Remy Cointreau Unsp/Adr

Hello, and welcome to the Rémy Cointreau 2021 Four-Year Results Conference Call. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star 1 on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero and you will be connected to an operator. I will now hand you over to your host, Mr. Marc Herriard-Duprey, chairman, to begin today's conference. Thank you.

Good morning to you all. We are here to review the results of last year of our group, the Remy.4 group. I'm going to make a small introduction. Then our CEO, Eric Valla, will review the operations. And then our chief financial officer, Luca Marotta, as he did many times in the past, will make the financial review for you. Then Eric Valla will come back to give you the outlook now after the beginning of the year. We have just released this morning the results. I hope you have time to review them. They are very good results. We did very well. Our growth was significant compared to last year. And even we could say we could even have had better results. But this is not what is important. What is important is the context in which we were last year. And I will mention two topics on that introduction. The first topic, of course, is the financial performance. You must... Put yourself in the position in which we were at the beginning of last fiscal year. As for many companies around the world, we were really living difficult times. We even had to close all our operations worldwide for nearly three weeks. And when we started again, it was very complicated. It was very, very complicated for our operations. It was becoming more and more difficult for our customers, which were disappering one after the other, and we didn't know for how long. The situation, of course, was difficult on the production side, but the most difficult... The most difficult situation was really on the logistics side. The supply chain was extremely difficult during the year. What we had to realize is that we had to change the ways we were doing things. And the important thing of last year is that we worked out the change we have been able to adapt ourselves to the new environment and our group became stronger after that crisis. And this is the important point. As I said, the context was very challenging, but we have been able to be very agile and to adapt ourselves to many, many extremely different conditions. So, Those very strong results we are having today confirm, once more, the strengths of our Remy Cointreau brands. And I say brands because it's not only Ray Martin Cognac. Last year, you remember, Eric Valla launched the 10-year plan. Now I can say it's a nine-year plan because we are fully on the track to achieve that 10-year plan. So on those results, you can see that we have made solid progress toward that long-term strategic objective. Very important for us, our gross margin has reached the all-time highs. This is the best performance we ever had, which is, of course, in line with our long-term plan. And our current operating profit, in spite of all the difficulties which I mentioned, went back to historic levels. In one phrase, I can summary what happened. The new paradigm post-COVID confirms our long-term strategy. So this was my first topic. Now for the second topic. For us, long-term sustainability is... as important as good financial results. This is really the dedication of our group to provide as much as we can that sustainability for all the stakeholders which are around us. You know very well, I hope, that the three words which summarize our group, the three words on which we give a signature are terroir, people, and time. On those three fields, we have made and are making and will make strong progress. If I speak of terroir, you know that our objective is to be 100% sustainable everywhere in agriculture. This is already done in Cognac. But the news of this year is that we have made strong progress in our liquor and spirit division, led by Cointreau, Saint-Rémy, Montguet, Bois-Cadic Distilleries, and even also for our newcomer, Thelmont Champagne. Concerning people, there was a lot to do. We tried as much as possible to help all those with whom we were working. So we launched quite a large series of solidarity actions against the pandemic because the priority was given to health for all stakeholders. And concerning our employees, we protected all salaries around the world without any government support. As I said, our clients, our customers, were in a very, very distressing situation very often. So we tried to help them, and especially the on-trade communities, which suffered a lot this year, with financial donations and proper communication. Concerning time, the journey I started already many years ago We went on this year. You will see when you see our reports that we had a lot of initiatives, so it would take too much time to review them all. We only give you two examples. We are discontinuing gift box in many of our brands, and for two main distilleries, which are Angers and Cognac, starting from April 1st this year, we are switching to biogas, so more sustainable. Because this is our commitment and we will go on for the years to come towards trying to help to sustain the planet.

