Rémy Cointreau SA (RCO) Earnings Call Transcript & Summary

Hello, and welcome to the Rémy Cointreau H1 Sales 2021-2022 Publications Conference Call. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I'll now hand you over to your host, Luca Marotta, CFO, to begin today's conference. Thank you.

Good morning, everyone. Thank you for being here with us this morning. And as you have seen in the press release, Q2 sales showed another very strong quarter above your and our expectations and at plus 23.7% compared to last year on an organic basis. This performance implies that sales were up plus 19.4% versus Q2 '19-'20. So well above the pre-pandemic levels. Overall, H1 sales recorded an outstanding growth of 52%, i.e., plus 26.9% versus H1 '19-'20. This performance reflects an excellent performance from all our divisions. And from a channel point of view, the group benefited from a strong rebound in on-trade across regions as well a steady resilience of the off-trade to a level much above H1 '19-'20. And on top of these strong underlying trends, our sales performance has been reinforced by a low base of comparison across the world and some replenishment effect in the U.S., particularly in the Q1. As a reminder, we ended the year with an extremely low level of inventories, and we are still facing an exceptional demand boosted by the new paradigm of consumption. Looking at the overall sales performance by region, we can say that Americas was up plus 60.2%, boosted by buoyant consumption trends in the U.S. as well as some restocking effect. APAC increased by plus 49.3% and showed a very strong performance during the Mid-Autumn Festival. And finally, EMEA grew by 33.5%, led by a strong rebound during summer. This was sales, but in terms of value depletions at group level, we recorded as well a very, very strong double-digit growth in Europe and in China over the last 6 months, while depletions were as expected, back to growth in the U.S. over the last 3 months at high single digits. As a result, U.S. depletions were up low single over the last 6 months, but up a very strong double digit over the last 12 months. Indeed, we were finally able to finalize the replenishment effect between end of Q2 and beginning -- end of Q1 and beginning of Q2. To conclude on this first slide, I would like to reiterate our full year guidance. Given better-than-expected sales growth in Q2, we are today even more and more confident for the year. But remember, we're back on that, I'm sure you have question as well, this will be a year of 2 halves with H1 being clearly exceptional both in sales and operating profit. Now let's move to another slide. And from Page 3 to 7, we wanted to show you some initiatives that we have undertaken over the last quarter. And let's start with Page #3. One example is all the activation that we made to continue to leverage the rise of mixology with hero drinks, including, first of all, the celebration of 100th anniversary of the most popular classical cocktail which is Sidecar, Sidecar which is blending Cointreau and 1738 in our proposal. As part of the roll-out of our new campaign, we teamed up with Usher and we partnered with the most talented mixologist to bring the Sidecar back in style, even if cocktail still represents a small portion of Cognac consumption, around 20%. Second one is the continued expansion of the Margarita Cocktail made with Cointreau bought in on in the off-trade. This is a key driver of growth as cocktails represent now around 55%, 5-5, of Cointreau sales. Of which, 40% of this 55% are Margarita and 45% of global estimated consumption of Cointreau is still neat. And finally, the new campaign, summer Sangria of St-Rémy dedicated to the U.S. and Canada. Again, here, cocktails represent approximately 15%, 1-5, of St-Rémy consumption and are a great source of future growth for this important brand. All in all, H1 has been a very strong semester for this brand that grew at more 60% for 1738, above 50% for Cointreau and more than 30% for St-Rémy worldwide. Second slide -- Slide #4 on these initiatives, regards some activation examples on the on-trade, including a new collaboration, first of all, for Rémy Martin with guide MICHELIN to promote the taste of sustainable excellence across the globe. The partnership will focus on the guide international events in 17 destinations. And the partnership has come into play for the first time at MICHELIN in a star ceremony in Kyoto in Osaka on 19th of October. Second, as already mentioned, the roll-out of our new campaign Team Up for Excellence with Usher for the 100th anniversary of the Sidecar cocktail. Then some Cointreau branded terrace in the U.K. to increase our visibility and drive sales through the summer period with a key focus on the frozen margarita. We also replicated this activation across Europe, including France, Germany, Belgium and Eastern Europe. Then we have an example for our first Metaxa pop-up [indiscernible] in Athens at Mavili Beach, where we displayed our hero drinks and the [indiscernible] concept, a key moment of consumption of Metaxa. We created a buzz in collaboration with the relevant influential legislation, the objective being to continue to rejuvenate the brand by attracting a younger audience. And finally, on our gin brand, Botanist, the brand partner with the best cocktail bar in Dubai, Dubai to increase our visibility and drove trial to gin and to test. On Slide #5, a couple of works in China during the Mid-Autumn Festival, trends were really, really good, boosted by a wide range of activation as well. Here are some examples with our Rémy Martin campaign during the Super brand day on JD.com. It gathered media, social media, live streaming with cooperation by [ Yu ], a famous actor in China and some exclusive products. Then [indiscernible] where key opinion leaders were invited to the event and reviewed their experience on social platforms to attract netizens. On the slide, you can see the Shenzhen pop-up store in the atrium of the MIX-C Mall. And the organization of private dinners in China during Mid-Autumn Festival as well [ in core cities ]. A new luxury dinner format was developed for this Mid-Autumn Festival to announce our brand image on XO, threw out a more premium and immersive impression to clients. Turning to Slide #6. The launch of the ultra-rare red decanter N°XIII on July 9 in a prestigious Shanghai club. With only 200 N°XIII red decanters worldwide and testing available only in clubs, one decanter per club per night maximum, so very, very selective and rare. N°XIII is one of the most exclusive experience of the world with a sale price above EUR 18,000. The decanters also highlight the [indiscernible] of Saint-Louis, the oldest glass manufacturer in Europe. They had to use a strict process that require the addition of gold to create the striking handmade red decanter and red cognac glasses. As of now, 10 decanters have been sold, including 8 in China, 1 in Japan and 1 in the U.S. There is the last element I would like to highlight this kind of activation specific experience on Page #7 is the official relaunch of Champagne Telmont last June. As a reminder, we bought [ domain ] Telmont in October 2020. Since then, strong progress have been done by the teams, including a full revamped and streamlined Telmont range with [indiscernible]. And the elaboration allowed an ambitious plan called [indiscernible], which takes 5 key elements, like commitments, converting Telmont