Remy Cointreau Unsp/Adr

Hello and welcome to the Remy Contreaux full year results 2021 to 2022. My name is Josh and I will be your coordinator for today's event. Please note that 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 call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Marc-Elias Dubré, Chairman, to begin. Thank you.

Good morning, everyone. And thank you for being with us this morning for Rémi Cointreau's full year results. I'm here with Éric Vallard, CEO, and Luca Marotta, CFO. 2021 was an historic year for Rémi Cointreau, and I would like to thank and congratulate our 2,000 people around the world. Once again, they have demonstrated their expertise, passion, and strong commitment. The group achieved record financial KPIs, including sales growth, gross margin, current operating profit margin, and earning per share. In 2021, all stars have shined for this historic performance. and we strongly outperformed the worldwide wine and spirits market. Rémy Cointreau gained market share in all regions and on most of our brands. But beyond these spectacular figures, we have continued to prepare the future, sticking to our long-term vision by investing in our strategic inventories, capital expenditures, and more importantly, behind our brands. As you know, this represents an important step up compared to the past, including now all our global brands. We are also proud of our CSR performance. which reflects our ambition to grow responsibly and share value with all our stakeholders. This includes our employees, of course, as Eric will explain, but also all our equity shareholders through a dynamic shareholders return policy this year, including The 1 million shares buyback program launched in June 2021 and 2.85 euros of dividend per share that will be proposed by the board of directors at the next shareholder meeting on July 21 this year. Up by more than 50% compared to last year This would represent the highest dividend ever paid. So now, I will turn it over to Eric, who will take you through the fiscal year business review.

Thank you, Mark, and good morning, everyone. Thank you for joining us today, and a special thanks to our English participants. As I know, today is a bank holiday with the Queen's Jubilee. I am happy to take the mic now to share with you our solid progress on our strategic journey and our overall results. Luca will then, obviously, as usual, go further into detail. I am now moving to slide five. As Mark explained, we hit new records this year. Beyond the absolute value, I would like to stress that they have been achieved thanks to an outstanding end record growth of our sales compared to last year, but also to 2019, as you've seen from the press release this morning. Back in April, you saw our sales numbers. We talked about a 27% organic sales growth. Thanks to the very strong contribution of all regions, with a plus 29% of organic growth versus 2019, our sales ended the year well above the pre-pandemic level. In terms of profitability, the COP, current operating profit, stood at 334 million euros, up almost 40% on an organic basis, representing 25.5% margin. As mentioned by Mark, this is the highest level ever. COP grew by 57% compared to 2019. This performance has been driven by a strong increase of the gross margin, 1.5% more organically, to 68.6%, and a good control of our overhead costs while investing massively, and I'll get back to it, behind our brands to prepare tomorrow. Finally, net debt stood at 353 million, leading to a very healthy air ratio of 0.79, down 0.54 versus last year. We rely on a very sound basis, which gives us a strong flexibility to further expand in the midterm. Our record results have been achieved thanks to record growth. But more importantly, in this challenging environment, our growth is probably healthier than it has ever been, as shown in slide 6. First, it is driven by favorable consumer trends which are going to last. To quote only one of them, the up-trading trend, the trend of drinking less but better, pre-existed COVID and has accelerated sharply. We have gained years. It is no secret that with our portfolio of brands, we are well positioned to take advantage of it. Second, the key to success, whether you speak volumes or value, is the desirability of our brands. And the motivation of our clients is both rational with the quality of the product and emotional with the storytelling and the values of our brands. We've always paid great attention to our products and we keep doing so. There is not much you can do if your product is not great. But we are now boosting the desirability of our brands by scaling up the activations, building on their strong stories and values with good results overall. I will share some examples in the next slide. As a consequence of these favorable trends combined with leveled-up investments, our growth is driven by end demand. This is why also we call it healthy. We are in a real pool mode, which is much healthier and fits better our D2C approach to the business. Allow me to also say a word about pricing, which