Remy Cointreau Sa Ord

Hello and welcome to the RemiQuantro Q3 SILS 2023-2024 call. My name is Laura and I will 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 question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Luca Marotta, CFO, to begin today's conference. Thank you.

Good morning, everyone. As you've seen in the press release, nine-month sales were down 22.7%. in organic terms, including a decrease of minus 23.5% in Q3. This performance has been mostly impacted by major destocking in China and Europe. In addition, start to Chinese New Year was soft, but improving in January, as cash pressures in trade waived on wholesaler orders. Postmodern orders contribute to inflate the negative calendar effect of around minus 2.5 points, around 10 million euros in value, linked to the timing of the later Chinese New Year this year. In parallel, North America showed a strong sequential improvement, partly driven by some positive phasing effect in Lycos and Spirit division. Overall, the nine-month sales decline is split between a volume decrease of minus 17% and minus 5.6% of price-mix effects, impacted clearly by the American region as a result of the sharp Cognac's underperformance compared to Lycos and Spirit Sufficient. Finally, the cost-cutting plan is progressing well and in line with our guided roadmap. Looking at the overall sales performance by region, Americas was down very strong double digit in nine months, including, however, a sharp sequential improvement in Q3 led by Lycos and Spirits. APAC was down a single digit in nine months and down very strong double digit in Q3 due to major stocking in China and softer market condition in the rest of Asia. EMEA was down low single-digit in nine months, including a strong double-digit decline in Q3, affected by the stocking and softer market conditions. This was sell-in. Now, talking about value depletion at group level, the best approximation of final consumption and sell-out, over the past nine months, we can say and observe that in the US, value depletion were down mid-teens, and now high single-digit excluding VSOP. As compared to pre-COVID level, value depletions were up plus 15% and increased by 50-5-0 excluding VSOP. In China, value depletion were down mid-single-digit in nine months against very high comps. On a four-year basis, however, China's value depletion were up plus 35% in nine months. In Q3, important to highlight that value depletions in China improved sequentially versus Q2 and were up low single digit year on year. Finally, in EMEA, value depletion were up high single digit. This represents an increase of around plus 15% versus nine months, 19-20. Overall, all in all, at group level, This means that nine-month value depreciation grew at approximately plus 25% on a four-year basis, so clearly faster than Selene, which was up around plus 17% in the same period of four years. To sum up, some negative effects such as the stocking in APAC and EMEA are temporary. and should not be seen with the same amplitude and magnitude in the Q4. However, the underlying performance, particularly in the US and partially in China, is unfortunately close to our most cautious scenario. This is why, for the full year, we expect to confirm our guidance of organic sales decline by the lower end of the guidance, i.e., around minus 20% in terms of top line. Now, pages 3 to 5. We picked up some marketing initiatives that have been undertaken over the past weeks. Let's start on page 3 with Remy Martin, which is kicking off a year of celebration around the globe for its 300th year anniversary. To mark its tricentenary, the house has planned a year of special activities around the theme We Dream for World, and the release of an exceptional cognac, the 300th Anniversary Coup, available in a very limited edition. 6,700 individual numbered bottles from January the 8th. This special release has been created by cellar master Baptiste Loiseau, clearly, from Rémy Martin, Réserve Perpetuelle, a collection of exceptional, incredible, amazing eau de vie, exclusively from Grand Champagne Terroir, clearly, saved and passed forward by generations of cellar masters. Throughout the year, a series of events to celebrate this occasion, the 3rd century, will also take place around the world, including First of all, a virtual visit of the vineyards to explore Rémy Marquin's terroir through immersive VR technology in selected airports all around the world. Second, the Centaur birthday tour that will bring the celebration to some of the globe's top nightclubs. And third, several important local events alongside specific activation during Chinese New Year. Page four, a quick word on China. with several events expected for the Q4. First, on Club, with the launch of a new product package. The campaign teamed up with China top celebrity Xian Li as Remy Club's first brand spokesperson. Xian Li is one of the most popular Chinese actors. Starting from January, the brand new package featuring him has been launched on various media channels across the country. Remi Club was looking for a celebrity to further interpret the brand manifesto, which is Uncover Your Edge. Xian Li has a huge fan base, both domestically but also internationally. His movies and active performances on social media will benefit to Club awareness and will further enhance the brand's competitiveness in the cognac category. So far, Club's new product launch campaign has yielded exceptional results across brand content, media communication, CRM, e-commerce, social, and PR. Second, Remy Exo teams up with Blossom Shanghai, the China's post-popular TV series of the Moody director Wang Kar-wai, who asked to have Remy Martin on board. XO is present for a total of 30 minutes in the series. As an official partner with multiple product placement, the group will leverage this fantastic opportunity to rejuvenate the brand, recruit drinkers from the movie tribe, clearly, build its point of differentiation