progressively into a 100% organic champagne house over the next 10 years, so progressively, generalizing the eco design, as you can see, achieving 100% of renewable energy. Fourth, an in-depth evolution of the entire production chain and beyond. And last, but not least, strengthening the traceability and the transparency of each bottle. First result and comments from the trade are very promising, very good. The brand is already distributed in a selection of cities in the world, exclusively in high-end location, as you can see in the chart, and Telmont was chosen in June to be member, to be the official supplier of the Cannes 2021 Film Festival. Now let's go back to figures. Slide #8, moving to the H1 sales analysis. Sales amounted to EUR 645.3 million, up EUR 214.5 million year-on-year or plus 49.8% on a reported basis. This reflects a very strong organic gain of EUR 224.2 million, i.e., plus 52% of organic sales growth, which includes plus 35.2% of volume effect and plus 16.8% price/mix impact in prices. A small scope benefit of EUR 2 million, i.e. plus 0.5% linked to the acquisition of [indiscernible] Telmont and a negative currency translation impact of around EUR 12 million, EUR 11.7 million, to be precise or minus 2.7% in H1, which has been reduced in Q2 by a gain of EUR 4.3 million. This was largely driven by the U.S. dollar, which contributed by EUR 17.3 million overall in the semester to the total loss and also 2 other currencies slightly deteriorated, the Russian ruble and Japanese yen, while most of the other currencies were flat or recorded a gain over the 6-month period, including Chinese yuan, British pound, Canadian and Australian dollar. Let's now turn to Slide #9, which shows our usual quarterly performance over the past quarters. In this case, we are talking about 10 quarters and the 12 months rolling moving organic performance of our group brands, which stands at plus [ 36.1% ] at the end of September. H1 '21/'22 performance confirmed clearly the recovery seen in H2 2021. Of course, low base of comps and restocking effect most in the Q1 have been a key support to this outstanding [ healthier ] performance. But beyond that, our sales are also well above pre-COVID levels and grew by 19.4% versus Q2 '19-'20, following an excellent Q1 at plus 36.5% compared to 2 years ago, as showed by the right part in gray of the slide. Now let's move our H1 sales growth by region, Slide #10. Our 52% organic sales increase at group level was driven by an outstanding performance of the Americas up 60.2% versus last year and 59.2% compared to 2 years ago, confirming the new paradigm in the U.S. on a structural basis. A very strong growth in APAC at plus 49.3% versus last year, and still positive at plus 7.2% versus 2 years ago despite a collapse of the travel retail activity in APAC, which was very, very strong. EMEA was also strongly up compared to 1 year ago at plus 33.5%, benefiting from the rebound of the European consumption during summer. On a 2-year basis, the performance is still negative, minus 8% as travel retail continued to suffer from a lack of international tourism, particularly Chinese and U.S. tourism. So let's dig in more details on Slide #11 to analyze together the organic trends by region. Let's start with the Americas whose organic sales were up plus 60.2% in H1 compared to last year. And first of all, let's talk about the U.S. In the U.S., over the 6-month period, sales were up at strong double digit and continued to benefit from a steadily high underlying demand in Q2. The quarter also enjoyed the last part of the restocking that we were expecting first all in the Q1. Overall, the group experienced a strong rebound in the on-trade alongside continued up-trading trends. And in parallel, off-trade channel demonstrated a high resilience. As a result, in the U.S., group value depletions were back to growth over the last 3 months, ending September at high single digits. However, the inventories remain low and the logistic chain tied to face an exceptional demand. This should create some volatility in the coming months, but I repeat underlying demand is strong, is there, is structural. In Canada, sales growth was also very strong, led by Cognac division and St-Rémy, while Latin America enjoyed a triple-digit growth on the back of the continued recovery in tourist areas. End of September, Americas accounted for 55%, 5-5, group sales, up 2 points compared to last year. APAC organic sales growth was up 49.3% in H1 compared to the previous year. Aside APAC, China grew at a very strong double digits on the back of a very good Mid-Autumn Festival season led in terms of product range by CLUB and XO while single-malt whiskeys enjoyed as well a steady high growth. From a subregion standpoint, the strong performance of Mainland China, Macau and Hong Kong has clearly more than offset the continued weakness as far as I speak, in Taiwan, the latter being impacted since May by public health restrictions. Digging and looking into Mainland China, specifically, value depletions were up at very strong double digit in H1, led by CLUB, XO and single-malt whiskeys. From a channel standpoint, all channels has been very -- have been very dynamic. E-commerce was up 35% year-on-year, accounting clearly for more than 20% of our sales in China. Off-trade continued to outperform strongly while own boutiques recorded an amazing first semester. In parallel, on-trade underperformed slightly because it was impacted by several local closures due to the new COVID cases, essentially in Fujian and some in the Guangdong region. The rest of Asia also reported a double-digit growth led by Australia and New Zealand. However, Q2 showed a sequential deceleration as well impacted by lockdowns and public health restriction. So on-trade is very dynamic, but still some lockdowns in some parts of Asia could weigh on a specific and temporary basis on some performance on their channel, once again, strong underlying trends that are becoming more [indiscernible] than ever. End of September 2021, APAC accounted for 28% of group sales, up 1 point compared to the previous year. And now let's talk about EMEA. EMEA organic sales were up 33.5% compared to previous year, led by Western Europe and U.K., which benefited from market share gains and new listings also on Cointreau and Botanist. Overall, this excellent performance reflects a strong rebound in the on-trade, a very good summer season, but on the back of the gradual improvement of the tourism flow and all that, clearly, on the heels at a very healthy level of opening the inventories, as you surely remember. End of September, EMEA region accounted for 17% of group sales, down 3 points compared to the previous year. Now let's move to our H1 sales growth by division, Slide #12, what we have been looking at by region, now by division. Our 15% organic sales growth at group level was driven by an outstanding performance of the Cognac division up 55.2%, i.e., plus 27% compared to 2 years ago, while Liqueurs & Spirits were strongly up at 46.9% and at the same time 26.9% compared to 2 years ago. So compared to 2 years ago, quite the same performance in terms of variation plus 27% for Cognac and 26.9%. So all the brands are clearly beating 2 years pre-COVID levels on a comparable basis, which is a good news. We are very balanced in terms of the top line dynamics. Partner Brands up 23.6% and once again, plus 26.1% compared to 2 years ago, helped by good dynamics in Benelux