23, few comments on net financial expenses, which were a charge of $13.2 million this year, slightly down from $14.6 the year before. First of all, net debt servicing cost was slightly down in absolute value, reflecting a decrease of the monthly average debt. However, our cost of debt was slightly up from 1.01 to 1.15, reflecting a lower use of draw lines, of which part of them have non-usage fees. Net currency increased slightly to a 0.7 million euro loss this year. versus almost comparable loss of 0.4 the previous year. As you know, this is a volatile non-cash item related to the hedging of groups, non-euro debts, and future flows. Finally, other financial expenses, which amounted to 2.1 million this year, were almost stable compared to the previous one. So now slide number 24, move to the impact of currency edges. The group reported a positive translation and translation impact. Translation of 24.6 million positive impact on sales and transaction of 6.4 million operating profit in 21-22. Better than our expectation. This mainly reflects, in terms of currency mix, the favorable evolution of the euro-CNY. In addition, we enjoyed an improvement of the average euro-dollar translation rate of the period, which came out at $1.16 per euro this year, compared to $1.17 last year. At the same time, our average hedge rate was stable at around $1.17 per euro in 2021-2022 versus last year. But this is the past. As said, it's very important to talk to each other every quarter and now look at our forecast for the future. For 2022-2023, assuming, as is written, highlighted, an average euro is dollar conversion rate of 1.088. and hedged rate of 1.13, we anticipate an impact between 70 and 80 positive million on sales, with most of the effect recorded in H1, about two-thirds of that. And between 30 and 40 million positive impact on published COP, with also the same, most of the positive recorded in H1, two-thirds. So a huge contribution expected in terms of published element for the 2022-23. As the evolution of the euro-US dollar exchange rate remains very volatile, we will share with you an update every quarter. It's very important. Additionally, as a reminder, the sensitivity of the group versus our expectation is the following. One cent increase in the U.S. dollar versus the euro simulation, including additional impact of other currency pegged to U.S. dollar, is around 11 to 12 million euro gain or loss, depending on the variation on sales, and 7 to 8 million gain on operating costs. profit, all things alike. Bearing in mind that hedging in advance, like we do, we are a very cautious company, implies cost of 4 to 5 cents on the hedged theoretical rates. At this stage, for 2022-2023, we already cover 80% of our net U.S. and pegged currency exposure, U.S. dollar exposure, of which around 40% are options. Now, slide 25, move on the overview of the balance sheet with total asset liabilities of around $3 billion, $2.98, slightly up compared to last year. On the asset side, global inventory increased by $122 million to $162 billion due to purchases of young ODV and S&P. That's the reason why inventories account for 54% of total assets, stable versus last year, but in absolute value, this is a very important all-time high. At the same time, on the liability side, the shareholder equity is up by $113 million, reaching another historical level, mainly driven by the strong progression of net income and the early redemption of the OCEAN. This has been partially offset by the share payback program and the dividend recognition. Net gearing indicator, so the group's net-to-debt equity ratio, was almost stable over the period from 20% to 21%. Now, slide number 26, moving to the ROCI, Return on Capital Employed. our ratio came in strongly at 22.2% in 2021-22, up 5.1 points on a reported basis and 4.9 points in organic terms. This was driven by 5.4 points increase in the ROCI of the group brands and a positive swing in the partner brands ROCI from minus 50 to minus 1. It's a minor indicator, but mathematically it has a slight impact. The organic improvement was clearly driven by the strong performance of our numerator, our operating profit, up 39.9%, while employed capital also grew by a much slower piece, 9%. Looking at the performance by division, it is the cognac roach rose by 7 points to reach 26.7% on a reported basis, and that was up also 6.5 points organically as that drives this journey. Clearly, the outstanding organic co-op growth to the division, plus 43.8, more than offset the plus 8.1 organic increase in the employee capital. On the opposite, Lycos and Spirits Division had their ROCHES slightly decreased, declined by 0.9 points to reach 12.1, and was broadly flat in organic terms. This evolution reflects our decision to intensify, increase our investment beyond our brands. Eric Vallin mentioned just some minutes ago the example of the bottom investment during the Super Bowl, which is a good illustration. But beyond profit and loss effects, we also reinforce, we'll continue to reinforce our medium to long-term investment on CapEx and inventories. Now, slide 27, looking at the denominator, the capital employed more closely, the overall amount increased by around 128 million euro, mainly splitting between an organic increase of 123.9 and a positive currency impact of 3.8 million. On the organic side, the employed capital had an increase of 9%, reflecting a very strong increase in ageing inventories, around 60% of the total increase, and to a lower extent in manufacturing, storage capacity, and other inventories. So basically, most of the increase is linked to strategic long-term investment. Finally, let's move to slide number 28 and move it to the yearly dividend. Given our strong annual result and our confidence and serenity for the coming years, an ordinary dividend of €1.85 per share in cash will be put to a shareholder's vote at the AGM on 21 July 2022. In addition, an exceptional dividend of €1 per share will be proposed with the option to be paid in cash or share. Overall, it will represent an increase of 54.1% versus last year, and it is an all-time high. For your information, shares will be traded ex-dividend on July 27, and the dividend will be made payable starting from October 3, 2022. Overall, total dividend equates to a payout ratio of 63% of the recurring APS and a yield of 1.6 on the average share price over the financial year that was 178.59 cents. Now, let's go back to Eric. Slide number 30.

