Remy Cointreau Sa Ord

Hello and welcome to the Remy Control H1 Sales Publication. My name is Natalie and I'll be your coordinator for today's event. 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 questions. 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, Luca Marotta, CFO to begin today's conference. Thank you.

Good morning, everyone. As you have seen in the press release, H1 says we are down minus 22.2% in organic terms. including a decrease of the minus 10.8% in the second quarter. Even if Q2 sales have shown a sequential improvement compared to the Q1, this is not enough and below our expectations. This performance has been mostly impacted by the Americas, where the recovery is slower than expected. In parallel, the rest of the world grew at plus 13.8% year-on-year in H1. H1 sales decline is split between volume decrease of minus 18.9% in H1 and a minus 3.3% of price miss effects impacted by the American region as a result of the strong Cognac's underperformance compared to the Lyfos and Spirits division. Overall, H1 sales were up plus 20.9% in H1 as compared to pre-COVID level, despite including, clearly, the important U.S. stocking. Looking at the overall sales performance by region, America recorded a decline of minus 49.9% in H1 year-on-year, mostly impacted by the cognate division on the back of, first, a sharp normalization of consumption, second, a meaningful stocking in absolute value, and third, after market conditions, including a persistent promotional environment and the rise in financial costs. Compared to 1920, America is down minus 3.2% at this stage. APAC in the Pacific region was up plus 16.6% in H1, led by China, Southeast Asia, and the continued recovery of travel retail. This represents very important plus 55.8% growth over four years. EMEA was up plus 8.9, showing a relatively good resilience despite a touch softer demand. EMEA is up 19.4% versus four years ago. This was sales, selling. Now let's talk of value depletion, a group letter, of the last six months. In the U.S., value depletions were down a single digit. Compared to pre-COVID, value depletions up plus 30 and flipping out the SOP plus 70%, 7-0. In China, value depletions were down mid-single digit in H1 against very high comps. On a four-year basis, China value depletions were up plus 45% in H1, following only plus 20% in the previous quarter. H1 negative performance reflects Q2 value depletions, high comps, and a touch softer demand during the summer in China. Finally, in EMEA, value depletion were up mid-teens, led by Africa and Middle East, Benelux and Eastern Europe. This represents an increase of around plus 30% versus H1-9012. So, we can say and see very clearly that overall, at group level, this means that depletion on a four-year basis grew almost two times faster compared to selling. plus 35% versus around plus 21%. This is the mathematical and clear demonstration that selling is impacted by some conjunctural short-term effects while the underlying consumption has clearly accelerated compared to four years ago. To sum up for this very first slide, an important one. Following our performance, which is unfortunately below our expectation assumption, and taking into account our new assumption for the coming months, we have decided to adjust our four-year guidance. We now expect a decline between minus 15 and minus 20% on an organic basis, and it contains decrease in operating margin on organic basis as well. This is also thanks to a deployment of a major cost-cutting plan. I will detail it more in the last slide of this presentation. On pages 3 and 4, we pick up some marketing initiatives that we have undertaken over the last quarter, first in the US and then in China. Let's start with page 3 and the new Remy Martin's campaign with Usher, Life is a Melody for 7038 and XO, as well as the new chapter on Cointreau with Audrey Plaza for the Cosmopolitan cocktail. Nutrition are far from being satisfying in Colnec. However, it is important in our brand equity by growing the long-term awareness and desirability of the brand. Preparing the recovery is key for Oncognac and we will continue to selectively invest in AMP, advertising and promotion. On Cointreau, the situation is clearly different as Cointreau benefits from a strong momentum and the objective is to leverage it and to continue to gain market share. Page 4, just a quick word on China and more particularly on Mid-Autumn Festival. Selling was solid, despite a slower than expected economic recovery in China, but depletions were below expectations. In this market, our main objective has been to support depletion, fostering below-the-line concrete initiatives, a little bit more than above-the-line advertising actions. E-commerce and off-trade, talking about channels, are two very important channels for us, and a lot of animation has been done to support our brands, including the launch of a new SKU for EXO with a 50cm format on JD.com. In addition, we did several animations to continue to develop off-trade and social gatherings. In the meantime, we continue to work on gaining new distribution listings in on-trade for Ixo, which will be a strong game changer over the mid-term. Here, you can see on the slide an example of the modern on-trade animation to enhance our visibility. Now, let's back to configures. Moving to the H1Sales analysis, slide number five. Sales amounted to 636.7 million euro, down by 230.4 million euro in one year, or minus 26.6 on a reported basis. This reflects, first, a very strong organic decline of 192.7 million euro, which is minus 22.2% of organic sales decrease. This performance is split between minus 18.9% on negative volume effects and minus 3.3, as we said, of price mix linked to the Americas underperformance. Regarding the letters of the price mix, this is a combination between a positive pure price effect, low to mid single digit, and the negative mix effect around a single digit. Second, a negative currency translation impact of 37.8 million euro, which means a 4.4% loss in H1-2024. Why? This loss was largely driven by the iteration of the Chinese yuan for around 20 million, 20.3, and US dollar for 12.7. In addition, Canadian dollar, Australian dollar, and Japanese yen post 1.2, 0.8, and 0.7 million euro. Slide number six, an important slide showing the performance by division versus H1-1920. On the left, the evolution of the group sales at constant exchange rate. In H1, we grew at plus 20.9% on a four-year basis. including a volume effect of 3.9 and a huge price mix effect of 17%. Looking into the performance by division on the right part of the