Remy Cointreau Unsp/Adr

Hello and welcome to the RemiQuantro Q3 SILS 2023-2024 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, Luca Marotta, CFO, to begin today's conference. Thank you.

Good morning, everyone. As you've seen in the press release, nine-month sales were down 22.7%. in organic terms, including a decrease of minus 23.5% in Q3. This performance has been mostly impacted by major destocking in China and Europe. In addition, start to Chinese New Year was soft, but improving in January, as cash pressures in trade waived on wholesaler orders. Postmodern orders contribute to inflate the negative calendar effect of around minus 2.5 points, around 10 million euros in value, linked to the timing of the later Chinese New Year this year. In parallel, North America showed a strong sequential improvement, partly driven by some positive phasing effect in Lycos and Spirit division. Overall, the nine-month sales decline is split between a volume decrease of minus 17% and minus 5.6% of price-mix effects, impacted clearly by the American region as a result of the sharp Cognac's underperformance compared to Lycos and Spirit Sufficient. Finally, the cost-cutting plan is progressing well and in line with our guided roadmap. Looking at the overall sales performance by region, Americas was down very strong double digit in nine months, including, however, a sharp sequential improvement in Q3 led by Lycos and Spirits. APAC was down a single digit in nine months and down very strong double digit in Q3 due to major stocking in China and softer market condition in the rest of Asia. EMEA was down low single-digit in nine months, including a strong double-digit decline in Q3, affected by the stocking and softer market conditions. This was sell-in. Now, talking about value depletion at group level, the best approximation of final consumption and sell-out, over the past nine months, we can say and observe that in the US, value depletion were down mid-teens, and now high single-digit excluding VSOP. As compared to pre-COVID level, value depletions were up plus 15% and increased by 50-5-0 excluding VSOP. In China, value depletion were down mid-single-digit in nine months against very high comps. On a four-year basis, however, China's value depletion were up plus 35% in nine months. In Q3, important to highlight that value depletions in China improved sequentially versus Q2 and were up low single digit year on year. Finally, in EMEA, value depletion were up high single digit. This represents an increase of around plus 15% versus nine months, 19-20. Overall, all in all, at group level, This means that nine-month value depreciation grew at approximately plus 25% on a four-year basis, so clearly faster than Selene, which was up around plus 17% in the same period of four years. To sum up, some negative effects such as the stocking in APAC and EMEA are temporary. and should not be seen with the same amplitude and magnitude in the Q4. However, the underlying performance, particularly in the US and partially in China, is unfortunately close to our most cautious scenario. This is why, for the full year, we expect to confirm our guidance of organic sales decline by the lower end of the guidance, i.e., around minus 20% in terms of top line. Now, pages 3 to 5. We picked up some marketing initiatives that have been undertaken over the past weeks. Let's start on page 3 with Remy Martin, which is kicking off a year of celebration around the globe for its 300th year anniversary. To mark its tricentenary, the house has planned a year of special activities around the theme We Dream for World, and the release of an exceptional cognac, the 300th Anniversary Coup, available in a very limited edition. 6,700 individual numbered bottles from January the 8th. This special release has been created by cellar master Baptiste Loiseau, clearly, from Rémy Martin, Réserve Perpetuelle, a collection of exceptional, incredible, amazing eau de vie, exclusively from Grand Champagne Terroir, clearly, saved and passed forward by generations of cellar masters. Throughout the year, a series of events to celebrate this occasion, the 3rd century, will also take place around the world, including First of all, a virtual visit of the vineyards to explore Rémy Marquin's terroir through immersive VR technology in selected airports all around the world. Second, the Centaur birthday tour that will bring the celebration to some of the globe's top nightclubs. And third, several important local events alongside specific activation during Chinese New Year. Page four, a quick word on China. with several events expected for the Q4. First, on Club, with the launch of a new product package. The campaign teamed up with China top celebrity Xian Li as Remy