Remy Cointreau Sa Ord

welcome to remy control q1 sales publication conference call my name is alan and i'll be your coordinator for today's event please note this call has been recorded and for the duration your lines will be on listen only however you will have the opportunity to ask questions at the end this can be done by pressing star 1 on your telephone keypad and please limit yourself to two questions during your turn if you require assistance at any time please press star zero and you'll be connected to an operator. I'll now hand you over to your host, Luca Mahota, CFO, to begin today's conference. Thank you.

Hello, everyone. As you have seen in the press release, Q1 sales were down minus 15.6% in organic terms. This performance of the quarter reflects a continued stocking, particularly in the U.S., high base of comparison, notably in APAC and EMEA, as well as a soft context of consumption globally, alongside a strong promotional activity. Overall, the Q1 sales decline is split between a strong volume decrease, minus 20.2%, and plus 4.6% price mix effect linked to limited price increase and a lower decrease of CONIA compared to lycopene spirits that gives the mixed effect. Looking at the overall sales performance by region, America generated a strong sales decline, reflecting the stocking in the market not showing any sign of depletion recovery yet. APAC recorded a slight decrease, mostly affected by Southeast Asia, while China was almost flat due to high comps and in persistent tough markets. Finally, EMEA showed a very strong double-digit decline impacted by high comps, some phasing effect, and also some softer consumer trends. This was sell-in, shipment. In terms of value depletions at group level, all brands, over the past three months, starting with the U.S., value depletion were down strong double digits. Compared to pre-COVID, value depletion were up plus 10%, and clearly stripping out the SOP, excluding the SOP, plus 55%. In China, value depletion were down mid-teens in DQ1 versus last year, and as well compared to 1920. The latter one can be considered particularly negative. However, and we'll be back on that point, I'm sure, I would recommend not to pay too much attention, considering the very short period of time which creates some volatility, small size of Q1 for China in absolute value, and a different split in terms of business compared to 1920 linked to the duty frame. On top, and we'll be back on that, you have to combine that at least six months moving average, reminding that the last quarter we are 200% three times the weight of 1920 value depletion footprint in China. So you have to combine that. Following the strong rise in Q4, this is the situation in China. So, value depletion should be appreciated on a rolling basis. So, combining that in terms of numbers, they are up by 70% versus 1920 on six months, and up a mid-single digit versus last year. Once again, Q1 cannot be appreciated alone because it's a small, volatile quarter. Finally, a word on EMEA. Value depletion were down mid-teens versus last year and down low single-digit compared to Q1 1920. But excluding Russia, value depletion would have been flat versus five years ago. Overall, at group level, that means that three-month value depletion declined of 4.5% on a five-year basis in line with selling trends, minus 4%. But this global alignment compared to five years ago includes some contrasting situations. One, strong stock in the U.S. clearly is there. Second, a more natural evolution in China, where the small size of the quarter cannot really influence the level of inventories. And third, a more or less neutral evolution compared to five years ago in big EMEA regions. To conclude on this very first slide, we confirm our full year guidance. On page number three and four, we pick up some main marketing initiatives, as usual, of the quarter. And as announced in June, and as part of the U.S. plan to improve growth rates, we have started and improved their investment rate behind BSOP. to improve is vis-a-vis on the point of sales, the conversion rate. We continue to leverage Cocktail Memento through activation around Cointreau, particularly during the week of Cinco de Mayo. Results are positive, depletion speaking, all channel coverage included. In parallel, we have deployed the Mungay Last Innovation, Eclipse Navi Strength, which will contribute to improve the profitability and the visibility of the brands. And finally, Last but not least, we pursue our efforts around Brookladdy, the single malt Scotty Whiskey, to increase education and awareness. This is only the beginning, and we hope that we'll be able to improve next trends in the U.S. On page four, a quick word on China e-commerce, and particularly good results achieved on 6-18, 18th of June, Shopping Foss Festival. that realized, conquered, and plus 14 sales growth. As mentioned by Eric Vallat, e-commerce is a very solid weapon for China. The ambition is to continue to grow, building on a team whose know-how and relationships and soft skills with the key players are a true asset and a competitive edge. We have successfully launched two exclusive new products for e-commerce channels and achieved a grid depletion number through the 186618 campaign. In parallel, at the same time, we leveraged the pop-up stores that we opened in Shanghai to celebrate the 300 years of Remy Martin using live streaming sessions and social media. Now, let's go back to dry figures, moving to the Q1 sales analysis slide 5. Sales amounted to €217 million, down €40.5 million year-on-year, or 15.7% on a reported basis. These reflect, first, a very strong organic decline of €40.2 million, it means 15.6% of organic sales decrease. This performance is split between, as said, minus 20.2% in negative volume effect and plus 4.6% of prime mix. And as said, by repeat, it's important, there's a combination of the slight positive price effect and low to mid single-digit positive mix effect. We have also highlighted a very slight negative currency translation impact of €0.4 million or €0.1 loss for the quarter, so very marginal. But this is interesting because this loss is mainly driven by the duration of the RMB, the Chinese yuan currency, for €1.2 million. and the Chabanese yen for 0.4, and in parallel, in terms of conversion, US dollar turned positive with a gain of 0.9 million euro. On slide six, the usual performance by division versus now five years ago, pre-pandemic, Q1 1920. I will not detail all the figures because they are clearly highlighted on the slide, but in a nutshell, Volume performance is strongly down in cognac amidst the current U.S. context, while price mix continues to be very strong. Overall, total cognac sales are now down 17% versus pre-COVID, while value depletion are strongly down, at the same time, around minus 20%. In parallel, Lycos and Spirits division continue to generate a significant performance of plus 