Remy Cointreau Sa Ord

and welcome to the Remy Control Q2 Sales 2425. Please note, this conference is being recorded, and for the durations of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you will be connected to an operator. I will now hand you over to your host, Luca Marotta, CFO, to begin today's conference. Please go ahead.

Hello, everyone. As you've seen in the press release, Q2 sales were down 16.1 in organic terms. This performance reflects, first of all, a continued stocking in the U.S. on the back of a persistent weak depletion and, more importantly, below our expectation. Second element, high basis of comparison and clearly a tougher market condition in China and more broadly for Chinese cluster, glitter China. And third, a soft context of consumption in the rest of the world alongside a strong promotional activity. Overall, Q2 sales decline is split between a volume decrease of minus 8% and minus 8.1% of price mix effects linked to limited price increases and the outperformance of the lycosine spirits compared to cognac. Looking at the overall sales performance by region, Americas generated a decline of 22.8% in H1, reflecting continued stocking, as said. Depletions are obviously still too low, but every cloud has a silver lining, and we can at least admit that they are sequentially improving. APAC recorded a sales decrease of minus 8% in H1, including a relatively limited decrease in China, which represents clearly the major part, and a weak performance in Southeast Asia, especially for cognac. Third, EMEA, big EMEA region, was down 18.8%, affected by persistent soft consumer trends and unfavorable weather conditions. This was selling. In terms of value depletion at group level, the best approximation of final sellout over the past six months, in the U.S., value depletion were down mid-teens. As compared to pre-COVID, value depletions are flat and low. out of the SOP, excluding the SOP, plus 45%. In China, value depletion were down low single digit in H1 versus last year, clearly, and up more than 35% compared to 1920. On top, I have to add that in Q2, value depletion in China were slightly up. However, base of comps last year were Quite easy. Last but not least, in EMEA, value depletion were down low double digit versus last year and down mid single digit compared to H1 1920. But excluding Russia, because it's not comparable to five years ago, value depletion would have been flat versus five years ago. Overall, at group level, six months value depletions declined by low double-digit versus last year, i.e. slightly better than Celine on a six-month basis. If you remember, end of Q1, it was the other way around. So, albeit we remain negative, clearly, on the second quarter, there is a slight small spark in terms of reverse trends in terms of value depletions comparing to the selling performance. On a five-year basis, group value depletion were up low single digit in line with selling trends, which are plus 1.5%. So for five years, quite balanced. To conclude on this very important first slide, considering what's happening and the result, the performances, we have decided to adjust our full year guidance, taking into account the persistent low visibility, disappointing sales at the end of Q2, and worsted market condition in China. On page 3, I would like to come back very briefly on the main marketing initiative of the quarter, And Eric Valla, our CEO, will develop the strategic rationale behind them in a more deep way, in a deeper way in a month for the H1 result. Starting with the U.S., first of all, we have started to reinvest behind VSOP at 360 degrees to improve its visibility and the conversion rate. Here there's one illustration with a limited edition called My City. that will be activated in four important cities in Q4, Detroit, Atlanta, Chicago, and New York. In parallel, we continue to push our investment on our core business, RME 7038, through the current tour sponsorship of Usher across the U.S. with an important activation plan in both off- and trade sectors. And last, we are preparing the relaunch of MED with a new pack, more modern, more dynamic, a new blend, lower ABV, and a new price position to revitalize volumes. The campaign will be quite offensive and target primarily the new generation of women in the spirit space. Full plan will be live from April next year in two states and then roll out all over the 2025 year. In China, as mentioned, the market is tough for all the industry and more largely the consumer space. In this context, the objective is clear to leverage our biggest strengths to make our performance as much as possible resilient. Remy Club is definitely one of them alongside e-commerce in terms of channel. And then in Europe, we have decided to launch As an example, our own premium RTD offer in the UK as a pilot market with Cointreau, our most relevant brand on the cocktail landscape. It is a very new test, a learner approach, and on a very limited scale and