Remy Cointreau Unsp/Adr

And thank you for being with us this morning for Rémi Cointreau, Half Your Result. I hope that you are all safe and healthy. I'm here with Eric Vallin, CEO and Luca Malata, CFO. Today, we will present Rémi Cointreau's H1 result. And we are proud of what was achieved by the teams across the world. So first... Let me start by thanking all of them for their efforts, commitment, and achievement in this context. Each one has been a half year packed with initiative, both in terms of business and sustainability topics. I will not come back on all these events, but I would like to comment just a few of them. First, the Share Buy Back program that we announced last June to ensure that the group keeps an attractive level in terms of shareholder returns and because we think that the level of valorization remains attractive. Second, the recent announcement of an 80 million euro loan, it bears interest and a fixed rate of 0.6% per annum and offers a maturity of seven years, in keeping with the group's desire to back its long-dated assets with appropriate financial resources. Rémi Cointreau is thus extending the maturity of his debts and continues to gradually reduce its average cost of funding. Third, the official relaunch of Champagne-Telmont last June. As a reminder, we bought Domaine Telmont in October 2020. Since then, strong progress has been done, including the rollout of an ambitious plan called Innominé Terrail. Lastly, the one that makes me proudest, the announcement of our plan a planet of exception that I will not detail now, as Eric will comment it later. All in all, H1 was an excellent semester for Amiquentro. As we operate in a very resilient business, we reach an all-time high in almost all KPIs, including sales, gross margin, COP margin, and EPS. So now, I will turn over to Eric, who will take you through the H1 business review.

Thank you very much, Marc, and good morning, everyone. Thank you for being with us this morning for our H1 results presentation, which we are happy and proud to share, as you can imagine. I'll begin with a quick overview of H1 results. Then Luca will go into more details before I conclude with the outlook. So looking at slide five, as you've seen from the press release just issued this morning, our 21-22 H1 results were excellent, showing a strong acceleration compared to last year, but also versus H1-19-20, which is obviously very interesting to look at as well. Back in October, you saw our sales numbers. We talked about plus 52% organic growth, reflecting a continued very strong trend in China and in the US, as well as a solid momentum in Europe. With 27% almost of organic growth versus 1920 H1, our sales ended the semester well above the pre-pandemic level. In terms of profitability, the current operating profits stood at 220 million euros, up 104.5% on an organic basis, representing 33% of margin. As mentioned by Mark, this is the highest level ever. This performance... has been driven by a significant increase of the gross margin to 69.1% and a good control of our overhead costs while investing on critical capabilities. The free cash flow, as you can see as well, came at 29.5 million euros, leading to a very healthy A ratio of 0.77. Let me now move to slide 6. These results have been achieved notably thanks to a good progress made against our four strategic priorities set last year. As you may recall, the first priority is to increase value per case. And as mentioned several times, it will be achieved thanks to a strong focus on retail price through price increases, among others, but also through product mix management. Looking at our H1 numbers, we managed to leverage up-trading trends with a positive mixed price sales effect of plus 16.8 points at group level, driven by an increase of 20 points in cognac. These great results for Rémy Martin are driven by the success of our intermediate quality products in cognac, such as 1738 in the US and Club in China. 1738 grew 60% in H1, and its contribution to VSOP sales rose by 13 points versus H1 1819, only three years ago. Club grew more than 50% in H1, and its contribution to total sales rose by 16 points versus H1 1819 in China. This tells the magnitude of what has been achieved on the intermediates. And if we look beyond retail price, the gross margin increased by two points organically versus two years ago at group level. This has been achieved thanks to the investment behind our accretive brands, both in cognac and liquor spirits, among which Cointreau enjoyed stellar results. Let's switch now to priority number two, enhance portfolio management. As you know, we have assigned clear roles to each brand, and we have split them in three groups with a clear set of priorities for each. The objective is to maximize our gross margin, notably by growing our accretive gross margin brands, such as Cointreau, The Botanist, or PHD Molds, beyond our cognacs, of course. It is only the beginning, but this is exactly what is happening thanks to strong focus and efforts. Cointreau sales were up 50% versus last year and versus two years ago. The botanist grew 80% versus last year and 30% versus two years ago. And finally, PhD molds increased by 35% versus last year, but 50% versus two years ago. So this is happening. The third priority is to implement client-centric model as you may remember. We delivered solid progress here with the opening of boutiques worldwide of which our first Rémy Martin boutique in Hainan with a brand new concept. We