Remy Cointreau Sa Ord

Hello and welcome to the RemiQuantro Q1 sole publication. My name is Laura and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, the 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 interfere question. If you require assistance at any point, Please press star zero and you will be connected to an operator. I will now hand you over to your host, Luca Morota, the CFO, to begin today's conference. Thank you.

Good morning, everyone.

Thank you for joining us today. As highlighted in our press release, Q1 sales increased by 5.7% organically. This performance reflects several key factors. First of all, a very favorable base of comparison in the U.S. and a modest sequential improvement in value depreciation, Q1 of this year compared to Q4 previous fiscal year. Second point, tough market condition of China and the continuous disruption of trade retail in China. Excluding this technical specific factor, representing a negative impact of 2.5 points at group level, China specifically would have been positive, showing a good resilience. Third point, a sequential phase improvement in EMEA compared to Q4, led by Lacrosse and Spirit Division.

Q1 phase improvement is broken down as follows.

plus 12.4% in volume, and 6.6% negative life-mix effects. Why that? Largely driven by the underperformance of high-end brands and the outperformance, positive performance, of life experience. So, looking at the sales overall performance by region, America recorded a very strong double-digit growth, primarily due to a very favorable trend phase of comparison alongside, as said, a modest sequential improvement in viral depletion. APAC is a specific assay decreased by low to mid single digits affected by persistent tough mark and condition for cognac and, as said, the technical disruption of China's T3 channel. IMIA declined by high single digits but shows a sequential improvement

led by Latvian Spirit Division versus Q4. If Latvian Spirit is clearly back to growth, Cognac, in Sirenia, continues to be weak.

This was the sales picture. In terms of value depletions at group level, for the best approximation of the final sell-out, let's start with the U.S. In the U.S., at group level, Value depletion declined by high single digits in the year. This is slightly better than what we posted in Q4, the previous one. And compared to pre-COVID, Q1 value depletion are up low single digits, but not considering DSOP, that's 45%. So out of DSOP compared to six years ago, that's 45% in terms of value depletion in the US. In China, value depletion were up, positive year on year, in the Q1, and by strong double digits, so more than that, in mainland China specifically. Underline the negative contribution for other Chinese areas, including duty-free in Thailand. We consider that, even if it is a small quarter, a very good performance considering the current context. However, we should be careful not to over-interpret this performance too positively. Q1, as said, remains a small quarter. The base of comparison was low, as showed by the negative performance at the end of this year. And we are now entering in the battlefield with the preparation of Mid-Autumn Festival. In the third region, in here, value depletion decreased by high single-digit year-on-year, but including Russia, that were there six years ago, Q1 value depletion are also down mid-high single-digit versus pre-COVID levels. Overall, what we can say in a nutshell, at group level, group value depletion fell. by low single digits in Q1, 2.2%. So, underperforming, selling trends was 5.7% increase. So, why this negative alignment between depletion and selling? Essentially, because US value depletion, even if improving slightly, are still negative. To conclude on the first slide, we increase our full-year organic crop guidance following recent updates on the study side in China and the US. We continue to expect to generate a neat single-digit organic phase growth while we now improve the bottom line forecasting a organic crop decrease between mid single digits and high single digits, to be compared to down mid to high things previously. Slide number 3 to 5, I'd like to briefly highlight some of the key market initiatives undertaken during this quarter. Let me start with our Coantro activation, which delivers good momentum this quarter. In June, Cointreau unveiled the second output of Margarite's campaign nationwide in the U.S. The new satirical campaign Any Tequila is starring Obrey Plaza, leveraging the continued popularity of margaritas, number one cocktail consumed year-round in the U.S. The campaign positioned Cointreau as the essential ingredient in any tequila-based margarita. We partnered again with Obrey Plaza, to generate strong engagement and cultural relevance. The creative highlights point towards versatility and authenticity, resonating with both bartenders and consumers. Early results are very encouraging. Beyond easy comps, organic sales growth was significantly ahead of last year. Social media impression and earned media exceed expectations, reinforcing the brand equity. We believe this campaign will continue to drive consumption through the summer peak season.

Overall, this initiative is strengthening cultural leadership in the premium cocktail culture. Slide four, I'd like to touch the world on this new strategic launch

for one of our key future important matters, Africa. We executed a major strategic launch with Remy Martin, V.S., in Africa this quarter. The official introduction will take place in September, because before launching something so important for the region, we need to prepare that, in South Africa and Nigeria. And I would like to insist on the restricted perimetre, i.e., Africa, of this launch. This move is designed to expand our footprint beyond our traditional coal markets of the US and China. Africa is a highly promising region where VES represents about 70%, a bit more than two-thirds, of cognac volumes. In South Africa alone, VES accounts for nearly 80% of category sales. underscoring clearly the relevance of this launch. We are targeting a new generation consumer, particularly in the younger 25-35 year old segment. Initial feedback from trade partners and consumers has been very positive. This launch supports our ambition to reinforce the new marketing global leadership and clearly recruit new consumers. Last but not least, on page number 5, I'd like to highlight our last e-commerce activation during the 18th of June festival in China. This campaign aimed to build resilience and accelerate online sales in a challenging market environment. On Tmall, Remy Martin collaborated with Haybox and Bazaar to create a distinctive pop-up. The path blinded a Chaoshan cultural element to connect authentically with the local consumer. On JD.com, we partnered with JD Plus to deliver premium tasting and cruise experiences. This initiative helped drive strong organic stage growth compared to last year's festival. The 618 Festival has become a very important annual milestone for e-commerce engagement. Our focus remains on premiumization and experiential marketing to differentiate our brands online. Early performance indicators including not only supply but also traffic, conversion and repeating purchases are very encouraging.

Success demonstrates the potential of digital channels to sustain growth in China. Turning to slide number 6, more arid figures.