Club's first brand spokesperson. Xian Li is one of the most popular Chinese actors. Starting from January, the brand new package featuring him has been launched on various media channels across the country. Remi Club was looking for a celebrity to further interpret the brand manifesto, which is Uncover Your Edge. Xian Li has a huge fan base, both domestically but also internationally. His movies and active performances on social media will benefit to Club awareness and will further enhance the brand's competitiveness in the cognac category. So far, Club's new product launch campaign has yielded exceptional results across brand content, media communication, CRM, e-commerce, social, and PR. Second, Remy Exo teams up with Blossom Shanghai, the China's post-popular TV series of the Moody director Wang Kar-wai, who asked to have Remy Martin on board. XO is present for a total of 30 minutes in the series. As an official partner with multiple product placement, the group will leverage this fantastic opportunity to rejuvenate the brand, recruit drinkers from the movie tribe, clearly, build its point of differentiation versus competitor, and continue to establish Remy XO role in movie to drive consideration, relevance, and at the end, share of arts. Finally, one award on e-commerce, which is one of our key direct channels in China, showed a strong performance in the current context. Thanks to all specific activations made around the festival 11.11 and Tmall, alongside the launch of an exclusive edition club, ship, channel, lesson tour. Page number five, award on the U.S. I would like to highlight two important events. Still small in terms of business contribution, but a very good, important illustration of all the work done to enhance and further develop direct-to-consumer channels and enhance the portfolio management. First, the opening of the first pop-up store, Louis XIII, on November the 8th, during the Ultimate Race Week Formula One in Wayne, Las Vegas. The retail pop-up experience showcases an extensive selection with our team's most coveted offerings, including the iconic collection, the drop collection, rare cask 42-1, and an exclusive assortment of the brand bespoke accessories, complemented with personalization services. Results were strong in terms of sales, 60% above our internal target set, CRM activation, image impact, and data collect on top. The pop-up on top will get two extension periods. It will be now open until February 18 to be present during the Super Bowl events as well as the Chinese New Year. Second, We are very proud of the outstanding result that we recorded on Westland during the quarter and which concretized all the work carried out in recent years on the quality of the brand and images of this exceptional single malt, American single malt. Following a strategic shift on our marketing plan since last June, alongside the continued commitment to liquid cell excellence, Westland Gariana Edition No. 8 has been selected as No. 3 in Whiskey Advocate Top 20 List of the Most Exciting Whiskey of 2023. This marks the first time an American single malt has been selected in a Top 3 position. It is very important. This recognition marks another step forward and has triggered an amazing sales acceleration in December We are overall plus 135% of sales growth in the quarter, U3, including more or less 14 times of growth in December on our direct-to-consumer channel. Westland Gariana, the 8th edition, was sold out since December 26. Now, slide number 6, let's move back to figures. In the 9-month sales analysis, sales amounted to 956.6 million euro, down 348.1 million euro year-on-year, or minus 26.7 on a reported basis. This reflects, first, a very strong organic decline of around 300 million, to be precise, 295.5 million euro, i.e., minus 22.7% on organic sales decrease. This performance is split between minus 17 of negative volume effect and minus 5.6 on price mix linked to the America's performance and split by division of this performance. Regarding the latter, this is a combination of a positive price effect, low to mid single digit at group level, and a negative mix effect around negative high single digit. Second, clearly, to have the bridge between organic and reported performance, we experienced a negative currency translation conversion impact of around 53 million less, 52.6, which equals to minus 4% loss in the nine months 2022-2024. This loss was largely driven by the deterioration of Chinese New Year conversion for 24.9 million euro and US dollar for 20.9. In addition, Canadian dollar, Japanese yen, and Hong Kong dollar posted a slight loss, respectively, 1.7 million euro, 1.2, and 1 million. On slide number seven, we look a little bit on a longer horizon, and the user