versus competitor, and continue to establish Remy XO role in movie to drive consideration, relevance, and at the end, share of arts. Finally, one award on e-commerce, which is one of our key direct channels in China, showed a strong performance in the current context. Thanks to all specific activations made around the festival 11.11 and Tmall, alongside the launch of an exclusive edition club, ship, channel, lesson tour. Page number five, award on the U.S. I would like to highlight two important events. Still small in terms of business contribution, but a very good, important illustration of all the work done to enhance and further develop direct-to-consumer channels and enhance the portfolio management. First, the opening of the first pop-up store, Louis XIII, on November the 8th, during the Ultimate Race Week Formula One in Wayne, Las Vegas. The retail pop-up experience showcases an extensive selection with our team's most coveted offerings, including the iconic collection, the drop collection, rare cask 42-1, and an exclusive assortment of the brand bespoke accessories, complemented with personalization services. Results were strong in terms of sales, 60% above our internal target set, CRM activation, image impact, and data collect on top. The pop-up on top will get two extension periods. It will be now open until February 18 to be present during the Super Bowl events as well as the Chinese New Year. Second, We are very proud of the outstanding result that we recorded on Westland during the quarter and which concretized all the work carried out in recent years on the quality of the brand and images of this exceptional single malt, American single malt. Following a strategic shift on our marketing plan since last June, alongside the continued commitment to liquid cell excellence, Westland Gariana Edition No. 8 has been selected as No. 3 in Whiskey Advocate Top 20 List of the Most Exciting Whiskey of 2023. This marks the first time an American single malt has been selected in a Top 3 position. It is very important. This recognition marks another step forward and has triggered an amazing sales acceleration in December We are overall plus 135% of sales growth in the quarter, U3, including more or less 14 times of growth in December on our direct-to-consumer channel. Westland Gariana, the 8th edition, was sold out since December 26. Now, slide number 6, let's move back to figures. In the 9-month sales analysis, sales amounted to 956.6 million euro, down 348.1 million euro year-on-year, or minus 26.7 on a reported basis. This reflects, first, a very strong organic decline of around 300 million, to be precise, 295.5 million euro, i.e., minus 22.7% on organic sales decrease. This performance is split between minus 17 of negative volume effect and minus 5.6 on price mix linked to the America's performance and split by division of this performance. Regarding the latter, this is a combination of a positive price effect, low to mid single digit at group level, and a negative mix effect around negative high single digit. Second, clearly, to have the bridge between organic and reported performance, we experienced a negative currency translation conversion impact of around 53 million less, 52.6, which equals to minus 4% loss in the nine months 2022-2024. This loss was largely driven by the deterioration of Chinese New Year conversion for 24.9 million euro and US dollar for 20.9. In addition, Canadian dollar, Japanese yen, and Hong Kong dollar posted a slight loss, respectively, 1.7 million euro, 1.2, and 1 million. On slide number seven, we look a little bit on a longer horizon, and the user performance division versus nine months, four years ago, before pre-COVID level, pre-COVID. I will not detail all the figures which are on the slide. You can see that. But in a nutshell, volume performance is slowing down on cognac amidst the current U.S. context, while price mix continues to be very, very strong. Overall, total cognac sales are still up plus 3.5% versus pre-COVID level, including important stock in the U.S. and specifically in the last quarter in China. In parallel, Lycos and Spirits division continue to generate an amazing, outstanding performance versus pre-COVID level, driven both by volume and price mix. So it's a very balanced equation. Now, an important slide, slide number eight, to dig into organic trends by region. Let's start with the Americas, whose organic sales recorded a very strong double-digit decline in the nine months. i.e., more or less plus 10% versus four years in the same period, mostly impacted by volume, while price mix was also negative due to the strong underperformance of cognac compared to lycosin spirits. To begin more specifically in the U.S., sales were slightly down in the Q3, showing a sharp sequential improvement from Q2, led by, first, a gradual but slow sequential improvement in depletions. Second, positive phasing effect in Lycos and Spirits in terms of Selene. Overall, all in all, Q3 was strongly above pre-COVID level, more or less plus 45%. We continued to destock in absolute value over the quarter, and now the level in absolute value is in line with pre-COVID levels. Unfortunately, this is not yet visible in terms of days of stock coverage due to the continued negative depletions and some positive phasing effects in saline in Lagos spirits. At the end, basically, to end the year in the best possible condition, we have decided to anticipate some shifting in Q3 instead of Q4. As a consequence, level inventories is still more or less Everything counted around five months at the end of the Q3. On the nine-month basis, value depletion are down mid-teens year-on-year, down high single-digit excluding stripping out VSOP, and approximately up plus 15% versus nine months, 19-20, and plus 50, 5-0, excluding VSOP. In Canada, sales were slightly up in Q3, Like the US, Canada benefited from positive phasing effect in Lycos and Spirits. In parallel, Latin America