also accelerated sharply on e-commerce with the opening of six monobrand e-boutiques leveraging a common platform. I will come back to that later. Lastly, we are scaling up our capabilities on CRM to leverage the data acquired. As a result, in China, for instance, our direct sales grew by more than 60% in H1 versus two years ago, which is huge. And finally, our fourth priority, achieve a responsible growth that I would like to develop here on the next slide. We have indeed taken a substantial step forward a few weeks ago, and I would like to thank all the teams for their engagement and work, which has enabled us to commit to a very ambitious project. We are leveling up our game while we should already be proud of what we have achieved so far. Indeed, for the past decade, Rémi Cointreau has worked to reduce its environmental impact and especially its carbon footprint. The group releases 0.5 kg of CO2 for each euro of its operating profit, compared to an average of 4.5 kg for the global beverage and food industry. The group therefore combines a high level of profitability and a low carbon footprint. It's a very good starting point. But climate change remains a key challenge for everyone, and that includes us. This is why our results should not prevent us from accelerating. On the contrary, they should help us accelerate. And this is why we have launched our very ambitious project, A Planet of Exception, to strengthen even more our participation in global efforts to combat climate change and to achieve worldwide carbon neutrality. We are already carbon neutral from this year onwards, by the way. Indeed, we are the first company of our size in Wine and Spirits to contribute to projects covering the full scope of our carbon emissions, scope 1, 2 and 3. With South Pole, the group will fund meaningful and relevant certified projects in renewable energy and in forest restoration and sustainable management. These actions will also support initiatives to protect the territories and communities most vulnerable to climate change. This is great. We're very proud to be carbon neutral, but this is just the beginning of the journey. The real challenge is not to be carbon neutral through compensation. The real challenge is to reduce our own emissions. That is why the project A Planet for Exception is also focused on reducing the group's carbon footprint in conjunction with its official membership of the science-based target initiatives. The group thus confirms its long-term targets of reducing the intensity of its carbon emissions by 50% across the entire value chain by 2030 and to reach net zero emissions by 2050. To achieve such, we've launched several initiatives around four major areas, packaging, transport, purchases of agricultural raw materials, and energy. I am talking here of initiatives such as 100% renewable energy on our production sites, which is already the case in many of them, notably on our French sites, gift box removal, redesign of our bottles, use of recycled glass, zero-plane policy for shipments, maritime sailing transport testing, and so on, to name a few. And the good news is that we strongly believe that this is not only costly, it's also valuable for our clients, and it's contributing to the desirability of our group and our brands. I would like now to take you through a short business review before giving the mic to Luca. And I'm going to switch to slide nine and be quicker here. So the slide 9 gives me the opportunity to remind you of our H1 sales numbers by division, which were already detailed by Luca back in October. Cognac, which represented 72% of our sales, grew 55.2% organically in H1 and 27% versus H1 1920. Dequos and Spirits, which contributed to 25% of our sales, recorded a 46.9% growth and 26.9% on a two-year basis. Lastly, our partner brands, 3% of the group sales only, were up 23.6% in H1. On slide 10, just a word on the regions now. The slide shows an outstanding growth in the US and in China, while Europe benefited from a strong momentum. America's was a key driver with a remarkable 60.2% increase and 59.2% on a two-year basis, confirming the new paradigm in the U.S. Asia-Pacific was up almost 50% in H1 and plus 7.2% versus two years ago, despite a collapse of the travel retail activity and a lot of lockdowns outside of greater China. And lastly, EMEA displayed a 33.5% growth, benefiting from the rebound of European consumption in on-trade during summer. On a two-year basis, the performance is still negative, minus 8%, as travel retail continued to suffer from a lack of international tourism, in particular Chinese and U.S. tourism. Moving on now to the next slides, let's focus on the cognac division, whose great key figures are summarized on the slide you can see now. But I'm going to move now to slide 12 to go more into details. These are figures that you know already, but this slide gives me the opportunity to highlight again the amazing trends that we enjoyed in H1 for our cognacs in all regions. All regions. The slide 13 shows the operational performance of the Cognac division. Current operating margin increased by 9.8 points to 40.5% over the semester. This is a record but not a normalized level in the short term as you can imagine. This breaks down into an organic increase of 9.2 points, a positive currency effect of 0.6 points and a neutral scope effect. The organic improvement reflects a significant gross margin improvement of 4 points, resulting from a well-balanced contribution in volume