Q1 sales amounted to €220.8 million, representing a year-on-year increase of €3.8 million, plus €1.8 million on a recorded basis. This performance was influenced and shaped by the following factors. First of all, an organic growth of 12.5 million euro, i.e. plus 5.7% of world. This performance is split between a plus 12.4% of positive volume effect and a negative minus 6.6% in price mix. Why that? The price mix impacts the result from a slight negative pricing effect, and low to mid-single-digit negative mix effect, linked to the underperformance of IAM products and, to a lesser extent, the weight of the coin of division to be compared to the weight of the life of the spirits. Second point, negative, as expected, currency translation impact of 8.7 million or 4% loss, mainly driven by the deterioration in terms of conversion of the US dollar for 4.9 million and Chinese R&D for 2.9 million. Now, let's go to slide number 7 to delve into organic trends by region. Let's start with the Americas, a group level in which organic sales increased by very strong double digits but at the same time around 5% down on a six-year basis. Year-on-year performance, very positive performance, includes a very strong double-digit volume and a low two-minute single-digit negative price-mix impact, reflecting, as already said, an unfavorable mix and some price adjustments already started this year on the SOP. In the U.S., Specifically, sales grew by very strong double digits, driven by, first of all, a very low base of comparison for both cognac and liposome spirits, alongside a modest sequential improvement in value depreciation from Q4 to Q1. In Q1, value depreciation of Group 11 in the U.S. were down by single digits.

This performance is clearly driven by the non-cognac brands.

Considering the compounders in this context, inventory level in trade in the U.S. is still close to four months at the end of Q1. In Canada and Latam, sales experienced an equivalent sharp growth led by the Cognac division in the sky. By the end of June, America has accounted for 42% of the group sales, increasing its weight to the total sales of the group of seven points. Second region in terms of weight is Asia-Pacific, in which organic sales declined by low to mid single digits year-on-year, but increased more than 15%, 1.5% on a six-year basis. Talking about the volume-value equation, performance was impacted by the value component that even made the view underperformance of A&B, while volumes were slightly positive. In China, sales were down low to mid-single digits amid challenging market conditions, particularly for the high-end segment. Disruption within the duty-free has also been a key headwind, representing for this region a negative impact of 6.5 points at APAC level, excluding duty-free. China would have been positive by mid-single digit. In parallel, direct channels, which account for around 50% or half of the sale in Q1, proved to be very dynamic, generating a very strong growth. Direct e-commerce grew at more than 10% in Q1. As a consequence, e-commerce global channel penetration reached more than 35% of sales in Taiwan in China. Beyond the decline of the indirect channel, overall performance was also affected by a very weak performance in Hong Kong, Macau and Taiwan.

On a more positive note, value depletions showed positive trends.