from a regional standpoint and the U.K. Let's begin, starting with Cognac on Slide #13. Cognac posted an organic growth of 55% -- 55.2% in H1, including a 35% volume increase and 20.2% price/mix gain. End of September, Cognac division accounted for 72% of our sales, up 1 point. And inside the region for Cognac, let's start with the Americas. In North America, so U.S.A., mainly also Canada, Cognac sales were up at a very strong double digit, reflecting a steady high underlying demand, boosted by strong on-trade rebound and the off-trade resilience as said, but showing consistent up-trading trend, very important. And the overall U.S.A. performance has been also reinforced by the completion of the replication in Q2 to fuel a low level of inventory as well as the new paradigm, which requires more stocks. Consequently, U.S. volume depletions returned to growth over the last 3 months at plus 1.4% compared to the previous year, i.e., plus 69.8% compared to 2 years ago. So it's another world in terms of depletions pattern. Depletions are set to remain volatile, as said, until the end of the year as inventories remain low in logistic terms. And remember, the pressing pie work we have. Price/mix effects were positive by 5 points, very important at depletions level in the 12-month period ending September 2021 and even strong in the last 3 months, plus [ 7, 8 ], it is logical effect of the compound price increase we have done in September 2020 and April 2021, which are cumulative. Latin America was up at triple digit led by Rémy Martin XO and supported by U.S. tourism gradually recovery in Q2. This was Americas. Now, obviously inside Cognac, but for APAC, China, recorded very strong double-digit growth with Mainland China enjoying very dynamic trends during Mid-Autumn Festival. In Mainland China, value depletion trends were up strong double digit in H1, led by CLUB and XO. Hong Kong continued to improve in Q2 and showed very positive trends, triple digit above expectation, but still small figures. However, Taiwan sales were still down in Q2 impacted by public health restrictions. In the rest of Asia, we recorded a very strong double-digit growth in Cognac, mainly driven by Q1 performance as Q2 was impacted by on-trade closure in several key cities such as Sydney, Victoria and Oakland as well as public health restriction like in Japan and Singapore. EMEA Cognac sales generated strong double-digit growth. Excellent performance reflects a lower performance in the Q2, impacted by strategic management inventory as the priority is given clearly to the U.S., China and only a couple of European countries. As you can see in the chart, it's important to understand that EMEA represents only 8% of our Cognac sales. Western Europe and U.K. continue to outperform, but it's important to understand that in our supply and logistic preference and choices in terms of Cognac, U.S. and China are clearly the priority. Now let's turn to the Liqueurs & Spirits division, Slide #14. Liqueurs & Spirits division posted a plus 46.9% organic sales growth in H1, reflecting an increase of 37.2% in volume and a price/mix gain of plus 9.7%. End of September, Liqueurs & Spirits accounted for 25% of the sales, down 1 point compared to the previous year. And now let's review the performance of the division by region. Let's start with the Americas. North America recorded double-digit sales growth, notably driven by Cointreau, which was up double digits, led by high demand in the on-trade and some positive phasing effects in Q1. Despite high comps, the brand continued to display positive trends in depletions. In the U.S., volume depletions were up plus 6.8% in the last 3 months versus last year and plus 31.6% on a 2-year basis, very important, plus 31.6% compared to 2 years basis. Besides, price/mix was flat in the last -- versus last year, the 12 months ending September 2021. And second, on a brand standpoint, St-Rémy, which recorded a very strong performance supported by positive result from the launch of Signature, a new label dedicated to the younger generation. In parallel, Latin America recorded a triple-digit sales growth also in the Liqueurs & Spirits, thanks to a low base of comps and the excellent performance of Cointreau in the touristic areas. Second region we are highlighting in terms of considering also the weight of this region for Liqueurs & Spirits is EMEA. It's not APAC. So we changed our way we present this kind of performance because we are following the weight of the region inside the division. EMEA sales grew at a very strong double-digit led by all regions, Western and Eastern Europe as well the U.K. This is a good news that EMEA represents a key part of our Liqueurs & Spirits business, 38%. The overall performance reflects a strong rebound in the on-trade during summer, a relatively good tourism flow on the back of a very health level inventories. In terms of brands, Cointreau and Botanist outperformed boosted by market share gains in key markets and new listings in France and Spain. Metaxa generated a strong double-digit growth in -- led by Greece and Germany. And this was thanks to a solid commercial execution and marketing plan to rejuvenate the brands. It's very important. And finally, the whiskey portfolio recorded a double-digit growth, reflecting new listing gains in the Q1 essentially. Then APAC for Liqueurs & Spirits in which we have China posted a strong double-digit growth led by single-malt whiskeys, which benefited from the very good dynamics of the category as well as the strong desirability among younger generation, especially in the South of China and the region of Shandong. Meanwhile, The Botanist generated another quarter of strong growth supported by a more efficient route-to-market as well as the good performance of the gin category's high-end segment. Rest of Asia sales recorded double-digit growth in H1. However, the overall performance showed the sequential deceleration in Q2, not only impacted by Japan, where on-trade was strongly impacted by public health restriction as already said for Cognac. Now the last slide and then we will switch to Q&A on Slide #15 with '21 and '22 full year outlook. On the back of the better-than-expected performance in Q2, we are today even more confident, more and more confident for the full year. As already mentioned, '21 and '22 is expected to be a year of 2 distinct and very different comps, volume sales top line and operating profit mainly due to the low base of comparison and the restocking effect in the H1. So line by line. We expect to generate a strong growth in sales for the year, mainly driven by the H1 performance. At the same time, we intend to increase meaningfully our strategic investments this year. This investment should be overweighted in H1 and already -- in H2 -- already very strong in H1, but will be, I repeat, overweighted in H2, there will be an acceleration in the next 6 months. Consequently, the strong reported operating profit growth that we are expecting for the year will mostly benefit from the exceptional growth that we should post in H1. This organic performance should be tempered in bottom line by some unfavorable currency effect now between EUR 10 million and EUR 14 million. So we revised the guidance, is lower, but it's still negative from EUR 10 million to EUR 14 million at yearly level. And we confirm the negative scope effect of circa minus EUR 2 million. I'll now be very happy to take -- answer your questions.