performance division versus nine months, four years ago, before pre-COVID level, pre-COVID. I will not detail all the figures which are on the slide. You can see that. But in a nutshell, volume performance is slowing down on cognac amidst the current U.S. context, while price mix continues to be very, very strong. Overall, total cognac sales are still up plus 3.5% versus pre-COVID level, including important stock in the U.S. and specifically in the last quarter in China. In parallel, Lycos and Spirits division continue to generate an amazing, outstanding performance versus pre-COVID level, driven both by volume and price mix. So it's a very balanced equation. Now, an important slide, slide number eight, to dig into organic trends by region. Let's start with the Americas, whose organic sales recorded a very strong double-digit decline in the nine months. i.e., more or less plus 10% versus four years in the same period, mostly impacted by volume, while price mix was also negative due to the strong underperformance of cognac compared to lycosin spirits. To begin more specifically in the U.S., sales were slightly down in the Q3, showing a sharp sequential improvement from Q2, led by, first, a gradual but slow sequential improvement in depletions. Second, positive phasing effect in Lycos and Spirits in terms of Selene. Overall, all in all, Q3 was strongly above pre-COVID level, more or less plus 45%. We continued to destock in absolute value over the quarter, and now the level in absolute value is in line with pre-COVID levels. Unfortunately, this is not yet visible in terms of days of stock coverage due to the continued negative depletions and some positive phasing effects in saline in Lagos spirits. At the end, basically, to end the year in the best possible condition, we have decided to anticipate some shifting in Q3 instead of Q4. As a consequence, level inventories is still more or less Everything counted around five months at the end of the Q3. On the nine-month basis, value depletion are down mid-teens year-on-year, down high single-digit excluding stripping out VSOP, and approximately up plus 15% versus nine months, 19-20, and plus 50, 5-0, excluding VSOP. In Canada, sales were slightly up in Q3, Like the US, Canada benefited from positive phasing effect in Lycos and Spirits. In parallel, Latin America was down strong double digit in Q3. End of December 2023, the Americas accounted for 40% of our group sales, down 10 points compared to the previous year. Second region, is APAC, in terms of weight, clearly. In APAC, organic sales were down high single-digit year-on-year nine months, i.e. up at more than 30% 3-0 on a four-year basis. Looking at the volume-value equation, the performance year-on-year was only impacted by volume, while price mix was positive. China's sales were down very strong double-digit in Q3, affected by a series of elements. First, major stocking ahead of China's New Year, 9 New Year. Second, negative calendar effect has alighted, 2.5 points at group level, but specifically for the region is more. It's 5.5 points at the level of IPAC region. And third, cash pressures in the trade. Direct channels continued to significantly outperform, led by e-commerce as a channel, which was up 10%, to reach 35% in terms of weight of sales of the quarter. Meanwhile, nine-month value depletions at group value were down mid-single digit, which corresponds to more than plus 35% compared to 1920. But, as I highlighted, I repeat it, Q3 showed an improvement, they were up value depreciation, low single digit. They were much above sell-in, which implies a strong stocking during the quarter, accounting for most of the expected force. As a consequence, this kind of asymmetric movement, more sell-out and less sell-in in the quarter, at the end of the Q3, determined that inventories were strongly down versus Q2 and still slightly high. However, the stocking is still catching up and very quickly in January. So the dynamic stands last in January. The rest of Asia reported a strong double-digit decline in Q3, impacted by Australia, Singapore, and Malaysia. In parallel, Japan continued to recover sharply. End of December 2023, APAC accounted for 38% of our group sales, up 5 points versus last year. EMEA region organic sales were down low single digit in the 9 months, but grew more than 5% versus 4 years ago. This year-on-year performance includes a strong price-mix effect, while volumes were strongly negative. If you look inside the sub-region, Western Europe was down strong double digits in the quarter, impacted by Germany and Spain. This performance reflects one-off stocking, a more promotional market, and a touch softer demand. UK was down mid-teens in Q3, following Q2 restocking ahead of excise