high single digits per year, including a strong double-digit growth in mainland China. It's a small quarter, but it's a very positive indicator. On a six-year basis, Q1 value depletion decreased by mid-single digits, but were up mid-teens in mainland China, witnessing the change of the shape, geographically speaking, inside the greater China dynamics. Given the strong resilience of depletion compared to Celine, inventory levels in China remained healthy at the end of June. Elsewhere in the Asian region, Restorasia showed a sequential deterioration compared to Q4, impacted by the Cognac division, where Japan, Malaysia and South Korea essentially, while Lacoste and Spirits improved sharply twice single digits but clearly. There is a clear difference in terms of weight between cognac and non-cognac in these countries. End of June, APAC accounted for 35% of group sales, down 4 points compared to the prior year. Last but not least, the big INEA region, in which organic sales at group level were down a single digit and around minus 5% compared to 6 years ago, finally reflecting a negative value effect. But what happened inside this region in terms of sub-region or sub-clusters? Within Europe, third-party distributors cluster, 3PD, recorded a low single-digit sales decline, impacted by Spain, Austria, and Czech Republic, while Germany and Greece generated a strong performance. In the UK and Nordics, sales decreased by 18, impacted by some phasing effect and a complex environment, particularly in the on-trade. However, sell-out was more resilient and selling performance should be improved in the Q2 in this important cluster, UK and Nordics. In Benelux and France, sales declined by low double digits, impacted a very strong promotional and competitive pressure in Cognac and soft strength and lactose spirits. Lastly, in MI and CIS regions, sales were flat, more or less, showing some good progress on the SOP in South Africa and Nigeria. And as I've just mentioned, we will enjoy the imminent launch of Reni EDS to address a very specific demand in this specific part of the world. In Q1, value depletion at a near level declined by high single-digit EUR. And on a six-year basis, excluding Russia, value depletion are also down by a single digit. Overall, this kind of balanced equation between sell-in and sell-out, or best of both of that, determining implies that inventory levels remain healthy across most areas. End of June, in-year region accounts for 23% of group sales, down 3 points compared to the previous year. Let's now turn to slide number 8, and analyzed by division, let's start by the Queen of the Division, which is the Cognac Division. The Cognac Division posted an organic sales growth of 1.3%, driven by a 9.4% increase in volume and negative price mix of 8.1%. End of June, Cognac accounted for 59% of our sales, down 3 points compared to last year. What happened inside the region, inside the APAC, Let's start with the cognac, mainland China analysis. Here sales declined by low single digits, affected by the challenging market condition in domestic markets and continued disruption in travel retail. So here again, calculating the impact of the technical effect of travel retail in APAC only for cognac, we have four points of negative effects at cognac APAC level. The embedded channels were the most affected due to the continued cash flow pressure waiving, impacting the wholesaler's confidence and their ability to place orders. This was further influenced by the transition in the Louis XIII business model. As a reminder, we significantly reduced the number of wholesalers starting in the previous year. and to retain only those to meet our specific requirements. On the other hand, direct channels performed probably positively, including e-commerce, up more than 10%, and as well, Louis XIII PCDs, personal client directors. By brands, Club demonstrated greater resilience, with value depletion up at more than 40% 4-0 year-on-year and if we calculate their performance in value depletion over 6 years is plus 65% while high-end brands at the same time performance were more contrasted in selling and depletion as they were Hong Kong, Taiwan and Macao delivered, as said, a very weak performance both in saline and depletion. Overall, despite the challenging context, value and depletion were more than satisfying. Strongly outperformed saline and were up by single digit year on year and even more in mainland China. On a six-year basis, overall, This is equivalent to a high single-digit decrease that will increase all meetings in mainland China. In the rest of Asia, sales were down a double-digit, in part to Japan, South Korea and Malaysia, due to the strong promotional and competitive environment and softer trends in Chinese tourism. The second region in terms of weight inside the Coney division is America. In North America, the US and Canada, Coney sales were up meeting boosted by a very low basal comparison and despite a more sequential deterioration and depletion, partially, by this compounder as well. But the consequence is that the group continues with the stock. Q1-UX by the depletion declined by low WGT-EON-EON cognac, mostly impacted by the SOP. while the IM segment outperformed the value prediction with 13 EXO, but on a lower absolute basis compared to the intermediate plus range. Trends were contrasted by state, with Illinois this time being particularly weak, and California and Texas being flat. Given these factors, Cognac inventory coverage was still close to 4 months at the end of Q1. If you analyze the value depletion tonic in the US in the 12-month rolling basis, it included 5 points of price-mix negative effect at the end of June. But on a 6-year basis, we can see the effect on price-mix of the uplifts and the lower resilience compared to the DSOP because this indicator is up 12 points. In Latin America, sales of cognac rose by triple digits, but at a very, very low basis, driven by Remediosop and Glitotin. In third region, which is India, in terms of cognac and weight, cognac sales declined by double digits, affected by strong promotional and competitive pressures in most markets, and a weak demand. The UK was strong double digits down, impacted by negative housing effects, category softness and some aggressive market promotion. However, sell-out was only slightly down, outperforming sell-in, which is always something promising for the very next future. Europe's 3D cluster was strong down, double-digit, impacted by Germany and continued to stock in Czech Republic in a very soft and promotional market. In MISCIS, sales defined were low double-digit in a market essentially driven as said by the F. In terms of depletion, EMEA, Cognac, by depletion were strong double digits earlier. Now, let's turn to Lycos and Spirits division by number 9, where the situation was different. Lycos and Spirits division reported a plus 17.3% organic state growth, driven by a strong volume increase of 16.8% and a slightly positive price-mix effect of 0.5%. End of June, the life of the spirits accounted for 39% of states up 4 years versus last year. So, the rebalancing weight, in a natural way, within cognacs, the life of the spirits continued to be very high. Let's review the division performed by region. Let's start with the most important one in terms of weight, which in this case is America's. In North America, states were up by very strong double digits. primarily due to a very low base of comparison, led by Cointreau botanists and Brogladi. In parallel, Cointreau Q1 U.S. value deficient were up low single digit year on year, which means more or less plus 95% or twice the weight and the value of the Q1 Cointreau value deficient U.S. in 1920. So, they doubled in value. The botanists and broad likely were flat, i.e., respectively flat 90% and 55% on a six-year basis. Additionally, always talking about the depreciation, price mix was up one point compared to last year for the 12-month rolling basis and in June, but increased by 19 points on a six-year basis. shows volume and value value depletion turnaround compared to six years ago, and not only on the short term. In Latin America, sales rose by a very strong double digit, driven by control-strong performance in Puerto Rico and Mexico and Brazil. In EMEA, second region by weight for the Latin Spirit, sales increased by a low single digit. Increase, so very important, showing strong sequential improvement from Q4, led by all sub-regions except the UK. Value depletion were above up to low to mid single-digit year-on-year. Breaking sales, so top line further, UK posted a sequential deterioration to mid-to-high single-digit decline, impacted by the same element as cognac, so phasing, but also a global weather of a strong promotional environment, In parallel, sell-out was quite resilient. In Europe, third-party distributor sales clustered increased by mid-twice single-digit, boosted by Metaxa, particularly in Germany, Greece and Poland. And some much-shared gains for Cointreau. Last but not least, Benidorm was up mid-twice single-digit, while MI and CIS up by very strong double-digit. In APAC, Third region by weight. China trades were up very strong double digits on very low basis, driven by Cointreau, Brooklyde and Botany. Overall Q1 value depreciation were strongly positive and new, also driven by our top three brands. So perfect correlation, low figures, small figures, but very promising. Rest of Asia was up high single digits, driven by Cointreau market share gains in New Zealand and good momentum for Brooklyde, Meilito, Octomon in Japan. The final word on non-group brands, which represent now 2% of the group sales, also down 1 point compared to previous year, they recorded a very strong massive 41.7% decline, mostly affected by the Benelux and the UK, which is consistent with our strategy to focus on our own brands. Let me wait a second, and then to conclude a very important slide, slide number 10, for a few comments on our guidance for the school year 2025-2026.

We have tried to be as precise as possible, although the environment remains unsettled. Despite these headwinds, these backdrops, we expect group phase

group top line to return to mid-single-digit organic growth for the year, mainly driven by what I would describe as a technical rebound in the U.S. This performance reflects a phasing effect both in the U.S. and China, leading us to anticipate a return to growth in the second half of the year, even though Q1 is already positive. So, let's be clear and explicit. We anticipate a decline in Q2. Why? Three factors. China, where we continue to affect pressure among wholesalers, as well as a negative calendar effect linked to a later Mid-Autumn Festival.

Second, U.S.