exclusive at the White Rose retail chain. Now, back to figures. Let's move to slide number four with H1 sales analysis. Sales amounted to 533.7 million euro, down by 103 million euro an year, or 16.2 on a reported basis. This reflects, from one side, a strong organic decline, a bit more than 100 million, 101.4, which means a minus 15.9% organic sales decrease in the semester. This performance needs to be split between minus 13.5 of negative volume effect and minus 2.4 of price mix. Regarding the latter, this is a combination of the neutral price effect and low to mid single-digit negative mix effect linked to the underperformance of the cognac division compared to the overall group. Second point, a very slight negative currency translation impact of 1.6 million euros. or 0.3% loss for the semester. The loss was mainly driven by deterioration of Chinese won for 1.6 million and Japanese yen for 0.5. But on the opposite side, US dollar was positive in terms of conversion for a limited gain of 0.2, as well as the British pound for 0.4 million euro. Slide five, the usual performance by division comparing actual trends after the performance two, five years ago, pre-pandemic, 1920 H1. I will not detail all the figures. They are all on the spreadsheet 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 10.4% versus pre-COVID, while value depletion are down low double digit at the same time. In parallel, liposome spirits continue to generate a significant performance of plus 38, 38% versus pre-COVID, driven by both volume and price mix. And value depreciation trends grew even more, more than 40% over the same period. So clearly, two different speeds over five years between the two divisions. At group level, this shows now an alignment, as already said, compared to five years ago, in terms of saline, more or less, plus 1.5, and value depletion at group level, which are now slightly up, precisely plus 1.3%, compared to H1-1920. Now, let's now turn to slide six to dig into organic trends by region at group level. And let's start with APAC, whose H1 organic sales were down 8%, as said, but up 42.2% on a five-year basis. Let's start with the valorization, so volume-value equation. The performance year-on-year is equally split between a negative price-mix effect and negative volume effect linked to the Lycos and Spirits divisions. China's sales were down mid-single digit in Q2, representing an increase of more than 80%, 8-0 on a five-year basis, in a market facing tougher market conditions, particularly for the high-end segment. In this gloomy market, the only channel which emerged positive was the e-commerce, grew at more than 10% in Q2, representing 25% of sales penetration and ODH1. The overall performance also reflects the strong negative impact coming from Taiwan, Macau, and Hong Kong, as well as softer trends in travel retail in the IPAC region, where travelers are back but spend less. In this context of selling, of sales, down mid-single digit in China, H1 value depletion group level were down low single digit year-on-year, including, as already said, it's very important, a slight increase in Q2. On a five-year basis, H1 value depletion were up more than 35%. Moreover, considering the better resilience of depletion versus saline, our level of inventories remains healthy at the end of September. The remaining part of Asia continues to be affected by tough market conditions in Southeast Asia, in Q2, particularly in Australia, Malaysia, and Singapore. Meanwhile, at the same time, Japan continues to outperform, even if on a slightly lower trend in Q2 compared to Q1. End of September 2024, APAC accounted for 44% of our group sales, up four points compared to the previous year. Second region in terms of weight, it's America. America's H1 organic sales were down 22.8%, including a negative mid-teens effect in volume. More specifically, in the U.S., sales recorded a very strong decline in Q2, impacted by another round of destocking, given the persistent weakness of depletion. Given the sequential improvements, however, in depletion from Q1 to Q2, level inventories has lowered a bit. It's now slightly below five months at the end of the Q2, always comparing to the expectation of the future depletion. On a five-year, H1 value depletion are down now mid-teens, year-on-year, and flat versus H1, 19-20, but excluding the SOP, plus 45%. In Canada, sales were flat in Q2, supported by Lacrosse and Spirits Division performance, and Latin America was down low double digits, impacted essentially by cognac. End of September of 2024, the Americas accounted for 34%, 3-4, group sales down 3 points. And then we have EMEA, EMEA H1 organic sale, we are down 1%. 