35.1% versus pre-COVID, The event both combine the balance weight, volume, and price mix, and well below value depletion trends, which set at plus 45%. At group level, this shows the global symmetry between sell-in, minus 4, and value depletion, minus 4.5, versus Q1, 19, 20. But inside that, you have different situations by region and by division, as I highlighted, I suppose. Let's now turn to slide seven to dig more analytical organic trends by region. Let's start with APAC, whose Q1 organic sales were slightly down year-on-year and up at the same time more than 20% on a five-year basis. If we look at the volume value equation, the performance year-on-year includes a strong positive price mix effect and a low double-digit negative volume effect. Inside that, China sales were almost flat in the Q1, in a market that remains complex, tough, particularly for the high-end segment. In this gloomy environment and market, the only channel which can say we emerged very clearly and positively is e-commerce. In the quarter, it grew more than 15%, representing more than 35% of sales penetration. China. The overall performance also reflects a strong negative impact coming from Taiwan, Macau, and Hong Kong. In this context, Q1 value depletion, so not selling, but value depletion, best approximation sell-out of the group, group level in the region, were down mid-teens year-on-year, and as well versus Q1 1920. But I repeat, plus 70% on a six-month rolling period versus 19-20, took into account some phasing effect between Q4 and Q1 of this year. Moreover, the misalignment between saline depletion does not impact our level of inventories, which remains healthy at the end of June. The remaining part of Asia reported mid-teen phase decline in Q1. The market is very tough in Southeast Asia, particularly in Australia, Malaysia, and Singapore. At the same time, Japan, on the positive note of this publication, generated very strong sales growth boosted by tourism and partially also the weekend. At the end of June 2024, APAC region accounted for 39% of our group sales, up four points compared to last year. Let's talk about America. Q1 organic sales were strongly down again year on year. and down minus 25% compared to five years ago, mostly impacted by volume, while price micro was slightly negative. And digging, talking about the U.S., well, sales recorded a strong sales decline in Q1, impacted by continued stocking, given the absence of signs of depletion recovery yet. Despite another round of the stocking in absolute value in the U.S., which now brings down the level of inventories to the level of pre-COVID, this is not visible in terms of days of stock coverage, considering further sequential deterioration or depletion over the quarter that just ended. But the absolute values are very, very, very low. As a consequence, in terms of month of coverage, level of inventories in the U.S. is still around more or less five months at the end of the Q1. On a three-month basis, value depletion are down a strong double-digit year-on-year and more or less plus 10% compared to Q1-19-20, and as I said, plus 55% excluding BSOP. In Canada, sales were down a low double-digit in Q1, impacted by cognac, and Latin America was also down a very strong double-digit. End of June 2024, America has now accounted for 35% of group sales, which is the same weight of the last year at the same period. Finally, the third region in terms of size is EMEA, a big region in which Q1 organic sales were down a very strong double digit and grew at a low single digit versus five years ago. This uranium performance mostly includes a very strong negative volume effect. Digging in, Western Europe was down a very strong double-digit in Q1, affected by Germany, Greece, and Spain, facing ICOMs and some destocking in a couple of countries. However, this quarter showed a strong disconnection between saline and depletion. UK was down double-digiting Q1, impacted by high comps, as Q1 of last year, 2034, was boosted by some restocking ahead, you remember, of the rise in excise duty in the country. In addition, the economic context shows some encouraging signs of improvement of the back of less inflation, positive effects that start to be seen on the final consumption, on sell-out. The remaining part of the Eugenia region says we are down a very strong double digit, impacted by the stock in Africa Middle East, some negative phases linked to the Orthodox New Year in Eastern Europe, and negative cognac trends in Benelux. Over the last three months, value depletion, so more linked to the sellout, we are down mid-teens year-on-year, and down low single digits on a five-year basis. including Russia, however, by depletion would have been flat compared five years ago. Overall, inventories are now back to LT level, slightly up compared to the previous quarter, but we said at that time they were a little bit on the low side. End of June, in terms of weight, EMEA region accounted for 26% to six of group sales, down four points versus last year's. So in terms of weight compared to one year ago, America's flat, EMEA minus 4, APAC plus 4. Now, let's turn to slide 8 and the analysis by division, and we start by the queen, so cognac. Cognac posted a Q1 organic decline of 12.2%, reflecting a decrease of minus 8 in volumes and a negative price mix of minus 4.2. End of June, 2024, Cognac division accounted for 62% of our sales, up two points versus the previous year. In this Cognac division, let's start with the APAC. And inside APAC, let's start with China. China sales for Cognac were flat in Q1, affected by high comps and a weaker consumption. In a nutshell, consumer confidence remains low and continues to impact consumption, while cash pressure as well waived on wholesalers. As a consequence, value depreciation were down mid-teens in Q1 year-on-year and versus five-year, but within this global evolution, club, our key reference, is overperforming, clearly overperforming, while the high-end products are a little bit more on the underperforming side. By channel, on-trade is the most affected one, In the current contest, also in terms of downgrading and lower spend per capita, while e-commerce is clearly up, I repeat, plus 15%, boosted by the 6-18 festival and banquets, which were relatively resilient during this low season. On the negative side, Hong Kong, Taiwan and Macau were particularly weak, impacted by high comps, the stocking and tourist preference for Japan over Hong Kong. The rest of Asia was down mid-teens in Q1, particularly impacted by Malaysia, Philippines, Singapore. But on the positive side, Japan generated a very strong double-digit growth in the cognac division. Second region in terms of weight for the cognac is North America. Cognac sales were down low double digits, still impacted by the stocking on the back of persistent negative depletion. which are not showing any sign of spark yet. Overall, the market remains