Thank you, Mark. Good morning, everyone. Very pleased to meet you again, even though I hope we can remove the E soon. I have the feeling it's coming soon. I'm very pleased now to take you through the, as Mark said, the operational and the business outputs of last year. And I will start just by telling you about the trends emerging from COVID. It's too early to draw final conclusions, but we can highlight some trends emerging from the pandemic which we believe are structural because they pre-existed COVID and they accelerated with COVID. The first trend is the up-trading trend. Of course, people had less to spend on travel. Of course, government subsidies, particularly in the U.S., have helped. Of course, buying in the off-trade is cheaper than buying in the on-trade, which is boosting volumes. But the trend of drinking less but better pre-existed COVID, it has accelerated and it will keep strengthening with people paying more attention to what they drink. Also, a lot more clients had more time last year to be educated on high-end brands. These brands have gained in familiarity. plus we tried digital testing sessions, and they proved to work. They will help us increase the reach of people we educate. We are well positioned to take advantage of this trend with our portfolio of exceptional brands, which is displaying a value per case which is two times higher than market average. The second trend is the rise of at-home consumption, including mixology at home. It will slow down with the reopening of on-trade, but it will remain way more than pre-COVID. We are well positioned as well here, again, with our liquors and spirits portfolio, and more particularly with Cointreau, which was in the original recipe of the Margarita, and which is present in more than 400 cocktails. The third trend that you can see on the screen is the acceleration of e-commerce. I don't think I need to elaborate here. Just to say, maybe, that in the US, it is more than an acceleration. COVID has kicked off e-commerce and all the stakeholders are now investing full speed behind it, which is clearly unleashing its potential up to the US becoming probably the number one e-commerce market for wine and spirits in 21 above China. Here again, we are in a good position. Being smaller than big players, ECOM is an even bigger opportunity for us as our coverage of the Tier 3 and Tier 4 areas worldwide is less than that of our competitors who have more commercial people in the field. ECOM is B2C and B2B indeed. It gives us the opportunity to target qualitative accounts in remote cities in China, for instance. This is probably why we were a pioneer in China, where it now accounts for more than 20% of our business. The last trend I would like to highlight here is the heightened environmental and social consciousness. Here as well, I don't think I need to elaborate. But terroirs are at the heart of what we do. And transmission of our vineyards, of our know-how to the next generation in the best conditions possible has always been an obsession for us in the past 350 years. So here again, I believe we are by culture. It's our DNA well positioned. Moving to the next slide, you know, as I said last year, our ambition remains to become the leader of exceptional spirits. And as explained, entering a mature phase of the value strategy, we removed the above $50 sales targets for a more inclusive approach. Retail price remains key. But we look at gross margin also, beyond retail price, as a way to create even more value. This strategy translated into four priorities that were shared last year. And we believe that these priorities are spot on as they embrace the consumer trends I just referred to, as showed here on the slide. This gives me an opportunity to update you quickly on these priorities as they are key for us to deliver our long-term vision and as we make material progress despite the pandemic. These priorities are numbered in the following slides, but the numbers do not reflect any kind of hierarchy among the priorities. Four priorities is not a lot, but this is on purpose as each priority is equally important and instrumental to the plan. So we need to make sure we allocate enough resources. Moving to the next slide, priority number one, increase value per case, or put in a nicer way, generating more value than volume. As I said, we want to keep the focus on retail price through price increases, but also through product mix management. We managed to leverage up trading trends with a positive price mix effect of 5.5% in 2021, particularly thanks to the continued very positive growth of Club 1738 and Bocladi Whiskies, to name them. But and this is the second part of the slide, we also look beyond retail price now, as I explained, with a clear focus on gross margin, which gains 1.3 points, thanks to the investments behind our accretive brands. A good example here is Cointreau, which enjoyed stellar growth in the U.S., where we over-invested to fuel growth, and where the gross margin is the highest, while retail price is not the highest in our portfolio. The second priority is enhancing portfolio management. What have we done since we last shared the strategy in June 2020? First, we have assigned clear roles to each brand, and we have split them into