18.8%, almost flat compared to five years ago. This year-on-year performance mostly includes a very strong negative volume effect. Since the changes of organization announced last June, we monitor now the performance of this big region with the different split as displayed on the slide. So, first of all, we have the cluster of Europe third-party distributor, 3PD, recorded a slight sales growth in Q2, led by Germany, Greece, and Italy. In parallel, sell-out has slightly improved as well, led by Metaxa, even if the spend per capita remains subdued and weather conditions were unfavorable in the summer. Second cluster, UK and Nordics, down strong double digits in Q2, impacted by high comps and a gloomy economic context. The objective has been to protect our market share in La Cosa Spirits, despite the declining categories environment. Benelux and France, third one, we recorded a slight decline in Q2, impacted by cognac, while at the same time La Cosa Spirits showed good dynamics in summer. And then, last but not least, MI and Eastern Europe says we are down strong double digits in the In Q2, impacted by Nigeria, for instance, which facing the stocking following the change of route to market, and as well South Africa, still affected by a highly promotional market and mostly driven by the V.S. segment. Over the last six months, value depletion at all EMEA regions were down low double-digit year-on-year and down mid-single-digit on a five-year basis. Excluding Russia, value depreciation would have been flat compared to five years ago. So overall, considering this comparative performance, level of inventories remains healthy in the region. End of September, EMEA big region accounted for 22% of group sales, down one point compared to the previous year. Now let's switch to slide number seven, the analysis by division, starting with cognac. Cognac posted a H1 organic decline of 17.5%, reflecting a decrease of 14.2% in volume and negative price mix of 3.3%. At the end of summer 2024, Cognac division accounted for 64%, two-thirds of our sales, down one point compared to the previous year. And let's start with APAC, the most important region at this stage for cognac. In China, inside the pack, sales, which represent most of our cognac exposure in APAC, were slightly down in the Q2, affected by ICOMS. China is up more than 90% versus Q2 in 1920. Tougher market condition, domestic market, and in travel retail as well. In a nutshell, consumer confidence remains a bit low Cash pressures are affecting wholesalers and the luxury shaming waves indirectly on the high-end segment. However, on the value depletion side, we were slightly up. I repeat, slightly up in the Q2 year-on-year from a slightly more favorable basis in terms of comps and were mostly driven by Remy Club, which overperformed up mid to high single-digit year-on-year On this period, on a five-year basis, value depletion for China were up plus 60%, 6-0. On trade is once again the most affected channel in this current contest, while, and this is something very specific in which we are very proud, e-commerce was up more than 10% in the period. Hong Kong, Taiwan, and Macau were weak. impacted by ICOMS, the stocking, and we can call it wait-and-see attitude before the tax decrease in Hong Kong. The rest of Eurasia was down a very strong double digit, particularly impacted Malaysia, Australia, and Fort Cognac specifically in Q2, Japan as well, and softer trends for Chinese tourism in these kind of countries. Second region for Cognac, the White Americas. In North America, cognac sales were down by a very strong double digit in Q2, still impacted by the stocking, but on the back of lower than expected depletion and a very high promotional market. Q2 US value depletion were down mid-teens year on year in minus 10 versus Q2 1920, showing a negative performance, but a sequential improvement compared to Q1, mainly led to by 7038. Considering all that, the level of inventories on cognac is now slightly below five months in terms of days of coverage. 12 months by the completion, as you can see in the slide, includes three points on negative price mix at past year-on-year at the end of September. But on a five-year basis, price mix is up 16 points. Finally, Latin America sales were down a very strong double-digit in Q2. impacted by a strong, fierce promotional competition. Third region in terms of weight for cognac, EMEA. Cognac sales were down a strong double digit in Q2, mostly impacted by Nigeria, changing RTM to market as said, and tough market in South Africa. UK continued to face high comps ahead of the rise in excise duty last year and fierce promotional environment this year. And Europe third party distributor, Europe 3PD, improved sequential in Q2, led by Germany, Greece, and Italy. This was in terms of sales, but EMEA value depletion, EMEA value depletion were down mid-teens year-on-year in Q2 and down strong double-digit compared to Q2 1920. Let's now turn to slide number eight, a word on Lycos and Spirit Division. Lycos and Spirit Division was established down minus 12% on organic base in H1, including a very strong decline of minus 12.6% in volume, and a slightly positive price mix effect of plus 0.6%. End of September, Lifes and Spirits accounted