Remy Cointreau Unsp/Adr

Hello and welcome to the Remic 1 through 2022-2023 full-year results call. 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, 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, Marie-Amelie Deleuze, Chairwoman, to begin today's conference. Thank you.

Good morning, everyone, and thank you for being with us this morning for Rémi Cointreau's full year results. I am here with Éric Valla, CEO, and Luca Marotta, CFO. Full year 22-23 has been another year packed with major initiatives in terms of marketing, business operations and sustainability. For the past three years, the group has started a deep transformation and made some solid progress as you will see in the coming slides. We are proud of what was achieved by the teams across the globe. So first, let me start by thanking all of them for their commitment, agility, creativity, and achievements in a context which remains volatile. In 22-23, the group generated 10.1% of organic sales growth, led by a remarkable growth in APAC and EMEA. In parallel, the U.S. market faced a sharp normalization of consumption as well as a very high base of comparison following two years of exceptional growth. This strong showing reflects steep gains in price mix, plus 10.1%, in line with the group's value-based strategy and steady volumes. This leads to a remarkable level of growth margin and COP margin, reaching new historic records. We are today ahead of our 10-year plan, and thus we confirm our long-term objectives. I will now let Eric take you through the full year business review. Eric, the floor is yours.

Thank you, Marie-Amélie, and be prepared now to a more French accent before the Italian accent of Luca. I'm happy to take the mic indeed, and I would like to start by thanking you for joining us today. And I will hand over to Luca after a few slides. Now I am on slide five. And as you've seen from the press release this morning, our full year 22-23 results are excellent. We delivered on what we said and reached a whole new time high across the board and more particularly on our two key metrics, gross margin and cup margin. Back in April, you saw our sales numbers. We talked about a 10.1% organic growth on top of very high comps. This represents a plus 43.6% of growth versus 19-20. In terms of profitability, the current operating profits stood at 429.6 million euros, up 16.2% on an organic basis, representing 27.7% of margin, which means 1.4 points versus last year, up. This performance has been driven by a strong gross margin improvement to a record level of 71.3% despite the current inflationary context and by a good control of our overhead costs while investing on key strategic areas. The reported EPS came at 5.79 euros, so more than twice what we recorded in 19-20. These results are excellent and are even more so considering the strong performance that was already delivered over the previous two years. I am now on slide six. I am proud of what was achieved so far. The group is today clearly reaching a new step in its expansion. With 6.5 million cases sold, volume grew by 14.3%, while sales value increased by 44% almost, including a meaningful price increase improvement. This translates into a fantastic gross margin improvement of 4 points at 71.3%, so not far from our ultimate goal in 29-30. Consequently, we've had the ability to accelerate our ANP investments, as showed by the increase of 3.7 points compared to 19-20, entering into a virtuous circle of value creation, which led to an amazing COP margin expansion of 5 points. The slide seven gives me the opportunity to stress that these great results have been achieved thanks to the solid progress made on our four group transversal priorities since the launch of our 2030 plan. Priority number one is to increase value. What matters to us is to make sure we improve our gross margin, which gives us the means to invest behind the future of our brands. In a challenging environment with an unprecedented inflation worldwide, we have managed to gain 2.6 points of mixed price at the gross margin level versus last year and 3.1 points versus 19-20. This has been achieved more particularly thanks to the pricing power of our brands, supported by strong ENPs, and thanks to the improvement of the product mix, notably in our cognacs, where the global weight of our intermediates has gained 15 points versus 2019. And we expect this improvement of the mix to continue with the 1738 in the US and with the acceleration of the growth in China, driven by club and the upper grades. I am now moving to slide eight. You may recall that our priority number two is to enhance portfolio management, to move from a pure cognac selling culture to a real portfolio management. Each brand has been assigned a mission and we have trained our teams, building among others on a commercial excellence framework that is being implemented worldwide. We are now starting to harvest the benefits of our efforts. With the growth of the Liquors and Spirits Division that speaks for itself at 18.7% versus last year and plus 54% versus 2019. This is all across the board, but I would like for once to highlight a brand that we rarely mention in our conferences, Saint-Rémy. Not only the brand has been growing fast in the past three years, it has also gained more than five points of gross margin since 2019. Since 2019-20. Thanks to an outstanding improvement of the mix. Metaxa did great too, despite its stronger exposure to Russia than the rest of the liquors and spirits portfolio. Metaxa grew by more than 20% over the past three years. Last but not least, Cointreau, which is having an amazing success since 2019. The brand enjoyed a 75% sales growth over the past three years, boosted by a solid plan of investments, a relevant marketing strategy around cocktails, and more particularly the Margarita cocktail, which also relies on the great momentum of tequila. The slide 9 now speaks of our third priority, which is to deploy a consumer-centric culture model. I would like to pause a bit longer here as I believe this is a game changer in our industry and every group is now rightfully making it a top priority. So what are we talking about and what differentiates us from our competitors there? In our view, being client-centric means making sure, one, you know your clients. as a way to build desirable brands with relevant content and campaigns for them. Two, you leverage their purchasing journey to drive