slide, you can see that on one slide, the cognac renewed with yield at plus 9.4%, thanks to the second quarter, which improved sequentially. Volume remains significantly negative, but price mix is still strongly up by 28.9%. On the other side of the slide, Lacrosse and Spirit was up 55.8%, which is amazing, and showed a well-balanced breakdown between price mix and volume. Now, slide number seven, dig into organic trend by region at the end of H1. And let's start with APAC as a specific organic phase. in which sales were up at plus 16.6% year-on-year in H1, which means plus 55.8% on a four-year basis. Looking at volume-value equation, the performance year-on-year is equally driven by volume and price mix. Inside this region, clearly, China has a very important weight. China's sales were up a single digit in Q2, benefiting from a solid level of sell-in during March in the autumn festival, and despite a slower than expected recovery post-COVID. Over the period, in terms of channel, direct channels and off-trade, Ecom outperformed and upset the weaker performance displayed by other channels and the on-trade, which for us remains a small part of our business, less than 10% so far, as far as I speak, of total sales for China. Meanwhile, value depletions at group level were down with single digits, i.e. past 45% versus 19-20. This change in trend reflects softer demand in July and August exacerbated by some calendar effects. Mid-Autumn Festival was three weeks later this year and very high comps. They are below Selene, which implies now, mathematically, a higher level of inventory in China compared to the end of the Q1. shipment before Chinese New Year, as we will destock to ensure a sound level inventory post-Chinese New Year. Remaining parts of Asia reported a mid-teens growth in H1, boosted by a stronger rebound of some countries like Japan. End of September 2023, APAC accounted 40% of our group sales, up 12 points versus last year. Americas. America's organic sage recorded decline of more or less 50%, 49.9% compared to last year. Mostly impacted by volume, while price mix was also negative due to the strong underperformance of cornea compared to the Lacrosse spirits. More specifically, in this region, talking about the U.S., sales were down a very strong double-digit in Q2, showing, however, a sequential improvement versus Q1. This performance reflects continued destocking in absolute value on Cognac alongside tougher market conditions, including promotion and rising financial costs, which impacts the capacity of financing for both retailers and wholesalers. In the meantime, Lycos and Spirit division in the U.S. showed a sharp rebound as expected. Overall, Q2 was slightly above pre-COVID level in the U.S. If we achieve the slumped stocking absolute value, this is importantly not visible in terms of data coverage due to the further deterioration of depressions. Consequently, the level of inventories is still at around five months at the end of the Q2. On a six-month basis, value depressions are still down high single-digit year-on-year, down low single-digit excluding the SOP, and approximately up plus 30% versus HY1920 and plus 70% on four-year basis excluding the SOP. Talking about Canada, sales showed also very strong decline in Q2, impacted by more or less the same factors and events as in the U.S. In parallel, Latin America was down low double duty in Q2 as well. End of September, America has accounted for only 37% of group sales, down 19 points year on year. So APAC 40, America's 37th. EMEA organic sales were up plus 8.9% in H1 and a plus 19.4%, more or less 20%, versus four years ago. This year-on-year performance was only driven by price mix, while volumes were slightly negative. Inside that, by sub-region, Western Europe was up a single digit in Q2, led by some Southern Europe countries like Spain, Greece, and Italy. UK was also high single digit, but also benefiting from a positive phasing effect linked to the duties increase in August. Remaining part of EMEA, we generated a very strong double digit growth in Africa and Middle East, while Benelux and France recorded softer trend. Each one, value deficient were up mid-teens year-on-year, representing plus 30% of the growth versus four-year growth, so more than the ceiling. At the end of September 2023, EMEA region accounted for 23% of group sales, up plus 7 points versus last year. Now, let's go to design number eight and switch from the regional standpoint to analysis by division in terms of footprint, starting with the cognac. Cognac posted an organic decline of minus 30% in H1 2020-2024, reflecting a significant decline of minus 39 in volume and a strong price mix gain of 8.9%. End of September 2023, Cognac Division accounted for 60% of our sales, down 8 points year-on-year. Now, let's begin and start with APAC. In APAC, let's start with China. In China, Cognac sales were at high single-digit in Q2, on top of a very high base of comparisons. Indeed, fixed growth represents an increase of more than plus 100% versus Q2 19-20. If selling is below our expectation, they remain very solid and represent a good achievement in the current environment. The recovery post-COVID is lower than expected and affected by a softer consumer confidence. Having a good comprehension of the current trend is a relatively complex exercise, and the visibility is currently quite limited. Key takeaways so far are, first, on-trade channel was weaker and is just starting to show some sign of improvement, while, second point, off-trade and direct phase demonstrated a better resilience. Overall, talking about value depreciation, value depreciation were down mid-single digit in H1. So, as a result, in cognac, as already said for the group level, at the end of H1, our level inventory is higher compared to the end of H1 in China. Our objective is to now destock and ensure a sound level post-Chinese New Year. In other regions, Taiwan generated an outstanding performance in Q2. Macau continued to be weak in terms of selling, but valid patients with a strong acceleration, which bought well for the coming months. And finally, in Hong Kong, we recorded a very strong quarter supported by dynamic valid patients. In America, Let's start with North America, so U.S. and Canada. North America's cognac sales declined minimally year-on-year on Q2, impacted by the stocking, consumption normalization, and outcomes. In the meantime, market conditions are getting tougher and tougher. The rise in financial interest is reducing the need to reward sellers and retail financing capacity. Moreover, persistent market, not by