[Operator Instructions] And the first question comes from the line of Simon Hales from Citi.

A couple of questions, please, from me. Obviously, clearly in the presentation, Luca, you showed a lot of the activations and investments you've been making in the first half. You've just said you're clearly going to step up the rate of investment into the second half. Obviously, the absolute level of marketing investment is always more skewed to the second half of the year for you guys. But what additional areas will you be targeting when you're stepping up that investment in the second half because it already looks like you're doing an awful lot through the first half. And then related to that, against that backdrop of higher investments in the second half of the year, do you expect to see some operating leverage still through the business at the EBIT level for the full year? And then my second question was just back to the U.S. Could you just talk a little bit more in detail about the current stock situation? It's clearly still tight. Are we back at around 2 months' worth of inventory? Is supply of 1738 still particularly sort of tight? So any more color you can give there? And any more color perhaps helping us understand how those H2 depletions may develop given that sort of volatile backdrop that you referenced?

So thank you so much. So let's start with the A&P. So as said, today's conference call, we are supposed to talk about the top line, but no problem. I can give you some colors about the other element of profit and loss. We'll comment in more details end of November. You will see that A&P will be growing very much end of H1. But clearly, the difference in absolute value between top line and A&P makes that the same acceleration or even more acceleration in A&P line is not comparable in terms of the dynamics of the acceleration of the top line. So even if we are growing very much in A&P, we are still mixing some size and scale to change paradigm as well as a company to follow the exceptional strong demand, meaning that we will continue to invest in the second part, growing even more, even if end of H1, we invested far more than the previous year, in which area, will be all around the brands, clearly supporting the Cognac, capitalizing on the new -- the new campaign, including new XO platform in China, essentially. I will not deliver too much, but these are the main already known areas we will invest. Cointreau, other brands of Liqueurs & Spirits will be all around the brand and all around the globe, clearly following the priority of each given brand. In terms of dynamics, we'll be more -- even more long-term brand awareness oriented, reinforcing the authority of the brand sometimes and some areas still missing. Clearly, we are not forgetting those are the tactical element of A&P sometimes, but it's still a minor point. In terms of means, we'll be even more digital. Last year, we grew more than 100% in terms of digital A&P, inside A&P, including -- growing the weighted digital investment compared to the overall A&P -- A&P spectrum will be even more the case. So more digital all around the globe and a little bit more on the long-term awareness, development of the brands than the tactical element of A&P. In terms of guidance, in terms of [ EBIT ]. So as you have seen -- some of you have seen, have noticed that we are highlighting that we think to grow strongly, both in top line and bottom line. So the semantics is quite the same. But what is changing before the previous -- compared to the previous guidance is the magnitude of the absolute value, which is implied. Strong is clearly higher than good. And if we are able to increase our absolute value in terms of top line, scale, A&P, gross margin to be invested, strategic OpEx and clearly as well the bottom line, we are much more well prepared for the future to continue to serve for this exceptional demand, which is there. So I think the issue is not to define today, would be more precise onto November, if we are ending at mid-teens at 20, 25, 18, 22, in terms of progression operating profit, I think we are missing a point if we remain so anchored to that is that to understand that we are beating expectations, both in top and bottom line. End of H1, we continue to overinvest. Top line in the second part of the year clearly will face higher comps and remember the pricing power. So will be in Q4, we will decide to strategically manage our inventories, that the operating profit at the yearly level will be strongly growing. I think that if we focus our strategy, are you lowering the operating profit in the H2 compared to 1, we are missing a point. We are changing scale. We are playing in league one more than ever. So absolute there you are booming and we'll be prepared to serve on this boom. So we are still small compared to our peers. We are gaining size, credibility, I think, as well, because beating expectations and you can say, I'm cautious, we are cautious. But every time beating can be also a matter of caution, is that we are reliable. We are stronger. I think we'll capitalize on that. Strong and strong means stronger for the future in all elements. So I will not answer to any question to qualify mid-teens 20, 22, 21. I can say that I'm very comfortable consensus at H1. I'm relatively comfortable for the consensus at the yearly level. I noticed that we are at 21% increase of operating profit for all year. So you don't care about what I say in a while because I said many things, but it's not the debate. It's not the point. Clearly, we are running better than ever, and we are changing scale. I'm not bullish, I'm realistic. In terms of U.S.A., if you don't mind, I will answer to that for the U.S.A. and also for all other regions to give a complete answer on level of stock. End of September, in the U.S., stock is still very low. So the performance better than expected to analyze of the stock coverage because as said many times, the stock coverage is -- in a given moment is something which is relative. The underlying demand is stronger than ever. So the coverage is 1 month more or less on -- for VSOP and 1738. And if we analyze some Nielsen data, you notice that sometimes for VSOP, we are still out of stock in some key states like Texas and California. So the stock is still low. So there are still opportunities to follow in the Q3. But that at the moment in time, because Cognac -- talking about Cognac, we are also linked to a specific year-by-year aging. We cannot sell more than what the mother nature has given to us. We'll decide to are you obliged to stock or we want to stock mainly in the Q4 to profit of the exceptional pricing power. Only one element on this point. Remember, price increase in the U.S. and [ all over the world ] September 2020, April 2021 and October, we increased price as well. So three price increase, you have highlighted strong double-digit price/mix gain, both in sales and depletion will continue. Because also this is the beauty of the allocation. When we discuss the reality, the underlying demand is there. Not a matter of being swagger, but we can increase prices and we will continue. So in the U.S., back to your question, still very low, alas, 1 month on average for VSOP and 1738 coverage, which is not homogeneous. So sometimes, there will be some very good results, sometimes [indiscernible] results state by state, talking about the U.S. Some important state that gets still more demand than product available, California, Texas, sometimes also Pennsylvania for the [indiscernible] state, which is very important. China, sell-in and sellout and depletions are -- continue to be relatively aligned, but the absolute value, what I've said before for the top line and bottom line of the group, you can apply that to China. The underlying absolute value are more important than we estimated. So the scale, the game is even growing. We are gaining market share. Our [indiscernible] inventories remain very healthy at the end of September and very, very good trends during Mid-Autumn Festival and the expectation for the next month are very good. The technical factor, you will notice that will be commented during our January conference call about sales of third quarter. We'll highlight between EUR 8 million and EUR 10 million of anticipation of net sales because Chinese New Year will be before the previous one. So we have small technical factor. But out of that, the overall trend in China also in the subregional point of view are very good, not only in Mainland China, but also in Hong Kong, in Macau, and even Taiwan, which was penalized by lockdowns health restriction. We are quite optimistic for Chinese New Year for the next coming months. Then rest of the world, very good job last year to clean up our inventories, particularly in EMEA, [ the state ] and following on-trade, good summer season, sometimes new listing and new exceptional commercial dynamics installed by the -- by our key people in EMEA. Overall levels remain very good, and we can serve on the yields on a very good performance. So I answered a little bit longer than you may expect, and I [indiscernible] to answer even more larger in U.S. and all.

