Remy Cointreau Unsp/Adr

Hello and welcome to the Remy Cointreau Q4 sales publication call. My name is Laura and I will be a coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be unlisteningly. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one 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 Malotta, the CFO, to begin today's conference. Thank you.

Hello, everyone. As you've seen on the press release, full year sales were down 19.2% in organic terms, including a roughly flat performance of minus 0.7% in Q4. This performance reflects some positive phasing effect in China, as well as a stabilization in India following some destocking in this region in Q3. In addition, we benefited from a positive calendar effect linked to the Chinese New Year. We estimate that at around 4 points, i.e. around 10 million euros. In parallel, the U.S. showed a sequential deterioration versus Q3, which was driven by some shipment phasing. As mentioned in January, we anticipated some shipment from Q4 to Q3 to optimize as much as we can our level of intermediary inventories at the end of our fiscal year. Overall, the 12-month sales decline is split between a volume decrease of minus 14.6% and minus 4.6% of price-mix effect, impacted clearly by the American region as a result of the sharp Cognac's underperformance compared to Lyfos and Spirits. Finally, the cost-cutting climb is right on track, and we confirm the $100 million cost saving for the year. Looking at the overall sales performance by region, Americas was down 39.6% in 12 months, including a sequential deterioration in the last quarter, Q4, due to negative phasing effects both in cognac and lychosin spirits. APAC was up plus 2% in the 12 months, including a significant growth in the last quarter, driven by cognac in China. Positive phasing and, as well, some calendar effect. EMEA, last button of the list, was up plus 0.7% in the 12 months. The last quarter, sales were up strong double digits despite contrasted trends among sub-regions and continuous soft consumer trends. This was safe, selling. Now, let's talk of the best approach to final sell-out, value depletions at group level over the past 12 months. In the U.S., value depletions were down mid-teens and now high single-digit, excluding the SOP. As compared to pre-COVID-11, value depletions were up plus 10% and increased by 45% for five, excluding the SOP. In China, despite high comps and a complex environment, value depletions were up no single digit in the 12 months, of which plus high single digit in the last quarter. On a four-year basis, China value depletions were up plus 75% versus previous pandemic and were multiplied by three versus Q4 1920, which is huge in terms of exit rate. Finally, in EMEA, value depletions were down low single digits this year. This represents an increase of more than plus 20% if you compare to 12 months in 1920. Overall, a group level is a general equation. This means that 12-month value depletion grew at approximately plus 40%, 4-0, on a four-year basis, so clearly faster than CELINE, which was up plus 16 on the same period. Last words in terms of organic guidance. Organic guidance, I repeat, is confirmed. Now, on pages three to seven, we pick up some initiative that's been undertaken over the quarter. Let's start with page number three, with Louis XIII and the opening of two boutiques in a three-standing store in China, bringing the total to 10 boutiques, or three-standing store, if you want, for the brands. First one in Haifei, five million people, seen as the future Chinese Silicon Valley. The boutique is located in the Heifei Jin Tai Mall, the first and only high-end luxury mall in the town. Our 68-square-meter boutique is located on the ground floor among luxury brands to leverage high premium traffic. The second one, second boutique, in Suzhou City, 8 million people. one of the fastest-growing cities in terms of GDP per capita. The mall has opened in 2023, last year, and the boutique is also located among key luxury brands. With these new boutiques, as Eric Vallard pointed out and said during the H1 result, the objective is to test the franchise model with the key strategy partners, G&G, having a strong expertise in the luxury art goods sector. Through this model, the ambition is to address Tier 1 and Tier 2 cities in a quicker way without any difference for the final offer for the clientele in terms of look and feel, pricing, or selling ceremony. Page 4, quick word on Brucoladi, which recently reveals a new luxury redefined range. featuring first permanent high-age statement whiskey range, the 18- and the 30-year-old single malt Scotch whiskeys. So far, these new ranges have been rolled out in India and the U.S. and are about to be