Remy Cointreau Unsp/Adr

and welcome to the Remy Control Q2 Sales 2425. Please note, this conference is being recorded, and for the durations 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 over to your host, Luca Marotta, CFO, to begin today's conference. Please go ahead.

Hello, everyone. As you've seen in the press release, Q2 sales were down 16.1 in organic terms. This performance reflects, first of all, a continued stocking in the U.S. on the back of a persistent weak depletion and, more importantly, below our expectation. Second element, high basis of comparison and clearly a tougher market condition in China and more broadly for Chinese cluster, glitter China. And third, a soft context of consumption in the rest of the world alongside a strong promotional activity. Overall, Q2 sales decline is split between a volume decrease of minus 8% and minus 8.1% of price mix effects linked to limited price increases and the outperformance of the lycosine spirits compared to cognac. Looking at the overall sales performance by region, Americas generated a decline of 22.8% in H1, reflecting continued stocking, as said. Depletions are obviously still too low, but every cloud has a silver lining, and we can at least admit that they are sequentially improving. APAC recorded a sales decrease of minus 8% in H1, including a relatively limited decrease in China, which represents clearly the major part, and a weak performance in Southeast Asia, especially for cognac. Third, EMEA, big EMEA region, was down 18.8%, affected by persistent soft consumer trends and unfavorable weather conditions. This was selling. In terms of value depletion at group level, the best approximation of final sellout over the past six months, in the U.S., value depletion were down mid-teens. As compared to pre-COVID, value depletions are flat and low. out of the SOP, excluding the SOP, plus 45%. In China, value depletion were down low single digit in H1 versus last year, clearly, and up more than 35% compared to 1920. On top, I have to add that in Q2, value depletion in China were slightly up. However, base of comps last year were Quite easy. Last but not least, in EMEA, value depletion were down low double digit versus last year and down mid single digit compared to H1 1920. But excluding Russia, because it's not comparable to five years ago, value depletion would have been flat versus five years ago. Overall, at group level, six months value depletions declined by low double-digit versus last year, i.e. slightly better than Celine on a six-month basis. If you remember, end of Q1, it was the other way around. So, albeit we remain negative, clearly, on the second quarter, there is a slight small spark in terms of reverse trends in terms of value depletions comparing to the selling performance. On a five-year basis, group value depletion were up low single digit in line with selling trends, which are plus 1.5%. So for five years, quite balanced. To conclude on this very important first slide, considering what's happening and the result, the performances, we have decided to adjust our full year guidance, taking into account the persistent low visibility, disappointing sales at the end of Q2, and worsted market condition in China. On page 3, I would like to come back very briefly on the main marketing initiative of the quarter, And Eric Valla, our CEO, will develop the strategic rationale behind them in a more deep way, in a deeper way in a month for the H1 result. Starting with the U.S., first of all, we have started to reinvest behind VSOP at 360 degrees to improve its visibility and the conversion rate. Here there's one illustration with a limited edition called My City. that will be activated in four important cities in Q4, Detroit, Atlanta, Chicago, and New York. In parallel, we continue to push our investment on our core business, RME 7038, through the current tour sponsorship of Usher across the U.S. with an important activation plan in both off- and trade sectors. And last, we are preparing the relaunch of MED with a new pack, more modern, more dynamic, a new blend, lower ABV, and a new price position to revitalize volumes. The campaign will be quite offensive and target primarily the new generation of women in the spirit space. Full plan will be live from April next year in two states and then roll out all over the 2025 year. In China, as mentioned, the market is tough for all the industry and more largely the consumer space. In this context, the objective is clear to leverage our biggest strengths to make our performance as much as possible resilient. Remy Club is definitely one of them alongside e-commerce in terms of channel. And then in Europe, we have decided to launch As an example, our own premium RTD offer in the UK as a pilot market with Cointreau, our most relevant brand on the cocktail landscape. It is a very new test, a learner approach, and on a very limited scale and exclusive at the White Rose retail chain. Now, back to figures. Let's move to slide number four with H1 sales analysis. Sales