us, but the market overall, promotion has pressure on re-marking volumes as we have decided not to make any compromise on pricing, fostering long-term value creation instead of non-sustainable and quick gains in volumes. As a consequence, US value depletion in cognac has deteriorated sequentially in Q2 versus Q1. They were down minus 32.8% year-on-year, i.e., minus 10.6%, more or less minus 11, compared to the Q2, 19, 20. In this context, the level of inventory of the cognac is now in terms of coverage, more or less above three months in terms of the ecology for the cognac. It would be lower for the lactose-based division, giving five as an average average for the U.S. in terms of value depreciation at the group level. Price mix effects were positive, 7.0 a year in the last 12 months, period ending September 23, led by price increases. On a four-year basis, price mix was up plus 26 points. Latin America side was up mid-single digit in Q2, led by the S&P. And then, talking about the third region, India, convex sales were up low to mid single region Q2, and Africa, Middle East, and Western Europe. In parallel, Benelux trans were softer in Q2, in a more promotional market. And finally, Trans-British Europe and some Eastern Europe countries were negatively impacted by the global geopolitical context. Now, let's turn to the Lycos and Spirits Division slide number 9. The Lycos and Spirits Division posted a flat performance on organic basis in H1-2024, including a decline of minus 6.5 in volume, maybe due to the Americas in Q1, and a positive price-mix effect of 6.6. As a result, we have more or less a 0 to a 0.1. At the end of September, LIKON S3 division accounted for around 33% of sales, up 8 points versus last year. Now, let's review the performance of the division by region, starting with America and North America, first of all. North America sales were up very strong WD to the year in Q2, as expected, and following some negative phase in momentum in Q1. This represents an increase of around plus 65% versus Q2-1920. This performance reflects a strong momentum both in saline and in value deposition on some brands like, clearly, Cointreau, but also Botany, Starwood Gin, and Duclady. More specifically on Cointreau, Q2-US value deposition were up plus 9.2% year-on-year, which means plus 75.1% versus Q2-1920. Besides that, price niches were up by 6 points versus last year and the last 12 months ending September, and up plus 30 points on a four-year basis. In parallel, Lycoset's division in Latin America says we are down in Q2 year-on-year in the market showing softer tourism trend for these kind of brands. In EMEA, sales grew at the low to mid single-digit in Q2 in Euronea, led by Brookladdy, Whiskey, Single Malt, Botanist and Quantron. The UK continued to benefit from positive recycling effects just before the duties increased in August, and Western Europe outperformed and generated a slump growth. In the meantime, Benelux, Africa, and the Middle East continue to show solid dynamics, led by whiskeys and Cointreau. Finally, as already said for the cognac, it is also valid for travel retail for Europe and some Eastern Europe countries, which have still been impacted negatively by geopolitical context and substance. In APAC, China posted high single-digit sales decline in Q2 year-on-year, at approximately plus 60% compared to four days ago, the same momentum, and impacted by the continued stocking in whiskey, specifically. Rest of Asia performed well and recorded mixed-in sales growth in Q2, led by some countries like Japan, New Zealand, Australia, and Vietnam. Before to conclude, one last word on the performance of the new group brands, which represent now only 2% of our group sales, stable year-on-year. They were down minus 1.6 in Q2, mostly affected by the UK, where PASOA is facing a strong promotional environment in competition. In conclusion, before switching to the Q&A, as line number 10, worsening market condition in the second quarter, primarily in the United States, has allowed us to update our underlying assumption for this fiscal year 2024 as follows. First, the United States market condition, I repeat, has significantly deteriorated in Q2. On the back, a very strong promotional environment and the rise in interest rates that has cut, reduced distributors' financing capacity. As a result, the rebounding sales initially expected for Q3 in the U.S. is now anticipated for the next fiscal year, in 2024-2025. Second, in APAC region, Asia-Pacific, group expects to generate a positive growth this year, but a piece below initial assumption giving slower than anticipated post-COVID economic recovery in China. Last but not least, in the Aeneas region, the group expected more moderate annual growth in a persistently inflationary context. In this context, Renew Control is determined to protect its profitability for this fiscal year through tight cost controls while continuing to roll out its medium-term plan. To this end, it will, first of all, maintain a strict and uncompromising pricing policy. Second, protect its gross margin in a persistently inflationary environment. Third, selectively reduce AMP spends, clearly particularly for the most affected cognac division. Fourth, significantly reduce other operating costs. As a result, Renew Control has adjusted its full year 2023-2024 objectives and now expects a decline between minus 15 and minus 20% in sales on an organic basis compared to the previous guidance, which was stable. Second, a contained organic decrease in operating margin compared to stable previously, thanks also to deployment of the major cost-cutting downsizing plan. Lastly, based on the shift in its geographical mix and the RMD decline, The group expects exchange rates to have a negative impact for the full year on sales between 50 and 60 million, which deterred in H1, no change compared to the previous guidance, and operating profit between minus 10 and 15 million, mostly on H1, no change compared to the previous guidance. Rainy Cointreau is today ahead, clearly ahead of its strategic 10-year plan. and is underpinned by very solid foundation and long-term vision. This makes 2022-2024 an harsh year of the transition of the year, which allows the group to return cognac inventors in the United States to earlier levels to absorb the effect of post-COVID normalization before adding into a 24, 25 years in the best possible condition, resuming, regaining the trajectory of growth effect itself for the 29th century. Thank you for your attention. And now, after a bit of water, I will be happy to answer to your question. Thank you.

