Remy Cointreau Sa Ord

Hello and welcome to the Remi Cointreau 2324 Q1 Sales Publication conference call. Please note this call 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 0 and you will be connected to an operator. I will now hand You're over to your host, Mr. Luca Marotta, CFO, to begin today's conference. Thank you.

Good morning, everyone. Thank you for being here with us this morning. As you have seen in the press release, Q1 sales were down minus 35% in organic terms, in line with what we expected. This performance reflects On one side, the huge base of comps that recycled. As a reminder, Q1 last year was up plus 74% compared to Q1 1920. On the other side, San Panto and expected headwinds in the U.S. I will come back on it in a few seconds. In parallel, the rest of the world generated a very strong double-digit growth driven by China, Southeast Asia, EMEA, and Strawberry Tail. This performance is split between a negative price mix of minus 9%, which reflects a strong negative mix linked to the underperformance of the Cognac division compared to the Lyphosate Spirits division. In the meantime, volume decreased by minus 26%. I will detail it on the next slide. Overall, Q1 sales were up plus 14.3 as compared to pre-COVID level. Looking at overall sales performance by region, Americas recorded, as expected, a massive decline due to different reasons. First of all, ICOMS, and second, major reason, meaningful stocking, essentially on cognac. Compared to 1920, America is down approximately, at the end of Q1, minus 10 points, 10%. This negative performance on a four-year basis is specific and punctual and will reverse already starting from the Q2. APAC was up very strong double digits, led by China, Southeast Asia, and they continued recovery of the travel retail channel, even if chinese tourism is not yet fully back this represent plus 30 percent growth versus four years ago emia was up meeting showing a broad-based growth across the region india is up at more than plus 35 percent compared to four years ago this was shipment sell-in Now, talking about value depression at group level, the best approximation of a final sellout or final consumption. At the regional level in the US, value depletions were down low single digit, i.e. stable if we exclude the SOP. As compared to pre-COVID, four years ago, value depletions were up plus 45% and increased more than 75% excluding the SOP. More importantly, we enjoyed a strong sequential improvement throughout the quarter with June back to positive in terms of exit rates. In China, value depletion were up very strong double digits in Q1, led by all cognac segments. On a four-year basis, China's value depletions were up plus 20%. Finally, in EMEA, value depletions were up strong double digits, led by Africa, Middle East, Benelux, and Eastern Europe. This represents an increase of around plus 50%, 5-0, compared to Q1 2020. In a word, strong, huge value depletion performance at the end of the quarter, comparing to four years ago. To conclude on this very first slide, I would like to reconfirm, reass our full year guidance. We expect to remain stable both in sales and profitability on an organic basis. 2023-24 as a year will be a year or two halves in sales and operating profit margin, with H1 strongly negative and H2 showing a very sharp, terrific recovery. On page three and four, we picked up some marketing initiatives that have been undertaken over the last quarter, first in the US and then in China. Let's start with page three and the launch of the new Quantro campaign, the Margarite, on June 14. As part of the celebration of the 75th anniversary of Margarita Cocktail, this 360 degrees campaign includes a large activation plan on-premises, off-premises, e-commerce, social media, and out-of-home panel across high-traffic locations. So far, the results were very positive, with 230 around millions of impressions, 39 millions of views on digital media, and a positive, very positive consumer sentiment in response to the campaign. The heart of the campaign runs through September, while we'll keep it to some degree throughout January. On page four, just a quick word on China. This slide illustrates the last e-commerce operation that we made in China during the 6-18 shopping festival event. We managed the day on our two key digital platforms, Tmall and JD.com. On Tmall, we proposed a special edition, Club Radiant Sun, and we came up in the art territory with the Chinese artist, Chef Chen, at the Affordable Art Fair in Shanghai. During this event on live streaming, Chip Chen, interpreted in front of the camera, is inspiration on a radiant sun barrel by graffiting his iconic motives. The same time, the other platform, JDIC.com, we offer the special edition Club Shenzhen, leveraging