That's really useful, Luca. Sorry, my line break broke up a little bit when you were answering the first question. I just wanted to confirm, I know you don't want to sort of get drawn into specific numbers, but did you say you were very comfortable with consensus for H1 and the full year as things stand from an EBIT?

No. For H1, I'm very comfortable. For full year, I'm relatively comfortable because the consensus plus 21%, and I don't want to commit to a figure, what is important that will grow strongly, both top and bottom line, and we increased the A&P. So what is important is that the absolute value of operating profit is growing faster than we expected. Absolutely value.

The next question comes from the line of Mitch Collett from Deutsche Bank.

I appreciate you'd rather talk about sales today. So maybe I can ask one on that. Your guidance for the full year, to me implies that you might have some growth in the second half in sales. Can you confirm, given the tough comparison and the movements in the stock levels, whether you think sales growth organically is possible in the second half? And then perhaps as a follow-up, can you comment on the challenge of investing behind your brands when you do have supply constraints and stock-outs in certain parts of the world?

Thanks. So I will answer to both. So H2 is composed by 2 quarters, Q3 and Q4. So for the Q3, the underlying demand is very strong. At this stage, we expected positive growth on top of the highest comp for the year. Remember, the Q3 last year was around plus 25%. So we are expecting a positive growth in the Q3. Key drivers in Q3, APAC and EMEA, because Americas will be not an issue, but a mathematical issue. Last year, we experienced about 75% as a comp in terms of top line. But depletions and final demand and sellout are clearly not a stake. Overall, as a group, we expect a positive growth. Q4, it's too early to say because last year was plus 15%. We have to consider all the -- in the equation, all the key moving parts and criteria, so Chinese New Year, Christmas in Q3 and some special days like 11/11, 12/12 and Black Friday. So we will have also some decision to call to have -- to make -- sorry, to make -- in terms of strategic management of our inventory, mainly for Cognac and single-malt whiskey because we have to consider that there is a strong demand and consider our strong pricing power, which we can capitalize. In April, we'll continue to increase prices. We might decide, like previous year, also to have some modest performance in terms of Q4 top line because we preserve our strategic stock for next year. And then sometimes, we are clearly out of in terms of Cognac because today, we are still some -- already out of stock in some key states because the demand clearly are beating us. So having said that, it means that H2, mathematically can be confirmed today will be a yearly level, a strong sales performance. We are at plus 52%. Q3 will be growing. And Q4, it depends on our strategic decision and the logistic tension that also is to be taken into account as a global environment. But Q3, we are expecting to grow. A&P challenge, why you are increasing big time, A&P, when maybe you are temporarily out of stock. I think this is effect debate. So we are still missing notoriety and awareness of our brands. So even if on a given moment, you are out of stock in a given state and a given store, our brands needs, desperate needs more long-term A&P to support what we are doing, in some case, to rejuvenate the brand. In other case, to better equate our performance on some ranges that talk about XO. So it's not an issue if we have a disconnection between some specific long-term investment and range out of stock. Your question makes sense when the out of stock is made on some intermediary products like VSOP, for instance, in the U.S., if you're talking about promotional activity, so the P part of A&P [Audio Gap] but we'll be more engaged in A advertising, that gives a nurture the brand for the medium to long term. So even if you are in allocation and scarcity situation in a given moment in time, it's not an issue. So we'll continue to hammer as hell in terms of A&P, on and on and on. Then there is one question mark, which is not. It is awarded or not. It is worried. It is that. We are changing gears. We are changing scale. This is the complexity of the execution. So it's not a matter of money. It's a matter of what you do with the money, how to do it, or the best you can do it. You have the best ROI, not only in terms of sales, because we can and we want to invest more, but we need to have the good, the right product. Marketing teams are making a huge fantastic job when you change gear from 100 to 300 in a small period of time. There is an execution issue that need to be sold. We are on the right track to solve it, and we continue to do it. But it's not easy. It's not only a matter of writing figures and then trying to execute it, it would be very easy. It's not. It's complicated. Because when you have a competitive arena, it's like in other part of the business. Commercially, you have to fight with your competitors to gain spots, to gain relevance. So the element is the execution that sometimes could delay some results from a will that is still there and the weakness of the -- and the real figures that they are executed. I hope it was clear.