was down strong double digit in Q3. End of December 2023, the Americas accounted for 40% of our group sales, down 10 points compared to the previous year. Second region, is APAC, in terms of weight, clearly. In APAC, organic sales were down high single-digit year-on-year nine months, i.e. up at more than 30% 3-0 on a four-year basis. Looking at the volume-value equation, the performance year-on-year was only impacted by volume, while price mix was positive. China's sales were down very strong double-digit in Q3, affected by a series of elements. First, major stocking ahead of China's New Year, 9 New Year. Second, negative calendar effect has alighted, 2.5 points at group level, but specifically for the region is more. It's 5.5 points at the level of IPAC region. And third, cash pressures in the trade. Direct channels continued to significantly outperform, led by e-commerce as a channel, which was up 10%, to reach 35% in terms of weight of sales of the quarter. Meanwhile, nine-month value depletions at group value were down mid-single digit, which corresponds to more than plus 35% compared to 1920. But, as I highlighted, I repeat it, Q3 showed an improvement, they were up value depreciation, low single digit. They were much above sell-in, which implies a strong stocking during the quarter, accounting for most of the expected force. As a consequence, this kind of asymmetric movement, more sell-out and less sell-in in the quarter, at the end of the Q3, determined that inventories were strongly down versus Q2 and still slightly high. However, the stocking is still catching up and very quickly in January. So the dynamic stands last in January. The rest of Asia reported a strong double-digit decline in Q3, impacted by Australia, Singapore, and Malaysia. In parallel, Japan continued to recover sharply. End of December 2023, APAC accounted for 38% of our group sales, up 5 points versus last year. EMEA region organic sales were down low single digit in the 9 months, but grew more than 5% versus 4 years ago. This year-on-year performance includes a strong price-mix effect, while volumes were strongly negative. If you look inside the sub-region, Western Europe was down strong double digits in the quarter, impacted by Germany and Spain. This performance reflects one-off stocking, a more promotional market, and a touch softer demand. UK was down mid-teens in Q3, following Q2 restocking ahead of excise duty increase, and affected by down trading to cheaper categories elsewhere. In the rest of EMEA, we were down double digit, affected by destocking as well in Africa, Middle East and Benelux. In terms of value depressions in nine months, they were up by a single digit year-on-year, represented on more or less plus 15% compared to four years ago. End of December 2023, EMEA region accounted for 22% of our group sales, up 5 points compared to the previous year. Now, slide number 9 and 10, we have the analysis by division. Let's start by cognac. Cognac posted an organic decline of 31.4% in 9 months, 2022-2024. reflecting a significant, important decline of 36.3% in volume and a strong price-mix gain, considering the situation, of 4.9 points. At the end of December 2023, the cognac division accounted for 64% of our sales, down 9 points compared to the previous year. Inside the cognac division, let's start to analyze the APAC. Sorry, I drink a bit of water because I'm dry. It's good for my skin. In China, sales were down a very strong double digit in Q3, significantly impacted by the stocking before Chinese New Year and a negative calendar effect. I repeat because it's very important. The equation, the matrix, the cube, China, cognac is very important in this publication. The underlying trends are softer, much softer, due to lower consumer confidence and rising cash pressure weights on the trade. But, as said, depletion, the last quarter, were far better than selling. And this stocking is catching up in January. By channel, on trade is slightly improving, but shows some down trading towards cheaper categories a bit. Within off-trade, bankers were more resilient and e-commerce, as said, was still very, very dynamic, boosted by 11.11. And every time we get in touch in a direct way with the consumer, we are experiencing very good results, at least, if not better, our major competitors. Overall, value depletion were down mid single digital month, but I repeat, I rears slightly up in the Q3. As a result, at the end of the nine months, our level inventory is still slightly high, but much lower compared to the end of Q2. And again, the stocking is catching up quickly in January. Our objective is to reach a sound level post-China usury, and this will support a Q4 in China when we are in strong growth. In parallel, we recorded a strong quarter for Hong Kong and Taiwan, while Macau remained weak as gaming has not yet bounced back. West Asia says it declined a very strong double-digit in Q3, impacted by Southeast Asia, particularly Malaysia, Singapore, and Australia. Japan, on the opposite, recorded a solid growth. Second region by weight, Americas in terms of cognac. So there was a switch in terms of weight with APAC. In North America, cognac sales recorded a very strong decline in the quarter. but improving sequentially compared to the Q2. Sales are back to growth versus Q3 19-20 plus 10%. This performance reflects continued stocking in absolute value in a persistent, promotional, intense market and soft underlying demand. In the meantime, Q3 USD value depletion were down minus 13.7% EUR, improving quite materially and sequentially compared to the Q2, but still negative. They were down minus 7.6% on top versus Q3 in 19-20. In this context, even if inventories are down big time in absolute value, The level of inventories in cognac is still around the five months in terms of data coverage because the prices are going better, but still in negative lands. Price mix effects were positive at plus three points in