and mixed price. On top of the price increases decided in October 20 and in April 21, we benefited from the strong performance of our top-end portfolio, including Intermediate's quality products, 1738 and Club, but also Ixo, which has been showing interesting trends in China and in the U.S. These gross margin gains have been partially reinvested behind our bronze in A&P. The ratio rose by 0.5 points, particularly in the US and in China, to continue to grow the awareness of our brands and to fuel their future growth. And we will accelerate in H2 as many programs conceived in the first semester are now ready or about to be broadcasted. Finally, the P&L benefited from a good control of our distribution and structure costs compared to a sharp rise of our sales. The ratio decreased by 5.7 points. Let me now move to the next slide, slide 14. And let's focus on the Liquors and Spirits Division, whose key figures are encapsulated on the slide. So like for our cognacs, slide 15 shows sales numbers that you know already. We have now a second engine of growth, well-balanced among all regions. This is a key in our 10-year roadmap and reinforces our confidence in our ability to reach our long-term targets. But moving on to slide 16, and I'll spend a bit more time here as this is a new slide, the liquors and spirits current operating margin stood at 23.1%, an all-time high. This performance reflects a very strong organic improvement of 8.4 points partially offset by a negative scope effect including the consolidation of Belle de Brier in May 20 and Telmon in October 20. This very strong organic performance was driven by the combination of a very strong improvement of the gross margin 3.8 points of which 50% came from a very positive volume effect and 50% from a strong positive price mix. Here again, we benefited from the price increase achieved in October 20 and April 21, and from the stellar growth of our accretive brands, which, as you know, are key in our strategy, such as Cointreau, The Botanist, and our Whiskey Portfolio. In parallel, we have re-injected part of our gross margin gains in ENP. The sales ratio grew by 0.3 points. We have reinforced our marketing investments on Cointreau, the botanist and the whisky portfolio to leverage the booming mixology trends and the on-trade reopening as well as to prepare their future growth. At the same time, we remained disciplined with our distribution and structure costs. Our sales ratio decreased by 4.9 points. Let me now give the mic to Luca, which will allow me to have a glass of water, even though I must say a glass of champagne would probably be more appropriate to celebrate such results. Luca, the floor is yours.

Thank you, Eric. Now let's move on to the detailed analysis of the financial statement and begin with the H1 income statement. So, as already mentioned, organic sales were up 52%. On that basis, gross profits increased by 61.4% in organic terms, implying a strong four points organic improvement in gross margin, reaching an all-time high. This good performance was driven by a well-balanced combination of, first of all, Strong volume effect, around 87 million, led by the Konya division in our key markets, U.S. and China. But on top, a strong mixed price effect of 83.5 million, including two-thirds of that as a pure mixed effect, resulting from our value strategy, and a pure pricing effect for one-third. following price increases in October 2020 and April 2021 in all regions. Sales and marketing expenses were up 34.5% in organic terms, reflecting our clear and shared decision to accelerate our investment to fully leverage the on-trade channel reopening. But within this total, we have to split. between AMP expenses grew around 60% organically, i.e. an organic increase of around 30% on a two-year basis, so more than our organic sage growth. And this is in accordance with our long-term plan. We have decided to partly reinvest gross margin gains in absolute value in advertising investment to support our brands in the rebound and increase their mid-term growth potential by developing their awareness and strong and long-term attractiveness. Most of the increase, technically, comes from the above-the-line line, classic media, digital, PR, and beside, we have to highlight that around 40% of our total spend in AMP is now digital. In parallel, distribution costs increased by around 10% organically, i.e. an organic decrease reduction of around 10% on a two-year basis. This is reflecting an increase in terms of key account in our international subsidiaries, as well as some strategic objects to accelerate on retail and direct-to-client, and also on commercial excellence programs. This was partially offset, as you remember, by some efficient productive savings installed and initiated during the pandemic. Another important aggregate is administrative expenses, which increased by around 36% on an organic basis, i.e. around plus 20% on a two-year basis, showing a limited increase compared to our stage growth. This organic increase includes, first of all, around 2 million of donations to the Remy Cointreau Foundation. Around 5 million, 4.9 to be precise, of charges related to mid- and long-term retention measures, employee savings, and the employee stock ownership plan. And third, for the remaining part, mainly reflects some additional important ad count, key ad count, and key investment in e-commerce, CRM, and brands development and protection. All in all, the current operating profit of RemuQuantro