The next question comes from the line of Laurence Whyatt from Barclays.

Two for me. You mentioned on the call that Q2 was slightly ahead of both our expectations, but also your internal expectations. And you've previously talked about having flat margins on the year as a result of higher A&P spending. If we see a similar sort of higher than your internal expectations Q3 and maybe Q4? Do you have enough time to increase A&P spending to keep the margins flat? Or would we expect to see a bit of margin expansion if that were to happen? And secondly, there has been a bit of chatter around...

This is a tricky question this one. This is tricky. I'm laughing, but it's a nice question. It's a good one. It's a good one.

Do you want to go with that one and then we can move on to second question later?

Yes, yes. So at one meantime, accumulating beating, beating, beating and the complexity of the [indiscernible], we might witness deviation by our will. Could be also the other way around. If at the end, you have an issue, which is not -- a problem that is not -- I can say that it's not estimated very well. At this stage, we think that we will be able to consider our expectation to increase strongly top and bottom line on a yearly level, meaning that the dynamic is top line, Q3, as I said, will be positive, Q4 to be more assessed after these key parameters. And the operating profit at this stage in the H2 would be -- will not be at the level of the previous year. But once again, this is not the debate, is that we have to change gears. You are right that at the end, beating expectation every quarter could drive to no matter what a beating in our internal expectation start to speak. It could be. But the good news that we'll have many other opportunities to comment on that. In end of November, we'll be very clearly -- we will very clearly address the point of the full year guidance, so we can be also more precise than compared to day, which is sales confidence. And we can discuss in terms of what if scenarios in terms of sensitivity because we are talking about sensitivity. If -- we are clearly committing ourselves this year, I repeat myself, to increase dramatically our A&P spending in the second part of the year, even if the first part was already very strong. And as a result, the profitability in terms of percentage of sales is not the point for ourselves, is that we are increasing absolute value, top and bottom line, very, very much compared to our expectation. For your second question, you said?

Sure. That's just clear on the profit side of things. Your second question around the U.S. market. And you say we're hitting a new paradigm in results -- I mean, we can clearly see that in your numbers coming through, particularly in Cognac. Is this largely as a result of people moving into the Cognac category? Or do you think we're seeing an overall increase in spirits consumption? It seems to be that the on-trade is coming back and yet the off-trade remains at very elevated levels, which suggests that consumers are overall increasing their alcohol consumption. You seem to see this as a sustainable trend. I'm just wondering, wondering what your views are on that? Or is it a Cognac-specific thing?

Thank you for your question. Clearly, compared to other competitors on that point, we are not aligned because we don't think that this up trading of this increase on consumption is linked to short-term measures or to some stimulus or some increase. We think this is more structural. It is a combined effect of the channel increase. I want to say thanks to the pandemic, but it's a little bit the case. More people discover the Cognac of trade and the consumption boomed compared to 2 years ago. If you look at our performance, bottom sell in on the [indiscernible] is clearly the case, and that will last. And the on-trade dynamism is supported by the will of the people to please themselves more than before. I think that we are there for something in terms of A&P, partner and content, not only in terms of massive investment, in terms of quality of investments, both playing global and local. And so we think that this new paradigm will last. There will be a very complicated exercise from our side to define the best strategy in terms of pricing, A&P, line by line, not only brand by brand, in terms of pricing power, following demand, taking into consideration the logistic tension that are worldwide affecting everybody. So there'll be sometimes some volatility now and also in the following quarters. But overall, the structural changes, a new paradigm is there to last in our opinion, thanks to a new habits of consumption and new A&P footprint by ourselves in terms of content that will last, will be even increased. This is for cognac but also for other brands, Liqueurs & Spirits. So we are very, very optimistic. The volatility only links to the limit of mother nature and to the limits of the logistics congestion of [indiscernible].

The next question comes from the line of Edward Mundy from Jefferies.

A couple of questions from me. I was hoping you could provide a bit more color on the price/mix trends that you've seen between the quarters. I think in Q1, you've highlighted that price/mix was nearly 30%. And it's running about 17% H1. I appreciate the comps make this quite messy, but could you provide a bit more color on what you're seeing from an underlying price/mix perspective? Second question really coming back to this new paradigm of growth. What do you think the U.S. industry is growing at the moment? And do you think it can grow fast to medium-term relative to historical 4% to 5%? And then the third question really around Cointreau. You think you said that 40% of Cointreau sales today are for the Margarita. How does that compare to, let's say, 3 years ago?

Sorry, didn't catch the second one. Can you repeat the second one?

In terms of the new paradigm of growth, what do you think the U.S. industry is growing at the moment? And do you think it can grow faster than historical levels of maybe 4% or 5%?

In terms of U.S. market, are you talking?

Yes, U.S. market, yes.