Thank you, Luca. It's quite a challenge to speak of the outlook in the context, which is clearly hardly predictable and not necessarily made of only good news, with the first quarter marked by the war in Ukraine, the lockdowns in China, inflation and the supply chain tensions. But you know what? Provided we are agile and reactive, we are confident and positive for the year to come. And there are reasons to that. Region number one on slide 31 is related to the fact that we have a roadmap which is now clear and well understood and which has been validated by the consumer trends emerging from the past two years, as I said. As a result, we are ahead of our 10-year plan, which is certainly not common. And this gives us means to invest more than we would have expected in the future of our brands. And sorry for hammering this again, but the investments of today are the sales of tomorrow. We are also confident because in the past two years, we have strengthened our organization and business model as written on slide 32. I said two years ago that the focus for the first two years would be on our transformation. I must admit that in a world which is changing ever faster, transformation will never end. And we will always need to be agile and to adapt, which is why we have appointed the Chief Transformation Officer. But we made good progress, more particularly on two fronts, commercial excellence and D2C activities. I am now moving to slide 33. You know, the only thing we know about the short-term future is that we do not know what it's going to be made of. This reminds me of my expat in Japan after three years. You know, the one thing that I had learned is that the Japanese culture, which I loved, would always be a mystery to me. Same here. I will not pretend I know what our future will be made of. It's unpredictable, whether it comes to macroeconomic with inflation and stagnation, health with the pandemic, or geopolitics with... what is happening in Ukraine. But there's something positive about it. First, it forces us to evolve our business model even more quickly, which is a focus of a group of our size for the better. And this inflationary context being high-end is definitely potentially a competitive edge for us. Also, we shall not underestimate the fact that travel retail is meant to recover in the coming years and accounted for 11% of our sales in the past. This year, we'll also benefit from positive exchange rates. But more importantly, again, the trends emerging from COVID are favorable to us, uptrading, obviously, but also the rise of cocktails, of Internet, and of consumption at home, which are driving D2C. I would like to conclude by the rise of environmental consciousness, which echoes our strong focus on terroirs. Hence our confidence in our potential, while not obviously ignoring the challenging environment. Which drives me to the conclusion before we take your questions on slide 34. I am fully confident that we will continue to outperform the exceptional spirits markets in 2022-2023 while ensuring the best execution possible of our strategic roadmap. We expect 2022-2023 to be another year of strong sales growth, but also of strong investments, particularly in ENP again. We are in the favorable position of being ahead of our long-term targets. This has freed up resources for further investments. And despite the current environment that I have just described, we expect to pursue our profitable growth trajectory, led by first a solid resilience of our gross margin, which will notably benefit from the price increases that we have realized last April, this April, across the board. and also thanks to a continued good control of our OPEX. Again, on the gross margin, I would like to stress that our positioning is quite unique and helps us afford this. We will also benefit, obviously, from the exchange rate positive impact, which could be up to 30 or 40 million on the COP. And, of course, this remains particularly volatile, and Luca will keep you updated every quarter. So I would like to thank you for your attention, and we are now happy to answer your questions. Thank you very much.

Please press star 1 on your telephone keypad now, please. Please ensure your line is unmuted locally, and then you'll be introduced into the call. That is star 1 on your telephone keypad now, please. We do have some questions in the queue already. And our first question comes from the line of Lawrence Wyatt from Barclays. Please go ahead.

Morning, Mark, Luca, Eric. Thanks very much for the questions and the call. Three from me, if that's okay. You mentioned a few things around inflation and the current situation that consumers are facing. Do you have any insight in terms of the current trading and any recent impact you've seen from consumers across your different brand portfolios? You imply that there's much less impact on the high-end products and maybe perhaps slightly more on the lower-end products. I wonder if you can if there's any sort of comments you can make by brand or by price point, that would be very helpful. Secondly, Between your two main divisions, your Liquors and Spirits margins are still well below historic levels. And, of course, you've increased AMP significantly in Liquors and Spirits. But as we look forward to the 2030 targets, should we expect more of the margin to come from the Liquors and Spirits division and with the Cognac division to remain at similar levels, or do you expect Cognac to also contribute meaningfully to those 2030 targets? And then finally, when we look at consensus for FY23, it's looking for around just over 10% organic sales growth for the year. You've made a comment of strong growth into 2023. Historically, I think that's meant well into double digits. Could you make any comments on consensus with that sort of 10% being forecast at the moment? Thank you very much. Yes, I'll take both.