highly promotional, and underlying demand continues to be weak. Q1 U.S. value depletion went down a very strong double digit for cognac, uranium, and minus 10 versus Q1 of five years ago, showing a sharp underperformance of the SOP. In fact, Q1 trends are below Q4 of last year. However, we should consider the icons that explain this sequential deterioration. Indeed, June depletions were up mid-teens last year in 2022-2024 before the implementation of the price increase from wholesale to retailers beginning end of June and beginning of July. Considering all that, what I already said, the level of intent trees in cognac in the U.S. is still around more or less five months in terms of DAVO coverage. That is one of the lowest levels in terms of absolute value. Twelve months value depletion, rolling 12, includes two points of negative price mix effects year-on-year, end of June. On a five-year basis, price mix is up 18 points. Panel Award in Latin America says that we're down for Cognac, a very strong double digit in Q1, impacted by a very strong, fierce promotional competition. In EMEA, Cognac says we're down a very strong double digit, reflecting ICOMs, negative phasing, and softer markets. Overall, EMEA was most impacted by South Africa and Germany. The UK showed a very good resilience, despite very ICOMs. As a reminder, last year, we benefited from a stronger stocking effect ahead of the rise in excise duty. And in addition, I repeat that because it's important, sell-out shows early signs of improvement alongside the inflation decrease, which is encouraging. Western Europe, as a sub-region, was down double GTIN sales. However, selling was well below depletion in sell-out, which is something with a positive expectation for the next months. Finally, Overall, EMEA value depletion were down mid-teens here on year-end Q1 and down very strong double-digit compared to Q1-19-20. Let's now turn to Lycos and Spirit Division on slide number 9. Lycos and Spirit Division was down minus 20.4 on the quarter on an organic basis, including a very strong decline of volumes, almost 24% on the 3.9. and a positive price mix effect of 3.55%. End of June, Lycos and Spirits division accounted for 35%, down 2 points versus Celestia. Let's now review the performance of the division by region. In this case, most important region is Americas. In North America, states were down double digits in Q1, of which Canada was up low single digits. North America was impacted by some destocking alongside the greater cautious from wholesalers in a slowing market. So the cautiousness of the wholesaler is impacting as well, like also spirits, creating some mathematically speaking inexplicable disconnection between dynamics of depletion and replenishment in salinity. However, the underlying trends are resilient as shown by the Quantro Q1 US value depletion, all-channel, which were up low single-digit year-on-year and approximately plus 95% versus five years ago. So Quantro doubled its size of business compared to five years ago in terms of value depletions, all-channels. Botanist, our gene, also showed positive trends. Besides all that, price mix was down 5 points versus last year in the last 12 months period and in June, and up 18 points on a five-year basis. In parallel, Latin America says we're down, also for this division, very strong WGT in Q1, once again for a persistent promotional market. EMEA, a very strong region, important region for glycosine spirits, Realized sales for lacrosse players that were down strong double digits in Q1, impacted by high comps, negative phasing effect, and a softer consuming trend. In parallel, value depletion were down high single digits versus last year in Q1, but 30% 3-0 more than five years ago. Inside all that, while Benelux shows a good resilience driven by Q1 through, UK was impacted by high base of comps, And in Western Europe, it was sharply down on the back of ICOMS, some stock in Germany, and overall a soft market. For Eastern Europe, it was impacted by some stocking, following also some slight changes in route to market. Third region so far in terms of weight for Lagos Spirit is APAC. Inside APAC, China. Let's talk about China. China posted for this division a strong double-digit decline in Q1. impacted by continued stocking in whiskeys and a weakened demand, mainly from younger generation, more volatile in terms of habits. However, value depletion were strongly positive for Cointreau and the botanists, while Brookladdy value depletion posting a more limited decline, so some small sign of positive inflection compared to previous quarters. Overall, value depletion were up a single digit versus last year and increased 40% versus five years ago. So, focusing on five years ago, at the end of Q1, Cointreau was 95%, and APAC, EMEA, plus 30, plus 40. So a huge increase of the footprint of Lagos and Spirits, and Cointreau more especially in the region, so in all regions of the group, compared to five years ago. The rest of Asia posted a mid-teens decline in Q1. Southeast Asia faced sluggish consumption. Australia, New Zealand mainly, but we continue to gain market share in a very depressed market. Japan, still booming, also for lack of a spirit, driven by Rucladi and Telmon Champagne. One last word on the performance of non-group brands, which represent almost 3% of group sales, so stable, compared to last year and the year before. They were down minus 24.6% in Q1 and minus 14% versus Q1 1920. This is clearly okay and fine. with the strategic journey that Eric Valas put in place five years ago. To conclude, let's switch to page number 10. On the back of Q1 sales results, which do not show any specific news, nothing new under the sun, we confirm our full year guidance, which includes two distinct periods. H1 sales is still impacted by U.S. stocking, ICOMs in China, and softer consumer trends in EMEA. H2 says that are expected to show a recovery mostly driven by the U.S. In this tough, very tough contest, the group is well determined to use tight cost control and its value-driven strategy to protect its profitability, i.e., its organic cop margin. In the full year 2024-2025, the group will build on these compounders. First of all, the resilience of its gross margin, thanks to a measured selective rise in price amid moderate inflation. Second, normalization of the AID and POSA ratio at a level much higher than in 1920, but lower than last year. And third, a tight control overheads to offset most of the rise in cost in overheads resulting for the reversal of temporary saving achieved in 2023-2024, as you remember. For the sake of clarity for everybody, this guidance does not take into account any potential impact linked to duties increase in China or elsewhere in the world. No duty increase bias taken account in this guidance. Thank you for attention, and now I am happy to answer your question, but before I have to drink a bit of water. Thank you.