Okay. So price/mix trends, I think that we'll try to continue to grow double-digit because with profit of new also price increase, which is live now in the U.S. mainly, also partially in China, but essentially in the U.S., 1st of October. So we'll be the third earner. And we'll continue to increase prices as well in April -- in April 2021. So I think double-digit price/mix impact should be the consequence. Also because sometimes, mother nature makes things very, very good. So if you have the specific issue in terms of frequent quarter, in terms of available product for VSOP is more accretive to sell other things that are, at this stage, quite boring. So there will be also mathematical range positive impact. And the channel and state management we are doing right now increase in our price/mix. So we are very price/mix oriented in terms of choices and priorities. In terms of U.S. market, I'm not able to comment on your point. I think this is always the same. I'm able to say that we want to continue to gain the market share. So if it's 4 or 5, I don't know, but we want to continue to beat this market -- global market expectation to grow more than that, only simple as that, in cordials and for Cointreau and Cognac. For rum, Mount Gay, it's reason to complicate. So entering range by range, maybe for Mount Gay, which is a brand with this turnaround, switching more on the XO and the premium part, while the overall dynamics is more mainstream. It's more complex to gain market share globally in terms of rum. But for Cognac and Cointreau, our asset -- set very clearly to continue to overperform the overall market, maybe 4, 5, 6, I don't know, but this is the global overall value. I think we are targeting more than that. In terms of Cointreau, I repeat what I said to be even more clear. Overall, we estimate as far as I speak, because it's important to try estimate the part of cocktail. I don't think we did it or disclosed that in the past, but we are starting to do it because important to have this kind of discipline internally, externally. So we estimate that overall order, it is around 55% of cocktail and the 45% being neat. So it's important. Inside this 55%, we think that around 40% it is Margarita. So in a way, we are saying that around 20% overall, Cointreau performance are linked the Euro cocktail. And we are doing the same thing also for Cognac, [indiscernible] of Cognac and St-Rémy because it's important to increase consumption and capital at home. And then we think that we have to begin, to continue and to highlight what we are doing in terms of mix, in terms of activation to regulate this part. So I don't know if I answered to your question or if you want some precision, or if I can be more helpful just then?

The next question comes from the line of Trevor Stirling from Bernstein.

Just one question from my side, please. In your Slide 13, and looking at U.S. depletions, [indiscernible], I think, 1.4% volume depletions in the 3 months of September. When I look at the NABCA data, August -- July and August was still negative. So I was wondering, you're 1.4%. Is that because you think NABCA is under reading your business in the U.S. at the moment? Or because September was actually a much stronger month from July and August?

Very clear. So here, you have 3 markets, clearly, Nielsen, NABCA, NABCA/Discuss. And our performance is the combination of NABCA control state,which is for ourselves, only 18% for overall U.S. it's 22%. So part of the answer is already there. NABCA is a small part of business in control states, which are not -- with some exception, small exception, not the core business, is more mainstream business, I can say. It is underestimating, underweighting the performance of Rémy Cointreau. Our forces are completed in terms of the on-trade part, which is not catched. [indiscernible] in the -- by the part of the control states. So the panel, Nielsen and NABCA cover overall, only 59%, for us is 51%. And we are estimating for our performance, the on-trade part wasn't catched by the panel. Overall, the panel are penalized in terms of coverage, Rémy Cointreau around 8 points and still is missing part of the market.

The next question comes from the line of Fintan Ryan from JPMorgan.

Just 3 questions from me, please. Firstly, in terms of the EMEA region, could you give a bit more color in terms of what you're seeing in on-trade recovery? And what level do you think that your on-trade sales have been during the last quarter and any views of the on-trade into Q4? And more sort of strategic question on the back of that as well. I appreciate inventories between been Cognac and [indiscernible] booming demand in China and the U.S. But how should we think about EMEA as a whole within your 2030 strategy, like should -- are investments going into growth in Cognac in EMEA in the long term? Or will that Europe be sort of more of a Liqueurs & Spirits market into the long term? And then finally, I appreciate the interesting disclosure you've given on the cocktail contribution to some of your key brands. Can you give us a sense of how that has evolved over the last 2 to 3 years? And how you think those numbers could evolve going forward?

Okay. So a different question. If I -- in your on-trade globally, we can say the on-trade reopens all over the world, and we are not seeing a collapse of the off trade. 90% of the on-trade are opened in the U.S. and the spend per ad increased by 15%, and uptrading trends remain valid also as well in the on-trade. For the -- your question, EMEA, so far, the consumers are still very excited to go out, pretty strong resilience. The summer season was good. And what are the key markets is U.K., but also part of the Southern Europe. We still had the correlation there with the performance of the depletions and sell-in. So we should progressively catch up and sell in because historically, we're quite low in terms of consumption. We are integrating the new paradigm as well. Greece was very good and dynamic. Some eastern country were also well oriented and some Nordics as well. So it's a little bit everywhere, France as well and beating expectation in terms of on-trade performance and some also new listings in the off-trade in major countries, like France and Germany, to improve the consumer journey for some Liqueurs & Spirits brand, like Botanist, for instance, and Cointreau as well. So it's a combination. One last word on on-trade for China because China is given for grant because it was less impacted than other by the on trade, but it's not automatically. It remains very strong. It's very good news in on, off-trade. We have some local specific -- August, September, punctual impact due to the COVID cases in [ Foshan ], 60 cases in Shanghai, partially in Guangdong. So the performance in [indiscernible] for the on-trade was slightly behind our expectation, it remains very strong. There we have no issue, no answer about that. In terms of China and U.S.A. Cognac, second question, if I understand correctly, because it was not so clear, the Cognac perception. We continue to think to beat the market in both countries. For this year, we are a very strong double-digit growth on top line and depletion in China and high single in terms of depletions in the U.S., then will be more normalized. Today is booming because of the replenishment and the law, then it will be more normalized complex in the Q3 because of the high level of comp, plus 75%. And Q4 will depend on our also decision and arbitration between strong demand and logistic stance and supply strategic management of our available stock, knowing that in April will increase prices again. In terms of investment, sorry, I did don't catch your question. So you can be more precise, the third one?

So just the last question is -- was related not to U.S. or China, but depletion trends in Europe and how you see Europe for Cognac developing in the mid to long term?