amounted to 533.7 million euro, down by 103 million euro an year, or 16.2 on a reported basis. This reflects, from one side, a strong organic decline, a bit more than 100 million, 101.4, which means a minus 15.9% organic sales decrease in the semester. This performance needs to be split between minus 13.5 of negative volume effect and minus 2.4 of price mix. Regarding the latter, this is a combination of the neutral price effect and low to mid single-digit negative mix effect linked to the underperformance of the cognac division compared to the overall group. Second point, a very slight negative currency translation impact of 1.6 million euros. or 0.3% loss for the semester. The loss was mainly driven by deterioration of Chinese won for 1.6 million and Japanese yen for 0.5. But on the opposite side, US dollar was positive in terms of conversion for a limited gain of 0.2, as well as the British pound for 0.4 million euro. Slide five, the usual performance by division comparing actual trends after the performance two, five years ago, pre-pandemic, 1920 H1. I will not detail all the figures. They are all on the spreadsheet 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 10.4% versus pre-COVID, while value depletion are down low double digit at the same time. In parallel, liposome spirits continue to generate a significant performance of plus 38, 38% versus pre-COVID, driven by both volume and price mix. And value depreciation trends grew even more, more than 40% over the same period. So clearly, two different speeds over five years between the two divisions. At group level, this shows now an alignment, as already said, compared to five years ago, in terms of saline, more or less, plus 1.5, and value depletion at group level, which are now slightly up, precisely plus 1.3%, compared to H1-1920. Now, let's now turn to slide six to dig into organic trends by region at group level. And let's start with APAC, whose H1 organic sales were down 8%, as said, but up 42.2% on a five-year basis. Let's start with the valorization, so volume-value equation. The performance year-on-year is equally split between a negative price-mix effect and negative volume effect linked to the Lycos and Spirits divisions. China's sales were down mid-single digit in Q2, representing an increase of more than 80%, 8-0 on a five-year basis, in a market facing tougher market conditions, particularly for the high-end segment. In this gloomy market, the only channel which emerged positive was the e-commerce, grew at more than 10% in Q2, representing 25% of sales penetration and ODH1. The overall performance also reflects the strong negative impact coming from Taiwan, Macau, and Hong Kong, as well as softer trends in travel retail in the IPAC region, where travelers are back but spend less. In this context of selling, of sales, down mid-single digit in China, H1 value depletion group level were down low single digit year-on-year, including, as already said, it's very important, a slight increase in Q2. On a five-year basis, H1 value depletion were up more than 35%. Moreover, considering the better resilience of depletion versus saline, our level of inventories remains healthy at the end of September. The remaining part of Asia continues to be affected by tough market conditions in Southeast Asia, in Q2, particularly in Australia, Malaysia, and Singapore. Meanwhile, at the same time, Japan continues to outperform, even if on a slightly lower trend in Q2 compared to Q1. End of September 2024, APAC accounted for 44% of our group sales, up four points compared to the previous year. Second region in terms of weight, it's America. America's H1 organic sales were down 22.8%, including a negative mid-teens effect in volume. More specifically, in the U.S., sales recorded a very strong decline in Q2, impacted by another round of destocking, given the persistent weakness of depletion. Given the sequential improvements, however, in depletion from Q1 to Q2, level inventories has lowered a bit. It's now slightly below five months at the end of the Q2, always comparing to the expectation of the future depletion. On a five-year, H1 value depletion are down now mid-teens, year-on-year, and flat versus H1, 19-20, but excluding the SOP, plus 45%. In Canada, sales were flat in Q2, supported by Lacrosse and Spirits Division performance, and Latin America was down low double digits, impacted essentially by cognac. End of September of 2024, the Americas accounted for 34%, 3-4, group sales down 3 points. And then we have EMEA, EMEA H1 organic sale, we are down 1%. 