Remy Cointreau Unsp/Adr

welcome to remy control q1 sales publication conference call my name is alan and i'll be your coordinator for today's event please note this call has been recorded and for the duration your lines will be on listen only however you will have the opportunity to ask questions at the end this can be done by pressing star 1 on your telephone keypad and please limit yourself to two questions during your turn if you require assistance at any time please press star zero and you'll be connected to an operator. I'll now hand you over to your host, Luca Mahota, CFO, to begin today's conference. Thank you.

Hello, everyone. As you have seen in the press release, Q1 sales were down minus 15.6% in organic terms. This performance of the quarter reflects a continued stocking, particularly in the U.S., high base of comparison, notably in APAC and EMEA, as well as a soft context of consumption globally, alongside a strong promotional activity. Overall, the Q1 sales decline is split between a strong volume decrease, minus 20.2%, and plus 4.6% price mix effect linked to limited price increase and a lower decrease of CONIA compared to lycopene spirits that gives the mixed effect. Looking at the overall sales performance by region, America generated a strong sales decline, reflecting the stocking in the market not showing any sign of depletion recovery yet. APAC recorded a slight decrease, mostly affected by Southeast Asia, while China was almost flat due to high comps and in persistent tough markets. Finally, EMEA showed a very strong double-digit decline impacted by high comps, some phasing effect, and also some softer consumer trends. This was sell-in, shipment. In terms of value depletions at group level, all brands, over the past three months, starting with the U.S., value depletion were down strong double digits. Compared to pre-COVID, value depletion were up plus 10%, and clearly stripping out the SOP, excluding the SOP, plus 55%. In China, value depletion were down mid-teens in DQ1 versus last year, and as well compared to 1920. The latter one can be considered particularly negative. However, and we'll be back on that point, I'm sure, I would recommend not to pay too much attention, considering the very short period of time which creates some volatility, small size of Q1 for China in absolute value, and a different split in terms of business compared to 1920 linked to the duty frame. On top, and we'll be back on that, you have to combine that at least six months moving average, reminding that the last quarter we are 200% three times the weight of 1920 value depletion footprint in China. So you have to combine that. Following the strong rise in Q4, this is the situation in China. So, value depletion should be appreciated on a rolling basis. So, combining that in terms of numbers, they are up by 70% versus 1920 on six months, and up a mid-single digit versus last year. Once again, Q1 cannot be appreciated alone because it's a small, volatile quarter. Finally, a word on EMEA. Value depletion were down mid-teens versus last year and down low single-digit compared to Q1 1920. But excluding Russia, value depletion would have been flat versus five years ago. Overall, at group level, that means that three-month value depletion declined of 4.5% on a five-year basis in line with selling trends, minus 4%. But this global alignment compared to five years ago includes some contrasting situations. One, strong stock in the U.S. clearly is there. Second, a more natural evolution in China, where the small size of the quarter cannot really influence the level of inventories. And third, a more or less neutral evolution compared to five years ago in big EMEA regions. To conclude on this very first slide, we confirm our full year guidance. On page number three and four, we pick up some main marketing initiatives, as usual, of the quarter. And as announced in June, and as part of the U.S. plan to improve growth rates, we have started and improved their investment rate behind BSOP. to improve is vis-a-vis on the point of sales, the conversion rate. We continue to leverage Cocktail Memento through activation around Cointreau, particularly during the week of Cinco de Mayo. Results are positive, depletion speaking, all channel coverage included. In parallel, we have deployed the Mungay Last Innovation, Eclipse Navi Strength, which will contribute to improve the profitability and the visibility of the brands. And finally, Last but not least, we pursue our efforts around Brookladdy, the single malt Scotty Whiskey, to increase education and awareness. This is only the beginning, and we hope that we'll be able to improve next trends in the U.S. On page four, a quick word on China e-commerce, and particularly good results achieved on 6-18, 18th of June, Shopping Foss Festival. that realized, conquered, and plus 14 sales growth. As mentioned by Eric Vallat, e-commerce is a very solid weapon for China. The ambition is to continue to grow, building on a team whose know-how and relationships and soft skills with the key players are a true asset and a competitive edge. We have successfully launched two exclusive new products for e-commerce channels and achieved a grid