Okay, I'll answer part of the second question as well, but I'll let you rebound, okay, Luca? So on inflation and current trading, so first, you know, not to be misunderstood, but what I said is that clearly being on the high end is being in a favorable situation when it comes to inflation. And so you hinted that potentially the lower entry price points, bronze, could be more affected. Yes. I would say that for me, high-end applies to every single category. Being the exception in every single category is being high-end. Even in a category which is more entry price points, when you are high-end, you are less affected than when you are entry price point. And we are high end on every single category. So I would say that whatever the category, we are probably more resilient than one could imagine, at least at this stage. And we do not witness at this stage a slowdown. We expect a double digit growth in the first quarter, despite very high comps. I remind you that last year we were growing 105%. on the first quarter, also despite the total closure of Shanghai and a number of cities in China. And this is not only and solely driven by our cognac. It's driven by a number of brands, and it's across the board when it comes to markets, except obviously Russia and China. So it doesn't mean there will be no impact. Of course, I cannot predict the future, but at this stage, if we look at the current trading, we see a strong resilience of our brands. As to the second question, but Luca, feel free to complete about the margin. Of course, indeed, it's been lower this year. Again, don't forget and don't underestimate the exceptional investments we've done behind our bronze. If we hadn't done the Super Bowl, the picture would have looked very different, and Super Bowl is not meant to deliver on last year. It's meant to Thank you very much. Definitely the reason why we overinvest today is because we believe in the strong operating leverage in the longer term for sure on these brands, which are creative from a gross margin standpoint. So it's all about volumes. And that's what we are aiming at. And as of today, this is what we witness.

I don't think that I have much to add because it was very clear. But in terms of contribution to the long-term journey, in terms of expansion of the bottom line, Lycus and Spirits, will be clearly more important than cognac. But the absolute value that are related to the divisions are clearly different. So cognac will still be the needle of the group of performance, but the expansion... is meant to increase in the five to ten year plan more than the cognac. So we'll be less reliant on top and bottom line to cognac than today. But to be able to do that with some brands that are already a very high gross margin, we need to have more size. To have more size, we need to invest. So chicken and eggs, but I don't know what is the chicken with the eggs, but we need to spend and bet on the fact that the spend are well done and lasting for the future. And then we have bear fruits on top line and increase the absolute value of the profitability division.

And spend in proportion of sales will decrease over time. Yes.

Definitely.

Yes.

Consensus will be a year of strong growth, beating the market, gaining value market share. As you know, we do not guide precisely. At this stage, the consensus organically is plus 10.2. We are comfortable with that. So we are comfortable with... with this kind of consensus in terms of top line. In terms of balancing of semester, we will start strongly the Q1 with a double digit growth.

That's all really clear. Thank you very much.

Thank you very much. Our next question comes from the line of Olivier Nicolai from Goldman Sachs. Please go ahead.

Hi, good morning, Mark, Eric, and Luca. First of all, just perhaps on the long-term guidance that you gave, not a lot of companies are giving guidance to 2030, which actually I've noticed it's now 2029. Considering the progress you've made and also the fact that FX is in your favor, could we expect you to reach your targets partly on growth margin before 2029? but the first question. Just a second question, going back on the US, could you perhaps give us a bit of an update on the supply chain issues that the manufacturing manufacturers have been facing, including you, the level of inventories in the trade today, and if you are concerned at all about any pricing elasticity on the SOP or 1738. And then lastly, on the FX guidance, I was just wondering if you could give us a rough split of a guidance of 30 to 40 million impact on EBIT between what's coming from the transactional effects compared to translational. Thank you very much.

You take questions one and three, Luca, okay? Yep. Yes.

I'll start. Okay. Long-term guidance. So maybe I was not clear. It is still the same. 2030 for us was meant to be March 2030. So it's the year 2029-2030. So we just ended year two. So the year five will be 24-25 and then 2029-2030. 2030 will be the year 10. The effects, always on this question, doesn't play a role because we recalculate every year. The performance, the same scope and same exchange rate of 1920. So everything is comparable because when we build the roadmap at 72 and 33 in terms of gross margin bottom line, This has been done without Brier-Telmon and has been done with an exchange rate of more or less 1.14, being an average between conversion and transaction of 19.20. The split between 30 and 30, I have it, but clearly I don't disclose because that's the reason why I keep a fork of this estimation because the more the dollar will beat the 1.08 on terms of spot rate to the unedged part, which is at this stage around 20% considering the volumes of the budget, the more is accretive or the opposite. And this being not covered is automatically positive or negative for the global profile of the P&L and the end. So at this stage, the 30-40 is linked to the cautious or less cautious position of the conversion component, which is by far the most complicated part to predict. because it's linked to the changes, the volatility of the dollar, but also to the net exposure, because we have a global amount. Just imagine that we are maybe performing better or worse than budget. The absolute value, which are uncovered, changes. So the global impact will be different. But the only thing that I can grant you, in total transparency, I think we are one of the most transparent companies on that to share our hypothesis with the markets. Every quarter, even if it's not a result-oriented report, conference call, even if it's a sales, we'll precise our state-of-the-art estimation in terms of how much we cover, how much is the impact on top line, so pure conversion, and bottom line, so mix. Every quarter we will discuss that so you can adjust the hypothesis and the published reported basis consensus every three months.