In the U.S., even if there is a sequential improvement or depression, the depression remains negative, and so far, they are running behind budget. On top, we expect some distribution changes on a minor scale, but still there, operationally, in California, because of what just happened with the change between R&DC and sovereign rates. Third, EMEA, even if there's more dynamics, like I said, beer is swimming cognac, remains clearly a leopard stock cluster. Leopard stock, not stock, sorry, means that the performance is like a leopard skin, characterized as positive, but also some negatives, that globally makes the expectation for the Q2 rather than Q1, but not so bright to change the footprint of the group, clearly. In a nutshell, I repeat, Q2 will be a transitional quarter, driven by several specific phasing effects, but will be a negative quarter. Q3, Q4 and H2 should mark a return to a positive trajectory, and we believe in that because it's part of our guidance. Now, this was for the top line. Turn the guidance to the bottom line, the comp. As you know, we have signed, we highlighted that, a price undertaking agreement with the Chinese authorities, which allows us to significantly reduce the expected bottom line impact for the year. We now estimate the impact at 10 million euros to be compared with 40 million euros previously, next to our mitigation plans. In the US, in this guidance, we expect the latest statement from President Trump, which might be still subject to change. As of today, we expect, we consider in this guidance, an active negative impact of 35 million euros versus 25 million euros previously, reflecting an assumed tariff rate of 30% on European imports instead of 20%. At the same time, gains achieved in China relative to our earlier estimates enable us to reinforce the same investments and clearly with specific arbitration where there is a more additive in the speed to the original investment, so notably in China. All in all, we now anticipate an organic decline in COP between mid to high single digits to be compared to a decrease of mid to high teens previously. Remember, beginning of June, we said everything included mid to high teens, so minus 15 to minus 19 more or less. Now it is between mid to high single digits, so it's an improvement. This includes four elements. An underlying growth in cost, excluding tariffs, which is unchanged compared to what we communicated in June. The new import pricing in China, which is another cost compared to the past, but lower than and less than expectations. The risks linked to the latest official statements, in the U.S., of 30% tariff importation duties in the U.S., and some reinvestments relative to our initial budget assumptions to dynamize even more depletion to IDN supply. In addition to this organic performance expectation of footprint and of guidance, I wanted also to update the currency effect, which remains negative this year and highly volatile. While our hedging policy helps to mitigate part of the adverse impacts, the recent evolution of the dollar and the RMB leads us to expect a situation which it wasn't. So a safe conversion impact of minus 50 to minus 60 million euro to be compared to minus 30-35 million euro previously, and a COP impact on 15-20 million to be compared to 10-15 million euro previously. In terms of phasing, both effects should be more or less 50-50, H1, H2. Exchange rate is not dictating our calls in terms of investment, in terms of guidance. the company's manager since many many many years in terms of organic performance that we will update you every quarter on this indicator this is important for you for us to estimate the financial implication the exchange volatility positively or alas this year negatively this is why i will continue to update you every single quarter and not only every six months for what concerns the storage impact. Thank you for your attention. Now I'm very happy to answer to your questions. Thank you so much.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. And in favour of allowing more people to ask questions, we kindly ask you to limit yourself to two questions only.

We'll pause for a brief moment, thank you. We'll take our third question from Simon Hills of City.

Your line is open, please go ahead.

Morning, Luca. Morning, Celia. So, it's two for me then. Just firstly, just to give you a clarification, I just wonder whether you could just sort of go over again some of the comments you made around the outlook for Q2 organic sales growth, particularly with regards to the US. You talked about sort of making your performance running a little bit behind budget there, but I didn't quite catch everything that you were saying. So, just a point of clarification, please, on that. And then secondly, on China, Can I just clarify some of the assumptions you're now making in your new guidance following the move to a minimum price agreement there and the 10 million net impact you're guiding to on EBIT for the full year. Are you assuming that you absorb fully the minimum price move that you're seeing or could we yet see some of that pass through in terms of pricing? And what are you assuming on a go-forward basis with regards to China's UT3 from here? Are we still expecting that that remains a headwind through the second quarter of the year and there's no sort of big stock at the channel at all in your full year, 25, 26, just being for organic sales guidance for mid-singles as you quote?

Hi, Simon. Thank you for your five questions for on China when we were... So, let's start with maybe an illustration of the Q2 in terms of what we expect for the Q2 and globally for the SAFE. Clearly, we anticipate SAFE to decline before the rebound of Q3 and Q4, clearly, impacted by specific effects both in the US and China. I know the equation is more on the direct, but part of the Q2 decline is more in China. So that is why I will explain China before. In China, even if the quarter was very positive, and we are eliciting a bit in depletion compared to the sell-in, it's a small quarter, and overall the economic context is still very complex. We face some additional pressure with new restrictions on alcohol consumption with the that each bought imported spirits as well as bagels, so there is a global temperature which is still a bit under some cloud. We continue to expect, and this is the case, cash pressure among wholesalers, big one. And on top of the fact that there is, even if we increase price in April, the lowest side of the range compared what we have done in the past, the fact that the pricing environment is less dynamic than before, in terms of price increase, makes that the anticipation, because there are many layers in China, you know, of saving, because you count on that to anticipate price increase, reduce the speed of restocking between the intermediate layers. This is something which is laying off a bit additionally. On top They need some early purchases, the older size, before the potential anti-dumping size. So, it's not very material, but with more in terms of confidence than in terms of mass and compounders. There are also negative impacts in terms of calendars, three weeks later, two to three weeks later, in terms of mass. And that's the reason why APAC... sales should be negative compared to the previous year. On top, one thing I forgot, I highlighted that during the call, mainland Chinese are overperforming, but compared to some years ago, we are still struggling in the Hong Kong, Macau, and Taiwan part. So, at the time, we are much more important. So, this is waving also at the end of the day in totaling all the performance.