for 34% of our sales, up one point compared to the previous year. Now, let's review the performance of the division by region. And here, number one in terms of weight is Americas. North America says we are down a low double digit in Q2, still impacted by greater caution by Wholesaler, from the Wholesaler willing to maximize their global inventories footprint in a slowing market. However, the underlying trends show some resilience compared to the market. Quantro Q2 US value depletion were up low single digit year on year, and approximately plus 65% to third bearer than Q2-19-20. Botanist, our gene, showed also some positive trends year-on-year, plus 10% versus last year, and almost 100% plus 95% versus Q2-19-20 in terms of value depreciation. Besides all that, price mix was down three points versus last year in the last 12 months, period ending September 24, but up 20 points on a five-year basis. In parallel, Latin America says we're up strong double digits in Q2, led by Cointreau and Munguay. Clearly for Latin America, Lacus and Pires' division was more dynamic than Cognac. Second region in terms of weight for Lacus and Pires is EMEA, where sales were slightly up in Q2, showing a strong improvement versus Q1, led by France, Germany, Greece, and Spain. In parallel, value depletion were down a single digit versus last year in Q2, but plus 45% was five years ago. Inside all that, in terms of countries, while Benelux shows a very strong growth led by Cointreau, the U.K. on phase high comps and in declining market where the group has protected this market share. In parallel, Euro third-party distributors clusters showed some good dynamics, led by Metaxa and Cointreau. Eastern Europe was impacted, however, by some destocking following changes in route to market in the Czech Republic. Third region by weight, APAC. In APAC, we have clearly China, posted a very strong WG decline in Q2, impacted by continuing destocking in whiskeys. and a weak end demand, mainly from a younger generation. Overall, value duplication was slightly positive, however, versus last year, increased by 15% versus five years ago. So it's really an issue of the stocking. The rest of Asia posted a mid-single-digit increase in Q2. Inside that, while Southeast Asia was flattish, facing slouching market consumer conditions, mainly in Australia, Japan was booming from this division, driven by Brookladdy and Coentro. One last small word on group brands, which now represent 2% of the group sales, stable year-on-year. They were down 25% in H1, or minus 18.3%, versus H1-1920. To conclude, page six before our Q&A session. On the back of Q2 sales, we showed disappointing trends, and considering the persistent lack of visibility and worsening market condition in China, we have decided to adjust our full year guidance as follows. On sales, we now expect another year of double-digit decline in organic terms for the full year. And COP margin, operating profit margin, we now expect an organic deterioration that will be partially offset by the launch of another cost-cutting plan totaling over $50 million in terms of impact of this year. This new guidance is based on the following assumption in terms of region. In Americas, we do not expect any recovery in sales before Q4, 24, 25 at the earliest. In APAC, we should record a sequential sales deterioration in H2 compared to the H1. And EMEA, we should continue to face sluggish consumer trends in the second part of the year. To manage the top-line pressure, clearly, which is important, we have decided, I repeat, on top of the ongoing strict cost policy, to launch another cost-cutting plan of more than 50 million, 5-0, to protect as much as possible our COP margin. For the sake of clarity, This 24-25 guidance for this year takes into account the recent MOFCOM decision based on the information that we have as of today. The impact of this decision in terms of profit and loss for 24-25 is marginal for us. Lastly, we reconfirm our 29-30 midterm guidance. But Let me be clear on that. 24-25, as said, will be a year of transition with highlights, including a finalization of the stock in the Americas, and starting from 25-26, we'll make a resumption of the trajectory set for 29-30. 29-30 is confirmed, and starting from 25-26, it will be and high single-digit annual growth in sales on average and organic basis progressively, and a gradual progressive organic improvement in current operating margin. These are 2930 guidelines. Doesn't mean that according to Waters' years, symmetry between top line and bottom line will be assured on the same basis. I repeat, high single-digit annual growth in sales on average starting from 2526, and a gradual, gradual, month after month, quarter after quarter, improving current operating profit, but with no grants of the same symmetry. Thank you for your attention, and now I am happy to answer your question, but before I have to drink, because I have no more breath, I need water. Thank you.