the influencer Austin Lee, for an outdoor lifestyle e-commerce live streaming in Shenzhen as well. This day has been a strong success for Remy Martin, above our expectation, with around plus 25% of sales growth on Tmall and JD.com. We have been ranked number one among Western Spirit brands on JD.com and number two on Tmall. Now, let's move to Q1 sales and figures analysis, slide number five. Sales amounted to 257.5 million, down by 152.4 million year-on-year, or minus 37.2% on a reported basis. This reflects a very strong organic decline of 143.5 million euro, i.e. minus 35.0 of organic sales decrease as expected, and the negative currency translation impact of 8.9 million or 2.2% loss in Q1 2022-2024. This loss In terms of conversion, it was largely driven by the deterioration of the Chinese yuan for 4.8 million euro and the U.S. dollar for 2.1 million euro. In addition, some other currencies like the Canadian dollar and British pound posted slight losses of respectively 0.6 million euro and 0.4 million euro. On slide number six, I would like to share the performance by division at group level versus Q1-19-20, so pre-pandemic, even if this is not at our advantage this time due to the important stocking on the U.S. cognac. On the left, the evolution of group sales at constant exchange rates. In the Q1, we grew at 14.3% on a four-year basis, including a volume effect of plus 8.2% and a strong price mix effect of 6.1%. Looking inside this performance of the four-year by division, on the right part of the slide, we have First of all, on one side, the cognac division declined by 4.4 percent, contrary, over four years, due to the U.S. stocking, as already mentioned. And consequently, volume were significantly negative, but price mix still strongly up by 25.6 percent. On the other side, Lyquors and Spirits were up 69.7 percent, which is huge and showed a well-balanced breakdown between volume and price mix. Now, let's turn to slide number seven, digging into organic trends by region. And let's start with the Americas, whose organic sales recorded a massive decline of more than 60%, mostly impacted by volume, while price mix was negative due to the strong underperformance, mathematically speaking, of cognac compared to lichens and spirits. More specifically, inside this region, in the US, sales declined at the same pace, reflecting huge comps, meaningful stocking, and to a lesser extent, some phasing effect on Lycosin spirits following a very strong Q4 in 2022-2023. This performance is clearly, and as expected, negative. Having said that, the positive news is the evolution of our inventories, which lends now, in our best estimation, to four to five months, so a decrease of at least one month compared to three months ago. This is not yet enough, but we are clearly going in the right direction. Sorry to repeat myself, but this KPI is a very complex one, relying on different moving parts, such as, first of all, the timing of the shipment inside within the quarter, and second one, more important, depletion forecast of the future and timing of the depletion execution as well. Even if the depletion trends are clearly encouraging, we prefer to remain cautious at this stage and be focused on their evolution on a weekly basis. So again, the best KPI to monitor at this stage All that is the value-depletion underlying trends. In Q1, they were down overall, low single-digit, i.e., stable, excluding VSOP, and improving month by month. In Canada, sales were down strong double-digit in a challenging market impacted by the economic context and some destocking. And following, and disappointing Chinese New Year in Q4 in Canada, as Chinese tourism is not back yet. However, on a positive note, San Remy, which represents a third of our sales in Canada, recorded a solid sound performance. And at the end, Latin America was up a single digit in Q1, with solid underlying trends in the wake of tourism recovery. End of June 2023, America's region accounted for only 35% of our group sales, meaning down 31 points, 3-1, compared to one year ago. Second region is APAC, in which organic sales were up a very strong double-digit year-on-year, i.e., plus 30% on a four-year basis. Looking at the volume value equation on this region, performance year-on-year was equally driven by volume and price mix, very balanced. China sales inside of this region were up very strong double digits, benefiting from the on-trade recovery and were essentially led by our Cognac references, including Club, XO, DSOP, and We13. We recorded another strong performance in e-commerce, mainly in D2C and B2C, above our expectation. Thanks to the strong activation plan for the 6-18 Festival on tmallng.com, we recorded a very important performance. Meanwhile, value depletions