U.S. U.S.

and is totally consistent with our guidance executed a strong start to the year, term of supply. So the technical bound is more or less there. It's slightly less than budget, less for the organic element, more to the situation, more linked to the RMDC, California disruption. So more or less is budget, supply. But depletion, are not where we expected. So, we need to be cautious that the second part of the year, also the 2022, needs to be back at the expected budget, depletion, expectation, or otherwise the magnitude of the restocking or the selling could be more fragile. That's the reason why we believe in our guidance, but we are cautious on the short term in terms of Q2. even if the decrease of the U.S. will be lower in terms of the decrease of China. So, so far, I repeat, top line, okay, we take the case, depression, improvement, but not yet a budget expectation. So, this is not enough. We need to do more. EMEA should improve sequentially versus Q4, versus Q1 as well, but still not enough to be able to balance China and the U.S. So, at the end, Q2 with negative. Q3, we believe in that, should mark a recurrent deposit trajectory.

Clearly, all will happen during the summer, September, fall, mid-autumn festival, will be very, very important.

So in terms of China and what we have done to offset what we think to do to offset the impact of the tariffs, you know that with the new price undertaking, the net impact is 10 million compared to the previous estimation. The growth impact is more or less 35 million. So we have done 70% of offsetting, which is bigger than we have done in the U.S. in terms of compensation mitigation effect. So the plan was not very specific, oriented on only one item. It was a mix of inventory optimization, so in terms of logistic and stock movement anticipating the events, Price increase, so we did a price increase, a billion a year, but a lower extent compared to the past. Channel optimization, every time we are able to realize, in terms of top line and value addition, and not a bit compared to expectation, a direct channel, e-commerce, we are accretive in terms of top line. Thermal bottom line might be sometimes different, maybe pre-semi-store, but top line is a bit. And then, U.S. has done it the previous year, China is at it right now, cost-saving, linked to some, I'm not so sophisticated as others, so I will go on. For me, it's cost-cutting, so I'm a very basic guy, so it's cost-cutting, lasting, so I don't know what is efficiency, but for me, it's cost-cutting that will last, I will... and will dynamize our bottom line. So, at the end, more than two-thirds in China of the impact is upset. We could have been even more aggressive, but we decided, and Frank Marie clearly pushed already on that, to reinvest part of that in China to be able to speed up the recovery, if any, because We can say the negative side, the confidence is not yet there. Well, we know that the time to market in terms of reactivity, in terms of speed to reaction is higher in China than everywhere in the world. So that is why we will get a preferential high in terms of reinvestment in this part of the world. Pricing. Pricing can be modeled accurately at this stage for the future quarters? No, no, no. No, clearly, I repeat, we increased that at a lower extent compared to the previous year, so there was a minimal impact, but we are more focused on doing volume, sales, recover the confidence of the industry channel, accompany the consumer appetite, then play on that part. Last part of your question is, duty free we didn't consider when we started the year the budget guidance a duty free block for the full year but only for the first four or five months so today the situation seems to be improving officially it's opening but you know there is some difference in terms of official statement and specific operational impact So we hope it will be fully operational as it seems, and in that case, clearly, it will help. Our guidance was not built on zero duty free sales for the full year, but only for the four, five months.

I hope I was long but clear. Very helpful, Luca. Thank you.

Thank you. We'll now move on to our next question from Lawrence Wyatt of Barclays. Please go ahead.

Hi, Luca. A couple of questions for me, if that's okay. You talk about the technical impact in Hong Kong, Macau, and Taiwan. I was wondering if you could just give a bit more detail on what the issues are there, if there's anything quite specific to those regions versus mainland China. And then, definitely, if you could just give us an update on what's happening in California with R&DC, if you have any luck with your RFPs to other wholesalers, and just is there any concern that we should have of the stock being put into the market at a somewhat discounted level from R&DC pulling out of that market, anything we should be concerned about in California that might impact you in the future?

Thank you. Thank you. So it's not a technical effect with Macau, Taiwan, Hong Kong.

So we highlighted that also in another occasion. But this time, the phasing, the Q1 in 1920, we are still in a type of model in which we rely more on a direct channel in this part of the world compared to what happened during the COVID, makes it more visible now. So it's not technical. It's more lasting. So this kind of change has been included in our long-term plan, what it was in 2030, and it's followed all of the year. So in a nutshell, China is supposed to recover what we have lost. But at the same time, we put specific investments in these three specific countries, Taiwan, Hong Kong, and Macau, to be able to get, to grab the local market, which is there, and specific external condition, right, reduction of the gaming industry. Hong Kong, we are up and down close, also with some political situation, elements that wavered during this year, with Taiwan also being sometimes, not for us, but for some competitors, more considered as a CBT or transit land, makes that these investments are not getting the ROI in top line where I like it so very clearly. So, it's not a technical factor, it's that it's on our shoulder, we need to be able to be back of this plan on this specific land, or if it's more definitive, ultimate, that is not possible, we need to consider that we need to be able to recover that in Medellin, China, I-9 and UT3. Part of that was also some inside trading with the region operations. That's the reason why the duty-free operators' footprints need to be there, because it contains many sub-layers of growth. It's not a technical factor. It's a specific weakness that we need to cope with and to resolve. California change. So... we are not happy, but RNDC decided to stop the operation. California is a very important state for us, one of the top three states, more or less 10% of our top line of depletion. And you see both that many years ago, some types years ago from Young's. And they've been actively accessing the ways to accelerate our development for several months, because it's a key state. Even before the change, we need to be, to get the market in California to be back to be in positive land. This announcement was a good thing, simply acts as a catalyst for a transition that was already underway. In the short term, it's a negative news. However, we already signed, very quick reaction from our teams, lots of ping pong with the corporate, but really kudos to our teams who have tackled the bull by the horns and resolve the situation the soonest. The new contract will start in September for a while in order to align California with other open markets. So, technically speaking, Saudi Arabia will acquire the real stock of RMDC and some additional stock. We don't expect in California, per se, a lot of disruption. As you have already realized, in the Q1, it's up to some million euro, but not major. It could have been. all products, and sub-expressor is not a new guy for us. It's already there for Nevada, New York, Missouri, and Canada. So doing that, it would be increasing its weight more or less 20% to our supply, and RNDC would be less than 50%, so reducing that. So negative short-term disruption elements would be some negative impact more because when you change type of operation, the DIM management change, you have some technical adjustments, uh but if you think more medium to long term uh the california performance was a question mark and need to improve in the future what is the main driver of that the southern glazer we thought and we think it is more plug and play than other competitors for the key period of the year which is on the LCPoS portfolio will be part of the main division and include other front-line competitors that are not included in our footprint. We expect some negative impact in Q2. Q1 was 5 to 6 million. It's too early to be accurate on that. It is more in terms of undirect operational disruption and day-to-day packages than a specific will of the new wholesaler to say, I need to realign the stock. We are not in this kind of situation that is declined right now. So I was very analytical and very clear with you.