Thank you, Mr. Marotta. If you would like to ask a question, please press star one on your telephone keypad. To redraw your questions, please press star two. Please note to limit your questions to a maximum of two only. We will take our first questions from Edward Mundy from Jefferies. Your line is open. Please go ahead.

Morning, Luca. So two questions, please. The first is on U.S. cognac, where I think you're signaling that the Q2 depletions, while still negative, are slightly better than the first quarter. Could you perhaps provide a bit of color? What's behind that? Is it the VSIP relaunch or is it the new commercial organization? And how sustainable do you think this sequential improvement in the U.S. may be? And the second question is around the guide. You know, China sounds okay in Q2, the U.S. slightly less bad, and I appreciate visibility is very low. But are you trying to signal that the timing of recovery is being pushed back versus your prior expectation? Or are you trying to signal that H2 organic cells will deteriorate versus H1? So a bit of color on the top line. And then on the same question on the guide, from a profit standpoint, I appreciate that there are still some cost savings from last year that need to come back into the base. But perhaps you could provide a bit more detail around the 50 million of cost savings. And do you think operating deal average will be worse in fiscal 25 relative to fiscal 24?

Thank you for your question. So let's start with the BSOP relaunch. The plan, it is running through. It started with the price repositioning, specific in some states, as you remember, up and down, following the strategy of repositioning that had been decided in 1999. And it is starting to give some small, bear some initial fruits, but need to be followed by also for a specific activation and marketing initiative to be coherent with, there is not only price, there is need to be assisted by some activation and focus on the field. As said, in the last two years, we were a bit slow forgetting to bracket VSOP focusing on more strategic what we consider at the time much more strategic SKUs like 7038 and so on up so it is running it is not yet totally visible end of Q2 but to give you some example first sign of exit rate on October in VSOP are showing some positive depletion the SOP overall in all U.S. And in some states, since July, it is the case, some important states like Michigan, the states were more affected by this price disalignment. Fruit has been burned even before now. So not yet visible global basis. It will be a little bit longer. But Month after month and week after week, we are seeing some positive signs. In terms of guidance of the top line of the H2, at this moment we can be much more precise because otherwise we would have precise a fork with specific number. So what is sure that in our forecast, we think that Q3 will be the toughest quarter and Q4 should see a bounce back, at least for the U.S., in terms of top line. I'm not committing that Q4 will be positive for the group at global level, but for sure, I think, and we can commit that the Q4 in sales for the U.S. will be positive, also by the fact of the comps. You have to remember the last year in the Q3, we made a huge performance of Celine in the in the U.S. and this plays a role in terms of comps. Where will we stand in terms of top line qualified this double digit? We will have much more occasion, many occasion in the future to be able to precise that. So far, this is our assumption. In terms of cost base, the $50 million is a combination of all natural resources. I will not be precise today because it is a sales and trends of depletion to try to understand what's happened to the top line for the next future. We're much more precise end of November for each one result. But I can say to you already that is a combination on the cost linked to the manufacturing, supplying, AMP also to try to reset the base considering the top line. Ratio versus sales will remain a very high level compared to our history and compared to Pierce. We can ensure that. And I can commit already now on overheads that will be able through this cost-saving plan to offset the $30 million of temporary cost reverse that we have, and overheads at the end of the year will be flattish at worst, so maybe also slightly negative. So considering the context, after $145 million, more than $50 million, which we are committing now, it's very important. But as said, our business model is made to support sales that need to grow a single digit. At one point, cost saving will not solve the operating margin equation because the top line impact is clearly material if you combine 23-24 and 24-25. Great. Thanks, Luca.

Thank you. We will take our next questions from Olivier Nicolai from Goldman Sachs. Your line is open. Please go ahead.

Hi, good morning, Luca and Celia. I've got two questions. First of all, on the US, if we take a step back, the Cognac category is about down 20% in volumes compared to before COVID. And that's more than most of the other spirits categories. So what do you think the Cognac players, including Remy, of course, have missed and should have done differently? But do you expect Cognac to recover in the long run, its relative share, and how? And second question, I know it's sales updates, so I guess I would love to ask this one perhaps in amount time for more details, but Remy has a strong balance sheet. So first of all, can we expect the cash formation ratio to go back up significantly this year? And how should we think about the potential for share buyback concerning your current valuation? Thank you.

Thank you so much. So Once again, even if the cyclical impact is lasting quite long, much longer than expected, we don't think it's structural. So we think the cognac category is still desirable. All surveys, all independent surveys are showing that. Everybody says that. It's that this time frame negative performance is lasting more than expected. Also, you have to consider that we are not dealing directly with consumers, so there is a world-seller trade-off inside, and the cash pressure and high interest rates are playing a role in terms of arbitration of stocks. We don't think that we can modelize a cognac category at minus 24.5 in the next five years, so we don't see a huge shrink of the cognac category. It is this momentum which is quite complicated for us, even more than our peers. And how to turn it positive is that we need to be consistent on our pillars, switch from a more brand awareness game that was the case some years ago to enter SKU by SKU, line by line, a bit more also analytical and commercially speaking. entering specific strategy as we have done for BSOP, 7038, EXO, strategize that by cluster. And if you want even much more operational work than expected two, three years ago, to be able to reactivate the flows. We don't think that this switch is structural. And we think that continuing to remain flexible strictly focused on our pillars on strategic footprint, and improving that on some tactical activation without deviating from the strategy, without making compromise in the long term, I think we will get rewarded. It is painful so far, I admit, and it is very painful for us, for sure. In terms of Remy's strong balance sheet, Clearly, two years in a row of declining top line at the end, declining EBITDA, will have an impact on the A ratio. But everything equal, so without considering any exceptional events that I don't know so far, we don't see this A ratio at the end of the fiscal 24-25 period. be up in a very significant way. We are still and we will still in the lower tiers of comparison ratio compared to our peers. So it's very solid. In this context, clearly, Board of Directors will challenge ourselves, me and Eric Valla, to what we can do with this available money that we have. You remember that also we increased the maturity of the strategic liabilities one year ago. It is a share buyback. It is a specific acquisition. It is an increase of the CapEx capacity to be able to even more be prepared to moment of the rebound because the rebound technically will be very strong when it will happen in the U.S., also mechanically. So it will be a mix of that. But the important point to highlight, no panic, A ratio is and will be under control, even considering the worst hypothesis for 24-25. Thank you very much.

Thank you. We will move to the next questions from Trevor Sterling from Bernstein. Your line is open. Please go ahead.