launched in China. The new luxury refined range is conceived, distilled, measured, and bottled only on island. The bottlings feature an industry-first bespoke sustainable outer wrap. The first permanent 18-year-old single malt in Bruccaldi portfolio is an ultra-high provenance single malt whisky. Every single element is fully traceable from farm to glass, which, for a whisky of that age, is quite unique and incredible. The Bruccaldi 30-year-old is the story of the distillery resurrection. Embody that. The Broccolati story almost ended in the late 20th century when the doors of the distillery were forced to close in 1994. Over the next seven years, the two remaining members of staff safeguarded the cask which continued to mature in the depths of the warehouse before the distillery was restored in 2001. Broccolati 30 has been distilled using this high legacy cask. Rugladi 18 is priced at £150 and Rugladi 30 at £1,500. At the same time, Portia Lot unveils its first 18-year-old single-matte Scotch whisky. This release, priced at £175, is the oldest expression of the heavily-pitted single-matte Scotch whisky to be released to date. So far, the results... are very encouraging as the new ranges have been well received by the trade and selling has been 60 60 above targets page number five one word on the release of our latest innovation for the gene our gene the botanist Following the release of a tribal retail exclusive, the Botanist Ebridian Strength, the Botanist has unveiled two new additions, the Botanist Cask Rested and Cask Aged Genes, inspired by Reposado and Hiroki Tequila. The Botanist Cask Rested Gene is a cuvée of around 16 different cask types from a variety of regions and has been aged in Brocolabi warehouse, Oneida, for a minimum of six months. The Botanist Cask Aged Gin is a cuvee of around six different cask types from the right regions and has been aged in Broccolati warehouse for a minimum of three years. Botanist Aged Cask Aged Gin will allow us to compete in the premium spirits category with these products, recruit new drinkers from other super premium spirit categories, catapult the botanist into new occasion, a new type of consumer, Reinforce our distilling expertise, aging credential, and provenance. Botanist cask rest is priced at £50, and botanist cask age is priced at £70. So far, and of result, these two launches are promising, with selling being almost three times bigger than our internal target. Page six, a few illustrations of the activation made in China for this Chinese year. Our teams have done an amazing job to support growth in a very complex market affected by a persistent low confidence since the reopening of post-COVID. As you know, Chinese New Year 2024 was not a great vintage and showed soft trends. However, our value depletion has proven to be resilient and we continue to gain market share led clearly by Club and XO. By channel, e-commerce has been a very efficient weapon, once again, for us to place these at wins. Boosted by our Superbrand Day on January 12, which recorded 10% of sales growth, our e-commerce channel grew by almost 30%, 3-0, over the last quarter compared to last year. Page seven, last but absolutely not least, travel retail, as expected, as guided, as announced, travel retail sales are now back to pre-COVID level and even above that time with sales up high single digit versus full year fiscal year 1920. And this despite the only partial recovery of the Chinese tourism industry. Many activations on Chinese New Year and the 300-year celebration of remarketing have been done to support this strong sales acceleration in Q4. So now let's talk about marketing initiative. Let's talk about figure again. Slide number eight, and moving to the 12-month sales analysis. sales amounted to one billion, 194.1 million, down by 354.3 million year-on-year, or if you want, minus 22.9 on a reported basis. This reflects, first, a very strong organic decline of around 300 million to 97.2, i.e., as said, minus 19.2% of organic sales decrease. This performance is split between minus 14.6% of negative volumes and, as said, 4.6% of price mix, negative one, linked to the Americas underperformance. Regarding the latter one, this is a combination of the positive price effect, low to mid single digit positive, and negative mix effect around high single digit. So pricing without mix was still positive. Second, a negative currency translation impact of 57.2 million euro or a 3.7% loss in the top line in terms of conversion for the full year 2022-2024. This loss was largely driven by the deterioration of the Chinese yuan for 30.3 million euro and the US dollar for 19.7%. In addition, Canadian dollar, Japanese yen, and Hong Kong dollar posted a slight loss of