the last 12 months, period ended December 2023, led by price increases more than mix. On a four year basis, price mix is clearly very much up at plus 21 points. Latin America sales were down very strong double-digit Q3, while domestic market was quite resilient, duty-free, feather-sharp. Last region by weight for the cognac, EMEA, in which cognac sales were down very strong double-digit Q3, impacted by the stocking following a slowdown in sell-out at the end of Q2, and second, a touch soft of demand as inflation weighed on purchasing power in some key countries, Third, negative phasing effect in the UK, as said, because we increased Q2, trying to anticipate the rise in excise duties done in August. Same type of analysis in Lycos and Spirit Division, slide number 10. The Lycos and Spirit Division was up at plus 1.5 on organic basis, and I'm... including a decline of 5.4% in volume and a positive, massive price-mix effect of 6.9%. This is very important. It was not given for the year. At the end of December 2023, Lycos and Spirits accounted for 34% of sales, up 9 points, the switch with Cognac and Lycos and Spirits, compared to the previous year. Now, let's review the performance by division, starting with the biggest two items of weight, which is... The Americas. In North America, sales were up very strong WGT year-on-year in Q3, more or less plus 165% versus Q3 1920, driven by a resilient momentum and boosted by some positive phasing effect as we fostered, as said, shipment in Q3 rather than in Q4. More specifically, on Cointreau, in which U.S. value depletion were down minus 2.2% over the quarter, but a massive increase compared to Q3 1920 of 64.5%. Beyond very high comps, the negative performance in terms of depletions of the quarter reflects a touch of cautiousness by some big retailers as the year-end approached. Besides, price mix in terms of value depletion was up a little bit less than one point, 0.6 point versus last year in the last 12 months period, but 22 points on a four-year base for Cointreau. So we have the same symmetric dynamic between Cognac and Cointreau on value depletion, price mix, a creative impact on a four-year basis. So think of that, it's massive. In parallel, Latin America, sales were slightly down in the Q3, less than Cognac, but still down. EMEA, second region by weight, in terms of weight for the Lycus spirits, sales were down mid-teens in Q3 year-on-year, impacted by one of the stockings and softer demand due to persistent inflation environment. The UK, I repeat, was impacted by some phasing effect. following the excise duty increase, intense promotional environment, as well as some down trading to some cheaper categories. Benelux and Western Europe faced some destocking, following a very strong H1. And last but not least, Africa was mainly impacted by South Africa, rising price competition and geopolitical tension all over the region. In APAC, which is the smallest region in terms of weight for the Lycos and Spirit division so far, China posted a very strong double-digit sales decline in Q3, impacted by continued stocking in whiskeys and weak end demand, mainly from younger generation for whiskeys. Rest of Asia recorded a mid-teens sales decline in Q3, mainly impacted negatively by Australia, New Zealand and Singapore. Japan saw a step rise as recovery continued. One last word on non-group brands, which represent 2% of group sales, so stable year-on-year. They were down minus 13.5% of the quarter and touch less, minus 7.3% in the nine months. Two last slides. The next slide is, we can say, one word of the current Chinese investigation. On January 5, 2024, industry associations, Spirits Europe and BNIC, and industry players, including Rémi Cointreau, were informed that the Chinese MOFCOM had opened an anti-dumping investigation. This investigation targets brandy exported from European Union member countries to China in containers of under 200 liters for the period between 1st of October 2022 to 30 September 2023. It may run for up to 12 months and can be extended for a further six months. Rémi Cointreau immediately contacted its trade representatives and is fully cooperating with the Chinese authorities in this investigation. China is a long-standing trade partner of Emicontrol and the European spirit industry as well. And we have always had excellent relations and levels of cooperation. So we are convinced that our products and business practices comply fully with Chinese international regulation and approach future discussion with confidence and diligence. Well, I could have ended the presentation there, but it's better to say something about the guidance, I guess. So in conclusion, on slide number 12, what's the message? We reconfirm and we respect the guidance that was updated end of October. Following Q3 regional trends, we are now able to be more accurate. The guidance is the same. Basically, for this year, we expect to record an organic sales decline at the lower end of the guidance range. A contained organic decrease in COP operating profit margin, including a resilient gross margin and a selective reduction of AMP, mostly in cognac division. To do so, and based on what I've just presented and repeating what would be guided end of October and even more accurately in the end of November, we will be strongly focused on supporting sell-out and depletion growth and dynamism. Second, maintaining a strict pricing policy. Third, selecting AMP that drive impact, leverage, digital and below-the-line initiatives. Third, continue to execute, it is well in line, of the 100 million cost-cutting plan that need to be realized before the end of this year. Thank you so much. So now maybe you will have some questions, some information on the current trading, and I will drink some water and then I'm ready for you.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll now take our first question from Simon Hale, Switzerland. The line is open. Please go ahead.