three groups with a clear set of priorities for each. This is how we will grow our portfolio beyond Cognac's. Second, we implemented a new global markets organization with the appointment of Laurent Venot as CEO Global Markets. His mission with his team is, among others, to work on implementing this portfolio vision in the field. And third, we launched a commercial excellence project, which is instrumental. Here we are talking about a transformation project. Over the past six years, we invested on upstream topics, terroir, products. This was key to claim for exceptional spirits. If the product is not great, there's not much we can do. Now, time has come to invest on downstream activities as well, notably on commercial capabilities. We appointed, at the beginning of the year, of the civil year, a senior executive to pilot the project. She joined in January this year, and we are making good progress now, as showed with the timeline you can see at the bottom of the chart. It's now a project which is live and which is going to deliver in the coming months. Moving to the next slide and the next priority, implementing a client-centric model. With Retrez, we have a fantastic weapon to implement a real client-centric model and to replicate whatever is relevant for the other brands. We are very ambitious for the brand as we target to know and to dialogue directly with 80% of our end clients by 2030. This makes sense for three reasons. One, buying a decanter of 3,000 euros is like buying a watch of 25,000 euros. This deserves a level of service unique in the industry, which can only happen with a tailor-made approach addressing clients' needs and specific aspirations. Second reason why it makes sense, the unit price allows for investing on a client-centric model. And the third one is, as we all know, it takes generations to craft the liquid for Louis Therese. So we know the volumes we have in hands and creating value will come also thanks to a more integrated value chain. The more we sell direct, the more gross margin we secure. A classic for a luxury brand, but a destructive statement in our industry. This is why I like to say that Louis Therese is unique and is what makes us as a group so special. So as I just explained, Louis Therese is the spearhead of our client strategy. But the game changer is also at group level, clearly e-commerce. Our 20% target of sales generated with e-commerce in 2030 was ambitious pre-COVID, I believe, and we can maybe debate this later, but I believe that we should do more since we've gained years with the pandemic. Moving to the next slide and the last priority, achieve responsible growth. But this is not a new priority, as I said and as Marc said as well. You know, transmission and caring for the future of our terroir has been a priority for generations at Rémy Cointreau. So we are not starting from scratch at all. But we believe more in doing things than in communicating on this matter. Even though the numerous recognitions and awards we get, and it's more than the three which are listed in the slides here actually, are self-explanatory. Now, we are not there yet. And there's a lot to do. It is our duty to accelerate, leveraging a new paradigm. Why a new paradigm? Because 55% of consumers report sustainability is very important to them when choosing a brand now. There were only 33% pre-COVID. We should take advantage of the tailwinds to accelerate sustainability. And we are indeed now that everyone in the organization is and feels committed. To list a few examples, I'm not going to elaborate on the 64% that Mark already told about, but just so you know, we're talking here of 15,000 hectares in total, if you include all our products and indirect sourcing. Today, 45% also of our managers are women, and we obtain good scores on two indicators, gender gap and pay rise gap. But there's still a lot to do on diversity, of course, and we made it a priority for the coming years. We have also removed the gift box, as Mark said, in the U.S. and almost worldwide for VSOP, for instance. And it's interesting to see that VSOP is growing the fastest. So the clientele is ready now for such kind of move. And by the way, it is an accretive move in terms of gross margin. It's a very interesting way of combining gross margin as well as sustainability. And to conclude this slide, it's interesting to note that our net margin, including CO2 costs, would be 14.2% versus 14.7%. It's showing a very limited impact, showing that our CO2 cost is limited today. Moving to the next slide, just to say that I am done with the strategy and the four transversal priority. Just a quick update before we move to the high-level results of last year. Just to say that if we have a look at where we stand versus the 10-year plan, as Mark said, after one year, the good news is that we are well on track, even ahead, our internal roadmap, which should give us the opportunity to invest even more this year on our brands to grow them in the future. The investment of today is the growth of tomorrow. And one last slide with the global overall picture. As you've seen from the press release, our full year results were very strong, proving our resilience in the context of the pandemic. Back in April, you saw our sales numbers. We