Thank you. Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press cell 1 on your telephone keypad. Thank you. We will now take our first question from Simon Hales from Citi, your line is open. Please go ahead.

Thank you.

Morning, Luca. A couple of questions, really, for me, please.

Firstly, I want you to just talk a little bit more about the scale of the cost-cutting initiatives you're going to put in place through the end of the year and how much protection these cost-cuttings this year may actually give to your EBIT margins in 2024. And then looking ahead, I assume obviously things like marketing spend cuts this year will only be temporary and they'll therefore sort of rebound into 2025 and beyond. But how do you think about some of the more permanent cuts you're talking about around structural operating costs? Where are they coming from?

That's the first question. And then secondly, can I just sort of come back to the whole level of inventories in your major markets?

I just wonder if you could expand a little bit on the inventory provisions in the U.S. and China at the end of the quarter. You know, what level of inventories are now in China at the end of September versus Q1? In the U.S., are liqueurs and spirit inventory levels okay? Because there's all of the problems just really in the cognac business. And I appreciate it's tough to generalize, but what do you think the right level of infantry are in key markets like the U.S. and China now in the new higher rates environment that wholesalers are operating in? Thank you. So the next 30 minutes, I will try to think for your very small . I will not detail in a very analytical way today because it's still a sales call and will be more precise in November. But we can say already very, very clear things about the cost-cutting. We are working on that to cut it, to offset as much as we can the important sales effect to protect our profitability. Because I'm sure you noticed, The range between 50 and 20 is quite large. It's between 230 to 310 million euros mathematically speaking in 10 essays. If you apply that to gross margin normative level, it makes a hell of a difference in terms of profit theoretically missing if you don't operate on cost, if you are minus 15 or minus 20. So we already set some targets, and when we talk about major cost-cutting, we are not talking only about AMP. We are talking about everything. We're talking about industrial costs. We're talking about AMP. We're talking about OPEX. And the magnitude of the overall impact will be between 10 and 15%. So to give you a number, we are looking for 100 million of cost savings. How much will be long-lasting? How much will be temporary that will be re-injected? So, second question. If the top line is re-dynamizing, really, this is part of our future adjustment. But so far, we are running for that kind of magnitude. I repeat, 10 to 15 reduction levels. point of the reduction of the cost base, considering AMP, OPEX, and part of the non-strategic industrial cost, and a split between long-lasting and a short-term. If you want to be more precise, I can. It is more, will be more this year, 15 to 20, and OPEX, more or less 10%. As a result, I repeat, 10 to 15, gain of magnitude. And what will be the impact of the operating? Contained means, what does it mean in English? It's more exactly in English than in French. It's more contained that our first Our intention is to protect the trajectory in terms of market share and growth for the future year. So I don't know, following the depression journey, what will we end the year, minus 15, minus 17, minus 14, minus 20. But we have to be prepared also for the worst situation. That is why this is quite a very important call for a group like us. We are calling for a major cost-cutting plan right now. And I repeat, some of these measures will be long-lasting. It's not only about temporary. In terms of, I think I've answered to your first, second, and third question because all was combined. In terms of level inventories, situation in the U.S. in terms of coverage has not improved. It's not because we are not lower in the ceiling, because what we can do more than D minus 50. So we are not pushing this association. We are not compromising on promotion. We are not compromising on the short term. It's that the main deception was the Q2 in terms of the patient. We are expected to have the sequential improvement, and we have a very negative Q2. It's clearly visible. So we don't have to be scared to admit that. There will be an improvement also in the future quarter that the IT and the Q2 makes a miss that need to be taken into account very clearly. So, so far, despite the fact that we made a huge sacrifice to reduce the old freight chain, the leather inventory in absolute value, the coverage is still more or less five months, maybe a touch more than before the coverage. because it's more in cognac and less in agrocephalus. Does it mean something? No, no, no. Please do not think in terms of amount of coverage. So your second question on the U.S., we cannot modelize a normative level in terms of months because what is today is five, six, seven months in some states. becomes all of a sudden 35 days if you are experiencing a new jump that we are prepared to follow. And because we think that is a shorter conjonctural and the appetite for the cognac is not lost. It's part of the historical curve of up and downs in cognac. the most