at group level in China were up a very strong double digit as well, leading to a sound level of inventories. The remaining rest part of Asia reported very strong WG growth in Q1 in Southeast Asia, particularly in Malaysia and Philippines, while it was more challenging. End of June, 2023, APAC region accounted for 35% of group sales, up 17 points compared to last year. So you see, 35 Americas, 35 APAC, and you will see it may have 30. So even with a big stocking, a more balanced picture regionally speaking. EMEA organic sales were up mid-teen and at more than plus 35% compared to four years ago. This year-on-year performance was equally driven by volume and price mix, a little bit the same picture that we experienced in IPAC. Inside that, by sub-region, Western Europe was up at very strong double-digit growth, led by Germany, France, and Greece. The UK showed a solid resilience, despite high comms, at high single-digit, driven by value market share gains and sub-positive phasing effects before the expected duties spike increase that will happen in August. The remaining part of EMEA, we recorded strong dynamics in Benelux, Africa, Middle East, and Eastern Europe with clearly cycle low comps. Eastern Europe without Russia because we don't sell to Russia. Over the quarter, value depreciation were up a strong double-digit year-on-year, so another positive element for this region. End of June 2023, as already said, EMEA region accounted for 30% of group sales, up 14 points compared to last year. Let's now turn to slide number eight in the analysis by division. I start with the cognac, the heart, of the group. Cognac posted an organic decline of 44.7% in Q1 2020-24, including a significant important decline of 55.1% in volumes and a very strong price-mix gain of 10.4%. End of June 2023, Cognac division accounted for 60% of our sales, 6-0, down 11 points compared to last year. By region, let's start the most important move weight now, region for the cognac, which is APAC. In APAC, we'll start with mainland China. Sales were up very strong double digit, approximately plus 100%, so the double of Q1 1920, driven by on-trade recovery, a very good performance of the e-commerce during the 6-18 festival. And to that, I would say that e-commerce grew approximately at plus 30%, mainly on B2C and B2C, leading to a total sale penetration by channel of 33%. The overall performance was led by all cognac segments, Club continued to clearly outperform the market, while XO showed some positive early signs. As a result, inventories level remained sound and our outlook is positive despite a clearly challenging macroeconomic context. Looking at other areas inside China, Taiwan recorded an outstanding performance, while Macau performance was muted, as gaming activity is not yet fully back. Finally, Hong Kong was slightly down, impacted by some phasing effect. At the same time, value depressions were strongly up in the Q1. Cognac division now looking inside America, and started with North America, so the combination of USA and Canada. Cognac sales were massively down year on year, at more than 75%, impacted by extremely high comps and a very meaningful stocking effect. As a reminder, Q1-22-23 last year, in the US specifically, was up at more than 190%, so almost three times compared to Q1-19-20. In addition, in a market that showed structural price decrease in a more global promotional context, Remy Martin continued to reinforce its price positioning by slightly increasing its prices on April 1st. On a four-year basis, sales are down a very strong double digit and turn positive at mid-single digit if we exclude the SOP. At the same time, U.S. value depletion for cognac, where we are down minus 4.5% year-on-year, i.e. around 38%, 37.9% increase versus Q1 1920, or approximately plus 90%, so almost a double, excluding the SOP. More important to note, they showed the U.S. cognac value depletion a sequential improvement throughout the quarter, June being back to positive lens. And Remy Martin, 7038, was back to positive overall in the full quarter. Price mix effects were positive at plus 8 points year-on-year in the last 12 months, more longer periods. ending June 2023, led by price increases as well as positive mixed effect. On a four-year basis, price mix in value depletions was up of plus 27 points. Latin America subregion was up a very strong double digit, supported by continued tourism recovery. Last region, Cognac, EMEA, Cognac says we are up a very strong double digit, led by all regions, particularly Africa, Middle East, and Western Europe. Meanwhile, Eastern Europe generated a strong WDG growth from low comps, and the UK showed good resilience. Overall, inside the EMEA, Remedy SOP and RE13 were the two big winners of the quarter. Now, let's