I hope. Super helpful. Appreciate it, Luca. Thank you.

And now to our next question from Edward Munday of Jeffery. Your line is open. Please go ahead.

Morning, Luca. Morning, Celia. So two questions, please. First is coming back to your guidance of mid-single digit growth for the year, are you able to share with us what your budgeted expectation is on depletion? Does it need to be a material improvement? relative to the down low singles that we saw in the first quarter. And then the second question is, I think it's now one month since Frank's been in the seat. Any early perspectives that you're able to share, perhaps maybe give a bit of a flavour of what he's been doing and a change of emphasis and strategy would be very, very helpful.

And what is this of? The guidance of supply?

So...

First question is, what's your sufficient expectation for the year to get to mid-singularity revenues? And then the second question is, in a new CEO, you know, one month into his seat, sort of what's he been doing? And then, okay, I need to end with emphasis.

Okay, so with guidance, depletion, and slant as well. Okay, I will talk. Clearly, France will be with you all at the end of November for the actual results. It will be far more complete than what I described. The first takeaway that I've already said is that, in a word, the only way is up. So, top-line dynamics, top-line dynamics, top-line dynamics. Meaning that all the compounders, all the investments need to be back to a ROI will need to be improved in terms of reaction of the top line, because everything becomes much more easier and natural if the first line of the profitable loss is not declining. Now, he had the luck to arrive in the first quarter after eight quarters on negative results, because I didn't like that, but a profitable question to highlight that, the first positive after eight. It was close for me, I had a big quote, in summer I took up the quote, and clearly he wants to continue to stress this positive concept of supply. Then other points, he will be declining that, but he is a very experienced professional, clearly with a huge track record of transformational experience. is installing a positive electricity and pressure inside the company. Top line is the way. Second point, guidance. Let me allow to go beyond your question for a while and talk about the guidance in terms of profit and loss, and then I'll be back to the patient, because it's a question. So, what we are saying today is that top line is for us mid-single digit, so more or less 5%. Company consensus, company and not visible alpha, is more or less already in line with the guidance, 3.6, 4 if you take the median, so we are there.

On organic top, it is mid-to-a-single-digit decline, which is an improvement.

But if you consider clearly in a very mathematical way the company organic consensus before this call, it was already at minus 4.5. So you can say that our upgrade was already modeled by you. And at this point, I'd like to begin and to explain that I respect the fact that you can modelize something different, but very different compared to what we highlighted at the beginning of June. we said that the net of all tariffs will be between mid-18th, 9.15 to 9.19, and company consensus is 4.5. So, already you took into account overall, not you, not you, Jeffries, but all of you, an improvement in the situation and clearly on the tariff side. Today, we re-express in a very clear way the size impact and drive to minus 5 to minus 8. So what I'm saying is that today your consensus, even before our call, is more or less spot on for the wrong reason. Allow me that. It's a bit on the higher side of the range, and you need to adjust also the ethics impact on cost because it's a bit on the lower side. Your consensus is minus 15, minus 15 to 20, but it's some volatility. So overall, the guidance for the technical element should be in this range. But clearly, what is important after the short battle between us intellectually in terms of what kind of footprint you take into account for the tariffs, now back to basic, to the underlying compounders, what you need to consider. So, at this point, Let me remind what are our expectations for the year to be able to deliver the mid-single-digit guidance.

Let's start with the dynamics of top-line quarters. Q1, done. K6.

Sometimes lower than budget, sometimes better than budget. Better than China. But overall, done. Q2 negative, slightly behind budget so far. Q3 and Q4 will be growing based on the assumption, the following assumption. If depression align with budget, meaning there will be a catch-up in Q2, Q3 and Q4, strong growth.

There is some growth. Strong double digits.

If less than that. We will analyze that during this quarter and talk also with you. But clearly the top line will be declined because the Archimedes Poussey will not be there at the same strength. So we might eventually switch from a strong growth, double digits, to a high single, mid single. We will decline that. The situation translated very clearly of the actual depletion value in the US, meaning that we are not doing the budget right now, is more on the risk side.

APAC, what's happening, what we are putting in place, think that we might have some positive supplies.

Be cautious, the budget is cautious considering the context, so it might be also something to offset, I don't know if totally, the risk, the inherent risk you can consider the U.S. have because of the lack of speed compared to the budget in terms of depletion. In a word, less complicated. If you want, you have some risk in the U.S., some upside so far in China. The rest of APAC. With some additional cherry on the cake, we hope with the beautiful and dynamics of new channel like e-commerce. Not new more and more, but that is channel.

In here will be the sub-gap.