schizophrenic in terms of normalization, as well as the most schizophrenic device for the last three years. So we remain very calm, despite the fact that I'm talking very passionate, but don't think in terms of normative. If you want absolutely to utilize that, three to four months sometimes means adding missing products and being out of stock in some point of sales. Being back to your question on level inventory, we have to talk about China. China is a bit more in terms of stock coverage compared to the Q1. Why? Because Mid-Autumn Festival on the hills, a very strong Mid-Autumn Festival last year, was a very good one in terms of the placement of selling. The depletion in final sell-out was a little bit disappointing, a little bit, but disappointing compared to our expectation. So as a fact, we don't want to overstock in Chinese New Year. So we have to get rid of part of this stock in Chinese New Year and to give all the chances to continue to serve to very strong year for the following one. Even reducing the guidance for China per se, we will perform a positive year. Bot on scale in and bot on depletion. So on a temporary basis, if you want, also the first sign of September, first sign of October, are quite encouraging. So I agree with some of our peers. They're saying there are some signs of positive development in China. It's the fact that we want to be cautious because these successes must, in terms of selling, compare to depression. And we don't want to overpromise for the Chinese New Year to be able to normalize the level. Rest of the world overall remained very sound, but slightly increasing. Why? Because in some European and also Asian countries, the summer was slightly disappointing. So, last point, which is very important, I think, for everybody. Let's try to put some figures behind the difference between the initial guidance, flat on top line, and the new one, which is minus 15 to 20. On purpose, I want to highlight that very clearly, to be clear for everybody. So we are talking about the magnitude of the safe difference compared to the previous one, I repeat, between 232, to be precise, million euro, and 310, if you apply minus 15 to minus 20 to the previous top line of the last year, at organic basis. How we can split the effect by region. 60% to 65, so we can say a small two-thirds of this is linked to the Americas and U.S. 25% to China, but it still remains a positive year, both in depression and insulin, and the remaining 15% to the rest of the world. Now, let's dig into the biggest part, two-thirds, Americas. Why two-thirds? One-third of this two-thirds is linked to the difference between the IH1 expectation for it that we had, and the H1 says yes. So it is what we have today, end of September, compared to our initial assumption of forecast. Deterioration and depressions, Q2, has impacted the status ceiling. This is only one-third of the 60%. Why we have a multiplicative effect on the remaining part of the year? Because we are expected to have a V shape. Now it's more a U shape, with a little bit more lasting of the neutral part of the U. So two-thirds of the 50% are related to H2. On top of the deterioration of the equation forecast, that implies less saline, we have to consider that the restocking effect, that it is clearly a consequence of this realignment, will not be strongly respected and will be probably delayed to the next fiscal year. So I repeat, this difference in terms of previous and actual guidance is split into the magnitude, two small thirds for the Americans, 25% China, 30% of the rest of the world. We thought it was very important for us to disclose this kind of element to help you modelize also next year. Even if nobody has a clear disability, nor do I, nor we have, this is important to try to set some scenarios. Last but not least, despite that, it will be a growing year for the group out of the U.S., a growing year. with performance in many countries, at least equal is not better on our peers. Thank you. That's really helpful, Luca. So just pulling my final comments all together, I appreciate all the comments around what's driving the new organic sales guidance range. If I link that into what you said around your cost reduction plans, is it broadly fair to say that your organic sales top reduction this year will probably be running at about 500 basis points worse than whatever your organic sales decline ends up being. How much you said? Because you're not clear. 5%. So you're saying that it is minus 15 in the top line, it implies minus 20 in operating profit? This is your question?

Correct, yes.

It's too early to answer. If we are in the smallest part of the range, 15, I have some good expectation to be able to contain a little bit more. So less than five. So I don't know. I want to commit, but less than five. If you are in the highest part of the range, Top line at one point, I cannot cut my fingers. If it is 20, it would be 5, maybe 6. But compared to the actual consensus, you are clearly missing the consensus in top line. But you were collectively a bit too pessimistic in terms of our ability to cope. faces this strong wind. So in operating price, when we say contained, we will contain. Very helpful. If it's 15, I want to be able to reduce operating price less than five points gap. If it's 20%, maybe five, maybe six. Because at one point, there is a mathematical, I cannot cut cost forever. I cannot be more clear than that. Thanks, Luca.