Group reached an all-time high at €212.9 million, up €104.5 million on an organic basis and up €100.4 million on a reported basis, i.e., after taking into account two small negative effects, negative transaction currency effect of minus 1.9 million and a scope negative effect for 2.4. Let me say that the amazing thing is this half-year amount looks like an annual result, so we are very proud and satisfied also financially speaking of this very important result. So, Let's move now to the analysis of the group's current operating margin. It was up 8.3 percentage points to reach 33% in H1 published. Again, this is an all-time high. Can be normative, but is a good starting point. This breaks down into an organic increase of 8.5 points a positive currency effect of 0.4 points, meaning that the loss in bottom line in currency is less in proportion to the loss in publishing turnover, and a slight negative scope effect of minus 0.6 points linked to the consolidation of Brier in May and Telmon in October 2020. The organic improvement of the current operating margin basically reflects the strong increase in the gross margin, as well as a good control of our distribution and structural cost ratio. As you've seen, we increased the investment, but their increase is far lower than the top-line increase, so there is a deleverage. And this has been partially reinvested in EMP. To dig in more details, gross margin was up four points, as Eric already said, as a result of a well-balanced strong volume and mixed price contribution, as well as a very healthy level of cost of goods. So on that point, this semester reflected a perfect alignment of stars. Second point, the MP ratio, which increased by 0.8 points at the group level. The acceleration in MP was particularly focused in our key markets, geographically speaking, U.S. and China, and largely dedicated to our five global brands. The ratio of the distribution structure cost decrease by 5.3 points, reflecting, as already said, a good control of our cost despite a strong recovery of the business and despite the fact that we are clearly investing also behind our strategic operating expenses. And we are very proud of that. Now, let's take a look of the remaining part of the income statement. Starting with other non-recurring operating expenses stood at 13.6 million euro, including provisions for international and custom risks related to prior periods. Then let's talk a bit about taxes. The reported tax rate decreased from 33.8 last year to 30.3 in H1-21-22, benefiting, profiting from the drop in tax rates in France as well as a very positive geographical mix. But there is something more to say. Excluding non-recurring items, the effective tax tax rate was 28% for this part of the semester, compared to the 33.8% last year. At this point in time, we think it is reasonable to expect the yearly tax rate to land at around 31%, so better than our previous guidance on that specific item. As a result, net profit came in at 134 million euro, up 106.1% on a reported basis. And excluding the non-recurring items, net profit came in at 148.2, up 127.4%. So in any case, also net result more than doubling last year result at the same period. The net margin, excluding no recurring items, stood a very strong level and whole time high again at 23%, up 7.8 points. And excluding no recurring items, EPS, earning per share, came out at 2.95, up 126 on a reported basis, 2.95 on six months. Quite a strong result. Very spectacular, I would say. Let's move a bit, try to understand what's happening between the recurring and global net profits. So the analysis of non-recurring items, i.e. the reconciliation between net profit and excluding these non-recurring items. Non-recurring items mainly integrate three components. As already said, 13.6 million euro of provision for international custom risk relating to prior periods that I've just mentioned. 3.4 million of non-recurring tax items linked related to this provision. And then a net 4 million non-recurring charges on deferred taxes related to the impact of On one side, the decrease of the legal tax rate in France, which is positive on the early level, but is negative on deferred tax assets because you have to valorize. Now, the tax assets for the future are switching from 28.4 to 25.8. So your value of your tax assets has been decreased. And on the other side, another non-recurring item, which is the increase of the legal tax rate in the UK on deferred tax liabilities linked to brands from 19 to 25. This for a total amount around 4 million. So let's now analyze the cash flow generation in my preferred chart, a net debt chart. Free cash flow generation stood at 29.5 million euro, H1 2021-2022, compared to 32.6 last year. This light mathematical reduction reflects many things. First, a huge increase of the FDI. plus 111.5 million on the back of the significant operating profit growth, partially offset by a strong increase of the total working capital outflow, which can be split between different components as well. First of all, a stable working cap inflow related to ODV and spirit in aging process at 23.9 million euro inflow. This is the consequence of a higher level of purchases in cognac, ODV, and other agent liquid to prepare and secure the future. But, as you may understand, victim of our success in top line, this has been offset by a stronger level of demand, especially in the USA. And then you have another component, other working capital items outflows were up