If you'd like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. You'll be advised when to ask your question. As a reminder, please remit yourself to two questions during your turn. We will take our first question from Andrea Pistachi, Bank of America. Your line is open. Please go ahead.

Yeah, good morning, Luca. My first question is on liquors and spirits, which has shown quite a deterioration in the last two quarters. So the question is, how much do you reckon of the 20% to 25% decline that we've seen in the last six months is really phasing effects, and what is more underlying? And how do you see the rest of the year panning out in liquors and spirits, And from an underlying point of view, where is the most difficult area for your liquors and spirits business at the moment? Is it the U.S.? Is it APAC or EMEA? The second question, Luca, please, is a couple of things on tariffs in China. I don't know how much you'll be able to say on this. There's a lot of uncertainty. We don't know, of course, how much the tariff will be. We don't know if it will be still applied to the transfer price or further down the value chain. But two points I want to ask. One, is it reasonable to assume that you will pass it on in full to the consumer? Second, how are you thinking about shipment phasing around the potential tariff? Would you be shipping product to China early to get in before the higher tariff is applied? Would you be able to ship more product to distributors ahead of the tariff? Or would this even be possible in the current environment? Yeah, and any sense of the timing? I think, I mean, we should hear something before the end of August. Do you have any more insight into potential timing of any announcement and potential implementation? Thank you.