A couple, please. Can I just sort of start off on China? Could you just give us a little bit more colour on how depletion trends perhaps through Q3, if you can, maybe outside of the e-commerce channel, in terms of what you're seeing in terms of that trading in the on-premise and in the off-premise. You've talked about low single-digit aggregate depletion growth for the quarter. I just wonder what the exit rate looks like, because there's clearly been a bit of mixed messaging around the health of the Chinese consumer through the back end of last year, and maybe associated with that, a bit more detail as to how you think around Chinese depletions as we head into Chinese New Year and your confidence around offtake levels. And then secondly, looking forward, appreciate the reiteration of the guidance for 2024. But how are we thinking about 2025? I mean, back at the half year stage in late November, you were talking about the fact that we probably wouldn't see high single-digit group organic sales growth for fiscal 2025. Is that how you're still thinking about the year? Is there any reason we should think that there's been a change in the way you think about the outlook for fiscal 2024-25? Thank you.

Thank you so much. So, currently in China, it's a new topic. I will try to To stick to your question, it can be wider in terms of answer, but talking about the dynamic that influenced the positive Q3 depletion performance. First point is the channel. I think that on trade improved slightly. but showing some downtrend to cheaper categories is not there, even if we got a good performance that we gained this positive loss to single digit. It is e-commerce, clearly, in which we are very, very strong, boosted all the activation made by the teams, and also of trade and banquets, resilient, has been a winning channel in the period just before the Dragon years. More generally, because you have boutique, you have direct sales, direct channel overperformed big time, not only on sales, but even more on sell-out and depletions during the quarter, the previous period, and are responsible in a positive way for the stocking, which is continuing right now in January, allowing the stocking to be very positive for the Q4 dynamics. But I'll be back on that point. Let's focus by brand. Clearly, I handle cognac portfolio more affected by the current context, so a little bit of negative mix inside this recovery. And out of cognac, whiskey, as said, was the category in which most impacted by this stock in the performance. Also probably a stronger exposure to younger generation, a little bit more volatile considering the context, is not an issue for Brooklady per se. It's more general for the whiskey, the most precious and prestigious whiskey in China. Louis XIII performed correctly, even if, as said by Eric Vara also in November, the transition of Louis XIII model, more retail, it is clearly a huge journey, it's taking a little more time to educate, to have the level of requirement respected. But also like Louis XIII, even more, direct channels clearly outperform the weighted average. So, in conclusion, these dynamics, in a visibility that remains limited, okay, we acknowledge, and blurred by important calendar effects, Mid-Autumn Festival was three weeks later, as well as Chinese New Year. We did 10 million, or 2.5 points, a group led, 5 points for the IPAC, for cognac level. And yes, Bezos comps complicate the equation. But on a positive side, the stocking is continuing. Final demand is there. And for the year, on the heels of this third quarter, and a Q4 in which you continue to modelize this kind of performance, sales should sequentially improve, driven by less stocking and a positive calendar effect in Q4. So overall, we anticipate in the quarter a strong growth that in Selim will determine that a yearly level we will end in China with a slight positive sales growth, even if strongly below the budget expectation. In terms of value depletion, because you have to look at that as well, not only the dynamism, the asymmetric of the saline, on the hills of the Q3, I repeat, we expect the Q4 and so the H2, in terms of value depletion for China, to be positive compared to the previous year. The aim is to end the year strongly than Q3 and with the health inventories conditions. In terms of guidance, okay, I'm quite disappointed. I was thinking that you would ask me about 25, 26, or 27, 28, or something like that. It would be more fun. Now, jokes apart, let's start with the 22, 24. Company sales consensus is already at the bottom end of the guidance range. We are fine with that. Minus 20, I just reconfirmed. It is definitely the right level to consider, considering the recent regional trends. On operating profit, as already said, for this year, 2022-2024, being at the bottom end of the sales range, make the gaps of five to six points that I highlighted between sales and COP organic decline much more difficult to achieve. So at this stage, I can be more accurate. The company consensus implies minus 20% in sales. I repeat, fine, it's okay, we're okay. And minus 27.1 in operating profit, so seven point gap in terms of decline organic terms. We are fine, I will be slightly more conservative, but we are not far in terms of bottom line. 24, 25. If I may, is the most surprising element. Because this high-level expectation for the next year, it is not respecting our comments, a pre-guidance of during the H1 result. We were pretty clear on the fact that we were not expecting to reach high single-digit top-line dynamic for the next year. And company consensus in terms of sales is still at 7.9%. So it is clearly high single-digit. High single digit is the compound average growth rate that we are modelizing for the remaining part of the next six years to realize the 10-year plan. But for the next year, it is not what we are expecting. High single digit. So in this moment, I'm quite surprised because the company consensus in terms of sales, it is not aligned with our comments. I can agree. Okay, so I want to develop that. I can get that base of comps will be low in the U.S. However, we need to be realistic and consider different criteria and parameters in the growth equation. First, U.S. depletions, they're going better, they're improving, but they're still negative, which means that inventories are still too high in terms of days of coverage. You cannot expect strong shipment, sell-in, in Q1, H1, if inventories are too high in terms of base of coverage. Second, base of comps in China, even if Q4 will be strong, but the comps of 2022-2024 is very high in the H1. And the context is improving, but still a little bit softer than we expected the budget time. The third region, Europe, shows a softer underlying trend that will not reverse overnight. So overall, I repeat, that's the reason why we confirm that the high single digit is the algorithm of top line for the next compound average growth rate for the next six years or the long-term journey. But this is not what we modelize for the next fiscal year in terms of top lines.