18.8%, almost flat compared to five years ago. This year-on-year performance mostly includes a very strong negative volume effect. Since the changes of organization announced last June, we monitor now the performance of this big region with the different split as displayed on the slide. So, first of all, we have the cluster of Europe third-party distributor, 3PD, recorded a slight sales growth in Q2, led by Germany, Greece, and Italy. In parallel, sell-out has slightly improved as well, led by Metaxa, even if the spend per capita remains subdued and weather conditions were unfavorable in the summer. Second cluster, UK and Nordics, down strong double digits in Q2, impacted by high comps and a gloomy economic context. The objective has been to protect our market share in La Cosa Spirits, despite the declining categories environment. Benelux and France, third one, we recorded a slight decline in Q2, impacted by cognac, while at the same time La Cosa Spirits showed good dynamics in summer. And then, last but not least, MI and Eastern Europe says we are down strong double digits in the In Q2, impacted by Nigeria, for instance, which facing the stocking following the change of route to market, and as well South Africa, still affected by a highly promotional market and mostly driven by the V.S. segment. Over the last six months, value depletion at all EMEA regions were down low double-digit year-on-year and down mid-single-digit on a five-year basis. Excluding Russia, value depreciation would have been flat compared to five years ago. So overall, considering this comparative performance, level of inventories remains healthy in the region. End of September, EMEA big region accounted for 22% of group sales, down one point compared to the previous year. Now let's switch to slide number seven, the analysis by division, starting with cognac. Cognac posted a H1 organic decline of 17.5%, reflecting a decrease of 14.2% in volume and negative price mix of 3.3%. At the end of summer 2024, Cognac division accounted for 64%, two-thirds of our sales, down one point compared to the previous year. And let's start with APAC, the most important region at this stage for cognac. In China, inside the pack, sales, which represent most of our cognac exposure in APAC, were slightly down in the Q2, affected by ICOMS. China is up more than 90% versus Q2 in 1920. Tougher market condition, domestic market, and in travel retail as well. In a nutshell, consumer confidence remains a bit low Cash pressures are affecting wholesalers and the luxury shaming waves indirectly on the high-end segment. However, on the value depletion side, we were slightly up. I repeat, slightly up in the Q2 year-on-year from a slightly more favorable basis in terms of comps and were mostly driven by Remy Club, which overperformed up mid to high single-digit year-on-year On this period, on a five-year basis, value depletion for China were up plus 60%, 6-0. On trade is once again the most affected channel in this current contest, while, and this is something very specific in which we are very proud, e-commerce was up more than 10% in the period. Hong Kong, Taiwan, and Macau were weak. impacted by ICOMS, the stocking, and we can call it wait-and-see attitude before the tax decrease in Hong Kong. The rest of Eurasia was down a very strong double digit, particularly impacted Malaysia, Australia, and Fort Cognac specifically in Q2, Japan as well, and softer trends for Chinese tourism in these kind of countries. Second region for Cognac, the White Americas. In North America, cognac sales were down by a very strong double digit in Q2, still impacted by the stocking, but on the back of lower than expected depletion and a very high promotional market. Q2 US value depletion were down mid-teens year on year in minus 10 versus Q2 1920, showing a negative performance, but a sequential improvement compared to Q1, mainly led to by 7038. Considering all that, the level of inventories on cognac is now slightly below five months in terms of days of coverage. 12 months by the completion, as you can see in the slide, includes three points on negative price mix at past year-on-year at the end of September. But on a five-year basis, price mix is up 16 points. Finally, Latin America sales were down a very strong double-digit in Q2. impacted by a strong, fierce promotional competition. Third region in terms of weight for cognac, EMEA. Cognac sales were down a strong double digit in Q2, mostly impacted by Nigeria, changing RTM to market as said, and tough market in South Africa. UK continued to face high comps ahead of the rise in excise duty last year and fierce promotional environment this year. And Europe third party distributor, Europe 3PD, improved sequential in Q2, led by Germany, Greece, and Italy. This was in terms of sales, but EMEA value depletion, EMEA value depletion were down mid-teens year-on-year in Q2 and down strong double-digit compared to Q2 1920. Let's now turn to slide number eight, a word on Lycos and Spirit Division. Lycos and Spirit Division was established down minus 12% on organic base in H1, including a very strong decline of minus 12.6% in volume, and a slightly positive price mix effect of plus 0.6%. End of September, Lifes and Spirits accounted for 34% of our sales, up one point compared to the previous year. Now, let's review the performance of the division by region. And here, number one in terms of weight is Americas. North America says we are down a low double digit in Q2, still impacted