We hope that will improve. And if you have there back or the budget assumption also slightly less, all that at the end of the day will fit with the mid single-digit top line impact. Bottom line, risk is compared to mid to high single digit decline? So far, no. And I repeat, first statement of the new CEO is dynamics on top line and move, move, move on top line. So I expect him to be also very clear on that with you, with his priority, end of November. The first sign, I clearly want an increase of electricity inside a positive tension, if you want. Electricity is not the right word. I hope I answered in a clear analytical way.

Very clear, thank you. And just, if the tariff situation in the US is not 30%, I mean, how do you think philosophically about that potential tailwind that might come, you know, relative to reducing gas? Does that get reinvested? Or, you know, does that use to absorb volatility? I mean, how are you thinking about that potential time when, you know, actually we don't know what the outcome is at this stage?

I can't answer because I will, we will need to discuss at COMEX level and the Panc Marie decision will be a very important one. All the, clearly will be a positive, everything equals news for the bottom line. But then, once again, top line, the position needs to be dynamized. So I don't know if it will be a 50-50 decision. It will be offsetting some additional risk, only a bottom line. I don't know. It's too early for that. But clearly, we will not be stubborn and looking only at one picture. We'll be a lot of what if and ping pong. I think it's better than me in ping pong. So I will be in a very complicated discussion because what if we do that? What if we do this one? So... It would be an advantage, but a positive one.

It's a dynamic one. Thank you.

We'll now take our next question from Andrea Pisarchi of Bank of America. Please go ahead.

Yeah. Hi, Luca. Two from me, please, which are a bit of a repeat of some of the things you said. I just wanted to clarify a couple of things, please. The third one on the U.S., on how you think about depletions going forward and your guidance. Now, your depletions in the U.S. are down around low double digits, you said now, which is clearly quite an improvement from where you were six months or so ago when it was more than 20%. You're performing more or less in line with the industry now, but you said you're a bit behind the budget. So does this budget, does this mean that you were expecting or you are expecting, you are expecting for the second half a continued sort of improvement in that rate of decline, i.e. maybe that in H2 you're still down in terms of depletions but nowhere near what you were before? And then sort of similar to this, I just want to understand China a bit. Depletions there were clearly strong in Q1 at high single-digit. You're outperforming the market there. You called out that the reasons why Q2 would be fostered, that it all seems headwinds that are mainly related to shipment phasing or calendar effects for later mid-autumn festival, for example. And you, in what you just answered now, you're sounding fairly confident about China saying that it could potentially offset weakness in the U.S. Yes, what gives you the confidence in the momentum in China about, say, the positive depreciation continuing there? And on the government ban on alcohol in sort of official meals and that, you touched on it very, very briefly earlier. Could you just confirm, I mean, this isn't very material, right, for Cognac, or is it? And how is this affecting your business? Thank you.

Thank you. Thank you, Andrea. So, in terms of depletion, U.S. at the group level is not double-digit negative, it's high single-digit negative.

Sorry, Cognac, I meant.

Cognac, yes, but we also do, we unleash the air positively with gladiators in terms of Cognac. So, it is less balanced between the But at the end, it's high single digits. So clearly, the budget was based on a better depreciation, and we are doing what we can do also in terms of investing more below the line, more linked to the positive state with a stronger reactivity to improve that. Because I didn't say already, but I repeat, the spark in the U.S. is linked to positive depreciation. Even if we are improved, we remain in negative land. If we are doing maybe now better than the competition, it is not positive. So, we need a spark. And this guidance is built with a rebuild of the depression, the second part of the year. More in the second half, you know, the first half. But so far, we are not double-digit negative, but high single-digit negative. Okay. This is more difference, but quite important. In terms of China, it is more a technical impact in the festival for the selling of the Q2 and our assumption is that if this depletion rhythm in stronger and bigger quarter remains, if we are able to beat big time the market In that channel, every time we touch the consumers, the conference will be reinstalled and will be a Q3 and Q4, which might be bigger than budget expectation. All in all, this could be enough to set the top line of the U.S. I don't know. But for sure, we'll be fit with the mid-single-digit organic growth at group level. So the confidence is linked to the fact that the reactivity, change in dynamics linked by the investment and dynamics linked to the overall confidence are far more expected than in any other part of the world.

Got it. And then just a word on the government alcohol ban.

It is something that is weighing more on the confidence of wholesalers, a bit on our IMP because direct IMP for testing and specific dinner are decreasing a bit. So you have to reorientate a bit more the profit of that to improve the investment in e-commerce channels. So we You need to be very reactive. And there, once again, I never stop to rate it like that. The biggest weapon we have in China is the team. One fantastic, wonderful team. Okay.

Gracias. Prego. Thank you.

We'll now take our next question from Nick Fuller of Deutsche Bank. Your line is so complete, so right.

Thanks. Morning, Luca. I'm sorry to ask the same question again, but I'll try and rephrase it. In the U.S., are you assuming positive submissions in 2-H behind your guidance? That's my first question. And then my second question is on BS and the push for that in Africa, Remy Martin's stopped doing VS a few years ago. Is there an opportunity to do that more broadly? You sounded like you were saying specifically not, but I guess given the challenges to Cognac in the U.S., you know, would you ever consider doing VS again in the U.S.? Thank you.

I'll start with the second one, no. So VS is one of the specific for Africa. It states with two countries, South Africa and Nigeria. and so far clearly this project has started already clearly before frank media arrival actually a project like that has 12 18 months of gestation of intellectual preparation it is linked to africa for many quarters we lose market share because and our VSOP was not the right weapon, so we installed that. At this stage, it is not meant to be resale or to be proposed in the US, coming back to a structural down-trading of the cognac offer, falling down in the 2008 declining pyramid of ranges. at this stage is absolutely out of question, only in Africa. In terms of the assumptions, so thanks for the question, because I think it's important also to let words, let noise from my side more figures, value depletions in the U.S. in terms of building blocks for the full year at budget time were quite modest, so meaning mid single digit in value based on strong H2 and more or less flat H1 so we modelize that and as said at that time you remember two or three times Trevor Stirling asked the same question what does it mean one point of depletion in terms of automatic restocking meaning that the automatic restocking and resetting with the compound of depression and the positive spark the organic stock was an impact on saline which is probably large so between 20-30 million could be even more so it is enough to realize a mid single digit sometimes also low to mid single digits value depletion at full year. And the model was built with a strong double-digit value depletion increase in H2. So far, I repeat, top line is there compared to the value depletion. Value depletion in the US are running behind. Is it still time we can redo what we are allowing the guidance to be able to catch up? Yes. There is some risk? Yes. Can you affect that with the other part of the world like China missing the supply?