Thank you, Luca. And as to your second question with the focus on the U.S., first, you refer to potential supply chain issues. So, yes, there are supply chain issues. If you take one issue we have, for instance, is the difficulty to get drivers for the trucks in the U.S., which is delaying some of the shipments, knowing that at least the merchandise is in the U.S., but definitely we do struggle with that. So I'm not speaking here of huge delays, but I'm speaking of some delays. We also see the port of New York being more and more busy. We are better prepared than we were two years ago, of course, so the impact shouldn't be as dramatic as it was two years ago. But, yes, there are some logistic tensions. You also asked about the level of inventories. So our stocks were quite low at the end of the fiscal year, by end March, maybe two weeks on VSOP and a month on 1738. So very healthy stocks. We are currently restocking, but not in big quantities, marginally, maybe two weeks, because demand remains strong because of some logistic issues and also because we will manage our stocks throughout the year. But we are in the process of restocking and the issues we are currently facing are not that severe. As to price elasticity, particularly on VSOP, We don't witness it today, but it could be. It could be, but I wouldn't take it as a bad news, in fact. Because, so first, you know, we have increased our prices on VSOP and we haven't witnessed any negative impact. So it's pure conjecture at this stage. There's nothing certain about it for sure. If this is to happen, it will be on formats, for instance, that are not necessarily strategic for us, and it would give us an opportunity to accelerate the optimization of our mix. And our price sensitivity is certainly much, much less on 1738, a product behind which we invest a lot, whose demand is very strong. So here we are quite comfortable. And this would also give us potentially the opportunity to arbitrate more in favor of 1738, which would not be solely a bad news, obviously, and even a good news. So it would help us accelerate the improvement of the mix. But as of today, we do not witness yet at least any impact on VSOP. Don't forget, VSOP is very strong for Rémy Martin. We are the absolute leader on VSOP, and we clearly benefit also from the huge investments we've done behind our bronze, which has increased their level of desirability.

One additional point, which is not linked to your question, which is overall, It's a complicated year. We have some inflation all over the world, macro-political. All that considered, combining strengths and threats of the market, also of our company, 2022-2023 will be another year in which the gross margin will improve, will be higher than 2021-2022. So gross margin remains the first driver of the journey, even considering this context. I don't know how many companies are saying that today. We are saying that.

Thank you very much and congrats on your results.

Thank you very much. The next question comes from the line of Edward Mundy from Jefferies. Please go ahead.

Morning, everyone. Three questions for me, please. First, Eric, is just on China. We're hearing conflicting reports on the level of reopening. I appreciate you have a crystal ball, but could you share perhaps some perspectives on your key regions and what you're seeing on the ground and what you're hearing from key customers about the roadmap from here? The second question, again, for Eric, you've appointed a chief transformation officer. You mentioned that the business is much stronger relative to history, but could you provide a bit more color on what the brief is for the chief transformation officer? And then the third question, perhaps for Luca, coming back to slide 25 and the currency piece, clearly, where you're hedged at the moment is much higher than where spot prices are. Are you able to talk about fiscal 23 and 24, to what extent you're locking in at current levels, and should we assume a similar impact for fiscal 23, 24, as we're seeing for 22, 23?

I'm sorry, can you just repeat your question one? Sorry about that.

First question is on China. What are you seeing on the ground and what are you hearing from key customers on the roadmap from here?

So China, to start with, obviously these past 54 days or five days of confinement have been very tough for the teams. Obviously, it's been a very strict confinement with a very severe impact on our business for Q1, for sure. Now, what we see, what we hear is two things. One, A small survey that was made, not so small actually, on the number of confined people in China showed that there was an appetite for revenge, not only spending, but revenge living in a way, and that we could expect people to go back to restaurants, clubs, and so on. So some kind of revenge attitude. We already witness it in retail. So we see not in our stores, but in the fashion stores and so on. You see people queuing already, like after a number of days of frustration. It will take a bit more time for us, but we're quite confident that we will see consumption bouncing back. So in the short term, we are quite confident in our ability to to recover in China. And I would say recover even more quickly as our stocks are very healthy. So this is not only a sell-out, it's a sell-in and sell-out topic, but on both sides we're quite confident there. If you look at it more medium-term or long-term, obviously I cannot, as you said, I have no crystal ball on the political front, but what I can say is demographics are very positive for our business. Definitely the middle class growing fast is not bad news for us, considering the fact that we are accessible and affordable luxury in a way. And we have a very strong level of awareness in China. And second, the wealth equalization matter, which is something that is not totally clear, but is not bad for us either, as clearly it will increase the overall wealth of the middle class, which is, again, something which is positive for us. China, apart from the political unpredictable happenings, which we don't see coming now for sure, but we are quite confident in the short term and in the medium term for the regions I evoked. Also, we have a great team. I would like to say that one difficult thing also in China is to secure security. a good level of trust and great teams that, you know, and great consistency between the brand strategy and the market implementation. And this is what impressed me the most when I came back to Amy Cointreau, is the level of our teams in China and how good they work with, well, they work with our brands. And again, we cannot go to China. So it's very important, this level of trust. Now, moving to your second question and the CTO appointment. So it is first an acknowledgement of the fact that the world is changing fast. We need to adapt ever faster. The idea is not to create a kind of big business unit with a number of people. This is not the way we work. The idea is to have someone very senior with a very short, small team that will help us address a number of topics that we consider strategic and where we know We need to evolve not only our organization, but also our processes. To make it clear, this year the focus will be on two main topics. One is commercial excellence, which is still ongoing. It's a change of culture, and it's been kicked off in the U.S. It's been rolled out in some European countries, but it's still something that needs to scale up, and that will be her number one mission. And the number two mission is on D2C, and more particularly on the digital transformation. And here I'm not speaking necessarily of communication, which is handled by the brand, but I'm speaking more of every sales-related activities on e-commerce. And e-commerce is not only about opening our own e-boutiques. It's about addressing the whole ecosystem. And this is where there's a level of complexity and a level of adaptation required. It's already in progress, but we will accelerate with it. as she's a lady and she's a woman. And obviously, we do have some other topics that she will take over later, but her mission number one for the six months to come is this one, these two topics.

