Remy Cointreau Unsp/Adr

Hello and welcome to the Remy Control H1 Sales Publication. My name is Natalie and I'll 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 questions. 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, Luca Marotta, CFO to begin today's conference. Thank you.

Good morning, everyone. As you have seen in the press release, H1 says we are down minus 22.2% in organic terms. including a decrease of the minus 10.8% in the second quarter. Even if Q2 sales have shown a sequential improvement compared to the Q1, this is not enough and below our expectations. This performance has been mostly impacted by the Americas, where the recovery is slower than expected. In parallel, the rest of the world grew at plus 13.8% year-on-year in H1. H1 sales decline is split between volume decrease of minus 18.9% in H1 and a minus 3.3% of price miss effects impacted by the American region as a result of the strong Cognac's underperformance compared to the Lyfos and Spirits division. Overall, H1 sales were up plus 20.9% in H1 as compared to pre-COVID level, despite including, clearly, the important U.S. stocking. Looking at the overall sales performance by region, America recorded a decline of minus 49.9% in H1 year-on-year, mostly impacted by the cognate division on the back of, first, a sharp normalization of consumption, second, a meaningful stocking in absolute value, and third, after market conditions, including a persistent promotional environment and the rise in financial costs. Compared to 1920, America is down minus 3.2% at this stage. APAC in the Pacific region was up plus 16.6% in H1, led by China, Southeast Asia, and the continued recovery of travel retail. This represents very important plus 55.8% growth over four years. EMEA was up plus 8.9, showing a relatively good resilience despite a touch softer demand. EMEA is up 19.4% versus four years ago. This was sales, selling. Now let's talk of value depletion, a group letter, of the last six months. In the U.S., value depletions were down a single digit. Compared to pre-COVID, value depletions up plus 30 and flipping out the SOP plus 70%, 7-0. In China, value depletions were down mid-single digit in H1 against very high comps. On a four-year basis, China value depletions were up plus 45% in H1, following only plus 20% in the previous quarter. H1 negative performance reflects Q2 value depletions, high comps, and a touch softer demand during the summer in China. Finally, in EMEA, value depletion were up mid-teens, led by Africa and Middle East, Benelux and Eastern Europe. This represents an increase of around plus 30% versus H1-9012. So, we can say and see very clearly that overall, at group level, this means that depletion on a four-year basis grew almost two times faster compared to selling. plus 35% versus around plus 21%. This is the mathematical and clear demonstration that selling is impacted by some conjunctural short-term effects while the underlying consumption has clearly accelerated compared to four years ago. To sum up for this very first slide, an important one. Following our performance, which is unfortunately below our expectation assumption, and taking into account our new assumption for the coming months, we have decided to adjust our four-year guidance. We now expect a decline between minus 15 and minus 20% on an organic basis, and it contains decrease in operating margin on organic basis as well. This is also thanks to a deployment of a major cost-cutting plan. I will detail it more in the last slide of this presentation. On pages 3 and 4, we pick up some marketing initiatives that we have undertaken over the last quarter, first in the US and then in China. Let's start with page 3 and the new Remy Martin's campaign with Usher, Life is a Melody for 7038 and XO, as well as the new chapter on Cointreau with Audrey Plaza for the Cosmopolitan cocktail. Nutrition are far from being satisfying in Colnec. However, it is important in our brand equity by growing the long-term awareness and desirability of the brand. Preparing the recovery is key for Oncognac and we will continue to selectively invest in AMP, advertising and promotion. On Cointreau, the situation is clearly different as Cointreau benefits from a strong momentum and the objective is to leverage it and to continue to gain market share. Page 4, just a quick word on China and more particularly on Mid-Autumn Festival. Selling was solid, despite a slower than expected economic recovery in China, but depletions were below expectations. In this market, our main objective has been to support depletion, fostering below-the-line concrete initiatives, a little bit more than above-the-line advertising actions. E-commerce and off-trade, talking about channels, are two very important channels for us, and a lot of animation has been done to support our brands, including the launch of a new SKU for EXO with a 50cm format on JD.com. In addition, we did several animations to continue to develop off-trade and social gatherings. In