by greater caution by Wholesaler, from the Wholesaler willing to maximize their global inventories footprint in a slowing market. However, the underlying trends show some resilience compared to the market. Quantro Q2 US value depletion were up low single digit year on year, and approximately plus 65% to third bearer than Q2-19-20. Botanist, our gene, showed also some positive trends year-on-year, plus 10% versus last year, and almost 100% plus 95% versus Q2-19-20 in terms of value depreciation. Besides all that, price mix was down three points versus last year in the last 12 months, period ending September 24, but up 20 points on a five-year basis. In parallel, Latin America says we're up strong double digits in Q2, led by Cointreau and Munguay. Clearly for Latin America, Lacus and Pires' division was more dynamic than Cognac. Second region in terms of weight for Lacus and Pires is EMEA, where sales were slightly up in Q2, showing a strong improvement versus Q1, led by France, Germany, Greece, and Spain. In parallel, value depletion were down a single digit versus last year in Q2, but plus 45% was five years ago. Inside all that, in terms of countries, while Benelux shows a very strong growth led by Cointreau, the U.K. on phase high comps and in declining market where the group has protected this market share. In parallel, Euro third-party distributors clusters showed some good dynamics, led by Metaxa and Cointreau. Eastern Europe was impacted, however, by some destocking following changes in route to market in the Czech Republic. Third region by weight, APAC. In APAC, we have clearly China, posted a very strong WG decline in Q2, impacted by continuing destocking in whiskeys. and a weak end demand, mainly from a younger generation. Overall, value duplication was slightly positive, however, versus last year, increased by 15% versus five years ago. So it's really an issue of the stocking. The rest of Asia posted a mid-single-digit increase in Q2. Inside that, while Southeast Asia was flattish, facing slouching market consumer conditions, mainly in Australia, Japan was booming from this division, driven by Brookladdy and Coentro. One last small word on group brands, which now represent 2% of the group sales, stable year-on-year. They were down 25% in H1, or minus 18.3%, versus H1-1920. To conclude, page six before our Q&A session. On the back of Q2 sales, we showed disappointing trends, and considering the persistent lack of visibility and worsening market condition in China, we have decided to adjust our full year guidance as follows. On sales, we now expect another year of double-digit decline in organic terms for the full year. And COP margin, operating profit margin, we now expect an organic deterioration that will be partially offset by the launch of another cost-cutting plan totaling over $50 million in terms of impact of this year. This new guidance is based on the following assumption in terms of region. In Americas, we do not expect any recovery in sales before Q4, 24, 25 at the earliest. In APAC, we should record a sequential sales deterioration in H2 compared to the H1. And EMEA, we should continue to face sluggish consumer trends in the second part of the year. To manage the top-line pressure, clearly, which is important, we have decided, I repeat, on top of the ongoing strict cost policy, to launch another cost-cutting plan of more than 50 million, 5-0, to protect as much as possible our COP margin. For the sake of clarity, This 24-25 guidance for this year takes into account the recent MOFCOM decision based on the information that we have as of today. The impact of this decision in terms of profit and loss for 24-25 is marginal for us. Lastly, we reconfirm our 29-30 midterm guidance. But Let me be clear on that. 24-25, as said, will be a year of transition with highlights, including a finalization of the stock in the Americas, and starting from 25-26, we'll make a resumption of the trajectory set for 29-30. 29-30 is confirmed, and starting from 25-26, it will be and high single-digit annual growth in sales on average and organic basis progressively, and a gradual progressive organic improvement in current operating margin. These are 2930 guidelines. Doesn't mean that according to Waters' years, symmetry between top line and bottom line will be assured on the same basis. I repeat, high single-digit annual growth in sales on average starting from 2526, and a gradual, gradual, month after month, quarter after quarter, improving current operating profit, but with no grants of the same symmetry. Thank you for your attention, and now I am happy to answer your question, but before I have to drink, because I have no more breath, I need water. Thank you.

Thank you, Mr. Marotta. If you would like to ask a question, please press star one on your telephone keypad. To redraw your questions, please press star two. Please note to limit your questions to a maximum of two only. We will take our first questions from Edward Mundy from Jefferies. Your line is open. Please go ahead.