Remy Cointreau Unsp/Adr

Hello and welcome to the Remi Cointreau 2324 Q1 Sales Publication conference call. 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 0 and you will be connected to an operator. I will now hand You're over to your host, Mr. Luca Marotta, CFO, to begin today's conference. Thank you.

Good morning, everyone. Thank you for being here with us this morning. As you have seen in the press release, Q1 sales were down minus 35% in organic terms, in line with what we expected. This performance reflects On one side, the huge base of comps that recycled. As a reminder, Q1 last year was up plus 74% compared to Q1 1920. On the other side, San Panto and expected headwinds in the U.S. I will come back on it in a few seconds. In parallel, the rest of the world generated a very strong double-digit growth driven by China, Southeast Asia, EMEA, and Strawberry Tail. This performance is split between a negative price mix of minus 9%, which reflects a strong negative mix linked to the underperformance of the Cognac division compared to the Lyphosate Spirits division. In the meantime, volume decreased by minus 26%. I will detail it on the next slide. Overall, Q1 sales were up plus 14.3 as compared to pre-COVID level. Looking at overall sales performance by region, Americas recorded, as expected, a massive decline due to different reasons. First of all, ICOMS, and second, major reason, meaningful stocking, essentially on cognac. Compared to 1920, America is down approximately, at the end of Q1, minus 10 points, 10%. This negative performance on a four-year basis is specific and punctual and will reverse already starting from the Q2. APAC was up very strong double digits, led by China, Southeast Asia, and they continued recovery of the travel retail channel, even if chinese tourism is not yet fully back this represent plus 30 percent growth versus four years ago emia was up meeting showing a broad-based growth across the region india is up at more than plus 35 percent compared to four years ago this was shipment sell-in Now, talking about value depression at group level, the best approximation of a final sellout or final consumption. At the regional level in the US, value depletions were down low single digit, i.e. stable if we exclude the SOP. As compared to pre-COVID, four years ago, value depletions were up plus 45% and increased more than 75% excluding the SOP. More importantly, we enjoyed a strong sequential improvement throughout the quarter with June back to positive in terms of exit rates. In China, value depletion were up very strong double digits in Q1, led by all cognac segments. On a four-year basis, China's value depletions were up plus 20%. Finally, in EMEA, value depletions were up strong double digits, led by Africa, Middle East, Benelux, and Eastern Europe. This represents an increase of around plus 50%, 5-0, compared to Q1 2020. In a word, strong, huge value depletion performance at the end of the quarter, comparing to four years ago. To conclude on this very first slide, I would like to reconfirm, reass our full year guidance. We expect to remain stable both in sales and profitability on an organic basis. 2023-24 as a year will be a year or two halves in sales and operating profit margin, with H1 strongly negative and H2 showing a very sharp, terrific recovery. On page three and four, we picked up some marketing initiatives that have been undertaken over the last quarter, first in the US and then in China. Let's start with page three and the launch of the new Quantro campaign, the Margarite, on June 14. As part of the celebration of the 75th anniversary of Margarita Cocktail, this 360 degrees campaign includes a large activation plan on-premises, off-premises, e-commerce, social media, and out-of-home panel across high-traffic locations. So far, the results were very positive, with 230 around millions of impressions, 39 millions of views on digital media, and a positive, very positive consumer sentiment in response to the campaign. The heart of the campaign runs through September, while we'll keep it to some degree throughout January. On page four, just a quick word on China. This slide illustrates the last e-commerce operation that we made in China during the 6-18 shopping festival event. We managed the day on our two key digital platforms, Tmall and JD.com. On Tmall, we proposed a special edition, Club Radiant Sun, and we came up in the art territory with the Chinese artist, Chef Chen, at the Affordable Art Fair in Shanghai. During this event on live streaming, Chip Chen, interpreted in front of the camera, is inspiration on a radiant sun barrel by graffiting his iconic motives. The same time, the other platform, JDIC.com, we offer the special edition