duty increase, and affected by down trading to cheaper categories elsewhere. In the rest of EMEA, we were down double digit, affected by destocking as well in Africa, Middle East and Benelux. In terms of value depressions in nine months, they were up by a single digit year-on-year, represented on more or less plus 15% compared to four years ago. End of December 2023, EMEA region accounted for 22% of our group sales, up 5 points compared to the previous year. Now, slide number 9 and 10, we have the analysis by division. Let's start by cognac. Cognac posted an organic decline of 31.4% in 9 months, 2022-2024. reflecting a significant, important decline of 36.3% in volume and a strong price-mix gain, considering the situation, of 4.9 points. At the end of December 2023, the cognac division accounted for 64% of our sales, down 9 points compared to the previous year. Inside the cognac division, let's start to analyze the APAC. Sorry, I drink a bit of water because I'm dry. It's good for my skin. In China, sales were down a very strong double digit in Q3, significantly impacted by the stocking before Chinese New Year and a negative calendar effect. I repeat because it's very important. The equation, the matrix, the cube, China, cognac is very important in this publication. The underlying trends are softer, much softer, due to lower consumer confidence and rising cash pressure weights on the trade. But, as said, depletion, the last quarter, were far better than selling. And this stocking is catching up in January. By channel, on trade is slightly improving, but shows some down trading towards cheaper categories a bit. Within off-trade, bankers were more resilient and e-commerce, as said, was still very, very dynamic, boosted by 11.11. And every time we get in touch in a direct way with the consumer, we are experiencing very good results, at least, if not better, our major competitors. Overall, value depletion were down mid single digital month, but I repeat, I rears slightly up in the Q3. As a result, at the end of the nine months, our level inventory is still slightly high, but much lower compared to the end of Q2. And again, the stocking is catching up quickly in January. Our objective is to reach a sound level post-China usury, and this will support a Q4 in China when we are in strong growth. In parallel, we recorded a strong quarter for Hong Kong and Taiwan, while Macau remained weak as gaming has not yet bounced back. West Asia says it declined a very strong double-digit in Q3, impacted by Southeast Asia, particularly Malaysia, Singapore, and Australia. Japan, on the opposite, recorded a solid growth. Second region by weight, Americas in terms of cognac. So there was a switch in terms of weight with APAC. In North America, cognac sales recorded a very strong decline in the quarter. but improving sequentially compared to the Q2. Sales are back to growth versus Q3 19-20 plus 10%. This performance reflects continued stocking in absolute value in a persistent, promotional, intense market and soft underlying demand. In the meantime, Q3 USD value depletion were down minus 13.7% EUR, improving quite materially and sequentially compared to the Q2, but still negative. They were down minus 7.6% on top versus Q3 in 19-20. In this context, even if inventories are down big time in absolute value, The level of inventories in cognac is still around the five months in terms of data coverage because the prices are going better, but still in negative lands. Price mix effects were positive at plus three points in the last 12 months, period ended December 2023, led by price increases more than mix. On a four year basis, price mix is clearly very much up at plus 21 points. Latin America sales were down very strong double-digit Q3, while domestic market was quite resilient, duty-free, feather-sharp. Last region by weight for the cognac, EMEA, in which cognac sales were down very strong double-digit Q3, impacted by the stocking following a slowdown in sell-out at the end of Q2, and second, a touch soft of demand as inflation weighed on purchasing power in some key countries, Third, negative phasing effect in the UK, as said, because we increased Q2, trying to anticipate the rise in excise duties done in August. Same type of analysis in Lycos and Spirit Division, slide number 10. The Lycos and Spirit Division was up at plus 1.5 on organic basis, and I'm... including a decline of 5.4% in volume and a positive, massive price-mix effect of 6.9%. This is very important. It was not given for the year. At the end of December 2023, Lycos and Spirits accounted for 34% of sales, up 9 points, the switch with Cognac and Lycos and Spirits, compared to the previous year. Now, let's review the performance by division, starting