talked about a 1.8% organic growth. Business bounced back strongly in the second half with a 20.9% organic growth. In terms of profitability, the current operating profit stood at 236 million, up 12.8% on an organic basis, representing 23.4% margin growth. As mentioned by Mark, this is close to our highest ever level, 23.5% in 18-19. This performance reflects an increase of the gross margin, which has been partly invested in ANP to fuel the future growth of our brands and an excellent control of our overhead costs. In other words, we have evolved our cost structure towards more activation and less fixed costs. The net income stood at 144.5 million, up 30.2% on an organic basis, and the free cash flow came at 123 million euros, up 107 million euros. You can elaborate here. Finally, the net financial debt stood at 314.3 million euros, representing a very healthy air ratio of 1.3, down from 1.9 a year ago. Let us now switch to the business review in a few slides. I'm going to go quick on these slides because they were shared by Luca, if not in the same format, but back in April. Cognac, which represented 73% of our sales, grew 3.7% organically in the full year, with a plus 27% in H2O. Liquors and spirits, which contributed to 24% of our sales, recorded a decline of 3.2%, but a 7.2% increase in H2. And lastly, partner brands, which account for only 3% of the group now, the sales were down 1.5% in the full year. Moving to the next slide, you can see our sales by region, which shows an outstanding growth in the U.S. and a strong recovery in China in H2. America's was the growth engine with a remarkable 18.6% increase boosted by a 38.7% rebound in H2. Asia-Pacific. was down minus 4.5% during the full year, despite a plus 20% rebound in the second half. Focusing on greater China, the growth was 17%, minus 7% on H1, but plus 39% on H2. Lastly, EMEA displayed a minus 20.17% decline, impacted by on-trade closure in many markets, as well as a weak travel retail, obviously. But while still down, H2 sales recorded a sequential improvement at minus 11.5%. Moving to slide 18, I'm not going to elaborate on the figures here. You can have a look. Just to say that at the end of March 21, Remy Martin volume market share is up 1.6% according to BNIC. And if you look at superior qualities, so VSOP and above, our market share actually grew 4% to 28% thanks to VSOP Club in 1738. So a very good year in absolute value, but relatively speaking as well. Moving to slide 19, these are figures you know already. I'm not going to elaborate either. Just giving me the opportunity to highlight again the acceleration of the second semester for our Cognacs, which appears on the left part of the slide. Moving to slide 20, let's focus on our operational performance for the Cognac division. This is an important slide. I'm going to spend a bit more time on this one. Current operating margin increased by 2.9 points to 30.1% over the full year. This breaks down into an organic increase of 2 points, a positive currency effect of 0.9, and an almost neutral scope effect linked to the consolidation of Brier since April. This organic improvement reflects a stable gross margin, which is made of, first, an adverse mix. Our growth was driven by VSOP 1738 and Club, while the top end was under pressure for a large part of the year because of the closure of OnTrade, and we've seen them bouncing back with the progressive reopening of OnTrade now. And two, a smaller pricing effect. You may recall that during the March lockdown, we decided to postpone our usual price increase from April to October 2020 for ethical reasons so that the price increase was effective only for half a year last year. And an increase of our ANP that you can see here by 12.9 million euros, so material, in particular in the U.S. and in China, to continue to grow the awareness of our brands and to show their future growth. This was possible thanks to the increase and the better sales than expected and thanks also to very good control of our costs, distribution and structure costs. Thanks to cost-cutting measures that we put in place during the pandemic, some of which will last beyond COVID. Salary and hiring freeze, this would not necessarily last. No traveling expenses and temporary cuts in distribution costs and in the on-trade, among others. But meanwhile, we have accelerated investment on our strategic priorities, as said. In other words, our cost structure has evolved towards more activation and support to the business. Let us now switch to the slide 21. I already talked about Retrez, so just to say quickly, we are very proud to have opened a pop-up boutique in Plaza 66 in Shanghai. I worked for 20 years in luxury and in fashion, and I can tell you that with the presence in SKP in Beijing and one in Plaza 66 in Shanghai, we are clearly making a strong statement for the brand in the two most prestigious malls in China and in Asia. As a reminder, we have boutiques in China, in Singapore, in the UK, and in the US. We now have six boutiques in total for Louis Treve. And, of course, we have our private clients, directors, who proved to secure very resilient business while a lot of on-trade accounts were closed worldwide. A word on Rémi Martin. The growth of our sales has allowed us to invest