has sharply improved in the past two years. We took advantage of the tailwind and strong demand not only to invest more behind our brand. We also took some strong decisions to reinforce the consistency of our pricing worldwide beyond price increases themselves, improving gross margin, of course, and controlling our route to markets better overall. This puts us also in a very healthy situation. And lastly, as part of our portfolio management priority, we have improved commercial efficiency and strengthened partnerships with key distributors, allowing for better visibility and piloting of our business overall. We still have work to do, of course, a lot, but we are clearly less blind than we were. As I said, and moving on to slide seven, these remarkable results have been led by a strong step up in our ANP investments. We are proud to have launched several powerful campaigns that will help and are helping already to unleash the potential of our global priority brands. At Lutresc, to start with our king, we have launched the Believe in Time campaign, which is highlighting the unique relationship to time of Lutresc. It will be relayed by more D2C investments in the future as our goal is to turn around the business model in the next 10 years, making it a pioneer of D2C in the industry. The aim at Rémy Martin has always been and remains to create value by improving the mix and leveraging our pricing power. The Team Up for Excellence campaign with Usher fostering 1738 has proven great success and contributed to our fast growth in the U.S. where we continue to gain market shares. We also launched a new campaign to relaunch EXO in China in January. With the lockdown, it's too early to assess the results, but we are confident in our ability to regain our fair market share on EXO with the 360 activations that have been designed. Third, Cointreau. Cointreau refocused on cocktails in 2017, leveraging a trend that is only gaining momentum. Its communication has been smart and consistent since then, with the margarita as a clear drink hero. Consistent and crowned by great results, not only in the US, but also in the UK, or in Australia, to name a few countries. We partnered with Jessica Alba, as shown on the slide, but more to come soon. On the botanist, we know we have a hidden jewel, and it's not anymore such a hidden jewel. The liquid is truly fantastic. If you try it, you buy it. Hence the challenge on awareness and desirability of the brand. Being part of our global priority brands, the botanist will benefit from accelerated investments, as shown already with the ad for the Super Bowl. More to come soon as well. And last but not least, we are very proud of our latest We Also Make Whiskey campaign for Brookladie, which is very thoughtful, like the brand is. It has been launched only a few weeks ago, but the first results are extremely promising. Just for those who haven't seen it, it says a number of things about Brookladie, like we like starting small but being big, thinking big. We also make whiskey. So this is basically the approach, telling a lot about the brand and, of course, highlighting the fact that we do an exceptional whiskey. And if we do it, it's because of the way we do it, our values and our relationship to Terroir. This should also help us accelerate and leverage even more a key category, which is now also booming in China. This stellar year is also the result of the strong progress on our four strategic priorities, which I guess you all know by heart now. I am on page 8 here. As you may recall, the first priority is to increase value per case. Throughout the year, we have continued to leverage up-trading consumer trends, being fully focused on retail prices through price increases and product mix. The results are tangible and very promising. We recorded a positive mixed price sales effect of 9.2 points at group level, driven by an increase of 13.8 points in cognac and 7.1 in liquors and spirits. So even in liquors and spirits, the price mix has played a big role. These great results for Rémy Martin are mostly driven by the success of our intermediate quality products in cognac such as 1738 in the US and Club in China. 1738 grew at more than 60% in 21-22 and its contribution to VSOP sales rose by 12 points versus 18-19 which is massive. Meanwhile, club grew at more than 30% this year and its contribution to total sales grew by 13 points versus 18-19 in China. We know who our champions are. And if you look beyond retail price, the gross margin increased by 1.5 points organically, as I said, versus last year at group level. This has been achieved thanks to the investment behind our creative and strategic brands, both in cognac and liqueurs and spirits, and the improvement of our gross-to-net management. 