strongly, 87.8 million euro year-on-year. And this reflects a meaningful increase of our account receivable for around 70 million, 69.5, linked to the outstanding level of sales recorded in H1, and an increase for the remaining part, 18.3 million, in other stock excluding ODV and other aging liquids for the remaining part. We have to consider other elements that imply an impact on the free cash flow, an increase of 24.9 million euro of the tax outflow reflecting the higher level of profit. So we pay more taxes because we are more successful in terms of profit before tax in absolute value. And in the meantime, capital investment outflow was slightly up $3.2 million, and mostly reflected investment in the cognac site, whiskey production sites, Isla, Seattle, France as well, as well as the group information system, both in the transactional part and the DSS, decision support system part. In parallel of this free cash flow movement, other cash flow outflows increased versus last year. We record an outflow of 40.8 million H1 versus an outflow of 8.9 last year. But it was largely driven by the share buyback, 154.5 million euro at the end of September, partially offset by the non-cash effect of the partial early redemption of the ocean for 149.1 million. So as of 30 September 2021, Around 56%, 55.8% of the OCEAN bonds, convertible bonds in circulation, have been the subject of a request of conversion into remit control shares. 1.4 million shares were exchanged on the basis of the 75,000 existing shares and 1.3 million new shares. The remaining part of the convertible OCEAN bonds correspond to 1.1 bonds. As a result, end of September 2021, our net financial debt stood at 300 million, 299.6, down from 427.3 in September 2020, leading to a decrease of the A ratio from 2.04 in H1 2021 to 0.77 at the end of September 2021. A few comments now on the net financial expenses, which were a charge of 7.4 million H1, slightly down from 8 million last year. Net debt servicing cost was slightly down, showing a continued optimization of our cost of debt in line with the leveraging of the group, and the cost of net debt stood at 1.07 at this moment in time. Net currency losses also improved to a 0.4 million euro loss in H1 versus a 0.6 loss last year. As you know, this is a volatile non-cash item related to the edging of the group's non-euro debts and future flows. Last but not least, other financial expenses were almost at minus 1.5 million euro in H1 compared to minus 1.3 million last year at the same period. So let's now move on the impact of the currency edges, quite technical element. The group reported a negative translation and transaction impact of respectively minus 11.7 million euro on sales and minus 1.9 operating profit in H1. Clearly better than our expectation. This mainly reflects a deterioration compared to last year of the average euro-dollar translation rate over the period, which came out at 1.19 per year in H1, to be compared to 1.14 last year at the same period. But in the meantime, our hedged rate was only slightly up at around 1.18 per euro in H1 versus 1.16. So this is the effect of our hedging policies, which is very prudential and there is some... fruits here. But now, looking at our forecast, which is more important for the full year 21 to 22, and assuming an average Euro-US dollar conversion rate of 118 at yearly level and Euro-US dollar edge rate of 119 at yearly level, we might anticipate and guide for a neutral zero impact on sales, meaning that in the second part of the year, we think remain at this kind of spot rate we are recovering sales, and around only minus 5 million euro on operating profit. But, as you know, the evolution of exchange rates and million euro-US dollar exchange rate remains very volatile. So, on that point, we will update you very precisely at the end of Q3, clearly also at the end of Q4. As a reminder, the sensitivity versus our expectation for the group is the following. One cent increase in the U.S. dollar versus euro is around 5 to 6 million euro gain on sales and around 4 million euro gain on operating profit, all things alike. This is only for the dollar than the other currencies. At this stage, we already covered 100% of our net U.S. dollar exposure for this year. of which around 40% remaining options. Having in mind that this year, it's very important, Chinese one is very well oriented and accretive to the group performances. So, let's now move on to my last slide, and this is less technical and more important. It is the structure of the balance sheet with total asset liabilities of 2.883 billion up 0.2 billion compared to H1 2021. On the asset side, global inventory increased by 134 million to 1.51 billion to the purchase of young ODV to fuel our long-term plan. Inventories account for 53% around of our total asset, stable in terms of weight, versus last year. That in value, this is another beating record. On the liability side, the shareholder equity is up by around $120 million, reaching another historical level, mainly driven by the strong progression of the net income at the early redemption of the OCEAN. This has been partially offset by the shareback program and the dividend recognition. Net gearing, groups' net-to-debt equity ratio, decrease of the period, so from September to September, from 29% to 19%, thanks to a lower net debt and higher equity. So now I'm very happy to switch back to our CEO, Mr. Rick Valat, that will highlight and show to ourselves our future highway of outlook.