Yes.

Just to make sure I've understood, apologies to follow up, but you assume strong growth in the second half in decretions given that you're expecting, you know, you're budgeting mid-single-digit value growth across the year and it looks like, you know, 1H is likely to be down given the start you've made and where you are in QQ.

I disagree because the balance between depletion and the Selene effect in the West will be much bigger. So the dynamics between depletion and Selene is very decorregated in terms of consequence. So in these single digits, so let me say as an example, plus 4 plus 5 at group level, if you are realizing... a single digit in depletion in value in the U.S. is much more in selling so automatically you have an accredited impact of the top line of the U.S. and budget expectation in China at that time were more moderate and I hope not to be wrong but I think that situation is not running very bad at the moment in China. There are some clouds but there is also some sun

under the clouds of results.

Okay.

Any more questions? No? We have news? What happened?

I'm sorry, we'll now take our last question from Trevor Stirling of Ben Spain. Please go ahead.

Morning, Luca. Morning. I was waiting for you. You were on the subway. You were on the subway.

No, no, I'm still here. It just took some time to get out of the underground. Thank you. Thank you. Two questions, Luca, and for once it's not about stocking and de-stocking institutions and ships. Thinking about consumers, Luca, you mentioned that in China the direct channels are looking very strong and there's some rays of sunshine there, as you say. Have you any color, I know it's really difficult to say, what consumption is actually driving this? Is it consumption outside Guangdong? Is it people buying cognac via direct channels and then consuming it in restaurants? If you have any value you can give there, that would be great. And then on the other side, in the U.S., where the value depletion is still weak, and clearly that's also your major competitor is still very weak, does it make you start to worry that there's a bigger structural factor here at play in the U.S., such as African-American consumers switching to tequila or, again, any value you can give on consumption trends in the U.S. would be brilliant.

Thank you for your easy question, as usual. So, on trade, in China, it's still very weak for us. So, when you say we over-perform on direct channels, direct channels link to a model which is not really on trade, but it's more penetration, direct consumer. We use e-commerce also, mainly in the past, also to penetrate the new region. Now there is, the company's already is already there, and B2B part has underperformed compared to the B2C, the D2C part of e-commerce. So, in terms of int, it is more skewed, cognac, non-cognac, it is still more skewed to cognac, club playing the lion part, the plus 14, the value depreciation is linked, correlated to that. There is some change in term of format, sometimes it is a little more skewed to the smallest format, and through In terms of dynamics of profit and loss, as you remember, gross margin is lower in this type of direct channel, but bottom line is bigger because of less of specific office. The other part of direct channels, like PCD, is clearly more accretive, even if they belong to a specific man-to-man relationship. But once you have found the guy that is able to... To realize more than the break-even point in terms of the number of bottles, it is very totaling profit like hell. And the last one is very profitable in terms of gross margin, which is that it's a three-cent store that is more moderate and temperate in terms of bottle line return. Today, with the boutiques and the three centers in China, we are profitable in some of them, less profitable like everybody when you have the biggest investors. But in terms of habits of consumption, direct channels are more viewed non-cognac, not really visible, more in the cocktail bar environment that is still very low, in terms of penetration, and it is more red, this part, the specific wall scalers that are driving to cocktail bars, the specific part of their attention, more than direct. So, Still something to do. The last, the mother of all questions, Tyrell. It is a long cycle or is semi-structural? Rigid cycle or semi-structural? I don't know. This cycle stands a bit too much for my taste. It would be important here to acknowledge that. It is the same question Frank Marie asked us as well. And nobody is capable to answer very clearly. So far, we are still in the dynamics of historical pattern, stochastic analysis of cycles. Clearly, for the third year in a row, we'll be a global market fall with all signs going negative. We need to clearly address this global question as well, and also this part of the reason we raise, we decline, not decline, not the right verb, we offset and the long-term guidance has been removed. It is an important question. So far, everything we are doing is still on the sentiment, on the conviction. It is a long cycle, but appetite is there. Share of us is bigger than ever. For any Latin, it's improving. We are number two both in US and China. All the soft elements and the positive elements are there. Every time we get in touch with consumers, we beat competition. I cannot deny we are still in negative land. Also the latest figures in Newton's time of fallout are not nice at all. Not only for us, for everybody. So the question is more than legitimate. So it is a very long cycle with this kind of structure. This year, end of the year, everybody is professionally to draw a balance and answer clearly to these questions. So far, everything we are doing is copying and considering that is a long cycle, that is a cycle. It's not a structural lack in impact.

Super. Thank you very much for your perspectives, Luca.

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

So thank you for your interesting question.

It was a positive quarter. I'm very proud because at least after eight negative, one was some plus. I lost the habit to do that. But the next one will be negative. But for the year, we are clearly committed and we believe in what we highlight in the guidance of top line and bottom line. So see you soon and talk soon, end of October for the second quarter. And clear, the most important meeting will be end of November with the presentation of the ICO results. and clearly our new CEO on stage to answer to all your questions and to give the light for the remainder of the year and the future year to come.

Thank you so much. Have a nice summer and take care.

Thank you. This concludes today's call. Thank you for your participation.