depletion number through the 186618 campaign. In parallel, at the same time, we leveraged the pop-up stores that we opened in Shanghai to celebrate the 300 years of Remy Martin using live streaming sessions and social media. Now, let's go back to dry figures, moving to the Q1 sales analysis slide 5. Sales amounted to €217 million, down €40.5 million year-on-year, or 15.7% on a reported basis. These reflect, first, a very strong organic decline of €40.2 million, it means 15.6% of organic sales decrease. This performance is split between, as said, minus 20.2% in negative volume effect and plus 4.6% of prime mix. And as said, by repeat, it's important, there's a combination of the slight positive price effect and low to mid single-digit positive mix effect. We have also highlighted a very slight negative currency translation impact of €0.4 million or €0.1 loss for the quarter, so very marginal. But this is interesting because this loss is mainly driven by the duration of the RMB, the Chinese yuan currency, for €1.2 million. and the Chabanese yen for 0.4, and in parallel, in terms of conversion, US dollar turned positive with a gain of 0.9 million euro. On slide six, the usual performance by division versus now five years ago, pre-pandemic, Q1 1920. I will not detail all the figures because they are clearly highlighted on the slide, but in a nutshell, Volume performance is strongly down in cognac amidst the current U.S. context, while price mix continues to be very strong. Overall, total cognac sales are now down 17% versus pre-COVID, while value depletion are strongly down, at the same time, around minus 20%. In parallel, Lycos and Spirits division continue to generate a significant performance of plus 35.1% versus pre-COVID, The event both combine the balance weight, volume, and price mix, and well below value depletion trends, which set at plus 45%. At group level, this shows the global symmetry between sell-in, minus 4, and value depletion, minus 4.5, versus Q1, 19, 20. But inside that, you have different situations by region and by division, as I highlighted, I suppose. Let's now turn to slide seven to dig more analytical organic trends by region. Let's start with APAC, whose Q1 organic sales were slightly down year-on-year and up at the same time more than 20% on a five-year basis. If we look at the volume value equation, the performance year-on-year includes a strong positive price mix effect and a low double-digit negative volume effect. Inside that, China sales were almost flat in the Q1, in a market that remains complex, tough, particularly for the high-end segment. In this gloomy environment and market, the only channel which can say we emerged very clearly and positively is e-commerce. In the quarter, it grew more than 15%, representing more than 35% of sales penetration. China. The overall performance also reflects a strong negative impact coming from Taiwan, Macau, and Hong Kong. In this context, Q1 value depletion, so not selling, but value depletion, best approximation sell-out of the group, group level in the region, were down mid-teens year-on-year, and as well versus Q1 1920. But I repeat, plus 70% on a six-month rolling period versus 19-20, took into account some phasing effect between Q4 and Q1 of this year. Moreover, the misalignment between saline depletion does not impact our level of inventories, which remains healthy at the end of June. The remaining part of Asia reported mid-teen phase decline in Q1. The market is very tough in Southeast Asia, particularly in Australia, Malaysia, and Singapore. At the same time, Japan, on the positive note of this publication, generated very strong sales growth boosted by tourism and partially also the weekend. At the end of June 2024, APAC region accounted for 39% of our group sales, up four points compared to last year. Let's talk about America. Q1 organic sales were strongly down again year on year. and down minus 25% compared to five years ago, mostly impacted by volume, while price micro was slightly negative. And digging, talking about the U.S., well, sales recorded a strong sales decline in Q1, impacted by continued stocking, given the absence of signs of depletion recovery yet. Despite another round of the stocking in absolute value in the U.S., which now brings down the level of inventories to the level of pre-COVID, this is not visible in terms of days of stock coverage, considering further sequential deterioration or depletion over the quarter that just ended. But the absolute values are very, very, very low. As a consequence, in terms of month of coverage, level of inventories in the U.S. is still around more or less five months at the end of the Q1. On a three-month basis, value depletion are down a strong double-digit year-on-year and more or less plus 10% compared to Q1-19-20, and as I said, plus 55% excluding BSOP. In Canada, sales were down a low double-digit in Q1, impacted by cognac, and Latin America was also down a very strong double-digit. End of June 2024, America has now accounted for 35% of group sales, which is the same weight of the last year at the same period. Finally, the third region in terms of size is EMEA, a big region in which Q1 organic sales were down a