Got it. Thank you very much, Luca.

Thank you. And we'll now take our next question from Ed Monday at Jefferies. Your line is open. Please go ahead.

Morning, Luca. Morning, everyone. Two questions for me, please. The sentence in your outlook that you aim to finish this fiscal year, you know, heading into fiscal 24, 25 in the best possible conditions, could you... elaborate a little bit more on what is best possible conditions. Is that in terms of brand equities, in terms of inventory? What exactly does that imply? In particular, there's a little bit of destocking going on. And then the second question, coming back to your opening remarks that your shipment trends are up 17, but your depletion trends are up 25. If we take those comments as to slide seven, and assuming that the plug really is in cognac, that would sort of imply that your cognac nine-month 23-24 cells should be closer to 700, assuming that your liqueurs and spirits are sort of in an okay position. Does that therefore mean at some stage, not necessarily next year, but over the next couple of years, there will be a catch-up in terms of shipments relative to completions, where on a four-year view, your ships have been running below depletes?

Okay, I got two, but you said three questions. I got two. Overall, okay, but I will try to answer to this one which are already quite intense. So, what does it mean to be able to end the year in the best possible condition? It means that we want to avoid to be in an overstock situation at the end of the year. We really respect the guidance, but there is no need to charge, to stuff the channel with 10 million more if the depletion rhythm is not at the same speed. So far, the inventory is leveled. at the end of December are the following. For the U.S., more or less five months, which is more stable versus Q2. A little bit more lycosine spirits and less on cognac, even if the absolute value decreases a lot. For China, I repeat, the end of Q3, they are much below Q2, but still a slight high. The stockings catching up in January is decreasing. And the rest of the world is already in healthy level. So end of the year, the best possible condition is not force ourselves to do stupid things that will impact next year, which is not a walk in the park as well. The second question, the equation compared to four years ago, a group level comparing sell-in and sell-out is a very complex one because it's difficult to modelize because, as you noticed, we are declining compared to four years in terms of Konya, in terms of depletion, so we'll have an impact in terms of an increase. So even if increasing, I don't know, mid-single digit in terms of depletion, that could be not an assumption, it's an idea. What is the impact at the compound level compared to four years ago is complicated to acknowledge. Next year, we compared our set to 1920 as well, but 2021 and 1920 were not so different in terms of dynamics. The real stretch was clearly created in 21-22. so uh as not a guidance is more an idea mid single digit increase to high single digit maximum in terms of depletion dynamics for next year could be could be an idea uh base of comps are easier but still depletion so far they're still negative so at the end we have to fight with the short-term figures and at the end Comparatives are there that are nice to compare to where we stand in the past, but to solve the day-by-day problem, you have to compare what you are doing at the point of sales yesterday, not four years ago. So it is a mix of nicer and softer footprint, the more we go, and difficulties on day-by-day. In a nutshell, I repeat, we are improving. The speed of this improvement we hope will be fostered, will be improved as well, to have a global positive impact on our reforms. I hope it's clear.

Very clear. Thank you. Just to, I guess, follow up on Simon's question, I think you did reiterate back at H1 that high single digits is the medium-term run rate, not necessarily the right run rate for fiscal 25. Do you think you should see shipment revenue growth in fiscal 25? Yes.

in terms of this stage early to say that I only say that I single digit is clearly a compounded growth rate algorithm and the start to the year considering the situation the US will not be a walk in the park after minus 20 Clearly, we are waiting for something better next year and clearly possible growth. Thank you.

Thank you. And we'll now take our third question from Mitch Collette with Deutsche Bank. Your line is open. Please go ahead.