visibility where and when it matters on the relevant touchpoints. On these two axes, I would like not to pretend that we are the best in class as they are widely leveraged in our industry. But I can testify that we have made huge progress to support the sharp increase of our ANPs, leveraging our marketing intelligence team much more than in the past. Being client-centric also involves more targeted and tailor-made actions. It is not only about knowing your clients and leveraging their purchasing journey. It is also about understanding their motivations to design meaningful experiences and interacting with them to build loyalty. These two axes are not easy to manage in our industry as distribution barriers and layers make it difficult to engage a direct dialogue and relationship with our clients. This is a shame as this direct relationship is creating value. It also helps to build sustainable business, as we could witness during COVID in China, with Retrez, for instance, where our private client directors never lost the contact with their clients. And this business is not only more sustainable, it is also margin-accretive, as it is more direct. This is where I believe lies our competitive edge. With our portfolio more focused on the high-end, there is so much more we can do and aim at. Take Luitres for instance. Its status as the only true luxury brand in the spirits industry enables us to aim at changing the rules and being the first brand to sell direct to a large majority of its end clients by 2030. By leveraging full speed direct e-commerce, boutiques and private client directors. Of course, the RITRES model is not replicable as such, but RITRES is a fantastic laboratory for the group. There is so much we are learning from it, which can be adapted to other brands. The expertise we acquire in new fields, like CRM or direct selling, is incredibly valuable for the group in the long run. And the expertise is such that we even managed to launch a brand like Maison Psyché, which sells only to end clients by appointment. A good illustration, I believe, of our ability. It will be a long journey, but so far results are already visible. We recorded a plus 25% growth in e-commerce globally, with a penetration rate multiplied by 2 versus 2019, and we can now count on our 15 e-boutiques. The results are particularly visible in China, where our direct sales represent today 25% of our total sales, despite a context which was not supportive this year. We now rely on 11 boutiques, including the last ones in Chengdu for Louis XIII and in Newport at Highland for Rémy Martin, alongside a solid opening roadmap for the coming years. After this long explanation, I'm moving now on to slide 10, as we also make progress in terms of sustainability as part of our sustainable exception roadmap. Today, we chose to put the focus on our climate strategy. It is obviously a key topic for a group, not that we are big polluters, but because climate warming is a threat for our terroirs. And as such, we need to do our fair share. Three pillars behind this climate strategy. Number one, mitigate our impact. Number two, adapt our terroirs to climate change. And number three, regenerate our terroir so that they are part of the solution to climate change. So first, mitigate. In 2022, we validated our reduction targets. They are all in line with the 1.5 degree scenario, warming degree of course, with the science-based target initiative, which is not yet so common. They imply overall a 50% reduction per bottle by 2030 and the achievement of net zero by 2050. For that, the focus will be on four big levels of reduction, is already on four big levels, energy for distillation, packaging raw material ingredients, and transports. I'll come back to that in the next slide. Second, we need to adapt our terroir to a warmer and more unpredictable climate. For that, we are actively investing in R&D to identify climate-resilient crops for all of our key raw material ingredients. We also conducted a climate risk mapping of our terroir and identified a few ingredient sourcing that might need to be adapted over time. Third, regenerate. Beyond the adaptation of our crops, we want to regenerate our soils for two reasons. To make them more resilient in the face of climate change and to maximize their role of carbon sinks. For that, we are deploying regenerative agriculture practices. Today, 100% of our own estates are already in conversion, testing and learning. But the real challenge is obviously to embark our agricultural partners. So we commit to educate 100 percent of our direct partners to regenerative agriculture practices by 2030. What is key for us is also to be able to measure the change, measure that our farming practices have a positive impact on the planet. For that, we've been working with the startup Genesis for the past two years. the moodies of the soils, as we could call it, to measure scientifically the health and the evolution of the health of our soils based on carbon, biodiversity and water retention. It is also in that context, by the way, that we partnered with them, the NGO WWF and our competitor and partner Moët NC to create an environmental credit larger than just a carbon credit to embark and remunerate the transition of our farmers towards regenerative agriculture. Just to quickly come back on our CO2 reduction actions on slide 11. with a focus on our four key levels, starting with energy for distillation in our sites. 38% of the energy used is coming from renewable sources. Our goal is to reach 100% by 2030. This should enable us to largely reach our SBT target, which is to reduce our Scope 1 and 2 emissions by 42% by 2030. Packaging is the big lever, accounting for 40% of our footprint. Here, our SBT commitment is to reduce by 25% our emissions by 2030. In order to achieve such, we are deploying our 3R roadmap, reduce. Today, 78% of our bottles are sold naked, without a gift box, and our goal is to get to 85% by 2025, a topic we are clearly pioneering. We are also working on better eco-designing our portfolio of bottles. You might have seen that our ten-month bottle is now the lightest of all champagne bottles at just 800 grams. And last but not least, we are working on going more circular. For that, we are testing a number of reuse formats that we shared with you last November. Improving emissions of raw material ingredients is about greener energy for tractors and distillations, but also