respectively 1.8, 1.7, and 1.1 million. On the small positive side, we have to highlight Polish zloty, British pound, and Swiss franc for less conversion gain. On page number nine, or slide number nine, the user performance by division to be compared to the 12 months, 19-20. I will not detail the figures. They are all on the slide. In a nutshell, volume performance is strongly down in cognac amidst the current US contest, while price mix continues to be very strong. Overall, total cognac sales are still up plus 5.8% compared to pre-COVID, including important stocking in the U.S. In parallel, at the same time, lacrosse and spirits continue to generate a significant increase in performance as of pre-COVID, driven both by volume and price mix, and all three regions are clearly in very positive lands. Now, we begin a bit more Slide number 10 into organic trends by region. Let's start with APAC whose full year organic sales were up plus 2%, i.e. plus 51.4 compared to four years ago. Looking at the volume value equation, the performance year-on-year was mainly driven by a positive price mix. Specifically on China, China's sales recorded significant growth in the last quarter, boosted by some effects. First, positive shift in phasing linked to orders initially planned for December and finally booked in January. A positive calendar effect, i.e., the 10 million euro, which is four points at group level, but 13 points specifically at APAC level. And overall, in terms of Chinese New Year, we can say that it was really soft, that above, better than our internal expectation. And indirect channels outperformed direct channels, following meaningful stocking in Q3, as you remember, while e-commerce was once again up plus 30% to reach almost 25% of sales on the Q4. Despite this context, 12-month value depletion, a group level, were up low single-digit versus last year, of which high single-digit in Q4, i.e. up plus 75% on the 12-month versus 19-20, and if you focus only on the Q4, more than three times bigger than the pre-pandemic level in Q4 at that time. Consequently, at the end of Q4, inventories in China are back to a clearly healthy level. West of Asia reported very strong double-digit growth in Q4, led by Cognac and driven by Malaysia, Singapore, and New Zealand. End of March 2024, APAC as a global region accounted for 40% 4-0 of our group sales, up 7 points compared to last year. Second region, Americas. Americas for the organic states were down 39.6%, i.e. minus 4.1 versus four years ago. Mostly impacted by volume differences, while price mix was also negative due to the strong underperformance, so more mix than price, of cognac compared to Lycos spirits. Let's talk more specific of the U.S., Sales recorded a significant, important decline in the last quarter, showing a sharp sequential deterioration from Q3 impacted by, first of all, negative phasing effect both in cognac and lycosine spirit, saline, as we have decided to shift most in Q3 to give more time to the whole sale to deplete or optimize as much as we can our intermediate inventories at the end of our fiscal year. Second point, a sequential visible deterioration in depletions against high comps in a market still very, very promotional. Despite the continued stock in absolute value in Q4, in terms of volumes and value even more, which bring down to the level of inventories to the level of pre-COVID, even less for some brands or for some states, in terms of money, in terms of value, working capital immobilized by the wholesalers, by the retailers, this is not yet visible in terms of days of stock average due to the sequential deterioration of the depression of the quarter. I'm sure some questions will be on that. And as a consequence, the level of inventory is, in terms of day log coverage, if you want to do some maths, is still around five months overall at the end of the Q4. On a 12-month basis, value depletion are down mid-teens year-on-year, down high single digits, including the DSOP, and approximately plus 10% compared to four years ago, only 12 months, plus 45% compared, if we compare without the SOP. In terms of Canada performance, states were up a very strong double digit in Q4, led by Lagos and Spirits and Cognac, and in parallel, Latin America was also up a strong double digit in Q4, led essentially by Lagos and Spirits division. End of March, Americas accounted for 38% of our group sales, down a massive 12 points compared to last year. Finally, EMEA full-year organic sales were up plus 0.7, so slightly positive, and grew by 7.6% if you compare to four years ago. This year-on-year performance includes a strong price-mix effect, very strong, while volumes were strongly negative. Digging in by sub-region, Western Europe was