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. Global priority brands, regional power brands and incubator brands. The ultimate objective is, of course, to maximize our gross margin by growing our most accretive brands while improving the metrics of our regional power brands. After two years, we can say that we have unlocked the growth potential of our global priority brands beyond cognac. Cointreau sales were up at more than 35% versus last year worldwide and at more than 40% versus two years ago. The botanist grew at around 50% versus last year. And finally, our single malt whiskeys increased by more than 30% versus last year and by more than 45% versus two years ago. Which explains why, for the first time since long, our liquors and spirits division grew faster than our cognac division. In parallel, transformation is also on its way for our regional power brands. Among our regional power brands, Telmon Champagne is the one we have taken the farthest. In a little over a year, we have totally rethought its positioning and are already starting to reap the benefits. The third priority is to implement client-centric model, as you may remember. We have accelerated sharply on e-commerce with the opening of more than 10 e-boutiques this year, leveraging a new common platform. I will come back to that later. In the meantime, we also now rely on eight boutiques, including the last one in Hainan for Rémi Martin, and alongside a solid opening roadmap for the coming years. The results are particularly visible in China, where our direct sales grew way faster than the non-direct sales at 40%. And finally, our fourth priority which is achieving responsible growth around three pillars, preserving our terroir, acting for our people and committing through time, but I'll get back to it in the following slides. We are today allocating an important level of investments, 80 million euros over the next 10 years, that will be invested in terms of CAPEX, but also OPEX. Beyond sales, the slide lines precisely allows me to stress that we are even more proud of the progress we made on CSR-related matters. What makes me proud, actually, is the commitment of everyone in the team now on a daily basis and whatever the position in the organization. I believe this has been achieved thanks to a new and much more granular organization with the nomination of around 100 sustainability champions throughout the organization. This is how we will make it. On terroir, as you can see on the slide, 78% of our agricultural land is now engaged in responsible and sustainable certification, which confirms the steady increase observed over the past five years from 36% in 17-18. Sharp acceleration. Certifications are an important first step towards responsible and sustainable agriculture, but we also want to accelerate further on the protection of our terroir by 2030. For that, we will deploy the project New Generation Terroir, which is twofold. First, we need to make sure our soils are ready to face more heat waves and less water. And answer to that is agroecology that puts soil health at the core of its farming methods. It is proven regenerated and healthy soils are more resilient to face climate change in the years to come. They are also fantastic carbon sinks. So we are part of the solution in a way that can capture more CO2 from the atmosphere. The goal is to gradually install more transversal and scientific indicators that will measure the actual soil health of our terroirs. You progress only on what you measure properly. Second, we will continue to invest in R&D so that by 2030 we have identified 100% of climate resilient varieties ready to be planted. On people, we welcome three more women in our COMEX this year. So now the proportion is 30% women at COMEX, coming from 10%. But also among the top managers positioned within the group, regional and worldwide, women also account for 35% of the key positions versus 30% last year. Work in progress, but good progress. To drive engagement among our employees, as Marc said, we also launched an employee shareholder plan in France last June 2021 that was subscribed by as much as 77% of our employees versus an average of 52% in France. So we will now be launching it in our international markets. We have also decided to accelerate on responsible consumption, of course, by launching our internal responsible drinking ritual. which is being spread worldwide. And last but not least, on time, we are on track when it comes to the reduction of our carbon footprint. Our CO2 footprint per bottle is down 9% in 2021-2022 versus last year. We are well on track to achieve our minus 50% reduction target by bottle by 2030. As an example, 44% also of the energy in our distilleries, our own distilleries and production sites, is now renewable versus 26% last year. This sizable increase was largely driven by the switch to biogas, particularly in Cognac and Angers. And the goal is to reach 100% by 2030. Other and last example I would like to share is the removal of secondary packaging gift boxes. 