Morning, Luca. Morning, Celia. Two questions for me, please. The first one, maybe just a little bit more color on the tariffs, Luca. It was phrased in the response as a deposit. Are you treating the tariff as a cost and hitting the P&L or something that is a cash impact only? And the second question then around the U.S. and the snapback and when it might come and it's clearly low visibility. I just wanted to check one thing, which is Your America's depletion level, which you're saying is basically flat versus 2019, but shipments down 25%. So that's the scale of the opportunity. It's that 25% gap in the Americas. Is that right way to interpret things?

Thank you for the question. So thank you for the first question. So because I think it needs to be clarified. China tariffs has been confirmed and started from 11 October. Every time through an intercompany translation, you send some goods to China and you pass the border in terms of a tariff impact, you need to cash advance. And bank grants are not... We ask for that, but... They don't want bank rent. They need to pay. So the impact is initially cash. It's credit to bank accounting. And the P&L is it when this battle that now is supposed to to support, to being hit by 38.1% of additional tariff increase, if they will be confirmed, will be recognized in P&L only when this bottle will be sold from our entity, Remy Cointreau China, to a customer. It can be a wholesaler, it can be through the boutique, a final consumer. So there is a de-correlation. Every company also clearly has an intercompany stock already there to be able to support the flows of the demands in the next coming months. That's the main reason why in terms of impact this year in P&L for us is marginal. At the same time, also if it is not the same saving in cash for ourselves, it is not so big at the same time for the 24-25s. On that point, the worsening market condition, the fact that our guidance for China has switched in terms of China from a flat plus to double digit decrease for the year, means that you need to sell less volumes. So there is a mathematic saving for the wrong reason on those topics. So in average, and I want to give you more color in terms of months of difference between cash and P&L, every company is own, but there is a delay between the impact on cash, negative one, and impact on P&L. With some complications in terms of county because you have to understand if you follow bottle by bottle, cluster by cluster, it is quite a mess. So thanks for your question because it is a technically important point. In terms of U.S., mathematically speaking, you are quite right. But the mechanics of the rebound is influenced by the fact that the SOP was playing a key role and now it's playing a lesser role. And in terms of footprint of the future depletion, this is taken into account. But on the first or second quarter that will appear, the impact on restocking can be even higher than 25%. So mathematically speaking, you are right. It will not go in this direct way because the dynamics of the SKUs representing the core of the pyramid of the future sale are different. are very different compared to five years ago.

Brilliant. Thank you very much, Luca.

Thank you. We will take our next questions from Simon Hills from Citi. Your line is open. Please go ahead.

Thank you. Hi, Luca. Can I just sort of follow up on the China-Cognac sort of tariff debate a little bit, please? Could you just provide a little bit more clarity as to the scale of the headwind that you think your business would be facing on a 12-month pro forma basis? I appreciate there's a difference between the impact on cash and the P&L timing. But on a rolling 12-month basis, how should we think about the overall headwind that you're facing? I imagine it's a little bit over 100 million euros. And then just to clarify on that as we head into fiscal 25-26, I think you said in your remarks and in the statement that you do expect the business to return back to high single-digit organic sales growth next year with some improvements in profitability. Are you fully taking into account, therefore, the impact of those China tariffs in that guidance for next fiscal year? And what actions will you be taking to mitigate the headwinds on the ground?

Thanks for your easy question. So, I will not shoot a number. I will not give you a number because everything is... is clearly ongoing. It's been confirmed, but it is not yet definitive. It is not an ultimate act that will be applied at 100%. We continue to think that it is not, it's incorrect. We think that we are not dumping. So the thing that we can say is that for us, clearly, China is more important than for our peers. So the impact is more important, more severe for us than for Martel or NSC or other operators touched by this measure. So we are already prepared to mitigate, I repeat, mitigate the impact of this measure. It will be confirmed in terms of survey studies to understand what is the elasticity and volumes linked to the price increase that for sure we will be obliged to pass through. At what time, what extent, what skews, I will not comment on that. This is part of our strategic engine to try to navigate this in this very complicated timing. Prices will not be the only things. So we analyze all the other elements of our assets in China and all over the world to mitigate that. So starting from the manufacturing, operational side, including AMP, and cost base. But once again, with the strong will of the group, that is... not yet something that's written in stones forever. So we will not do some stupid and very strong reorganization at the worldwide level to compensate that. So it will be a combination of measures to mitigate the impact of the China tariff if it is confirmed, considering also the delay between cash and P&L impact as said. I will not shoot a figure. I repeat, it's more important for our peers. That's the reason why it's even more serious for ourselves. So, there's your second question. Clearly, call me for clarification. I thought I would be clear in the last part of my prepared speech, but probably not. Today, it is H1 says not full year or half year result. And we adjusted the guidance for 24, 25. This is not the 25, 26 guidance. We confirm at the same time that the trajectory of 10 years, 29, 30 is still confirmed. It's more than possible because of what we advance, because the effect that will be witnessed In our assumption, when there is stock in the US, we'll be there. And as we said, starting from 2025-2026, you will see the first tool of the engine of our profitable growth, which is the top line, will be back to a single digit. And bottom line, if you read the sentence, is a gradual improvement along the year. Does it mean that We do not grant a perfect symmetry into 2025-2026 within top line and bottom line. What we grant is that a recover to profitability all along the remaining five years of the plan and starting from 2025-2026, a top line growing according to the normative ratio of the engine, which is high single digit. No grant of symmetry between top line and bottom line. we'll be more precise clearly when 25, 26 guide will be shot. So six months, nine months, but, uh, uh, don't take it. That's for granted in terms of the symmetry. That's not what, what, what we are, what we are writing there. There is a difference, implicit difference between gradual and a statement in terms of top line.