Club Shenzhen, leveraging the influencer Austin Lee, for an outdoor lifestyle e-commerce live streaming in Shenzhen as well. This day has been a strong success for Remy Martin, above our expectation, with around plus 25% of sales growth on Tmall and JD.com. We have been ranked number one among Western Spirit brands on JD.com and number two on Tmall. Now, let's move to Q1 sales and figures analysis, slide number five. Sales amounted to 257.5 million, down by 152.4 million year-on-year, or minus 37.2% on a reported basis. This reflects a very strong organic decline of 143.5 million euro, i.e. minus 35.0 of organic sales decrease as expected, and the negative currency translation impact of 8.9 million or 2.2% loss in Q1 2022-2024. This loss In terms of conversion, it was largely driven by the deterioration of the Chinese yuan for 4.8 million euro and the U.S. dollar for 2.1 million euro. In addition, some other currencies like the Canadian dollar and British pound posted slight losses of respectively 0.6 million euro and 0.4 million euro. On slide number six, I would like to share the performance by division at group level versus Q1-19-20, so pre-pandemic, even if this is not at our advantage this time due to the important stocking on the U.S. cognac. On the left, the evolution of group sales at constant exchange rates. In the Q1, we grew at 14.3% on a four-year basis, including a volume effect of plus 8.2% and a strong price mix effect of 6.1%. Looking inside this performance of the four-year by division, on the right part of the slide, we have First of all, on one side, the cognac division declined by 4.4 percent, contrary, over four years, due to the U.S. stocking, as already mentioned. And consequently, volume were significantly negative, but price mix still strongly up by 25.6 percent. On the other side, Lyquors and Spirits were up 69.7 percent, which is huge and showed a well-balanced breakdown between volume and price mix. Now, let's turn to slide number seven, digging into organic trends by region. And let's start with the Americas, whose organic sales recorded a massive decline of more than 60%, mostly impacted by volume, while price mix was negative due to the strong underperformance, mathematically speaking, of cognac compared to lichens and spirits. More specifically, inside this region, in the US, sales declined at the same pace, reflecting huge comps, meaningful stocking, and to a lesser extent, some phasing effect on Lycosin spirits following a very strong Q4 in 2022-2023. This performance is clearly, and as expected, negative. Having said that, the positive news is the evolution of our inventories, which lends now, in our best estimation, to four to five months, so a decrease of at least one month compared to three months ago. This is not yet enough, but we are clearly going in the right direction. Sorry to repeat myself, but this KPI is a very complex one, relying on different moving parts, such as, first of all, the timing of the shipment inside within the quarter, and second one, more important, depletion forecast of the future and timing of the depletion execution as well. Even if the depletion trends are clearly encouraging, we prefer to remain cautious at this stage and be focused on their evolution on a weekly basis. So again, the best KPI to monitor at this stage All that is the value-depletion underlying trends. In Q1, they were down overall, low single-digit, i.e., stable, excluding VSOP, and improving month by month. In Canada, sales were down strong double-digit in a challenging market impacted by the economic context and some destocking. And following, and disappointing Chinese New Year in Q4 in Canada, as Chinese tourism is not back yet. However, on a positive note, San Remy, which represents a third of our sales in Canada, recorded a solid sound performance. And at the end, Latin America was up a single digit in Q1, with solid underlying trends in the wake of tourism recovery. End of June 2023, America's region accounted for only 35% of our group sales, meaning down 31 points, 3-1, compared to one year ago. Second region is APAC, in which organic sales were up a very strong double-digit year-on-year, i.e., plus 30% on a four-year basis. Looking at the volume value equation on this region, performance year-on-year was equally driven by volume and price mix, very balanced. China sales inside of this region were up very strong double digits, benefiting from the on-trade recovery and were essentially led by our Cognac references, including Club, XO, DSOP, and We13. We recorded another strong performance in e-commerce, mainly in D2C and B2C, above our expectation. Thanks to the strong activation plan for the 6-18 Festival on tmallng.com, we recorded