Thanks. Good morning, Luca. I've got two questions. I know it's normally not the done thing to comment to specifically on your competitors, but on LVMH's call last night, they said they weren't discounting, but you and Pernod are. I mean, to quote them specifically, they said, there were no discounts. We cancelled the price increase. Discounts is what Pernod and Remy do. And there are also some press reports that suggest that Remy Martin is being discounted in China. So I wondered if you would comment on whether you are engaging in any discounting and perhaps link to that any pricing plans for this year. And then secondly, I appreciate it's very difficult for you to comment on the outcome of the China anti-dumping investigation, but in a scenario where your China business was substantially smaller, what would you be able to do to find additional sales growth or indeed to manage the cost base more tightly. And then, sorry, actually one third one is, have you seen any initial reaction from consumers in terms of social media activity or purchasing when it comes to the anti-dumping investigation? Thank you.

Thank you. We start with the second one, which is far more strategic and important. So on the anti-dumping investigation, I said we cooperate with the confidence diligence. We think that we are totally aligned with the rules, and we do it with calm and being sure that the cooperation will be the best. In terms of what will end at the end, we cannot comment because it's too early stages. So we are providing all the information. It's just a change. In terms of the consequence of the consumer confidence, the impact of sales, so far, no. If you want quite the set, the stocking is improving with time in January. So, so far, there's no negative impact. trade business consequence on that so far. Also some external element, TV series, word of mouth, share of art is not declining. If one day it will be hit in term of cost of the business in China, it is part of global worldwide equation. As we have done, we have supported America even if depletion and top line has been Clearly, clearly a storm in Oregon this year. We didn't cut all the means in the U.S. It will be the same. We have a global worldwide business. We play all cards, all brands. It wants to contribute. So China is a key country. even the cost of the investment should increase one day, we will not react as we are only selling in China. We are selling everywhere, we are a worldwide company, and we will activate all means to preserve the strategic disposal and the weapons to operate in China in the best possible condition. So, we are focused, we are clearly concerned, but we are calm and And sereni in Italian. I don't have the word in English right now. Okay, talking about competition. I have two answers. One is the official, one was the personal one. As a personal one, I started laughing yesterday night and still laughing now. This is comma, ended. I opened the bracket, I closed the bracket. And it was quite comic. Second answer, more directly on the business. When you are very strong in some channel direct to consumer and you have specific operation done, you don't discount. You have operation that go in 11.11 that respect a specific trade price and you have the campaign that is aligned and the operators at the end is free of these prices. We are not down trading or making discounting for the sake of it. we want to enter in the dynamic maybe one day we can do a specific call talking about mechanics because One thing can be discounted one thing is the repricing cutting the price of over a twenty thirty percent of your product, so There is a bit of down trading term of the mix but without entering into specific peer-to-peer comparison we are clearly the company that put pricing, integrity, and power on the top of the list. And I was clearly laughing yesterday night and still laugh. Thank you.

Okay. Thank you, Luca.

Thank you. And we'll now take our next question from Olivia at Goldman Sachs. Your line is open. Please go ahead.

Hi. Good morning, Luca and Celia. Just two quick follow-up, please. First, on the U.S., regarding the destocking of inventories in the U.S., you still have, as you said on the slide, five months of inventories at the end of December. With the current trading that you're expecting, is it fair to assume that you're going to be back at a healthy level of inventories by June or end of Q1 2025? And second question is on the 100 million cost savings. Could you give us an update on how much of these 100 million will be permanent and will reduce your cost base in 25 and how much of it is obviously just temporary such as marketing reduction?

Thank you. Hello?

Hello? Do you hear me? Because the mic has a problem.

Yeah, I can hear you now.

Thank you. Okay. Today we are at five months. When will we be back to four, three? It depends on the rate of the depletion. So far they are still negative. So it means that in the short terms, to be able to reverse the equation between saline and depletion, Depression should be better and salient. It has been realized for a while in absolute value. We need to improve even more. The visibility to that, so when we'll be back to health, it's impossible to answer to me to that. It will be during the year of 2024-25, clearly. So it's our expectation. But so far, I need to be cautious because we improve, but we are still negative. We will cycle, clearly, lowest comps, easier comps, Still, so far, the reality is that we are negative. So our assumptions that we'll be reducing during the fiscal year 24-25, precisely if it is end of June, end of September, I can't answer. I will be a liar. I can't answer. It depends on the politicians' rhythm, clearly. Cost-cutting, let me remind the dynamic of the 100 million, which are clearly not at risk. They will be realized this year. Buy type duration, 40%, so more or less 40 million, is structural, forever, and 60% is one-off. So your question is, let's focus on the 40 million. We have more or less of this 40%, half, it is AMP. AMP, more linked to the Konya division and more linked to the brand awareness, less than the BTL activation and digital expression. On top, we have to remind that in the compounders for the past, you have Super Bowl for a huge amount, which is something that cannot be replicated soon. Not at this extent, because we have done something this year, but it's not at the same scale. Then we have more or less 80% of this 40%. that are manufacturing logistic and is 100% structural. So we changed some proceeding manufacturing, we improved in terms of operation, logistic acts, the way we are performing supply chain and factories operation with saving that will last. So once again, 40%, 40 million. Half of that, it is AMP, not working AMP. 8%, so a little bit more than one-fourth on the manufacturer logistic. And the remaining part, it is the structural overheads saving. making that we didn't replace some position. We organized in some region, some brand of operation without making huge restructuring plan with the right sizing that we were able to have the difference, the different part, 12% of the long lasting saving. This is the split of the 40 million that will last more or less.