Thank you for your question. So we start with tariffs. So what are the latest developments following the hearing on July, publicly in July 18? Ering was organized by the MOFCOM held in Beijing, party-oriented dumping investigation. Everybody was there. The Ering is part of the willingness of this association as well as European companies to fully cooperate, I reiterate that, with Chinese authorities in this contest. The Ering and other various European parties to reject the unfounded allegation of dumping, which I've led a technical and legal support. On our side, we firmly reiterate the absence of dumping injury or threat of injury. So what are the next steps? So far, the MOCOM did not make any official communication regarding the exact timing to make their decision. So the procedure is still going on. We cooperate. Why I'm saying all that? Because consider the second part of your question. We were not in a shaky reactivity mood initially. change our way of making business in China. So we don't take any different habits compared to the previous quarter. So far, the investigation didn't affect the consumer taste or the essence of the business. So we are not changing also the operation to try to anticipate, offset in an extraordinary way the technical impact. Because, frankly speaking... We think that we are on the right side, so we don't see why we should be penalized, but that is not only in our end. And if the day comes, we'll be prepared to react. I can say today that everything will be covered by price increase. In a very calm way, we are there, we cooperate, and we react. We are in a reactive move, and we are not changing, nor changing. gears in terms of habits compared to the usual ways of doing business in China. In terms of Lycos and Spirits, dynamics of the quarter and more rolling six nights and what will happen in the future. So I will start with the end. For the year 2135, we consider that Lycos and Spirits, the stage, will be bit cognac performance. So no change in guidance in terms of division footprint for the 24-25. And also for the medium to long term, Lycos Spirits is meant, and we invest a lot, not only in AMP, but in all means to improve the size of the business. So coming to your question, we think this is more a short-term concern. Short term that need to be differentiated by region. Let's start with the more easy one in terms of explanation, which is China. China, it is still a small part of the business. Reacting is still good. Control button is in terms of size. The attention is taken by the cognac, but we continue to improve the size. And for the lack of experience, the negative part, it is more Brookladies, the single mouse that have a more rollercoaster performance in the last two years with the high spikes, younger generation getting on it. Part of also of speculation in terms of buying to store and capitalize on the value of the bottles is not something linked only to Brookladies, also to some other brands of our major competitors in this business, Scottish business sector. I will not name it, but everybody understands what we're talking about. So this decline is linked to the volatility of the younger generation and some resale value that has been lost during the global gloomy period that we are living in terms of visibility. But it is temporary and is not waiving so much for the overall performance of the group. The second one is EMEA. EMEA is a much more jeopardizing situation because we increased prices very much, starting with Cointreau. We are clearly on the right strategy, but now there is a pause in terms of volume, so there is an assessment. not an assessment, a stabilization of the consumption that will become normalization after this huge price increase. We are continuing to improve the set of tools to improve visibility and rotation, but it's really a game country by country. It's very difficult to encapsulate that in only one figure. Overall, at this stage, EMEA is the region which we need to to focus more for Lycos and Spirits to be able to deliver a clear and steady run rate, positive run rate for the future because of the different situation of the single market. It's a global, very complex situation. For the U.S., it is a complex and very easy to answer situation. There is a clear misalignment between Selene and Depressions. What I tried to say in an elegant way before is that Selene is negative, clearly negative, clearly running behind performance on sell-out and depletion. We can say that sometimes on a given quarter, Nielsen is negative, but we look at all channels. Nielsen, remember that for us, is totally not representative. It's only 35% against 44% for the market because not taking into account some major chains and independent local stores in which we are beating other peers. So this misalignment is linked to what in the U.S.? And we need to solve. It is not a strategic point. It's more a tactical negotiation execution point. But that we need also our wholesalers in the U.S. to play the same game. The stocking following Q4 negative depletion, clearly, but strong cautious from them, from wholesalers, to record in global context, value depletion are positive. So in a nutshell, Cognac, the fish are underperforming for Remy. Remy is cognac. It's waving negatively for all other brands. And it's our job, but the job also of the wholesaler, to understand that in 2024, we need to work in a more analytical, skilled, and digging basis. So overall, at group level, I repeat, we think that there are more conjunct or specific elements that are waving with a negative effect. news of the publication. I'm really aware that telecoms experience is a miss compared to the expectation, but it's more conjunctural than long-term threats. And every single region and country for EMEA need to have a specific boost plan or re-engineering plan to address that, starting with Cointreau, but not only Cointreau. Also for Brookladdy and for Europe, Metaxa as well. Metaxa specifically was... It was also some changes in route to market in Eastern Europe, as I said. Please.

Sorry, Luca, just to clarify if I understood what you just said on the U.S. destocking situation. You're saying that the situation in cognac with very weak depletions and the destocking, that is also weighing or that is driving in part the destocking that you're seeing on your other brands. So it's an execution thing that you have to fix in how you're dealing with the distributors.

Totally exact.

Thank you.

The cognac underperformance is overshadowing positive news, so it is an execution element to fix, in which we need also wholesale collaboration. We can't react only looking at global figures. Brand by brand, excuse by excuse.

Perfect, thanks.

We will take our next question from Edward Mundy. Apologize. We will take our next question from Sanjit Aula, UBS. Your line is open. Please go ahead.

Hi, Luke. A couple of questions from me, please. Firstly, can you just elaborate on the implementation of the VSOP boost plan, how that's progressing? Appreciate it's early days, but any color you're able to share. as you've made those changes in the US over the last couple of months. And my follow-up question is on EMEA. You called out intensified promo activity. Can you just go into a little bit more detail? Is that broad-based across categories or any particular categories and markets you'd call out where you've seen that step change? Thank you.