with the biggest two items of weight, which is... The Americas. In North America, sales were up very strong WGT year-on-year in Q3, more or less plus 165% versus Q3 1920, driven by a resilient momentum and boosted by some positive phasing effect as we fostered, as said, shipment in Q3 rather than in Q4. More specifically, on Cointreau, in which U.S. value depletion were down minus 2.2% over the quarter, but a massive increase compared to Q3 1920 of 64.5%. Beyond very high comps, the negative performance in terms of depletions of the quarter reflects a touch of cautiousness by some big retailers as the year-end approached. Besides, price mix in terms of value depletion was up a little bit less than one point, 0.6 point versus last year in the last 12 months period, but 22 points on a four-year base for Cointreau. So we have the same symmetric dynamic between Cognac and Cointreau on value depletion, price mix, a creative impact on a four-year basis. So think of that, it's massive. In parallel, Latin America, sales were slightly down in the Q3, less than Cognac, but still down. EMEA, second region by weight, in terms of weight for the Lycus spirits, sales were down mid-teens in Q3 year-on-year, impacted by one of the stockings and softer demand due to persistent inflation environment. The UK, I repeat, was impacted by some phasing effect. following the excise duty increase, intense promotional environment, as well as some down trading to some cheaper categories. Benelux and Western Europe faced some destocking, following a very strong H1. And last but not least, Africa was mainly impacted by South Africa, rising price competition and geopolitical tension all over the region. In APAC, which is the smallest region in terms of weight for the Lycos and Spirit division so far, China posted a very strong double-digit sales decline in Q3, impacted by continued stocking in whiskeys and weak end demand, mainly from younger generation for whiskeys. Rest of Asia recorded a mid-teens sales decline in Q3, mainly impacted negatively by Australia, New Zealand and Singapore. Japan saw a step rise as recovery continued. One last word on non-group brands, which represent 2% of group sales, so stable year-on-year. They were down minus 13.5% of the quarter and touch less, minus 7.3% in the nine months. Two last slides. The next slide is, we can say, one word of the current Chinese investigation. On January 5, 2024, industry associations, Spirits Europe and BNIC, and industry players, including Rémi Cointreau, were informed that the Chinese MOFCOM had opened an anti-dumping investigation. This investigation targets brandy exported from European Union member countries to China in containers of under 200 liters for the period between 1st of October 2022 to 30 September 2023. It may run for up to 12 months and can be extended for a further six months. Rémi Cointreau immediately contacted its trade representatives and is fully cooperating with the Chinese authorities in this investigation. China is a long-standing trade partner of Emicontrol and the European spirit industry as well. And we have always had excellent relations and levels of cooperation. So we are convinced that our products and business practices comply fully with Chinese international regulation and approach future discussion with confidence and diligence. Well, I could have ended the presentation there, but it's better to say something about the guidance, I guess. So in conclusion, on slide number 12, what's the message? We reconfirm and we respect the guidance that was updated end of October. Following Q3 regional trends, we are now able to be more accurate. The guidance is the same. Basically, for this year, we expect to record an organic sales decline at the lower end of the guidance range. A contained organic decrease in COP operating profit margin, including a resilient gross margin and a selective reduction of AMP, mostly in cognac division. To do so, and based on what I've just presented and repeating what would be guided end of October and even more accurately in the end of November, we will be strongly focused on supporting sell-out and depletion growth and dynamism. Second, maintaining a strict pricing policy. Third, selecting AMP that drive impact, leverage, digital and below-the-line initiatives. Third, continue to execute, it is well in line, of the 100 million cost-cutting plan that need to be realized before the end of this year. Thank you so much. So now maybe you will have some questions, some information on the current trading, and I will drink some water and then I'm ready for you.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll now take our first question from Simon Hale, Switzerland. The line is open. Please go ahead.