23-24 Forex for US dollar, considering same amount of net exposure of 22-23, so the expansion is not taken into account. because we need to re-evaluate that more complete way all around the year, the budget process. At this stage, we cover between 30% and 35% of the estimated needs. We have locked in a rate of 1.12. Then the option part is lower than the habits because considering the volatility of the dollar on the positive side of the stage, We have to combine a very cautious edging policy of the group with the fact that covering too soon could crystallize some position too soon as well. So I repeat, around 30% to 35% of 2022-2024. needs of considering the same amount of this year so it will be lower because we'll continue to improve hopefully in the US dollar next year 1.12 and of which only 1.3 of options Thank you Thank you very much Our next question comes from the line of Richard Withagen from Kepler Please go ahead

Yes, good morning, all. Thanks for the question. Yeah, Eric, I actually had a question on that consumer excellence that you just mentioned as the key focus point for The current fiscal year. So what are you doing? What are the changes? What are you implementing in 2023 more specifically? And you mentioned you already implemented it, for example, in the US. What kind of results do you see after that implementation? So that's the first question. And then the second question I have is on ready-to-drink products. I mean, certainly in the U.S., we see a lot of propositions coming to the markets, a lot of margaritas especially as well. So what are your thoughts on how that could impact the demand for Cointreau? As far as I know, you're not playing in that category specifically. So maybe your thoughts around that. Thank you.

So question one first. I'm not sure. I think you said consumer excellence, but maybe I understood wrong. So it's commercial excellence, which is obviously related to the consumer and the client, but it's really about our commercial internal matters. So I would say we are working on four layers here. The number one is clearly distribution, distributors management. So I'm not going to go into detail here, but clearly with all the possibilities now you have, to manage data differently, there's much more we can work on together with our distributors for a better understanding of the market, of the consumer behaviors, of everything that could help us drive more our commercial teams. The second one, which is related to that, is commercial planning. Commercial planning is really key. It's driven by a good collaboration between the distributor, our commercial teams, and our marketing teams, marketing in the field. And here also, we are working on anticipating more, planning more, so as to secure more impact for everything we do. The third driver is the growth to net. Clearly... There's a lot of room for improvement of the growth to net at Rémi Cointreau, and this is typically something we're working on, implementing tools that will be used also by our commercial teams, training our commercial teams on this growth to net topic, which is not necessarily something obvious, and which is key when you move from being very cognac-driven to managing a real portfolio. And the last one is... The consequence of all this is the organization of our teams. Obviously, we've gone through a reorganization in the U.S. to adapt to this new environment made of more e-commerce, made of more direct-to-client activities and so on. And this has been keeping us busy in the past six months, notably in the U.S., as I just said. So these are the four main, let's say, areas. There are, of course, others we're working on. So we have streams. They are rolled out. For every single stream, we have a region taking the leadership, and then we scale up. Is it proving to deliver? It's obviously early to say, but when you look at our gross margin, the way we have improved the portfolio management, I see a lot of results. And I am truly convinced, even though I cannot quantify precisely, that a lot is coming from it. You know, myself, I worked in a store for three years. I was a store manager and even an assistant manager at Louis Vuitton. And I can tell you that when your teams are briefed properly, when they have a good understanding of the drivers of the business, of how the growth to net is built and so on, if they are properly briefed, they deliver way more. And I'm sure that this is going to contribute sharply in the coming years as much as it contributed last year. As to the question on ready-to-drinks, so... Ready to drink were very fashionable 20 years ago, are fashionable again. It might be more long-lasting, I'm not denying it. I think it's more competing with beer and some other potentially alcohols than ours, but it's still a reality for us. You know, our value strategy is made of drinking less but better, and it's certainly not of, let's say, selling more non-alcohols. We are focusing on our liquid. It does not mean – plus, sorry, it is today not necessarily generating value and not necessarily very, let's say, magnifying the liquid, you know. So I'm not denying that for some of our brands, like Cointreau, which you referred to, It could be of interest to do it the Cointreau way, certainly not the way it's done today, to kind of reinvent this ready to drink topic. It's something that I am not denying as a potential topic of interest that we might test in the near future. But again, it is not strategic. There is so much we can do with our liquids as they are, with the growing cocktail culture, and this is our main focus, and this is where the gross margin will come from, much more than from ready-to-drinks.