now turn to slide number nine and talk about the global Lycos and Spirit division. Lycos and Spirit division posted a decline of minus 11.4 in organic sales in Q1 2024, including splitting to a decline of 7.6% in volume, mainly due to the Americas, and the negative price-mix effect of minus 3.8% linked to the phasing impact on Cointreau in the Americas. End of June 2023, Lycos and Spirit division accounted for 37% of our sales, up 10 points compared to last year. Now let's review the performance of the division by region, starting with the Americas. In North America, sales were down strong double-digit year-on-year, approximately plus 70% at the same time compared to Q1-19-20. impacted by very high comps. As a reminder, Q1-22-23 in the U.S., also for this division, was up at around plus 160% versus Q1-19-20. In addition, the division faced some phasing effect linked to some distributed restocking in Q4 just before the price increase on April the 1st. This was particularly visible in Quantrop. The same time, underlying trends remain healthy, and saline will renew with growth from the Q2. Quantro Q1 U.S. value depletions were up plus 4.1% year-on-year, comparing to very high comms. These represent an exceptional growth of plus 85.4% compared to Q1-19-20. Besides, on top, price mix was up by four points versus last year in the last 12 months period, ending June 23, and up plus 25 points on a four-year basis. So also, on control, there is a huge valorization and value depletion compared to pre-pandemic, not only in cognac. In parallel, Latin America's sales were able to be stable in Q1 2020. If Cointreau performed very well, Mungay declined in Barbados, affected by lower tourist traffic in the island. In EMEA, important region for lichens and spirits, sales grew at mid-teen in Q1, Euronia led by Cointreau, the whiskies, and Saint-Rémy. Western Europe, Africa, Middle East, and UK outperformed and generated a double-digit growth, while Benelux showed solid dynamics led by whiskies. Finally, Eastern Europe recorded very strong WDG growth for a very low basis. APAC, for this division, inside APAC, China posted a strong WDG sales decline in Q1, approximately plus 35% if compared to Q1, 1920, impacted by some of the stocking and retail levels following China's New Year on this division, and aggressive promotion from high-end competitors. Remaining part of Asia performed well and recorded a mid-teen sales growth on Q1 year-on-year led by Japan, New Zealand, and Thailand. Which brands? Cointreau, Whiskies, and Telmo Champagne. Before to conclude, one last word on the performance of the Nungro brands, which now represents 3% of our group sales at one point year-on-year. They were down by around 5%, minus 4.6% in the Q1, mostly affected by the UK, where our non-group brand, Passoa, is facing a strong discounted competition. In conclusion, slide number 10, we are reconfirming our guidance disclosed end of April. Following two outstanding, amazing years, Rémy Cointreau expects full year 2022-2024 to show a continued strong normalization of the consumption in the U.S. However, it will settle at new normal levels significantly above 19-20 pre-pandemic levels. At the same time, we expect a strong organic growth throughout the year in the rest of the world, including China, where we forecast we expect major sales gains. EMEA and the rest of Asia that should generate very good, strong performance. And of course, on top, travel retail channel that should reach this year pre-COVID levels in terms of sales. In this global sales context, unbalanced, but overall focusing this target, the group expected total sales to remain stable on organic basis for the full year 2022-2024, with a strong decline in sales in the first half, reflecting essentially a very strong fall in the US and high basis of comparison. And, clearly, a very strong recovery in the second half of the year, driven by a sharp rebound in the US starting from the Q3. Meanwhile, Rémy Cointreau intends to confirm its organic level of profitability, meaning stability also in terms of organic profit compared to last year, based on four different elements. First of all, a continued rollout of our value-driven strategy built on a firm pricing policy and improved price mix. Second, a resilient gross margin in a persistently inflationary context. Third, stabilization of the AMP ratio as a percentage of sales at group level. Fourth, very important, tight, extremely tight control of our overhead costs. Thank you for your attention, and now I will be happy to answer to your potential questions.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. To redraw your question, please press star 2. The first question comes from the line of Simon Hills calling from City. Please go ahead.