the meantime, we continue to work on gaining new distribution listings in on-trade for Ixo, which will be a strong game changer over the mid-term. Here, you can see on the slide an example of the modern on-trade animation to enhance our visibility. Now, let's back to configures. Moving to the H1Sales analysis, slide number five. Sales amounted to 636.7 million euro, down by 230.4 million euro in one year, or minus 26.6 on a reported basis. This reflects, first, a very strong organic decline of 192.7 million euro, which is minus 22.2% of organic sales decrease. This performance is split between minus 18.9% on negative volume effects and minus 3.3, as we said, of price mix linked to the Americas underperformance. Regarding the letters of the price mix, this is a combination between a positive pure price effect, low to mid single digit, and the negative mix effect around a single digit. Second, a negative currency translation impact of 37.8 million euro, which means a 4.4% loss in H1-2024. Why? This loss was largely driven by the iteration of the Chinese yuan for around 20 million, 20.3, and US dollar for 12.7. In addition, Canadian dollar, Australian dollar, and Japanese yen post 1.2, 0.8, and 0.7 million euro. Slide number six, an important slide showing the performance by division versus H1-1920. On the left, the evolution of the group sales at constant exchange rate. In H1, we grew at plus 20.9% on a four-year basis. including a volume effect of 3.9 and a huge price mix effect of 17%. Looking into the performance by division on the right part of the slide, you can see that on one slide, the cognac renewed with yield at plus 9.4%, thanks to the second quarter, which improved sequentially. Volume remains significantly negative, but price mix is still strongly up by 28.9%. On the other side of the slide, Lacrosse and Spirit was up 55.8%, which is amazing, and showed a well-balanced breakdown between price mix and volume. Now, slide number seven, dig into organic trend by region at the end of H1. And let's start with APAC as a specific organic phase. in which sales were up at plus 16.6% year-on-year in H1, which means plus 55.8% on a four-year basis. Looking at volume-value equation, the performance year-on-year is equally driven by volume and price mix. Inside this region, clearly, China has a very important weight. China's sales were up a single digit in Q2, benefiting from a solid level of sell-in during March in the autumn festival, and despite a slower than expected recovery post-COVID. Over the period, in terms of channel, direct channels and off-trade, Ecom outperformed and upset the weaker performance displayed by other channels and the on-trade, which for us remains a small part of our business, less than 10% so far, as far as I speak, of total sales for China. Meanwhile, value depletions at group level were down with single digits, i.e. past 45% versus 19-20. This change in trend reflects softer demand in July and August exacerbated by some calendar effects. Mid-Autumn Festival was three weeks later this year and very high comps. They are below Selene, which implies now, mathematically, a higher level of inventory in China compared to the end of the Q1. shipment before Chinese New Year, as we will destock to ensure a sound level inventory post-Chinese New Year. Remaining parts of Asia reported a mid-teens growth in H1, boosted by a stronger rebound of some countries like Japan. End of September 2023, APAC accounted 40% of our group sales, up 12 points versus last year. Americas. America's organic sage recorded decline of more or less 50%, 49.9% compared to last year. Mostly impacted by volume, while price mix was also negative due to the strong underperformance of cornea compared to the Lacrosse spirits. More specifically, in this region, talking about the U.S., sales were down a very strong double-digit in Q2, showing, however, a sequential improvement versus Q1. This performance reflects continued destocking in absolute value on Cognac alongside tougher market conditions, including promotion and rising financial costs, which impacts the capacity of financing for both retailers and wholesalers. In the meantime, Lycos and Spirit division in the U.S. showed a sharp rebound as expected. Overall, Q2 was slightly above pre-COVID level in the U.S. If we achieve the slumped stocking absolute value, this is importantly not visible in terms of data coverage due to the further deterioration of depressions. Consequently, the level of inventories is still at around five months at the end of the Q2. On a six-month basis, value depressions are still down high single-digit year-on-year, down low single-digit excluding the SOP, and approximately up plus 30% versus HY1920 and plus 70% on four-year basis excluding the SOP. Talking about Canada, sales showed also very strong decline in Q2, impacted by more or less the same factors and events as in the U.S. In parallel, Latin America was down low double duty in Q2 as well. End of September, America