Thanks, Eric. Thank you very much. The next question comes from the line of Fintan Ryan from J.P. Morgan. Please go ahead.

Yeah, good morning, Mark, Eric, Luca. Thank you for the opportunity. Three questions for me, please. Firstly, during the presentation, you mentioned the increasing weight of the intermediate products, 1738 in the U.S. and 12 in China, and how that's improved over the last two to three years. Can you give us a sense of what the current state is now in both those key markets in terms of the SOP, intermediate, and XO and above within your contract portfolio? And what does the optimal portfolio look like if you sort of go out to your FY30 margin targets? Secondly, just more on the sort of short-term gross margin drivers, fairly gross margin has been a key driver of expansion in FY22. As you think into FY23, what should we be thinking about in terms of the levers of mix, absolute, and product mix, absolute pricing, and the maybe offsetting factors of incremental COGS or input cost inflation? And thirdly, just maybe back on the free cash piece for next year, you mentioned that your CapEx plans have been a bit slower than you had anticipated. Could you just give a sense of what CapEx budget you're looking at for FY23 and also the other working capital items? Would you anticipate them being a big delta in overall free cash delivery for FY23?

Lucas, you take question two and three, okay? And I'll take the one, number one. So on the intermediates and actually the whole Cognac portfolio and in the various regions, the situation is obviously very different from one region to another. I would say that if you take the U.S., the whole portfolio is very healthy. I mean, we see healthy growth on the whole portfolio. VSOP, obviously, but more importantly, 1738, growing way faster. As we said, it's gaining share against VSOP. It's also partly our decision of improving our mix. But clearly, we see very strong traction on 1738, which is clearly driven also by the strong investments behind. And also, not to be underestimated, we enjoy a strong growth on EXO. You know, I like to say that I remember six years ago on EXO, our EXO was $110, and our lovely competitor, our main competitor in the U.S., EXO, was at $190. We have repositioned the XO. We are now on par with our competitors. We lost 50% of our volume overnight, and we've regained the volume, and we are enjoying steady growth in the U.S. I would also like to quote Huitrez, which is enjoying a very interesting momentum in the U.S. As we said also, Huitrez was probably the number one brand to suffer from the pandemic and the closing of the on-trade, but it's also the number one brand that recovered from the reopening of the on-trade. And we also see the benefit of the up-trading with Retrez. Clearly, we do have a momentum. So I would say that Rémy Martin brand in the U.S. is very healthy. That's probably why it's gaining a market share, as we can witness. Europe is very different. Obviously, Europe is a myriad of countries. The brand is very healthy there as well. It depends on the regions. But overall, I am currently the interim CEO of EMEA. And I can tell you as a CEO of EMEA that I have to manage countries which every day are crying for more cognacs. So I'm discovering part of the job of my successor soon, which will not be easy, which is to manage this. And as to China, we spoke a bit of China. I would like first to start with Luitres because I said during the presentation that we are going through a re-engineering of the business model. I would like to insist that if we achieve our plan, and I believe we will, Luitres might be the only luxury brand, even more than the brands I've been working for in the past in fashion or whatever, that will be fully integrated because we are in the process of integrating downstream. But upstream, we are very integrated. So if we manage this with Retrez, we will definitely create a lot of value. And this is in progress. We are making good progress. Just so you know, we have divided by two the number of wholesalers we are working with this year. So it's a great step forward. working in a very different way with them. And actually, despite this division by two, we are going probably and we are going certainly to achieve more sales with Bitraise than last year. And we do enjoy an interesting momentum. Let's see with the reopening now, but... We are quite confident. For the rest of the portfolio, Club is very healthy, gaining market share. This is not new. We launched a 360 plan on EXO years ago, and it's really proving very efficient. We are increasing prices and increasing volumes. So all good here. And then EXO. EXO is our game changer in the future. I'm not saying it's a make it or break it, but it's a fantastic opportunity. We do not have our fair market share today. We probably have 8% market share, while our market share is between 14% and 16%. So there's a lot to regain there, which is why we are proactively working on this 360 plan I referred to. telling you that it's delivering. It's too early, of course. We saw before COVID some interesting growth. We believe in the opportunity of e-commerce for XO as well as a good driver. So let's see how it pays off once it reopens, which is the case since the day before yesterday.