Thank you. We will now move to our next question from Trevor Sterling from Burnside. Your line is open. Please go ahead.

Morning, Luca. Well, I hope you have some fingers left at the end of all of this. Just one question from my side, Luca, and it's probably a tough one to answer. but focusing on the minus 30% value depreciation in Q2 US. I appreciate there's a lot of moving parts here, but can you estimate at all how much of that is retailers and stocking, how much of it is the fallout from the competitor promotions, and how much of it is real underlying demand? I appreciate that's a really tough one.

I think it will be something strange for you. It's my first time in 10 years. I don't know. I'm not able to answer, really. Any answer would be a wrong one. I don't have a clue. Well, that's true. This means that we are, counting what happens on the field, on the bottles, and it means that the visibility for the future is not ideal. I can say that. I agree with that. So it's a consequence, knowing that we are not able to decompose, to split it up in a causal track very clearly, the visibility, It depends on factor basis. I agree with that. I admit that it is a very important point, but I would be a liar if I answered to that.

Then maybe just one follow-up then, Luca. Given that lack of uncertainty that informs, I guess, a lot of the uncertainty about where you're going to end up in terms of sales depreciation, also sales for the year, Is your assumption that value depletions are stable by the end of fiscal year 2024?

You're talking about U.S.? U.S. contract, yes. Still negative. Yes, sequential improve, but the need. Volume Q2 was strong double-digit negative. And once again, we expected something much less negative and more strong in sequential improvement. And it plays a role in terms of the impact on the future quarter. So the restocking and the increase of depreciation of final retail sales has been cut because every time a company, a mixed company, as a guidance which is in this shape, we have clearly a risk of missing that if the building blocks for the more difficult part are not showing the intended result. So what we, the bluff in the Q2 is very strong compared to the short term, for the short term and also for the fiscal quarter. So it will be still negative Improving in the H2, but at UAB level, that will not be positive. But in China, it will be positive in that case. And so it is clearly only about U.S. in this moment. Understood.

Thank you very much, Luca.

We will now move to our next question.

I'd like to ask a couple of questions on the US as well, if that's okay. I think during the peak in terms of growth in the sort of pandemic and post-pandemic period, we talked about a new paradigm for the category. I guess as of today, that doesn't look like it's the case. And I suppose I wondered what your thoughts were on why that's changed. And I think there's been lots of industry participants throughout that time that the step forward was something that could be retained. So I'd love your thoughts on why that hasn't happened. And then I guess linked to that, in the data you give on slide eight for your U.S. volume depreciations, I just wondered if you could help explain why your company estimated depreciation, which is minus 37.4 in the last three months, was quite a lot worse than what you would imply from the NABCDISCUS data you give and also Nielsen. I know you said it was very hard to understand what's going on in terms of retailer destocking, I guess all the channels outside of NABK, Nielsen, and Discos that are underperforming the channels that we can track. Thank you.

Thank you. I will start the second one because the tunnel you have, they are covering more or less 50%, 52%, so in many parts it's very important. And this time you have this kind of search and this kind of... but many times we were the opposite. We were highlighting the figures that were the other way around. So the fact that the missing part makes things very difficult. Once again, to remind that we are trying to combine that. We are underrepresented in Nielsen because of some change and mostly the lack of stores. And so it's very complicated to try to, in the moment in time, to comment on the difference between one and the other. Lycosomes are very important for us, and they are not racketed. What's important is that, in my opinion, in our opinion, is not to compare to the momentum, to the distance, but to follow the same logic you'd be able to compare to the previous. At least we are comparable. um so the first question is clear another very very very new one uh let's try to differentiate the short term or medium term if you want the one year performance compared to the overall desirability of the market and what will be the future of the cognac market, in our opinion, in the U.S. At least for a company like us, this is clearly fit with the long-term views of Drink Less, Buy Better. So, actual U.S. performance for us and indirectly for the market is linked to, first of all, a strong, sharp consumption normalization, no doubt about that, even stronger than before. But it is announced, increased by the stocking in absolute value for cognac, linked to the fact that when we are in this kind of momentum, if you are a wholesaler in financial interest rise, you give short-term priority to a more fast-moving brand that plays on promotions and times of price decrease because you have the rotation of your employed capital that go faster. So in the short term, we have a weak point compared to what it is in terms of financial. But we think it is not our strategy, so we can keep on going with our idea, and we are a very solid company. We'll be back on this point at the end of the presentation. intensive promotion for our competitors. It is not stopping, it is destroying value, destroying part also the perception in terms of the consumer. So it is something short term that is implying the strength of the promotion and the length of the promotion is implying that could be something more lasting. Once again, a rise in financial costs, reduced financial capacity of wholesaler-retailers. If you compare what they are carrying today in absolute daily to 10 years ago, it's ridiculous. They are much more in VIM today, in Vendor Inventory Management, as a consequence than it was largely before COVID. Underlying consumption is softer, but once again, we think that is influenced by this kind of different element in which we are a bit alone because we play a different strategy. Does it mean, so go to the half part now, the Konya category lost its desirability partially or totally or not? For us, in our opinion, not at all. I repeat, not at all. All perception surveys in brand and other are showing the contrary for the category and even more for us. We are clearly spot on in what the desire of the consumer is showing. Also, in this very complicated moment, we are now number two in terms of desirability in the U.S., the one in China. It's public. The issue comes from the fact that we are personally facing all the headwinds at the same time, as you said. And this is also demonstrated that depletions on a four-year basis are clearly beating the selling performance. On a four-year, you have all things are linearized, are comparable. There is no more short-term, long-term elements. Depletion, we're growing two times faster than Celine. It's a fact, even today. Even today, we are at the bottom of the hour performance in terms of depletion. We are only minus 10 compared to pre-COVID, and there is a clear acceleration coming. It will be not enough to confirm the guidance, but we will still be very strong compared to where we stand. So it's important, this context, to continue to feed the brands, And to be able to jump on the growth that will happen. Historically, cognac, just 56 years, has been growing at the category 3% in volume. It will be maybe a little bit less in the future because drinkers get better. But have you seen our price-mix effect on selling even more on sell-out? We'll be there to... to support that. So, the cycle could be more schizophrenic, like the temperature in this moment, like the weather, but the long-term trajectory, we believe, is there. And the desirability is very, very strong. Also, in terms of demographics, it's less of the topics, in our opinion. It's more UNA user-analyzed game. In the short term, we are obliged to cut costs. We will do it, we will try to be smart, and as I said to Simon, we will jump on that as soon as the sales will be recovering in the short term, so we will be cutting. that nothing will imply, in our opinion, a loss of disability of the cognac in the medium to long term. We are very, very opinionated on a positive way on that point.