very strong double digit and grew at a low single digit versus five years ago. This uranium performance mostly includes a very strong negative volume effect. Digging in, Western Europe was down a very strong double-digit in Q1, affected by Germany, Greece, and Spain, facing ICOMs and some destocking in a couple of countries. However, this quarter showed a strong disconnection between saline and depletion. UK was down double-digiting Q1, impacted by high comps, as Q1 of last year, 2034, was boosted by some restocking ahead, you remember, of the rise in excise duty in the country. In addition, the economic context shows some encouraging signs of improvement of the back of less inflation, positive effects that start to be seen on the final consumption, on sell-out. The remaining part of the Eugenia region says we are down a very strong double digit, impacted by the stock in Africa Middle East, some negative phases linked to the Orthodox New Year in Eastern Europe, and negative cognac trends in Benelux. Over the last three months, value depletion, so more linked to the sellout, we are down mid-teens year-on-year, and down low single digits on a five-year basis. including Russia, however, by depletion would have been flat compared five years ago. Overall, inventories are now back to LT level, slightly up compared to the previous quarter, but we said at that time they were a little bit on the low side. End of June, in terms of weight, EMEA region accounted for 26% to six of group sales, down four points versus last year's. So in terms of weight compared to one year ago, America's flat, EMEA minus 4, APAC plus 4. Now, let's turn to slide 8 and the analysis by division, and we start by the queen, so cognac. Cognac posted a Q1 organic decline of 12.2%, reflecting a decrease of minus 8 in volumes and a negative price mix of minus 4.2. End of June, 2024, Cognac division accounted for 62% of our sales, up two points versus the previous year. In this Cognac division, let's start with the APAC. And inside APAC, let's start with China. China sales for Cognac were flat in Q1, affected by high comps and a weaker consumption. In a nutshell, consumer confidence remains low and continues to impact consumption, while cash pressure as well waived on wholesalers. As a consequence, value depreciation were down mid-teens in Q1 year-on-year and versus five-year, but within this global evolution, club, our key reference, is overperforming, clearly overperforming, while the high-end products are a little bit more on the underperforming side. By channel, on-trade is the most affected one, In the current contest, also in terms of downgrading and lower spend per capita, while e-commerce is clearly up, I repeat, plus 15%, boosted by the 6-18 festival and banquets, which were relatively resilient during this low season. On the negative side, Hong Kong, Taiwan and Macau were particularly weak, impacted by high comps, the stocking and tourist preference for Japan over Hong Kong. The rest of Asia was down mid-teens in Q1, particularly impacted by Malaysia, Philippines, Singapore. But on the positive side, Japan generated a very strong double-digit growth in the cognac division. Second region in terms of weight for the cognac is North America. Cognac sales were down low double digits, still impacted by the stocking on the back of persistent negative depletion. which are not showing any sign of spark yet. Overall, the market remains highly promotional, and underlying demand continues to be weak. Q1 U.S. value depletion went down a very strong double digit for cognac, uranium, and minus 10 versus Q1 of five years ago, showing a sharp underperformance of the SOP. In fact, Q1 trends are below Q4 of last year. However, we should consider the icons that explain this sequential deterioration. Indeed, June depletions were up mid-teens last year in 2022-2024 before the implementation of the price increase from wholesale to retailers beginning end of June and beginning of July. Considering all that, what I already said, the level of intent trees in cognac in the U.S. is still around more or less five months in terms of DAVO coverage. That is one of the lowest levels in terms of absolute value. Twelve months value depletion, rolling 12, includes two points of negative price mix effects year-on-year, end of June. On a five-year basis, price mix is up 18 points. Panel Award in Latin America says that we're down for Cognac, a very strong double digit in Q1, impacted by a very strong, fierce promotional competition. In EMEA, Cognac says we're down a very strong double digit, reflecting ICOMs, negative phasing, and softer markets. Overall, EMEA was most impacted by South Africa and Germany. The UK showed a very good resilience, despite very ICOMs. As a reminder, last year, we benefited from a stronger stocking effect ahead of the rise in excise duty. And in addition, I repeat that because it's important, sell-out shows early signs of improvement alongside the inflation decrease, which is encouraging. Western Europe, as a sub-region, was down double GTIN sales. However, selling was well below depletion in sell-out, which is something with a positive expectation for the next months. Finally, Overall, EMEA