up a strong double-digit in Q4, driven by some countries like Greece, Spain, Austria, even on small basis in Switzerland. Markets remain soft overall, but demonstrate a continued resilience of the on-trade channel, mainly in Southern Europe. UK was up mid-single-digit in Q4, led by common division in a tough market still dominated, clearly dominated by promotion and down-trading. The rest of EMEA region, sales were up a double digit, led by Africa, Middle East and Eastern Europe. The latter benefited from a positive phasing effect. Meanwhile, Benelux showed at the same time a good momentum, essentially in Lycos and Spirits and essentially in Cointreau, but the Cognac division was affected by Piers' huge drastic promotion. Over the last 12 months, value depletion for the region were down low single digit representing more than 20% of the debt depletion growth versus four years ago. But as a consequence, the fork between sell-in and depletion, inventories in the region were slightly up versus the end of December. End of March 2024, Indian region accounted for 22% of group sales, up five points compared to the previous year. Now, let's turn to line 11 and the analysis by division, starting with Cognac. Cognac posted a full year organic decline of 25.1%. reflecting a significant decline of 29.7% in volume and a strong price mix gain of 4.6% at the end of March 2024. At the same date, end of March 2024, coin division accounted for 65% of our sales, more or less two-thirds, down six points year-on-year. Let's start to begin by the region, starting with APAC for Cognac. And clearly, we start with China. In China, sales recorded a significant growth in the Q4, boosted by favorable phasing of shipment and positive calendar effect. Over the same 10 million, which is for the Cognac division overall, is waiting for selling point. Overall, the underlying trends remain a bit soft due to a low consumer confidence and persistent cash pressure in the trade. Despite this context, value depletions, the best approach to the final consumption, have been quite resilient, up double digits in Q4 year-on-year, and I repeat, because it's massive in terms of change of gears, three times more than four years ago. driven by Club, a demo product, and to a lesser extent, Renixo, which gained market share this year. On a 12-month basis, value depletion were up no single digit, i.e. around plus 75 versus full year 1920. As a result, end of March, our level inventory is back to empty level. Zooming by channel, on trade, for us, continue to underperform. It is a weakness on time, sometimes a strength as well, impacted by some down trading and a lower spend per capita. Within the off-trade, banquets and key account customers have been more resilient, while e-commerce has said, and I repeat it, still very dynamic, boosted by Superbrand Day in January. In parallel, we recorded a strong quarter for Hong Kong and Macau, while Taiwan was weak, impacted by some unfavorable phasing effect. Remaining part of Asia, phase grew a very strong double digit in Q4, led by Southeast Asia, particularly Malaysia, Singapore, and Vietnam. Japan recorded a weak performance, reflecting a soft change here. In Americas, In North America, cognac sales recorded a significant decline in Q4, impacted by the U.S. market, while Canada was up strongly double-digit in Q4. U.S. decline reflects the continued stocking, our firm position on pricing in a persistent promotional market and a soft underlying demand. At the same time, Q4, U.S. value depletion, so not saline, but value depletion, were down very strong WGT year-on-year with a strong underperformance of the S&P. Strangely, the two extremes of the portfolio outperformed. On one side, we're 13 back to very strong WGT growth, and the other side, Renewing, representing our first empty price, even on a marginal quantity, is showing good momentum. even if I repeat, on a very marginal basis. Considering the deterioration of the depletion, the level of inventories on cognac is, as said, still around five months in terms of days of coverage. It's not absolutely the same picture considering volume and value, in absolute value, compared to four years ago. This includes a flat price-mix effect year-on-year in the last 12 months, period, end of March 2024, but on a four-year basis, price-mix or value-depletion is clearly up 20%. That's the reason why sometimes in your calculation, you are maybe too focused on a year-to-go and a year-to-date on volumes, and you forgot for us, compared to our peers, that you have a positive, accretive value on value-depletion much better than our peers this is also the reflect of the clear of the strategy is sticking to that so you have paid some prices and volume you