has accounted for only 37% of group sales, down 19 points year on year. So APAC 40, America's 37th. EMEA organic sales were up plus 8.9% in H1 and a plus 19.4%, more or less 20%, versus four years ago. This year-on-year performance was only driven by price mix, while volumes were slightly negative. Inside that, by sub-region, Western Europe was up a single digit in Q2, led by some Southern Europe countries like Spain, Greece, and Italy. UK was also high single digit, but also benefiting from a positive phasing effect linked to the duties increase in August. Remaining part of EMEA, we generated a very strong double digit growth in Africa and Middle East, while Benelux and France recorded softer trend. Each one, value deficient were up mid-teens year-on-year, representing plus 30% of the growth versus four-year growth, so more than the ceiling. At the end of September 2023, EMEA region accounted for 23% of group sales, up plus 7 points versus last year. Now, let's go to design number eight and switch from the regional standpoint to analysis by division in terms of footprint, starting with the cognac. Cognac posted an organic decline of minus 30% in H1 2020-2024, reflecting a significant decline of minus 39 in volume and a strong price mix gain of 8.9%. End of September 2023, Cognac Division accounted for 60% of our sales, down 8 points year-on-year. Now, let's begin and start with APAC. In APAC, let's start with China. In China, Cognac sales were at high single-digit in Q2, on top of a very high base of comparisons. Indeed, fixed growth represents an increase of more than plus 100% versus Q2 19-20. If selling is below our expectation, they remain very solid and represent a good achievement in the current environment. The recovery post-COVID is lower than expected and affected by a softer consumer confidence. Having a good comprehension of the current trend is a relatively complex exercise, and the visibility is currently quite limited. Key takeaways so far are, first, on-trade channel was weaker and is just starting to show some sign of improvement, while, second point, off-trade and direct phase demonstrated a better resilience. Overall, talking about value depreciation, value depreciation were down mid-single digit in H1. So, as a result, in cognac, as already said for the group level, at the end of H1, our level inventory is higher compared to the end of H1 in China. Our objective is to now destock and ensure a sound level post-Chinese New Year. In other regions, Taiwan generated an outstanding performance in Q2. Macau continued to be weak in terms of selling, but valid patients with a strong acceleration, which bought well for the coming months. And finally, in Hong Kong, we recorded a very strong quarter supported by dynamic valid patients. In America, Let's start with North America, so U.S. and Canada. North America's cognac sales declined minimally year-on-year on Q2, impacted by the stocking, consumption normalization, and outcomes. In the meantime, market conditions are getting tougher and tougher. The rise in financial interest is reducing the need to reward sellers and retail financing capacity. Moreover, persistent market, not by us, but the market overall, promotion has pressure on re-marking volumes as we have decided not to make any compromise on pricing, fostering long-term value creation instead of non-sustainable and quick gains in volumes. As a consequence, US value depletion in cognac has deteriorated sequentially in Q2 versus Q1. They were down minus 32.8% year-on-year, i.e., minus 10.6%, more or less minus 11, compared to the Q2, 19, 20. In this context, the level of inventory of the cognac is now in terms of coverage, more or less above three months in terms of the ecology for the cognac. It would be lower for the lactose-based division, giving five as an average average for the U.S. in terms of value depreciation at the group level. Price mix effects were positive, 7.0 a year in the last 12 months, period ending September 23, led by price increases. On a four-year basis, price mix was up plus 26 points. Latin America side was up mid-single digit in Q2, led by the S&P. And then, talking about the third region, India, convex sales were up low to mid single region Q2, and Africa, Middle East, and Western Europe. In parallel, Benelux trans were softer in Q2, in a more promotional market. And finally, Trans-British Europe and some Eastern Europe countries were negatively impacted by the global geopolitical context. Now, let's turn to the Lycos and Spirits Division slide number 9. The Lycos and Spirits Division posted a flat performance on organic basis in H1-2024, including a decline of minus 6.5 in volume, maybe due to the Americas in Q1, and a positive price-mix effect of 6.6. As a result, we have more or less a 0 to a 0.1. At the end of September, LIKON S3 division accounted for around 33% of sales, up 8 points versus last year. Now, let's review the performance of the division by region, starting with America and North