Got it. Uh, But the 25-2026 expectation that you've just outlined does take account of the fact that Chinese tariffs would be applied. You're not assuming that they may not be applied in that guide?

Once again, Simon, we're not shooting a 25-26 guidance. 24-25 does take into account. 29-30 is taking that into account. The five years in between are taken into account. Quarter years... Semester, I don't comment on that. For 2025-2026 specifically, but it is implicitly yes, but for the five years. I'm not saying that in 2025-2026 the impact of tariffs applied will be totally compensated or set. We are not saying that. Okay. Thanks, Lito.

Thank you. We will move to the next questions from Jen Cross from BNP Paribas Exxon. Your line is open. Please go ahead.

Good morning, Luca. Good morning, Celia. A couple of more near-term questions from me. The first one is just on China. Have you seen any early signs of impact from the use of the China stimulus package, particularly in the Entrez channel? And then in the U.S., in the Liquors and Spirits Division, you've obviously had impact of further destocking in the second quarter. I just wonder if you could comment on whether you expect that to continue into the second half. Thank you.

Thank you for your question on China. I will use your question also to give you some colors on Mid-Autumn Festival because it is very important. So, to answer to the stimulus in terms of In terms of macroeconomic impact, I'm not qualified to answer to that. I don't know if there is already some sign. I think I can tell you that. Let me elaborate on that. You have understood that despite this bad set of results and the updated guidance, you don't have to throw everything out of the window of this publication. We have some strong points there. Clearly, Mid-Autumn Festival was a negative one, but clearly better than competition without being swaggering, without being very bullish and showing the muscle. But we have to be rational. So it is an impact on the on-trade of the stimulus. Frankly speaking, I don't think, but I don't know. But what I'm saying is that despite the Mid-Autumn Festival was a negative one, there are some very important positive points to highlight. Ad wins are very strong. Confidence remains low. Cash pressure, but club was up. Low double digits on sales and even more. High single digits on depletion in Q2 and even more in MAF. The more you go through the chain, the performance better. So retailers experience better performance for us rather than competitors at Q2. Point of sales compared to Tier 2, compared to Tier 1. Selling has been depressed compared to the final depletion. It is a small spark, if you want, but it is a consistent one, at least on comparative level, because in China it is clearly highlighted and finger-pointed by everybody like a total disaster. It is negative for us. We are adjusting the guidance from flat plus to double-digit negative. But the fundamentals of the compounders are better than expected for us. Even if we are in negative momentum in China, it's better. So it gives to ourselves positive signs. E-commerce, e-commerce was plus 10 on selling, even more on finance, on the part of B2C, D2C, it was more 43, more 35 on one, more 43%. Once again, I repeat, every time we are in touch with the final consumer in China, we are beating expectation, we are beating competition. Not enough to be totally positive. You see, we are downgrading the hypothesis clearly. But not everything is to be thrown out of the window, and you can capitalize on that. So confidence being there and situation being more in a peaceful mood, The taste and the appetite of the consumer for our products is still very present. We are not seeing, so far, touching wood, a ban from our consumer or an emotional... The emotional bond is more than ever present. Also in banquets, that for us are not in on-trade, are in off-trade, more direct lines, have been increasing. Clearly, okay, we can say there is a downgrade in terms of product with more club than XO, whatever. But we are not witnessing minus 30, minus 25, minus 50. So once again, let me be proud of something there. We are very proud of that. And back to your question, I don't think it's stimulus that is driving that. It's the strength of the brand. And once again, let me say a very positive word for the Chinese team. we think that we have a very, very strong team thanks to them. U.S. Lycos and Spirits was your second question. You see that there's been some improvement. Depletion is even more clear. Botanist gene, okay, it is not control. Plus one per second for five years and then plus 10. Gene where this is not a very highlighted category in the U.S., High price, kudos to our brand and kudos to our teams that with the new organization is able to tackle more directly the point of sales, the chain, less on a geographical basis and more on a direct approach. Situation is very complicated. We are a bad set of figures. But once again, we don't want to throw it out everything because we have to capitalize on our strength. Like with experience, we're progressing on that. and our commercial execution in the U.S. is clearly improving very much. They're doing a hell of a job to try to fight on a very complicated situation. And as I said, I will be even more clear, the performance of the cognac, even more for us, they were identified as a poor quality period, is overshadowing the logics of some wholesalers in some states, in some cases, that are considering that Cointreau, being part of Cointreau, needs to be treated like a cognac. Okay, it's all part of our job to be able to explain that, but we are clearly impacted by that. So the cash pressure, the leveraging a bit, being less important, maybe after the election also the global climate a bit more euphorical, and the compound is improving a bit. I think that we can be back to better performance. I'm not trying to sell anything. I'm not a salesman. But after 45 minutes of explaining a very complicated situation and talking about profit warning, I want to put the church at the middle of the village once again. The same thing we can say for Europe TM. Europe TM is doing a hell of a job, even more for Lycos and Spirits. So really kudos to our teams for the fighting spirit they have because it's not easy after six years. that are negative to continue to have the cycle fire in ourselves. And this is a strength of Rémi Cointreau. The first strength is not only to be there for the long-term shareholder that is there. It's very calm and quiet compared to other situations to let the team work with serenity. It's that we have a very strong team all over the globe, including France. Sorry for this passionate... Thank you, Luca.