Hi, thanks, Luca. Good morning. A couple of questions, please. Could you just talk a little bit more about the scale of the impact of the USD stocking we saw on the Q1 results? I think from memory, you indicated back at the Q4 sales that a one month's work of inventory reduction equated to about a 40 million euro impact on group sales. given that you said in the presentation there that you've probably seen about a month's inventory reduction. Is that the sort of level of impact that we did see in Q1? And then on the go forward, how do we think about the ongoing scale of the destock in the second quarter? Is there another month probably to come out, do you think, over the next sort of two to three months? And then secondly, I suppose against that backdrop, I wonder if you could just talk about how you think about the expectations generally for Q2 and H1 consensus organic sales growth. I think the market at the moment is looking for Q2 sales for the group to be down around 2% and for overall H1 to be down 18%. I mean, does that tally with your comments at the end there for a strong decline in sales in H1?

Yeah. Thank you. So, In terms of qualifying the stock in the U.S., you have to compare the quarter not with one year ago, but in a rolling way to the last quarter. So you have to compare Q4 and Q1 if you want to do it mathematically. And at the same time, the speed of the depletion. So the month of the stocking that we highlighted overall, at least one month, from 5 to 6 to 4 to 5, is our best estimation, is linked to a clear decrease in shipments. But again, you have to compare it with the Q4, not with the Q1, because the stock is a living indicator. You cannot compare that with the shipment of one year ago. the depletion value and the time of the depletion value. If we are in the right direction, we continue to destock. It will last maybe a bit also in the Q2. The very important indicators, in our opinion, is not what will be the shipment in the U.S. in the Q2. It will be the depletion trends in the Q2 in the U.S. So there will be some volatility, clearly, month after month. We remain cautious. We analyze that on a weekly basis. We are confident that the sequential improvement will continue. So overall, comps will be easier, will be clearly positive from the Q3. From the Q2, on a mathematical basis, we could expect in term of depletion to be more in a positive land. We cannot grant that because there is still a level of volatility and we are observing and we continue to the stock in the Q2 in terms of stock equation in the U.S. because it's the way we build the budget. So no pressure on that. There is a year of two alps. So one month of the stocking will continue to the stock and the situation will be even more clearly addressed after the end of the Q2. We are in the right direction. So I think that this answer to both questions, with the first, the qualifying, the ongoing, the stocking in the US, we cannot say that it's totally ended and we could be in positive land in the Q2 in the U.S. This is not going to be the case. And a more general question about the quarter, what will be the quarter in a group level in the Q2? So, we expect a sequential improvement. It's too early to guide more precisely. Do we expect a group level, if you're requested, to be positive in Q2? No. Do you expect to be still negative? Yes, probably single digit negative at group level. I'm talking shipment. So this is the way we design the budget. The underlying trends are respected. We'll continue to perform in that way, to observe on a weekly basis. And we will decide and we will address this point even more clearly end of Q2. Very good news, but too early to capitalize on that for the full year. The guidance is there. We confirm it. So, in a way, we are saying that we are committed at this stage to reach the budget target.