America, first of all. North America sales were up very strong WD to the year in Q2, as expected, and following some negative phase in momentum in Q1. This represents an increase of around plus 65% versus Q2-1920. This performance reflects a strong momentum both in saline and in value deposition on some brands like, clearly, Cointreau, but also Botany, Starwood Gin, and Duclady. More specifically on Cointreau, Q2-US value deposition were up plus 9.2% year-on-year, which means plus 75.1% versus Q2-1920. Besides that, price niches were up by 6 points versus last year and the last 12 months ending September, and up plus 30 points on a four-year basis. In parallel, Lycoset's division in Latin America says we are down in Q2 year-on-year in the market showing softer tourism trend for these kind of brands. In EMEA, sales grew at the low to mid single-digit in Q2 in Euronea, led by Brookladdy, Whiskey, Single Malt, Botanist and Quantron. The UK continued to benefit from positive recycling effects just before the duties increased in August, and Western Europe outperformed and generated a slump growth. In the meantime, Benelux, Africa, and the Middle East continue to show solid dynamics, led by whiskeys and Cointreau. Finally, as already said for the cognac, it is also valid for travel retail for Europe and some Eastern Europe countries, which have still been impacted negatively by geopolitical context and substance. In APAC, China posted high single-digit sales decline in Q2 year-on-year, at approximately plus 60% compared to four days ago, the same momentum, and impacted by the continued stocking in whiskey, specifically. Rest of Asia performed well and recorded mixed-in sales growth in Q2, led by some countries like Japan, New Zealand, Australia, and Vietnam. Before to conclude, one last word on the performance of the new group brands, which represent now only 2% of our group sales, stable year-on-year. They were down minus 1.6 in Q2, mostly affected by the UK, where PASOA is facing a strong promotional environment in competition. In conclusion, before switching to the Q&A, as line number 10, worsening market condition in the second quarter, primarily in the United States, has allowed us to update our underlying assumption for this fiscal year 2024 as follows. First, the United States market condition, I repeat, has significantly deteriorated in Q2. On the back, a very strong promotional environment and the rise in interest rates that has cut, reduced distributors' financing capacity. As a result, the rebounding sales initially expected for Q3 in the U.S. is now anticipated for the next fiscal year, in 2024-2025. Second, in APAC region, Asia-Pacific, group expects to generate a positive growth this year, but a piece below initial assumption giving slower than anticipated post-COVID economic recovery in China. Last but not least, in the Aeneas region, the group expected more moderate annual growth in a persistently inflationary context. In this context, Renew Control is determined to protect its profitability for this fiscal year through tight cost controls while continuing to roll out its medium-term plan. To this end, it will, first of all, maintain a strict and uncompromising pricing policy. Second, protect its gross margin in a persistently inflationary environment. Third, selectively reduce AMP spends, clearly particularly for the most affected cognac division. Fourth, significantly reduce other operating costs. As a result, Renew Control has adjusted its full year 2023-2024 objectives and now expects a decline between minus 15 and minus 20% in sales on an organic basis compared to the previous guidance, which was stable. Second, a contained organic decrease in operating margin compared to stable previously, thanks also to deployment of the major cost-cutting downsizing plan. Lastly, based on the shift in its geographical mix and the RMD decline, The group expects exchange rates to have a negative impact for the full year on sales between 50 and 60 million, which deterred in H1, no change compared to the previous guidance, and operating profit between minus 10 and 15 million, mostly on H1, no change compared to the previous guidance. Rainy Cointreau is today ahead, clearly ahead of its strategic 10-year plan. and is underpinned by very solid foundation and long-term vision. This makes 2022-2024 an harsh year of the transition of the year, which allows the group to return cognac inventors in the United States to earlier levels to absorb the effect of post-COVID normalization before adding into a 24, 25 years in the best possible condition, resuming, regaining the trajectory of growth effect itself for the 29th century. Thank you for your attention. And now, after a bit of water, I will be happy to answer to your question. Thank you.

Thank you. Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press cell 1 on your telephone keypad. Thank you. We will now take our first question from Simon Hales from Citi, your line is open. Please go ahead.