76% of the group's bottles are now naked compared to only 21% in 1920, which gives you an idea of the magnitude of the progress which was achieved there. Our goal is to have 85% naked bottles by 2025, so we keep moving forward. Beyond the organization, which I briefly referred to, I believe the great progress was also achieved because we now have turned our vision into tangible and more granular objectives, which are measurable and which are tangible for all our teams. There are nine of them, as shown in this slide 10, split evenly between terroir people and time. These nine objectives, which I am not going to read, otherwise I'd be way too long, but will define our roadmap for the coming years. To conclude on this ESG chapter with the slide 11 now, you have certainly noticed that we are the first spirits group to be carbon neutral. We're very proud of it. We achieved it thanks to six projects in China and in the U.S. which are truly relevant and in line with our values. These projects will secure carbon neutrality for the next four years. But this is only the beginning as the real challenge for us is to reduce our own emissions, which we much prefer to compensation, of course, and which, as you've seen, we are working hard on. We are making good progress, as I said, but I would also like to say that it's still a long way to go. We have to acknowledge it. And that beyond CO2, we are now also tackling some critical topics like water usage and diversity when it comes to people. So more to come and to share next year on this ESG topic. Let me now take you through a quick business review before giving the mic to Luca. And I'm moving to slide 13, which gives me the opportunity to remind you of our full year sales number by division. I will be quick as they were already detailed by Luca in April. Cognac, which represented 72% of our sales, grew 26% organically and 31% versus 19-20. Liquors and spirits. which contributed to 25% of our sales, recorded a 32% increase and a 27% increase on a two-year basis. And lastly, our partner brands, 3% of the group sales were up 15% this year. On slide 14, now just a word on the regions. The slide shows that total growth is well balanced across regions with all of them contributing to the overall performance. America has generated an excellent growth of 30%, up 52% compared to 1920, confirming a new paradigm that is being installed. In APAC, the solid growth was of 26%, representing a 20% increase in sales compared to 1920, despite a collapse of the travel retail activity. And finally, EMEA benefited from the economic recovery and the strong momentum of the on-trade channel. Being up 22% this year, the region is now on track to quickly return to its 1920 activity levels. Let's now focus on the cognac division profitability, whose great key figures are summarized here on slide 15. COP grew by 44% on an organic basis, so 59% versus two years ago, representing an increase of the margin of four points to 34% over the year. This is a record. This breaks down into an organic increase of 4.2 points, a slight negative currency effect of 0.2 points, and a neutral scope effect. The organic improvement reflects a strong gross margin improvement of 1.4 points, resulting from a well-balanced contribution in volume and mixed price. On top of the price increases, we benefited from the strong performance of our top-end portfolio, including intermediate quality products such as 1738 and Clements. These gross margin gains have been reinvested behind our brands in ANP, which were up circa 25%, particularly in the U.S. and in China. The stable ratio reflects the fact that we continued to invest to grow the awareness of our brands and fuel their future growth. The strong operating leverage of the division has thus largely absorbed the significant increase in investments in marketing and communication. The ratio contribution is up 2.6 points. Let's now have a look at the Decourse and Spirits Profitability Division whose key figures are encapsulated on slide 16. COP grew by 10.6% on an organic basis, 16.5% versus two years, representing a margin of 10.6, down 2.7 points. This performance reflects a decline of two points in organic terms, alongside a negative scope effect of 0.8, linked to the consolidation of Belle de Brier in May 2020 and Telmon in October 2020, and a favorable currency effect of 0.3 points. Being ahead of its strategic roadmap, the group has decided to reinvest a large part of its gross margin gains, 1.5% versus 2021 and 3.5% versus 2020, in marketing and communication to increase the awareness and the desirability of our brands, particularly Cointreau, The Botanist and Broke Lady, and to prepare tomorrow. botanist campaign in the u.s is probably the best example to illustrate the botanist is one of our priority brands and we invested far more than its current u.s market share would typically warrant but it was commensurate to our hopes for this unique gene and we will continue to mobilize all necessary resources to achieve our goal to become the undisputed leader in high-end gene with obviously a short-term impact on profitability but again The investments of today are the sales of tomorrow. At the same time, the group maintained strict control of its structural costs, so the ratio contribution was up 1.7 points overall. And let me now give the mic to Luca, who will take you more into details.