Got it. I understand. And just to confirm, Luca, when we Think where you hope you'll be at the end of September, so the end of H1, from an inventory position in the U.S. Should we be expecting to see industry running at three to four months at that point? Is that still your target to get to that sort of level?

No, we do not target coverage as a result. We target absolute value of running depletion on a weekly basis. We correct them. We get a monthly expectation. and we phase the shipment, we correct, and as a result, we calculate the stock coverage at the end. Because, frankly speaking, it's very complex. It's sometimes a bit too dry indicators, KPIs, that can't be an objective per se. Why that? Because three to four months, or four to five months of today, If you are increasing depletion of 20, 30, 40% with the spike we experienced very clearly some quarters ago, all of a sudden becomes irrelevant. It becomes out of stock. So we do not target to have a monthly coverage as a global objective. It will be the consequence of depletion's rhythm and shift adjustment. So no commitment on stock coverage at the end of the Q2. That's sequential improvement and clearly visible positive effect starting from the Q3 in terms of property loss and shipment. Got it. Thank you very much.

The next question comes from the line of Edward Mundy. Please go ahead.

Morning, Luca. Two questions for me first. First of all, on the U.S., can you perhaps talk about the depletion journey for Cognac in the U.S. in the quarter? So you reported a minus 4.5 in value. You talked about trends improving sequentially and being back to positive in June. I guess the question is, you know, what's really driven that improvement from a depletion standpoint, and has that continued into July? And then, second of all, in China, I think part of the strong recovery is the on-trade, you know, coming back. Could you talk about, you know, what you're seeing in terms of Channel recovery and traffic and where is the on traders proportion of yourselves and today?

I think you were talking about it being 20 percent of sales a quarter or so ago Thank you, so the Depletion journey in the u.s. Was a positive at one and mainly in in June as said and in exit rate and the exit rate in june we are clearly positive in volume and value but for cognac and at the group level so overall but we cannot conclude at this stage the june trend can be extrapolated it will be only up will be some volatility week after week and month after month so what is important is to continue to follow these trends in a more consistent way quarter after quarter i repeat myself with some volatility to be expected June was clearly positive. So, to qualify that, it was volume and value all around the division, and with some products clearly over-performing. 7038 was one of them. XO went through clearly. Botanist. So, so far, so good. We are on the right direction. In terms of China, what is the current context and what we can say, which you don't know, because you already know that we bet on China, and we think that we will do better than competition. So the Q1, it is a very good performance. We are confident for the full year. The macro is slightly worse, clearly, than what was expected, but the level of our brands This is more than enough to continue to deliver a strong growth. In Q1, we benefited from the on-trade reopening. Traffic is now back to normal. E-commerce is very, very dynamic, as you've seen. In terms of portfolio, Club is the clear weapon, dragging the portfolio. Exo shows positive signs, and also linked to the on-trade, VOSP penetration and performance is accelerating on the back of this on-trade reopening. Louis XIII is doing okay, but clearly the real estate sector still a bit struggling, has a little impact on performance, but we are clearly in a positive performance as well. We are confident for the full year. Now, for China, it is very important to have this kind of conversation at the end of Q2, because Mid-Autumn Festival and then Challenge Rio, we did two key moments. We are running very good, we are confident for the year, but once again, in this kind of environment, we have to be humble, look at figures, disclose them, and comment. So far, we are more than in the right direction, but no swagger, and we are not showing our muscle what we can do. Figures are speaking for themselves. very, very strong performance. And if you compare China and APAC to pre-COVID, it is the lowest growth compared to the pre-COVID. So it gives you the fact that we might have also additional space for the future to even more Asia, Asiatic oriented than today in our field. So a lot of a lot of confidence for ourselves in terms of China performance for the future.

The next question comes from Andrea Pistachi calling from Bank of America. Please go ahead.

Yes. Hi, Luca. I have three, if I may, please. The first one on the U.S. Your depletions are improving. Clearly, Nielsen shows depletion. Nielsen doesn't measure exactly depletions, but based on Nielsen, I think there's still about a double-digit decline. Nielsen, we know, is far from perfect. But what, in your view, mainly explains this discrepancy between your depletions and what, say, Nielsen and NABCA are showing? And the second question, please, again, on the U.S., if you could just comment a bit on the pricing environment. Is it still quite complicated? Are there signs of improvement? And then a broader question on your guidance, please. So Q1, in line with your expectations, depletions in the U.S. are improving. The macro in China probably not as favorable as you would have anticipated a few months ago. So in the way you think of how the full year pans out, has anything changed maybe in terms of relative strength, China versus U.S. as we go into the next quarters?