a very important performance. Meanwhile, value depletions at group level in China were up a very strong double digit as well, leading to a sound level of inventories. The remaining rest part of Asia reported very strong WG growth in Q1 in Southeast Asia, particularly in Malaysia and Philippines, while it was more challenging. End of June, 2023, APAC region accounted for 35% of group sales, up 17 points compared to last year. So you see, 35 Americas, 35 APAC, and you will see it may have 30. So even with a big stocking, a more balanced picture regionally speaking. EMEA organic sales were up mid-teen and at more than plus 35% compared to four years ago. This year-on-year performance was equally driven by volume and price mix, a little bit the same picture that we experienced in IPAC. Inside that, by sub-region, Western Europe was up at very strong double-digit growth, led by Germany, France, and Greece. The UK showed a solid resilience, despite high comms, at high single-digit, driven by value market share gains and sub-positive phasing effects before the expected duties spike increase that will happen in August. The remaining part of EMEA, we recorded strong dynamics in Benelux, Africa, Middle East, and Eastern Europe with clearly cycle low comps. Eastern Europe without Russia because we don't sell to Russia. Over the quarter, value depreciation were up a strong double-digit year-on-year, so another positive element for this region. End of June 2023, as already said, EMEA region accounted for 30% of group sales, up 14 points compared to last year. Let's now turn to slide number eight in the analysis by division. I start with the cognac, the heart, of the group. Cognac posted an organic decline of 44.7% in Q1 2020-24, including a significant important decline of 55.1% in volumes and a very strong price-mix gain of 10.4%. End of June 2023, Cognac division accounted for 60% of our sales, 6-0, down 11 points compared to last year. By region, let's start the most important move weight now, region for the cognac, which is APAC. In APAC, we'll start with mainland China. Sales were up very strong double digit, approximately plus 100%, so the double of Q1 1920, driven by on-trade recovery, a very good performance of the e-commerce during the 6-18 festival. And to that, I would say that e-commerce grew approximately at plus 30%, mainly on B2C and B2C, leading to a total sale penetration by channel of 33%. The overall performance was led by all cognac segments, Club continued to clearly outperform the market, while XO showed some positive early signs. As a result, inventories level remained sound and our outlook is positive despite a clearly challenging macroeconomic context. Looking at other areas inside China, Taiwan recorded an outstanding performance, while Macau performance was muted, as gaming activity is not yet fully back. Finally, Hong Kong was slightly down, impacted by some phasing effect. At the same time, value depressions were strongly up in the Q1. Cognac division now looking inside America, and started with North America, so the combination of USA and Canada. Cognac sales were massively down year on year, at more than 75%, impacted by extremely high comps and a very meaningful stocking effect. As a reminder, Q1-22-23 last year, in the US specifically, was up at more than 190%, so almost three times compared to Q1-19-20. In addition, in a market that showed structural price decrease in a more global promotional context, Remy Martin continued to reinforce its price positioning by slightly increasing its prices on April 1st. On a four-year basis, sales are down a very strong double digit and turn positive at mid-single digit if we exclude the SOP. At the same time, U.S. value depletion for cognac, where we are down minus 4.5% year-on-year, i.e. around 38%, 37.9% increase versus Q1 1920, or approximately plus 90%, so almost a double, excluding the SOP. More important to note, they showed the U.S. cognac value depletion a sequential improvement throughout the quarter, June being back to positive lens. And Remy Martin, 7038, was back to positive overall in the full quarter. Price mix effects were positive at plus 8 points year-on-year in the last 12 months, more longer periods. ending June 2023, led by price increases as well as positive mixed effect. On a four-year basis, price mix in value depletions was up of plus 27 points. Latin America subregion was up a very strong double digit, supported by continued tourism recovery. Last region, Cognac, EMEA, Cognac says we are up a very strong double digit, led by all regions, particularly Africa, Middle East, and Western Europe. Meanwhile, Eastern Europe generated a strong WDG growth from low comps, and the UK showed good