greener entrance, another area of workforce. The deployment of regenerative agriculture practices on our terroir, our own and those of our partners, will be a powerful lever to reduce our emissions, but also to store more CO2 in soils. This is why our SBT objectives are more ambitious on that metric at minus 30%. We have now discovered that our soils can be part of the solution. And lastly, transportation. on which we committed to reduce our emissions by 25% by 2030. The good news is that in 2022-23, our emissions fell by 13% year-on-year and by 23% since 2021. Our starting point not far from 2030 target. Our no-plain policy for goods. Actions to replace road by train and to encourage our truck partners to switch to biofuel explained this great performance and have clearly helped. So a lot of actions going on, but at the end we asked ourselves the question, what if tomorrow we had to pay a carbon invoice, what would be the impact on COP? And based on the current regulated carbon price of 100 euros, it would imply a 15 million euro invoice, assuming we have to pay a tax on our scope 1, 2 and scope 3. This would lower our COP margin by only 1 point to 27%. So minimal impact. By the way, this explains why we are part of the index Verite 40, Truth 40 in English, which is what the CAC 40 index would look like after taking into account each company's carbon invoice on top of its results. I think this is an important metric because it shows that even if carbon regulations strengthen, we have the means to face it. and to keep investing to adapt our business and make it more circular over time. Let me now take you through a quick business review before giving the mic to Luca. And this is taking me to the slide 13, which gives me the opportunity to remind you of our full year sales numbers by division. I will be quick, as they were already detailed by Luca in April. Cognac, which represented 71% of our sales, grew 7.6% organically versus last year at 41.3% and at 41.3% on a three years basis. Liquors and spirits, which contributed to 27% of our sales, recorded an almost 19% growth versus last year and a plus 54% on a three years basis. Lastly, Our partner brands at 2% of group sales were down minus 5.3%. On slide 14, now, just a word on the regions. The slide shows that total growth was mostly driven by APAC and EMEA this year, with a meaningful expansion for all of them on a three-year basis. Americas grew 2.5%. On top of an extremely high base of comps, Americas is up 58% versus 1920, and the region growing the fastest. APAC posted a very strong growth of 23% almost, representing an increase of 49% versus three years ago. And lastly, EMEA was up 11% organically, which means a plus 9% versus 1920. I am now moving to slide 15. The histograms here speak for themselves in the US. As a reminder, Nielsen accounts for approximately 40% of our sales and slightly more than 20% for NAPCA. We've been growing much faster than the market, whether with Rémy Martin or with Cointreau, and we could have shared the same slide and the same results for the botanists, for example. As a result, we have gained market shares. This comforts us in our belief that smart ENPs spent today behind our brands are preparing the growth of tomorrow. This is what we have witnessed in the past three years, particularly because our products are of great quality, but their awareness remains relatively low, including for Rémy Martin even. And I take it as a good news. There is still room for growth in the future. The histograms of slide 16 also speak for themselves in China, where we gained 1.7% market share versus 2019. As you can see with the histograms on the right of the chart, this has been driven particularly by Club, which grew 67% versus 12% for the equivalent grades in Cognac. We made Club a top priority seven years ago, now and we managed to grow it notably thanks to a 360 plan including among others innovation and e-commerce our next battle is exo where we are far from our fair market share to be honest starting now with the reopening of on trade let's now focus on the cognac division quickly as well profitability whose great key figures are summarized on slide 17. Current operating profit grew by 25.5% on a reported basis, which means a multiplication by 2 versus 3 years, representing an increase of the margin of 2.8 points to 36.8%. This is a new record high. This breaks down into an organic increase of 2.2 and a positive currency effect of 0.5. The organic improvement reflects a meaningful gross margin improvement of 3.9 points, mainly resulting from a very strong contribution of the price mix and particularly the price component. In cognac, the main cog is the liquid itself, which has been bought several years ago, making the inflation impact much more limited than on other liquids. Consequently, price increases largely compensated the inflation effects on logistic, glass, and others. These gross margin gains have been reinvested in our brands in ANP, including an important campaign during the Super Bowl and a busy activation plan in China around MAF, Mid-Autumn Festival, and Chinese New Year. As you know, China and the U.S. are our key priorities in terms of markets. Finally, the strong operating leverage of the division also contributed to this meaningful improvement. With the good control of our OPEX, the ratio remained stable overall. And I'm now on slide 18, looking at the Liquors and Spirits Profitability Division, whose key figures are encapsulated on slide 18. Current operating profit grew by 35.6 points on a reported basis, representing a margin of 11.5%, up 0.8. This performance reflects a stable organic performance alongside a favorable currency effect of 0.9 points. This evolution includes, as expected and planned, sustained level of marketing and communication spent aimed at preparing future growth. And as you have seen, sales are accelerating, showing a strong pace of growth for now three years. Should we keep the same growth pace, we will benefit from a meaningful operational leverage in the second part of our 10 years plan as already shared. The gross margin was impacted by rising production costs that were partially offset by higher sales price. At the same time, the group maintained a strict control of its structural costs. The ratio was down 1.1 point. Let me now have a glass of water and give the mic to Luca, who will take you through the more financial slide. Thank you, Rick.