have some benefit and benefit it's visible not only selling even more on sellout Latin America states were down a very strong WGTQ4 still impacted by fierce promotional competition In EMEA, cognac sales were up a very strong WDQ4, led by Africa, Middle East, Western Europe, and Eastern Europe. UK showed a good resilience in a very tough market, while, as said, Benelux recorded a strong decline in sales, impacted by very strong promotional competition. Overall, underlying demand in EMEA for cognac remains a bit soft, as inflation is waiting on a purchasing power. Let's now turn to slide number 12, so the performance of Lacoste and Spirits division. This division was down minus 4.6% on organic basis in the full year, including a decline of 6.4% in volume, a positive price mix of 1.8%. At the end of March and then of weight, Lacoste and Spirits accounted for 33% of sales, up 6 points versus last year. Now let's review the performance by region. Let's start with North America. In North America, where sales were down a very strong double digit in Q4, impacted by the U.S. market, while Canada was up a very strong double digit. U.S. trends reflect the important restocking made in Q3 to optimize our inventories at the end of March, as well as the very high comps. More specifically, on Cointreau, as you can see, U.S. value depletion were down mid-to-high single-digit year-on-year this quarter, but still almost plus 65% compared to four years ago, affected by tougher comps in Q4 as we were cycling adverse phasing from prior year. In addition, the current contest is driven by more global general caution from retailers. Besides that, Price mix value position was here down four points versus last year in the last 12 months, ending March 2024, and up 10 points on a four-year basis comparing to pre-COVID. In parallel, Latin America says we are up at a very strong WGTQ4, like Brazil, Puerto Rico, Barbados, and the close business. Second region in terms of weight for Latin spirits is INEA. Sales were up mid-teens in the last quarter, supported by all sub-regions, particularly Benelux and Western Europe. Saremi for the U.K., Groveradi for the U.K., Metaxa Greece, and the bottom in Germany are some examples of brands and countries clearly outperforming, performing better than a factor and better than last year. However, markets remain soft generally overall and highly, very highly competitive on the back of the persistent inflation. Solid innovation pipelines, as we have seen for Botanist, Brooklady, and also one for Mongay. Strong activation plans on Cointreau, a new listing on Saint-Rémy in the UK, have made it possible to sustain a good momentum while holding on to existing price point, even increasing compared to the previous year. Third region in terms of weight, APAC, in which we have China. China, we posted a very strong WGC decline the last quarter, impacted by continued stocking in whiskies, essentially, and a weakened demand, mainly from younger generation, which is proving to be more volatile for this kind of category. The rest of Asia was up a high single-digit in the last quarter, mainly driven by New Zealand, Singapore, and Japan, with San Remy, Brooklady, and Telmo, our champagne, outperforming. One last word. the record on the performance of the non-group rents, which now represent 2% of group sales, stable year-on-year, and they were down, non-group rents, 6.1% in full year 2022-2024. Last slide, and then I can drink water, not cognac. Slide 13, I would like to reconfirm our operating profit margin guidance, organic operating profit margin guidance that we updated at the end of October. In a nutshell, we expect a contained organic decrease in COP margin and now 7 to 10 million euro of negative forex effects. Throughout the year, we kept a very tight control on cost. We maintained a firm pricing policy and we reduced selectively our R&P, mostly for the economy division. More importantly, we are allowed We committed and we are realizing a cost-saving plan of $100 million. In parallel, we don't have to forget that we protected as much as we can our gross margin in a persistently inflationary environment and despite a negative mix linked to the underperformance of cognac and the performance, mathematically speaking, of the U.S. Thanks for your attention, and now I'm happy to answer to your question after a bit of water.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 and the telephone keypad. And in favor of allowing more people to ask questions, we kindly ask you to limit yourself to two questions only. Once again, if you would like to ask a question, please press star one. Thank you. We'll now take our first question from Simon Hills with City. Your line is open. Please go ahead.