Thank you. We will take our final questions from Chris Pitcher from Redburn Atlantic. Your line is open. Please go ahead.

Good morning, Luca. Thank you for the question. Just one from me. Could I just try and understand why focus on protecting margin. You mentioned the fact that there's a small spark. Surely this is the time to be investing to ensure that that small spark grows. And particularly given the weakness we've seen in the US and China, this is the time to be broadening your route to market. Are some of the new route to market investments being delayed because of the current cost savings program, or are you still trying to build out your network? I'm just trying to marry off the tension between ensuring the recovery happens and protecting margin. But why are you protecting margin, trying to?

Thanks for your question, Chris. Because being a company that cashless, there is a certain level of global ABDA that needs to be respected. So when you say protected margin is the consequence in terms of, but the more correct phrase or sentence could be also, there is some level, coming back to the question of Olivier Nicolai or Goldman Sachs, of debt to operating profit ratio that need to be mastered as well. So it's a combination of conviction that every single brand needs to have the pure payback on terms of the initiative they are doing. In this moment, also, we cannot say, if you tell me, I give you 100 million and I'm not able to grant you what kind of return you have in the top line. So it's a combination of that point that the lack of visibility makes that the additional investment is not 100% giving additional return. On top, more than our peers, we need to have a certain level of EBITDA to avoid to... be in a more complicated situation in net-to-debt ratio compared to the operating profit that would drive to some exceptional decision, maybe lowering capital expenditure or buying less ODV. This is not what we want to do. For protecting that strategic leverage of today, we need to select the priority of investment very much. And today, putting additional money on AMP does not grant 100% the proper return.

Maybe just following up on that question, have you paused the sort of expansion of selling resources, not just AMP, but selling resources into newer markets? So that's sort of when the recovery comes, then you will build out. Yes.

The answer is yes, in a different way, following different channels. In a world that is changing, closing maybe a bit, we are clearly not only on a brand strategy but also on a route-to-market strategy and a new territory in which we need to expand. So the cost-cutting will not be on this part of strategic weapons to prepare the future.

Thank you very much. Thank you. That's all the time that we have for questions. I will now hand it back to Mr. Marotta for any additional or closing remarks. Please go ahead, sir.

So I would like to thank you for your attention today. It was clearly a very intense conference call. It was meant to be safe, but it was being a little bit all the way around. We talked about phasing and MOFCOM, a lot of that, but the situation calls for that. Uh, so see you end of November with, uh, Eric Bala, our CEO will be there also to, to illustrate, uh, to you what's happening even more on a strategic way, less, uh, less, uh, arid in terms of, uh, figure your figure, uh, from now on, uh, um, tell you that, um, uh, was, uh, Proud to present this figure, even though it's complicated, because in this context, I can assure that we fight on a single battle, and the motivation and the sacrifice is here more than ever. Thank you so much. Have a nice day, and take care, you and your families. Thank you.

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