Thank you so much for your question. Let me allow to give to yourself and everybody a more global vision of what's happening, the current trading in the U.S., apart from figures. So it is clearly there that Q1 depletion in the U.S. showed a sequential deterioration versus Q4. So first stop for tagline, there's a deterioration. Why that? ICOMS, last year before the implementation of price increase to retailers, June was up mid-teens for the Konya category. The exit rate was very, very strong. Tough market, still tough market, still driven by strong promotion. And we are far less promotional than other peers, as you know. And promotion intensity is not lowering, absolutely not. You can also see it in our spreadsheet. When we bench on three months or six months, the market is A number discussed compared to our peers. You will see a huge positive. It's clearly driven by other ranges that we donate in the portfolio, i.e. BS. That means also, what does it mean in terms of alignment between saline and depletion for other big peers? Spirit market slowed overall versus Q4. Market is low in that. Current trading, we do not see the spark yet in the U.S. Limited visibility, still negative. Let's see how the next quarter will move forward. So far, small positive news. July showing a strong sequential improvement. I'm not saying positive, but strong sequential improvement. Too early to determine if it will be sustainable and lasting for the Q2, even if on the low base. Another point that is important to highlight is the asymmetry between states. We are clearly some... very good performance in the U.S., Georgia, Nevada, and we have huge underperformance, California, Texas, New York, and partially Illinois. So it is a very complex dynamic state by state. It's like having a huge European state inside a lonely U.S. market. We are just finalized on the positive side implementation of our boost plan. We started to reinforce our activation point of sales from the SOP. We implement our smart pricing strategy that I highlighted very clearly with thresholds. These can be up in some states, down in some states. We have a threshold which is aligned. Too early to conclude because the benefits should be there more in the Q2 phase. So far, we recorded encouraging trends in a few states, one of them Michigan. Then, if all confidence and the market is still down, it's very difficult to acknowledge the performance. It is more a performance which is less negative should have been, that is clear positive. But so far, some encouraging trends in some states repeat, and end of Q2, we will be more precise on the result of the boost plan on this week. We have signed also something very important, new partnership with Usher that will also contribute to animate the coming months. And we are confident that we can be better than today. But so far, for the short term, Q1 was a deterioration, and Q1, in terms of depletion, was clearly in a miss compared to our expectation. So global, overall, a group level, not only U.S., we have been very marginal in Selene. And more important, some points more in terms of depletion compared to our internal estimation. Lagos and spirits, let me repeat what I just said. That's very important. For the U.S., we have a misaligned between saline and depletion. For the reason just highlighted, the stocking following Q4 negative depletion and a strong caution from wholesale to take orders in this current context. Value depletion are very positive, including for Cointreau at the botanist top of mind. Fundamentals, specifically on Cointreau, are very, very solid. We gained market share very clearly in 2023, 0.9 points and 7 points of market share compared to five years ago. And we intend to continue to leverage this good momentum. In terms of EMEA environment, I will try not to be too long because it's a complex region. The current trading, apart from figures that you already highlighted, Q1 sales were impacted by softer underlying trends. Inflation, wages on purchasing power, the fact that we increased strongly our pricing last year, and we need to give time to consume the top sorbets. ICOMS in the U.K., some negative phasing effect, particularly in Eastern Europe, a waving on Metaxa, and weak markets in South Africa and Nigeria. In terms of denuclearization and depletion, down mid-teens and down low single-digit on a five-year basis, and inventory backs to healthy level. The global environment, I repeat, is more complex than other states because it's state by state, country by country, operational plans that need to be put in place and with the new organization that has been changed at the beginning of the year as we highlighted the full year result we switched from a more geographical footprint and business unit system to a more developed market and future growth so there is also a time of this new organization to be put in place The question you might have is, is this lowdown more an ongoing concern or is it a short-term issue? So far, at this stage, we continue to think that Europe will be able to deliver a positive top-line dynamic for the year. But we started lower than the expectation. So we don't think there is a long-term issue. It's a short-term issue. problems linked to inflation or reaction to consumer normalization and adjustment of route to market and our organization to this new environment. So we should witness in the coming quarters and more clearly from the Q3 a recovery and a re-speed of the region. I hope it was clear.

Great, thank you.

We will take our next question from Edward Monty Jeffries. Your line is open. Please go ahead.