Thank you for your question. So starting with Nielsen, as you remember, we highlighted many times this point. Nielsen is off trade in open states. The coverage is excellent. So far, considered 44% market level. For us, it's 38%. So we are underrepresented because this is not a good proxy for e-commerce. I repeat it many times because independent stores and liquid stores are under-evaluated in this index, and we are very strong there. And two key chain stores, Costco and Walmart, are not included. So, we combine Nielsen, Nabca, and the combination Nielsen-Nabca for us is around 60% for the market, 68%, and the 40% remaining that you see is the combination with the disgust figures, giving the best approximation of the whole market. So there is some disconnection, but it's consistent all around, comparable all around the different cycles. So there's not showing an acceleration of the discrepancy or something different. So we don't see it as an issue, once again, because we are clearly under-indexed in some key actors and channels. Pricing environment in the US is still structurally complex. So the fact that we are able to maintain and to increase our prices, it's a very strong identity habits that we are showing in the market. So despite the price that will impact and will have in our shipment, because there is an immediate short-term impact, We are very convinced that the respect of the brands is built day after day and month after month, and playing with prices at very huge up and downs is not a good thing to do because you might destroy the reputation of the brand. The structural price decrease from some competitors and very strong promotional activity from other one. Without naming it, you know better than me the situation. So pricing environment is still very complex in a universe which wholesaler want to carry less stock because also the interest rate, the working capital is more costly and the return on capital employed demanded by different board of directors clearly is higher. So this is a global context that in the short term could imply this kind of volatility that you see in the shipment and the patient as well, because the patient at the end is only a logistic movement between wholesaler and retail. At the end is what's happening at retail level in terms of respect, visibility, and appetite for a brand that we determine who is right, who is wrong. I repeat myself. In this case, it would be a little bit more swagger. So, we are suffering more than others in the short term, but compared to four years ago, COVID, we are the clear winner. So, we can support this short-term headwind because we think we are right. In terms of a full-year balance, did something change in terms of regional balance? No. No. At this stage, we are respecting our hypothesis. Clearly, capitalizing on six months' results after the Q2, we will have more visibility to be able to confirm that. So far, we are in this direction, with the U.S. strong decline, to be able to stock and to fit with the vision that we will clearly be showing positive lands starting from the Q3. And China, which is very strong despite the macro challenge, and Europe so far is performing very well. Better in some countries, less on others, but overall more than respecting bad expectations. Southeast Asia, if you want to find the negative point of attention, be it Japan, Australia, Canada in a way, and some beating countries like China, So far, some European, Africa, clearly China, and travel retail, which is very important. Being back, one sentence I said before, in my opinion, in our opinion, very important. Being back at travel retail level end of the year with the Chinese tourism not yet back at full speed, it's an important driver for this year and for the future.

Thanks, Luca.

As a final reminder, if you would like to ask a question, please press star one now. The next question comes from the line of Nick Oliver, calling from UBS. Please go ahead.

Hey, Luca. Thank you so much for the questions. Just two from my side. When you talk about inventories in the U.S. now being four to five months, can you give us some sense of what you're assuming for the underlying markets? And then when you talk about that rebound in the second, I guess, calendar half, your underlying assumptions behind that as well?

Yeah. So inventory in the US, in terms of the underlying observation for our competitors, is very complex because we cannot cycle the comps. What we can see that at market level, I don't know if it can answer to your question, global market, all categories is low single digit, clearly driven by categories in which we are not. So even as lower piece tequila is clearly better than other categories. RTD is some bourbon and whisky which we are not in. Because if you look at our spreadsheet in the category we are playing it, so Cointreau, Cordials, and Cognac, we are beating the market in the short term in volume and value. So I suspect that in terms of inventories, they could be mathematically a bit more dynamic than us if we're doing a lot of promotional activity or structural price decrease. I don't know. I don't know if the fact that you are decreasing prices big time makes that one guy buy two bottles or one. Maybe he buys only one. So the result will be what the consumer will dictate. In the short term, when you do structural and huge promotional decrease in this kind of contest, you might be favorized at an advantage, tactical advantage, because the rotation of the capital employees is bigger. at the end the underlying is not this one so i cannot answer precisely only try to give you some some uh some uh some ins second question is for us is on the underlying for us despite the spike which is the restocking and what is the underlying so far the figure will be in the q3 depletions value and uh shipment a very strong rebound but it's a part of restocking replacement So our underlying depletion trends for the normalized U.S. environment, clearly in cognac, is to be into mid to high single-digit underlying sustainable trends beating the market. For Lycos and Spirits, million cognac would be even higher. this is stripping out any destocking restocking effect this year it's very complicated to analyze so on that point clearly we need to be very clear in 24 25 after this shaking down and up here would be ended but i repeat underlying expected trends in the U.S. depletion value starting to form a normalized new level will be mid to high single-digit. For cognac, maybe something better for microbes and spirits, also because there is a penetration in a numeric environment to conquest as well in this part.