Margin in 22, 23. So as said, we elaborated a bit more. To the question, are we expecting, as many other companies of our sector, to see a stability or deterioration gross margin due to the global environment? No, we don't. We think that the gross margin, global, at a group level, will be higher in terms of ratio to the turnover compared to 2021-2022. So even if we are not denying there are some headwinds, macro-political or specific, liquid cost, we highlighted that also 12 months ago, that the cost of good, even before the rise of the inflation, before the political situation, the world... confusion at this stage, was 22-23 was meant to be a more costly year in terms of COGS, packaging, COGS components, logistic context. On top, e-com and digital journey increasing, means additional pressure on logistics, on gross margin. CSR is very positive. as a global value, but sometimes could be specifically on a short-term negative internal gross margin. So we are not denying all that. But we have much more. And in terms of dimension, things of the absolute value of the COGS and logistics, the absolute value of the gross, when Eric talks to gross to net, what is gross? It is the theoretical top line we are delivering, before counting the discount to the trade of the final client. If you're able to improve that in qualitative but also quantitative basis, one point is 4 to 1 compared to the cost. So we have a lot to deliver. We have a lot of elements to mitigate and even beat these inflation issues, price increases, mix improvement, mixes, format, ranges, states, brands, geographical channels, we are really, on this moment, on a positive momentum. And a very important price increase will be done in April. We have still a strong pricing power. So even if difficulties are there more than ever, even for us, we think that... we will increase the gross margin group ratio compared to the turnover overall at group level. I'm not saying that it will be the same thing brand by brand, but at group level in 2022-2023 compared to the previous year. We are very proud of that. Free cash flow. Free cash flow before non-operational... element like dividend and so on, share back this year. It will be higher than this year because, okay, capital expenditure, your question, will be higher than what we experienced this year, will be between 70 and 80 million, which is our normative guidance for a normal year. If you are not able to reach it, it's not because we don't have plans. Because the pandemic sometimes makes things go slower than we want. But it's 70 to 80. And as well, strategic working capital outflow will be higher than this year. It will be between 70 and 80 million. So technically speaking, we have... 40 to 50 million more in terms of headwinds in cash flow. But even if we say that, we'll be beating that. Why? Because cash is cash. In cash, you count the published result. It's not organic. So in this moment, you have the conversion of the dollar that plays a role. On top, we cannot consider the other working capital item of this year as 118 million point four as an exit, as a normative one. So clearly, some technical element of this year we reverse. And also the amount of trade, the account receivable is linked to the way we are doing business. This year was a low point in terms of factoring. Historically, we have more than 100 million in factoring. So the free cash flow, even if we are increasing strategic working capital expenditure, will be higher than this year. Great.

Thank you, Luca. Very clear.

Thank you very much. The next question comes from the line of Jeremy Fialco from HSBC. Please go ahead.

Hi, good morning. A couple of questions from my side. I think terrifying elements of your guidance for 22, 23. So the first one is on the top line and the circuit double digit consensus organic growth strategy. which you said you're happy with. Is there any expectation that there will be a degree of restocking included within that? Or would you anticipate ending 2022-23 with a similarly low level of inventories that you've ended 2021-22? And then if you were to decide that you want slightly more inventory in the system, would that constitute some upside to that current consensus where it is? And then secondly, on the operating profit side, obviously you've signaled that your gross margins will be up in 2022-23. The comments you make on control of OPEX implied you'd expect some sort of leverage through the sales line there. Can you just confirm whether that's the case or whether you think the kind of A&P and OPEX will grow roughly in line with sales in the coming fiscal year? Thanks.

Feel free to... because maybe I will be too dry on the answers, so feel free to include some comments. We are not happy. We are comfortable. So we are okay with the guidance. Here are strong growths, starting with a strong H1, because we are not... This is a slightly difference. Technically, we simplify that, and Rick simplified that, saying we are restocking. We are realigning. It is more correct. We ended the year with overall... less stock that we wanted to, not only in terms of selling, because the sell-out, the final retail was not able to grab the product, to drink the product they wanted. So there is no restocking in a negative way that would be considered. It is a realignment. At this stage, the year is designed to be more balanced compared to the 2021-2022, We are starting strong, but even if on the heels of very, very huge comps, we'll be more bounded between H1, H2, and also between quarters. So at the end of the year, if the world was this main paradigm of 2021, we will end with a bit more coverage. But now let's talk about chicken. In 2021, we invited 10 people to have dinner and everybody was meant to have a chicken because they like chicken. And we ended with three chicken, four. And now we are inviting them again and we are restocking. But actually we are not. We are partially realigning, switching from three to six section. But now they wanted 10. So we are still missing some part. And the good news is that they like very much our chicken. So they wanted not one, 1.2. So we need 12 chickens. So even if the year is more balanced mathematically, I'm not excluding that in terms of mathematical coverage of the new paradigm, we'll be ending at a lower pace. even more in volume than in value, because the game between formats and ranges will amplify, VSOP 27838 in China, VSOP to the club, this kind of chicken, so red label, blue label. So it was a little bit a metaphor, but to try to explain that there's more balance, but even having said that, We might end with a low level. That means that probably if the final consumption is still there, like we think is still developing, we will have a strong Q1 in 2023, 2024 as well. You're perfectly right on the second assumption, gross margin increasing next year, AMP increasing as well, but OPEX overall, even if we are not giving up on strategic investment in OPEX as well, will be growing less than the top line. So if your global collective guidance is a double digit plus 10.2 in top line, operating expenses at group level without stopping any important problem will be growing by the lower piece compared to the top line. And on that point, it's a great achievement because... We had a technical problem. Happening in the studio. So even that is a great achievement because there is inflation also on salaries. Salaries are very important for our people and we treat well our people as well. So growing in OPEX less than top line because of the environment is at least a huge achievement as increasing gross margin. So You're right, but I wanted to highlight some additional color on that.