Hi, Luca. Morning. Two questions for me first. On China, it appears that your performance is a little bit better than your peer who reported yesterday. Clearly, you've got a slightly different portfolio with that gap between VSAP and XO closed with Club. But can you talk about some of the other differences perhaps between your business and your peer's business, in particular on route to market with your very strong e-commerce business? and also potentially your channel exposure, you know, relative to your peer. What is it that allows you to potentially outperform your peer within China is the question? And then the second question is around your guidance. We're clearly one quarter in. I think you're signaling there's no new news, really. Today, I'd expect the first quarter to be quite tough. But do you think the second quarter will be just as tough as the first quarter, or do you think it'll be worse, or do you think it'll be better? I appreciate that Q2's also got very tough comps relative to pre-pandemic levels.

Thank you for this very easy question. Finger in the nose. So China, as we said, if you look at our figures on depletion in the Q1, first reaction is that there is a stocking impact at the end of the Q1. Today we tried to animate this conference and Q&A even more, taking also part of your question, thinking, and trying to tackle the point in a very clear way. As I said, on a six-month basis, this is totally reversed. And part of the footprint and the business model five years ago changed the way we operate. We are more China home and less reliant on ex-travel retail, on operators in Macau and Hong Kong. So you cannot compare Apple to Apple in a very clear way. But overall, we are running a value depletion on a moving average in a very positive way, in our opinion. However, to moderate that, the meetings declined in depletion, encapsulating overall slowdown of the activity on top of ICOMs. So, to be able to confirm the fact that we are clearly able to beat our peers in China, to tackle your question, we need to assess the situation very clearly at the end of Mid-Autumn Festival and Chinese New Year, Q2 and Q3. This is key. The quarter is 15% Q1. The very important part, more than 50%, 60% is Mid-Autumn Festival and Chinese New Year. And so far, on the negative side, I will start on purpose on negative, because I'm bearish today, because I want to be clear, and then I will detail the positive side. Low level of confidence in the country, real estate, world performance and finance sector, high unemployment, low expectation economic growth, and consumers showing their willingness to be lucky by spending less on high-end products. You can see also in our performance, I said very clearly, club is beating and the high-end is a bit underperforming. Cash pressure and the trade are clearly visible. So we deal with that, but we do not compromise also to sell in with trade terms of MED. And If I may say that, a bit of nationalism sentiment protection is consumed locally. On the positive side, so why we are getting there, why we think we are going to be proud of our performance in China at this stage, because for the negative channel overall, we are less exposed, so we have also this kind of chance. Off-trade, we are continuing to do a very strong job. Our team, we are very proud, is very strong. We have a very strong China team. E-commerce is a deadly weapon, positive speaking. Every time we get in touch with consumers, I say it every time, but the results are there. Every 18, 16, 18 of June, 11, 11, we are clearly, clearly... beating our internal estimation and beating competition. Overall, even if it's complex, our switch on direct sales for some part of our business, our retail part for Louis XIII, it is improving in terms of image and it will be soon in terms of result as well. We have some advantage in terms of channel, in terms of themes, in our opinion, in terms of lower exposure to the on-trade. So, for the year, we do not change our forecast for China. It is more complex in terms of global environment than estimated, but so far, it is to be slightly up, both in saline and depletion for the year. I repeat, at this stage, but everything is linked to two important moments. Everything can be better or worse. MAF, Mid-Autumn Festival, and Chinese New Year combined between 55% to 60% of the business. On this point, MOFCOM custom duties can waive only in terms of financial, not in terms of consumer sentiment. So far, we didn't get any negative impact about the investigation. So I try to answer to you in a balanced way, putting in the first line the negative elements in China. for us and for everybody, and what makes the difference. Guidance. Too early to comment precisely. It's only the start of the year. What we confirm is that the year is very unbalanced between H1, H2. Timing recovery comps, depletion running worse than the Q1 or the Selenium, It's something that is a red point, so we cannot ignore that. It is enough to change the guidance? No, no, no, no, no, no, no. We believe in the guidance. It is something that can waive on Q2? Yes, yes. At this stage, the visibility is blurred, but we are committed. There are three important positive points in this publication. I'm quite modest and I don't want to put China better than peers on that. The first one is Japan, something common. For fundamentals, also yen. The second point, which is specifically for us, sorry, in this point I will not be modest, e-commerce. The third point, very positive. The fighting spirit is there. Everybody is committed. It's not because we are minus 15.6 that we are sitting our in our offices looking at the figures, making simulation, and resetting the six revised forecasts every day. We are fighting. Then we will count, but we are fighting. That's why I also made some comment about collaboration. All the chain of actors need to be mobilized with the same spite-fitting spirit. So, what's the consequence for your estimation? That based on the strong negative Q1 performance, and depletion being a little bit worse than our expectation and worse than 15.6, 18.6 and depletion group level. Visible alpha consensus today seems not to take into proper assumption the asymmetric trends between H1 and H2. So far, the consensus on top line H1, visible alpha, if I'm not mistaken, is more or less minus 9.5, minus 10. So it is too optimistic. Gives space to the second part of your question, short term, what we'll be having tomorrow for lunch or for dinner. What is expected performance for Q2? No spark visible in Q1 in the U.S. for depletion. End of Q1 group level shows a slight full stock overall compared to end of March. Why? I repeat. Selene minus 15.6, depletion down 18.6. Based on current trends, I'm not sure, I'm really not sure that it will generate a sequential improvement in Q2 versus Q1 in Selene. July started better in depletion in the U.S., but too early to conclude, I repeat, if this trend is sustainable and it will be enough to encourage world sales to increase orders and stock, stock that are at the minimum level So I'm sure that Trevor Steering is thinking what you will do, his question will be, when tomorrow depletion back to positive and we'll call you at the phone every two minutes to replace you will be out of stock in two days because he's right. He's right. Trevor is right. It's what will happen. China still impacted by ICOMS. Plus 100% in Q2 last year. versus Q2-19-20, even if it was another way of operating. And our market remains very tough, particularly for high-end segments. And EMEA, if trends will improve during the summer. We are mobilized on that, but it's still tough. So, all in all, I think you understand, for the Q2, we will not be in a positive land, and also the sequential improvement compared to minus 15.6% I'm not sure that will be there. I cannot be more clear than that. We are committed on the guidance. It's very, very different from what you are expecting right now in visible alpha.