That's very comprehensive. Thank you, Luca. If I can ask one quick follow-up related on China. I know you said that the on-trade channel was weaker than the off-trade. I just wondered if you have any thoughts on why the on-trade was weaker. And I know you also said there's very limited visibility, but what gives you confidence that that on-trade weakness doesn't spill over into weakness in other channels? Thank you.

Thank you for the question. I will profit to elaborate a bit more on China because it's very important. So as we start with the on-trade channel, One trade overall, which is not so important, for example, weight, that for the profession, for the category, yes, it is. was particularly weak during the Mid-Autumn Festival. Also, because of the 100 days campaign did not help. The spend per capita was lowering, clearly. But since October, there are clearly early signs of improvement. I agree with one of our major competitors in China that things are going better in China in terms of the trade. For us, it's not so important, but it is a clear sign. That is a little bit more complex situation in China. I can say that for us, to try to give some color, the current trading is that we are obliged to tap our initial guidance, even if we will be increasing turnover compared to the previous year, for four negatives and two positive factors. Let's start with the four negatives. The context is clearly negative. The crisis in real estate, finance sector, soaring health employment, cash tension in trade, anti-corruption, anticipation. So expectation overall that will lower the the temperature and the enthusiasm on China. The second one, a clear softer demand during summer, July, August. September was better. With the retailers waiting for the last minute to deplete due to low confidence and cash constraints they had. Third point, beyond trade, as we just said. And then fourth point, that the visibility, the confidence, is also more limited by some blurred There's some calendar effect, it doesn't matter if it was three weeks later, and high days of comms. And we have two very important positive elements that gives confidence to us, also to other companies. First one applies to everybody, and even more to us. Our channel split is the Very good one in this moment because every time we are in touch with the client, the customer, the direct channel, we overperform big time. We are much more dynamic than direct channel and e-commerce is clearly booming. Even more on the B2C part than the B2B. So very good performance. And second point, September and early sign of October, depletion are showing a strong pickup. which did not offset deteriorations in July and August, but it is a positive sign. That's the reason why we are lowering the guide to double-digit growth, both in top-line and depletion, to growth, solid growth, in low-to-mid single-digit, both in saline and in depletion for the whole year. In this context, we'll be growing, I repeat, in China as a group, despite the global four negative factors in China for the fiscal year 2022-2024. I think it's very important to highlight reducing the guidance, but still positive, top line and in terms of sales and depletions in China for Remy Guantanamo Group and clearly Remy Martin.

Thank you, Michele.

We will now move to our next question from Olivier Nicolai from GS. Your line is open. Please go ahead.