And I don't think you were dry, and I will not elaborate. We will stay on your chicken story. Even the furniture was moved by the story, so we will stick to this.

Thank you very much.

Thank you. So we will be taking our last question. It comes from the line of Trevor Sterling from Bernstein. Please go ahead.

Morning, Erica, Luca and Mark. Three questions, sorry to have three at the end of the day. The first one, Luke, I was just going back to your waterfall chart on cognac margins. We're struck by that 2.6% margin expansion coming from distribution and others. And I wanted you to just give us a little bit more color on is that mainly operating leverage? What's going on behind that? Second one, bigger picture stuff. Liquid availability. I think through the year you've been a bit short of liquid. You haven't as much aged liquid as you would have liked. I think you've been prioritizing 1738 over VSOP. As you move into F23, do you think your liquid supply or availability is more in line with your expected demand? And third thing, Eric, coming back to your point on ESG and 78% of acres under sustainable cultivation, is that your own acres? And what are you tracking, you know, the acres that are under the cultivation of the growers and the bouillies de cru?

Can you repeat the last question? Sorry.

Yes, on your ESG section, you talked about 78% of acres being sustainably cultivated. I'm just wondering if that was the company-owned acres, and are you also tracking the acres that are under the control of the wine growers and the bouillard de cru?

Okay.

You want to answer question one?

Yes. Okay. This is the impact of the leverage of global cost structure for the cognac was spectacular also because it's linked to the increase of the size. In a word, the cognac means... are already there, even to support an even stronger top line. At the same stage, the Lagos & Spirits division, which is more composed by different brands, has at this stage some more account, some more investment, if you compare that to the structure of the top line. But as we said before for the EMP, for the customer spirits, also for the OPEX, this is the first part of the journey. Then increasing the size, we will stop and declining also the ratio of OPEX, not only of EMP, compared to the top line. So at this stage, this important cognac market leverage ratio so profit to the to the to the global profit is linked to the fact that the global means are already there and adapted to top line which is totally accretive so the additional dollar the additional euro made with the cognac has a much more accretive impact on the global profit bottom line than liquid so far it won't be the same case in some years

So as to your question on liquid availability, supply, and the 2030 plan, the first thing I'd like to stress is that, first, we have the liquid to achieve our 2030 vision. It's a vision that was also drawn, taking into account our sourcing capacity. I would even say that we can achieve more on the upper grades, particularly on EXO. As you have understood, we have an ambitious plan, and we do have the liquid to achieve more on EXO. So there is a way to do more on the upper grades. The thing is, indeed, we are growing way faster than we had originally planned. So I think it's good news in a way because it will help us achieve, it is going to drive value even more than we had planned, should demand remain that much stronger than the offer. So it can have a positive impact on value. Of course, it is creating tension on the liquid, which is not something new, which is something that we've been facing over the past few years. So we've been working on our side on how to optimize our sourcing, how to gain sourcing. I will not tell you it's easy. I will tell you it's a focus, of course, and we are working on securing liquid to achieve even more than the vision. But it is work in progress. We do have some interesting assets to achieve such assets. starting with the fact that we have this unique relationship with the wine growers, driven by our business being probably more family-driven. But obviously, it's not only and solely about this. Even though it matters, don't underestimate that the wine growers, they are... family owners and managing their patrimony like we are, and it's very important for us as an asset. But obviously, we are working on new tools to secure additional sourcing. The only fact of sharing our ambition with the wine growers, I think, has been a very interesting step forward in the past few months. And whether we indeed the 100% target, so of course it is direct and indirect. So it's not only our terroir, not only our acres. If you take Cognac, we are already certified 100% and we've been pioneering in the region. So it's clearly the 15,000 acres target. that directly or indirectly contribute to our products that are at stake. And we are working with our orange suppliers. We are working with our cereal suppliers and so on. We've been doing it for long. We are just accelerating on a topic that has always been the focus for us, anyway being very terroir-driven.

That was very helpful indeed. Thank you, Avi and Luca.

Okay, so we'll hand you back over to the speakers.

Sorry. So thank you very much, everyone. I hope that you got it. Obviously, it's been a record year for us. So it's pride for our teams. I would like also to congratulate them worldwide. Records when it comes to sales, when it comes to gross margin, when it comes to COP. I would like to insist that this has been achieved thanks to the heritage of sometimes up to 300 years of craft. It starts with a great product, and this is our heritage. This is what we need to transmit to the next generation. But it's not solely this, of course. It's also driven by our solid investments and by trends that we believe are long-lasting, hence our confidence while not denying, of course, the global environment. So thank you very much for your attention and looking forward to speaking to you soon. Bye bye.