Q2 is going to be the same as Q1 or worse.

We will take our final question from Lawrence White, Barclays. Your line is open. Please go ahead.

Morning, Luca. Thanks very much for the questions. A couple for me as well, more clarifications. But you had a very strong performance in Japan, and I was just wondering what's the relative... We miss you.

We are not hearing now. Something happened.

Apologize. The participant line... seems like disconnected. Once again, Lawrence White, if you can hear us, please press star one to join back into the queue. We have Lawrence White back on the line. Please proceed with your questions.

Hi, Luca. I don't know what happened there. I could still hear you all the way through, but just repeat everything.

I'm sure that you are not blackmailed by me. I'm sure that I blackmailed you. If you were one of the more positive, you would be back one day, I'm sure.

Exactly. Just a couple of questions then. On Japan, just wondering what the relative pricing environment is in that country, particularly versus China. Are you currently selling products in Japan at about the same price as you're selling them in China, and are people buying higher-end or lower-end products in Japan versus China? And then secondly, just given the relative weakness in the on-trade recently and your current high strength in e-commerce, Could you give us a breakdown of sort of the sales splits between those three regions, your on-trade, your off-trade, and your e-commerce, just to help us understand that? Thank you. Thank you for your question.

So Japan, for us, we are not LVMH. Japan is a positive element, but it's small weight, so it's 2%. So clearly there is some sales that are going to the Chinese tourism. Maybe what you are... In terms here, that can be somebody, some traders making some deals to replenish the China market. It is marginal. And clearly, the yen, the weak yen is playing a role. But at group level, at group scale, can switch the weight of 1% to 1.5% to 2.5%. So we are talking about 5 to 10 million at global level. So it is not a disturbing factor affecting the local basis of consumption. What is affecting is part of travel retail performance because maybe you have some local sales in Japan for the Chinese tourists that are in Japan that should belong to another type of, at the end, disturbing effect on top line, very minimum, increasing at the lower gross margin, group level very marginal, bottom line not much assist on EMP, so bottom line it is It is squared. In terms of weight, today the weight for us in on-trade is no more than 5%. It used to be 40 to 45 before COVID. We are very weak today in on-trade, which is a negative element. We can improve. It is also protection in the short term, also because on-trade in China is less profitable. It is profitable, but it is less profitable off-trade. E-commerce, so far, it is 35% of the weight, so the difference is all the mining channels, so between off-trade, direct. And the weight of the e-commerce, don't forget, will be normalized in Mid-Autumn Festival in Chinese New Year, because in that part, classical business will sell, and direct sale will improve. So yearly level should be between... 24% to 27% in terms of weight of e-commerce. Frankly speaking, we prefer to be 20% as well because it means that the other channel is clearly improving compared to the actual scale of growth. At group level, this is an important point, e-commerce now, end of Q1, group level, not China, is 18% of the business against 3.6%. So the group realized minus 15.6. E-commerce, channel, all countries, all brands together are slightly negative, more or less flat, with China booming. So every single country is doing more than its job on this channel. And, thanks God, we think that this is a clear, distinguished, positive weapon that we have. Thank you. Thank you very much. See you in September.

That is all the time we have for question and answer session today. So I will now hand you back to your host for closing remarks.

I don't have any special closing remarks. So I hope that you will have a very nice, peaceful summer. Have fun. And See you during next month and talk to everybody end of October for the Q2 NH1 top-line performance. Have a safe and beautiful summer. Ciao, ciao.

Thank you for joining today's call. You may now disconnect.