Thank you very much.

Thank you. And we'll now take our last question from Chris Pitcher with Redmond Atlantic. Your line is open. Please go ahead.

Thank you, Luca. A couple of questions for me. Luca, just following up on a couple of things. In terms of the China anti-dumping review, can you confirm whether temporary tariffs have already been imposed? And is there a risk that you see perhaps some stock build ahead of the potential restrictions? And then your comment that you're a worldwide company, given the uncertainty in both the US and China, are you increasing your investment outside of those two markets in spite of the cost savings? And if so, which of the markets are you targeting as your medium-term priorities to hopefully balance out US and China over the next 10 years or so? Thanks.

Thank you so much. So for the anti-dumping, so far, we didn't see any temporary measures And we are not changing overnight the way we do operations, not on consumer base, not on logistics. So there is a business as usual. Once again, we don't panic and we remain focused. We don't change the way we are organizing things in China. It is a dialogue. It is clearly an investigation, but not panic. And we continue to do business as usual. and no specific temporary measure that is put in place so far by the Chinese government. In terms of rightsizing, as I said, yes, we are investing in other markets, clearly GTR, some Asian countries, some European countries, also can be part of the Americas. We might have some specific investment in the very short future to improving, but also We are not giving up and switching the attention totally from China and the U.S. because, okay, we are cutting AMP, but more in the long term. Depletion, the U.S. need to be supported by below the line, visible, working field AMP. Two years ago, in the boom of the consumption with the shortage, we had improved our AMP footprint, putting more money on the table for the long-term distribution of the brands. And it's paying its dividends. Now, we are more in a fighting mode in the guerrilla, and so we need to put the attention on the MP. So, we still need to unlock, to invest in the U.S., clearly in China, to grab more depletion, because depletion means... At the end, retailer disposal, retailer sale. If we don't have depletion, all the mechanism is stopped. So we need to move that. So there is a part of reinvestment in other part of the world. Travel retailer, I confirm that at the end of this year, will be more or less at the same level of pre-COVID with another type of business model, even more long-term. In other countries, we are doing a very good job to increase the footprint, but we are not switching overnight and giving up on China and in the U.S. Also because, if you compare to pre-COVID level, we are still having very good performance, also in the U.S., But if you're talking about China, the change of gears has not been compromised by the negative quarter. We are in another world. We are clearly stronger than before. So we don't want to give up to invest in China and the U.S., absolutely not.

Thank you. And you say GTR will be back at pre-COVID levels in sales. Some of your competitors have improved profitability. Is that the same for you as well?

What you said in terms of profitability?

Travel retail. You mentioned a change in model and approach. Some of your competitors are more profitable now in travel retail.

A bit less. In our case, this model is more long-standing in terms of profit, profitability, but it will be a little bit less. because we are putting more specific means, more specific investments, initiatives, more dedicated teams. So compared to pre-COVID level, the profitability, it would be a little less. But pre-COVID level for Remu.ro, GTR was operating in another mood with more also of... invoice act without adequate support to support the depletions, making that travel retail in the past was way too much a cash cow. So it's much more balanced today. And at that time, if I may, why was that? Because profitability of some countries, like China, was not the right one.

Excellent. Thank you for your color as always, Luca. Thank you.

Thank you. I am now happy to hand it back to Luca for closing remarks. Thank you.

Thank you so much for your attention. It was an important quarter because even if with some storm, some headwinds, we are able to confirm our guidance. It is a low end of the range. what the dynamism of the underlying depletions is improving. It's not the rhythm we'd like to have. We want to have more of that. But clearly, we are progressively on the right path. Next year, 24-25, the algorithm of the medium-term growth, a single digit, is too optimistic. How much it is, which phasing, What's the implication? Day of stock coverage. This will be during next quarter's Dialoguing Together part of our interesting chat and discussion. Have a nice day. Have a nice weekend. And all the best for you and your families. Thank you.

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