value depletion were down mid-teens here on year-end Q1 and down very strong double-digit compared to Q1-19-20. Let's now turn to Lycos and Spirit Division on slide number 9. Lycos and Spirit Division was down minus 20.4 on the quarter on an organic basis, including a very strong decline of volumes, almost 24% on the 3.9. and a positive price mix effect of 3.55%. End of June, Lycos and Spirits division accounted for 35%, down 2 points versus Celestia. Let's now review the performance of the division by region. In this case, most important region is Americas. In North America, states were down double digits in Q1, of which Canada was up low single digits. North America was impacted by some destocking alongside the greater cautious from wholesalers in a slowing market. So the cautiousness of the wholesaler is impacting as well, like also spirits, creating some mathematically speaking inexplicable disconnection between dynamics of depletion and replenishment in salinity. However, the underlying trends are resilient as shown by the Quantro Q1 US value depletion, all-channel, which were up low single-digit year-on-year and approximately plus 95% versus five years ago. So Quantro doubled its size of business compared to five years ago in terms of value depletions, all-channels. Botanist, our gene, also showed positive trends. Besides all that, price mix was down 5 points versus last year in the last 12 months period and in June, and up 18 points on a five-year basis. In parallel, Latin America says we're down, also for this division, very strong WGT in Q1, once again for a persistent promotional market. EMEA, a very strong region, important region for glycosine spirits, Realized sales for lacrosse players that were down strong double digits in Q1, impacted by high comps, negative phasing effect, and a softer consuming trend. In parallel, value depletion were down high single digits versus last year in Q1, but 30% 3-0 more than five years ago. Inside all that, while Benelux shows a good resilience driven by Q1 through, UK was impacted by high base of comps, And in Western Europe, it was sharply down on the back of ICOMS, some stock in Germany, and overall a soft market. For Eastern Europe, it was impacted by some stocking, following also some slight changes in route to market. Third region so far in terms of weight for Lagos Spirit is APAC. Inside APAC, China. Let's talk about China. China posted for this division a strong double-digit decline in Q1. impacted by continued stocking in whiskeys and a weakened demand, mainly from younger generation, more volatile in terms of habits. However, value depletion were strongly positive for Cointreau and the botanists, while Brookladdy value depletion posting a more limited decline, so some small sign of positive inflection compared to previous quarters. Overall, value depletion were up a single digit versus last year and increased 40% versus five years ago. So, focusing on five years ago, at the end of Q1, Cointreau was 95%, and APAC, EMEA, plus 30, plus 40. So a huge increase of the footprint of Lagos and Spirits, and Cointreau more especially in the region, so in all regions of the group, compared to five years ago. The rest of Asia posted a mid-teens decline in Q1. Southeast Asia faced sluggish consumption. Australia, New Zealand mainly, but we continue to gain market share in a very depressed market. Japan, still booming, also for lack of a spirit, driven by Rucladi and Telmon Champagne. One last word on the performance of non-group brands, which represent almost 3% of group sales, so stable, compared to last year and the year before. They were down minus 24.6% in Q1 and minus 14% versus Q1 1920. This is clearly okay and fine. with the strategic journey that Eric Valas put in place five years ago. To conclude, let's switch to page number 10. On the back of Q1 sales results, which do not show any specific news, nothing new under the sun, we confirm our full year guidance, which includes two distinct periods. H1 sales is still impacted by U.S. stocking, ICOMs in China, and softer consumer trends in EMEA. H2 says that are expected to show a recovery mostly driven by the U.S. In this tough, very tough contest, the group is well determined to use tight cost control and its value-driven strategy to protect its profitability, i.e., its organic cop margin. In the full year 2024-2025, the group will build on these compounders. First of all, the resilience of its gross margin, thanks to a measured selective rise in price amid moderate inflation. Second, normalization of the AID and POSA ratio at a level much higher than in 1920, but lower than last year. And third, a tight control overheads to offset most of the rise in cost in overheads resulting for the reversal of temporary saving achieved in 2023-2024, as you remember. For the sake of clarity for everybody, this guidance does not take into account any potential impact linked to duties increase in China or elsewhere in the world. No duty increase bias taken account in this guidance. Thank you for attention, and now I am happy to answer your question, but before I have to drink a bit of water. Thank you.

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