Good morning, Luca. Just a couple of follow-ups, if I may. You might have probably seen previous questions, but just wanted to go back to slide six. When you look at the cognac in the U.S.

here, your price makes 28.9% growth during that period. Do you have any rough estimate of how much is mixed versus twice for you? And if you consider that maybe if it's like more than half of it is mixed, for instance. I'm just trying to compare this to your main competitor. The second question is on essentially the guidance you gave, particularly for the US. You flagged the high promotional activity. and the rising interest rates, making the distributor a bit more cautious of ending in employees. And you flag what is going to be better next year, but what gives you confidence that those two elements will not still be there next year as well? Thank you. I didn't catch clearly the second one. So you can be more direct. Sure. Sure. If you look at slide 10, I mean, the first line of your outlook, you do flag in the U.S., but obviously market conditions are deteriorated, therapeutic promotional environment, and rising interest rates. But those two elements could still be there in 2024, 2025. So what makes you confident that actually you would see a redone in sales there? Thank you, it's clear. So in term of the rice mixer, in only four years is more price than mix. I will say two-thirds, one-third. On the short term, as you've seen, price is positive and mix is, on the short term, negative. But clearly, on the long term, because of the underperformance of the DSOP compared to the remaining part of the range, it's two-thirds, one-third, a positive. In the short term, We have also a mixed issue that is very short-term demand. So which gives us the confidence is that the sacrifice we are doing today, not to increase the short-term volumes with promotion and short-term operation, gives more speed to the piece of normalization compared to the final demand. So selling will be mathematically increasing if we are able to normalize the depletion, to stabilize that. The first important and very important indicator will be depletions in value in the U.S., for the Cognac theory, first of all. Once the decretion will be running better than the previous period, the previous year, you have an automatic normalization of stock. There will be an evaporation of the stock coverage in terms of days. The strong sacrifice in terms of absolute value will be clearly visible. And you will have what this year will be delayed, the restocking effect. At that point, the calculation of stock coverage will be clearly there. The important thing is not to give up and to continue to be coherent with our long-term strategy and to support with a mix of right long-term initiatives and short-term more point of sales animation, this kind of mathematical alignment. So even if it will be in a strong, fierce promotional environment, the normalization of the stock level will give us automatic positive elements. Then the question, the second question would be, okay, but what would be your underlying for the 24-25 in the U.S.? It would be mid-single digit, high-single digit, or double digit, considering the news of this year. To this question, I cannot answer because the digital meter today doesn't allow me to give this answer. I will be more precise all along the year, also with Eric Valla in H1 and even more in June, because this This is very important. It will be an underlying growth. How much it is? It is 2, it is 8, it is 15, and the rest, I don't know. Today, I don't know. Thank you. To answer to this question, I need to be able to answer something to the question of travel, because of the casual track of what's happening today. Thank you. In a very candid way, I I don't want to invent things to be a liar on this point. I don't have this answer today.

We will now move to our next question from Rashad Kawan from Morgan Stanley. Go ahead.

Thank you, and good morning, Luca. Just one for me also on the U.S. When you talk about reducing marketing spending, Connie, quite a significant reduction you talked about. What gives you the confidence that that's the right approach given the weak sellout data and the promotional activity you're seeing across peers? And is there any scenario where you look to engage in some level of promotional activity in the short term?

We will not compromise on our strategy. The tactical part of our operation will be all in terms of activation point of sales to minimize the acceleration of the consumer habits not playing on prices. It doesn't make sense to hold your breath in minutes and then remember missing only 30 seconds to start to do something that is wrong for your strategy. We will not do that. So we play like we did fantastically, but on the BTL and not on the price. So in terms of exposure, on the share disposal, not in terms of structural prices and structural promotion. We do not enter in the price war and the price grave. We think that our brands are very strong and desirable. And the group, I will be back on this point at the end, is very solid, prepared, calm, and all the weapons to pursue its long-term journey. It's us today. It's Earth. We are not happy. What we need to continue to fight for the sake of the well-being of our long-term journey. It would be a disaster to compromise on that.

Thank you.

That's all the time you have for Q&A, so I'll hand it back over to Luca Marotta to conclude today's conference.

So, we will meet again end of November, along with Eric Bala and Maria Mileta and Idelus. Talk about H1 result, detailed profit and loss, free cash flow, balance sheet, and so on. All the global set of figures. But I'd like to remind two or three things that we need to think about it. EF23, 24, it's very negative. It's a very harsh one for us. It's an harsh year transition, no doubt at all. But please remember five important things. First of all, we have a very strong and solid strategy. No short-term compromises that will be incoherent and destroying act and would be weakening and destroy client perception and network, wholesaler and distributor partners for our brands. Really incognito, but not all. Second point, we are materially ahead over 10 year plan. So a partial transition will not change. I repeat, will not change our medium to long-term goals. Third point, we have a very solid balance sheet with the longevity of strategic financial resources that have been increased. A clear example, the last 380 private bond placements that we concluded some weeks ago, at around 10 years, officialized in a very competitive interest rate. So we are in a much better position as a group versus previous difficult situations the group experienced 10, 20, 30 years ago. We had the DNA to fight this kind of situation, and now we are much more solid financially speaking, strategic speaking compared to the past. Four, U.S. normalization. harsh normalization but tougher than expected normalization pulls down overall group performance but stripping out us remember the solid growth compared to the previous year on all remaining part of the world for some key countries with performance at least if not better than our big peers. Next point. Strong increase improvement over the group size on all KPIs starting, not all including, starting with phase versus pre-pandemic 1920 in term of performance. So the group is On this word, I wish you all a very nice day. Thank you so much.

This concludes today's call. Thank you for your participation. You may now disconnect.