even more than budgeted to increase the awareness and the relevance of the brand in the U.S., The relevance is important as well. We launched the next iteration of our Team Up for Excellence campaign featuring Rémi Martin 1738 and the legendary music artist Usher. Team Up for Excellence, the film, and we have up to a six-minute film with a very specific distribution, brings to life the history of the harmony between two cultures of excellence in the U.S., music and cognac. The film celebrates the harmonious blending of two cultures of timeless excellence, again, music and cognac. It highlights the cultural connection between cognac and American artists since 1917, back to the First World War in France, and how the two have been influencing each other ever since. We are going to echo this campaign as well with the 100 years anniversary of the sidecar coming soon as well. Just to say that, you know, we've moved from maybe more very important product-centric communication on Team Up for Excellence to a very engaging, compelling campaign that is clearly addressing the heart of our clientele. Moving to the next slide, we also launched La Maison Rémy Martin something like five years ago. This year, we brought cognac to Guangzhou. And we celebrated Fin Champagne. As you know, our relationship to terroir is very specific. And we source only from the two most sought-after crues of the region, Petit and Grand Champagne. I launched Maison Rémy Martin five years ago, and must say I was impressed by what it has become. And if you move to the next slide, this is not clearly a film from Hollywood. It's made by our team. But it's the first time we saw such a queuing to enter La Maison Rémy Martin. This was very exciting for us as at that time we were confined. And it was great to see such affluence in China when we launched it. And not only when we launched it, by the way, but every single day. Now moving to the Liquors and Spirits Division. I'm not going to elaborate either on the figures here, just like I did not for cognac. But moving to the next slide, Americas, as you can see, enjoy a mid-to-high single-digit sales growth. U.S. enjoyed excellent performance supported by booming at-home mixology. Canada showed good resilience, and LATAM was strongly impacted by lockdown measures and weak tourism. In EMEA, we enjoyed a double-digit sales decline. Enjoy this. Maybe not the appropriate word. Sequentially improving in H2. Most markets were impacted by on-trade closures and travel retail. But we also saw and witnessed the very strong resilience of the UK, Benelux, and to a lesser extent, Russia. In APAC, we saw a slight phase decline despite very strong recovery in H2. Greater China. was a bit penalized by a slow cocktail bar recovery, but Southeast Asia witnessed a solid performance, driven by Australia and New Zealand. Lastly, travel retail, obviously, has been very weak, affected by the collapse in tourism everywhere in the world. Moving to site 27, so the last one I'm going to spend some more time on, before I give the mic to Luca in a few slides. Let's focus on Liquors & Spirits' current operating profit. We've been able to protect our margin at 13.3%. This performance reflects an organic improvement of 0.8 points, offset by some negative effects in currency, minus 1.1, and the scope, minus 0.8, with the consolidation of Belle de Brier since May 20 and of Telmon since October 20. This good organic performance was driven by the combination of a strong improvement of the gross margin plus 2.3 points, led by a very positive mix on the back of the outstanding performance of Cointreau in the US, which I referred to, which is strongly margin-accretive and behind which we strongly invest. And a continued increase of our ANP, 0.6 points, the investments versus last year, plus 0.6 points. We have notably reinforced our marketing investments behind Cointreau to leverage the booming at-home mixology trends while preparing the on-trade reopening. In parallel, we slightly reduced our distribution and structure costs. Now moving to slide 28. Well, the stellar growth of Cointreau enabled us to invest even more in the brand to increase awareness. We displayed an ad for the first time ever in the group during Super Bowl. The audience has been amazing, and Cointreau ad ranked number eight overall and number one among Wine Spirits France. We're very proud, of course, and it gave us the opportunity as well to show our support to the on-trade. We have been very active on e-commerce as well, where all our brands increased sales. It's interesting to note that Cointreau even achieved the number two position among the liquor brands in 2020 on Drizzly, which is an amazing improvement versus the year before in a context of growing Drizzly sales. It's a great achievement. We're very proud of it as well. Moving to my next slide, just a picture of And the whiskeys, that also did great. They grew over 40% in 2021. And it was very interesting beyond the strong growth in the U.S. to witness the acceleration in China more particularly. And this image, by the way, gives you a feel of the beautiful Brooklady boutique that we opened in Xiamen and that is doing very well. I am done, and I give you the mic, Luca, for a more in-depth financial outlook.