resilience. Overall, inside the EMEA, Remedy SOP and RE13 were the two big winners of the quarter. Now, let's now turn to slide number nine and talk about the global Lycos and Spirit division. Lycos and Spirit division posted a decline of minus 11.4 in organic sales in Q1 2024, including splitting to a decline of 7.6% in volume, mainly due to the Americas, and the negative price-mix effect of minus 3.8% linked to the phasing impact on Cointreau in the Americas. End of June 2023, Lycos and Spirit division accounted for 37% of our sales, up 10 points compared to last year. Now let's review the performance of the division by region, starting with the Americas. In North America, sales were down strong double-digit year-on-year, approximately plus 70% at the same time compared to Q1-19-20. impacted by very high comps. As a reminder, Q1-22-23 in the U.S., also for this division, was up at around plus 160% versus Q1-19-20. In addition, the division faced some phasing effect linked to some distributed restocking in Q4 just before the price increase on April the 1st. This was particularly visible in Quantrop. The same time, underlying trends remain healthy, and saline will renew with growth from the Q2. Quantro Q1 U.S. value depletions were up plus 4.1% year-on-year, comparing to very high comms. These represent an exceptional growth of plus 85.4% compared to Q1-19-20. Besides, on top, price mix was up by four points versus last year in the last 12 months period, ending June 23, and up plus 25 points on a four-year basis. So also, on control, there is a huge valorization and value depletion compared to pre-pandemic, not only in cognac. In parallel, Latin America's sales were able to be stable in Q1 2020. If Cointreau performed very well, Mungay declined in Barbados, affected by lower tourist traffic in the island. In EMEA, important region for lichens and spirits, sales grew at mid-teen in Q1, Euronia led by Cointreau, the whiskies, and Saint-Rémy. Western Europe, Africa, Middle East, and UK outperformed and generated a double-digit growth, while Benelux showed solid dynamics led by whiskies. Finally, Eastern Europe recorded very strong WDG growth for a very low basis. APAC, for this division, inside APAC, China posted a strong WDG sales decline in Q1, approximately plus 35% if compared to Q1, 1920, impacted by some of the stocking and retail levels following China's New Year on this division, and aggressive promotion from high-end competitors. Remaining part of Asia performed well and recorded a mid-teen sales growth on Q1 year-on-year led by Japan, New Zealand, and Thailand. Which brands? Cointreau, Whiskies, and Telmo Champagne. Before to conclude, one last word on the performance of the Nungro brands, which now represents 3% of our group sales at one point year-on-year. They were down by around 5%, minus 4.6% in the Q1, mostly affected by the UK, where our non-group brand, Passoa, is facing a strong discounted competition. In conclusion, slide number 10, we are reconfirming our guidance disclosed end of April. Following two outstanding, amazing years, Rémy Cointreau expects full year 2022-2024 to show a continued strong normalization of the consumption in the U.S. However, it will settle at new normal levels significantly above 19-20 pre-pandemic levels. At the same time, we expect a strong organic growth throughout the year in the rest of the world, including China, where we forecast we expect major sales gains. EMEA and the rest of Asia that should generate very good, strong performance. And of course, on top, travel retail channel that should reach this year pre-COVID levels in terms of sales. In this global sales context, unbalanced, but overall focusing this target, the group expected total sales to remain stable on organic basis for the full year 2022-2024, with a strong decline in sales in the first half, reflecting essentially a very strong fall in the US and high basis of comparison. And, clearly, a very strong recovery in the second half of the year, driven by a sharp rebound in the US starting from the Q3. Meanwhile, Rémy Cointreau intends to confirm its organic level of profitability, meaning stability also in terms of organic profit compared to last year, based on four different elements. First of all, a continued rollout of our value-driven strategy built on a firm pricing policy and improved price mix. Second, a resilient gross margin in a persistently inflationary context. Third, stabilization of the AMP ratio as a percentage of sales at group level. Fourth, very important, tight, extremely tight control of our overhead costs. Thank you for your attention, and now I will be happy to answer to your potential questions.

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