If I take a look at that specifically, thank you.

Next question comes from Trevor Starling. calling from Bernstein. Please go ahead.

Morning, Luca. Two questions from my end. One, Luca, you've referred to the pricing environment in the US and being very structurally very complex. Is it getting any better directionally or is it just staying as bad as always? And second question, I think, could you give us a little bit more colour on Asian travel retail? You touched on it in your comments, but in the presentation there's not so much detail. So maybe just what are you seeing in terms of Is it a slow recovery of overseas Chinese tourism? Are you seeing that coming through in the numbers as well? Any color there would be great.

Thank you for your question. Pricing environment in the U.S. is more or less the same situation that it was three months ago. I was personally in California in mid-June and observed that this kind of jeopardized and sometimes mad environment exists with huge differences from major skews of some competitors from one chain to another and clearly a volume game which we are not in which is played. I don't have the feeling and our teams no more that this pricing destruction has been sold. It's still there. In terms of Asian travel retail, we are running very good, triple digits versus last year, still below level of 1920. The aim, the goal is to regain. It's historically a very important channel, not only for travelers, but also because, or for Chinese travelers, but also for other foreign travelers. And historically, very good margin as well. Without disclosing too much, but the Asian travel retail in terms of top line and bottom line is the art of the travel retail channel. So doing better there is giving more green dollars, non-theoretical blue dollars to the group.

Very good. Thank you, Luca.

And the last question comes from Yubo Mao calling from Morgan Stanley. Please go ahead.

Morning, Luca. Can I just have a quick question on the US? If I look at your volume depletions for cognac, it was down around 5.5% in the June quarter versus minus 32% in March. So there were some significant improvements, but in the meantime, if I look at the same table, the market run rates were more or less stable. So it seems like you've gained some meaningful volume share, which is interesting given, you know, your comments around you're not being as aggressive on promotions. So I wonder if you could talk about what drove this outperformance in volumes and how sustainable it is in your view. Thank you very much.

Thank you so much. We are clearly in a value game. So the volume are a little bit the consequence of that. But I understand your question. So it is a matter of comps and comparing the percentage of growth or decrease, it's more important to compare the absolute value. And we are not, if it is the sense of your question, dynamize depletion with the short-term effect is that the stocking is playing a role, is that the fact that we are since two, three, four years hammering on AMP is playing a role in terms of the brand equity. a big operation like the super bowl in which we which maybe we do not put them in advance uh like other peers could have done but they are giving this kind of bearing this kind of fruit there is a delayed positive effect on the on the brand so our performance is not linked to commercial uh tricky device by ourselves if it is the hidden sense of your question And it's more the solidity of the brands and the fact, please remind that in terms of the economics of the given distributor retailers, our group is given one of the best gross margin and profit per case per bottle. So we are very, very important for the economics of distributor and retailer as well. The more you perform without portfolio, the more you are accretive for your balance sheet. Mathematically and financially speaking, you have a lot of financial directors sitting, wholesalers, retailers that are pushing for our brands as well and to sell it because it's benefit for their profit and loss from their cash flow.

There are no further questions, so I will hand you back to your host to conclude today's conference.

Thank you so much for your attention. In a word, it was a good quarter. We realized what we... The guidance, it was mid-30s, minus 35 by chance, but the dynamism of depletion is clearly there. Very humble way, very cautious, weekly basis, some volatility, but we are on the right track. We'll analyze and comment and disclose even more carefully every single figure in the Q2, the conference 27 October, which is very important. Since then, we'll have an even more clear situation about Mid-Autumn Festival, European trends, clearly U.S. And so far, we are in the right direction. We confirm, here it was, from the Q3, a visible, material, significant rebound on all indicators. should drive to some improvement. It will be, I said it, due to a group level in shipment will not be positive so far, will be negative by that single digit with different dynamics by region. But again, no panic. We are in the right direction, quite the opposite. Be assured we are committed to continue our journey towards budget. Thank you so much. See you. took more than CU the 27th of October. Have a nice summer.

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