Cognac in Europe. So it is performing quite well. But as I said, I can see it more clearly. Europe will not be as a global region, the priority for Cognac. Some European countries will be, like U.K., for instance, Germany. But Cognac for Europe is only 8%, and it's clearly more accretive in the U.S. and China than in Europe. So in terms of the underlying demand as well, is more important. So we will prioritize U.S. and China. The result of Europe today and tomorrow will be much more linked to the performance of Liqueurs & Spirit division. Cocktails contribution, why we are starting to highlight that? Because it's important to try to factor that in our internal vision because there is a new cake, new markets, increasing market on that. And some of our brands are already very, very exposed to that, like Cointreau, that will do even better because having Margarita so strong is a strength, but also can be also consider as a weakness. We have to increase the other big cocktails. Cointreau is present in a lot of cocktails. We increase the presence in other cocktails. And for Cognac, not being so mass in terms of exposure for some given lines, can be an opportunity in terms of the on-trade testing and then utilizing on a neat basis later on, St-Rémy as well. St-Rémy, which is a brandy, very ecstatic one, but with a lot of opportunity to play in the cocktail part and the mixed part. So it is a market per se and the split inside the brands need to be monitored. They need to be fueled for the future.

Thank you. The next question comes from the line of Olivier Nicolai from GS.

Just first of all, on Slide 14, you mentioned Botanist about 3x, actually, in every single region, which I think is the first. Now could you perhaps explain what's the reason behind the success of these brands and how much room for growth do you see for The Botanist, globally? And then just if we take a step back, and there's been a lot of questions from Cognac today. So we'll ask a bit more about Liqueurs & Spirits. I mean Liqueurs & Spirits historically, the growth rate has been a bit disappointing. It's been a low single-digit growth region. The margin is half of what you have in Cognac. it's actually well below [indiscernible] as well. I assume that some of the marketing investments that you mentioned at the beginning of the call will also support that division. So without obviously giving any guidance on what the organic growth of that division will be on a full year basis, can you perhaps tell us what's your midterm ambition for the current spirits, which has been in the shadow of the House of the Rémy Martin for a long time.

Thanks so much. So let's start with The Botanist, our premium gin. We are very satisfied with performance, but you are seeing only the beginning. The best is to come. Strong implicit natural value of the brand in terms of liquid superiority, clean, easy bottle and packaging, strong values, no marketing b*******, very clear-cut to justify a premium positioning. Now what is the stake is the development? First of all, in terms of notoriety. So investment in terms of -- it is sometimes more complex than other brands because it is a 360, not only a, not only ATL, above the line, not a matter of hammer with a global campaign. It's education, training, testing, all around the world, commercial as well, listing. Switching from confidential, nice brands, very, very strong in terms of underlying value to a more mass volume brands, considering the same value base that are characterizing the brand, not losing the integrity of the DNA of the brand, but improving the consumption, the volume base. With the different strategies and times region by region. The biggest opportunity in being some European countries and the premium market in the U.S. when -- where we have a huge opportunity to capture a lot of these markets and some challenges as well to increase the notoriety, the knowledge of the brands, and find progressively altogether in euro drink because gin is more common compared to other. And there is not the easy part to have, like in Cointreau, to have new drinks that are made with the gin. Gin tonic is a strong asset in Europe. It's less as asset in the U.S. So these are the major challenges. We are very, very focused to be successful for the future. It is clearly part of our global priority brand. Let me make a small without playing the role of very [indiscernible] because we will be clear on that on November, talking about strategy. Let me remember the global priority brands, in which we have The Botanist. So we start with The Botanist, PHD malt whiskey and Cointreau. So 3 Liqueurs & Spirits brands and then Remy Cointreau XIII. But in terms of evolution, in a 10-year journey, Botanist is meant to be one of the major weapon of the group in terms of top line, accretive marginality, both on gross margin and bottom line. To do that, we need to invest. So I'm back to your second question because it's the same thing also for other Liqueurs & Spirits brands, with the only exception only into brands of Cointreau, which is profitability is already very, very strong. We do not discover any figure about that and will never discover it -- disclose that. Not discover, disclose, sorry. But keep in mind that the profit EBITA gross margin level and bottom line control is already very strong. So we can increase volume. Price is less of an issue. And the brand being more successful can justify even higher investment. In the short term, for the other Liqueurs & Spirits brands and what is being the first of them, we need to upscale the investment, which is a 360 resets, starting with the training and testing and all other element of the market mix to be able to increase the size. So Liqueurs & Spirits in the medium to long-term because I will not disclose any short-term figures, it's meant to contribute more than Cognac in term of aggressiveness of top line and bottom line increase in terms of percentage. Clearly, the absolute value are not comparable. To do that, when I see massively, it's clearly strong double-digit for Botanist. You have to assume, in the short term, you are able to dilute a bit your profitability. It's not an issue because they are still quite confidential, modest in terms of performance, to be able to profit more in the future. In the medium-to-long term, the journey in terms of top line is more skewed to Liqueurs & Spirits brand than Cognac. The only exception being that Cognac will profit of strong price/mix benefit, while the Liqueurs & Spirits brand as an overall aggregate will be more balanced in terms of volume and price/mix.

As there is now time only for one last question, which comes from the line of Andrea Pistacchi from Bank of America.

So 2 questions, please. The first one about the global logistics tightness, if you could say how it is impacting you, if it's affecting your shipment patterns delaying or bringing forward sort of connected to this, some peers have called out glass shortages. Is that something that you are seeing? And the second question, please, Luca, you were referring earlier to the price increase in October. Could you give a bit more color on this? If it's Cognac? Is it U.S. and China and across SKUs?

Clear. So let's start with the logistics in terms of what the external environment ecosystem is impacting on our performance. So we can say that on the back of the pandemic and the sharp global economy recovery, the world supply chain is under tension. So boats, containers, customs, port trucks, as you know. And several industries are impacted by capacity scarcity, in terms of logistics, which is not in our hand. In this context, a very higher demand all the sectors, even including Liqueurs & Spirits, compared to the offer has been magnified by the logistic issues, so extended lead time and low level of stock at the end of March. So this is an accumulating of tension. Also, there is a lack of labor in the U.S., truck driver or dock operator [indiscernible]. So this kind of tension will probably remain for a while, which can be solved overnight. We are progressing them. We had, I think, quite a good performance. Once again, we are not perfect compared to a lot of industries, but they're quite agile. So we might face an unexpected situation. We are quite agile to try to solve it, and I think we'll succeed. The cost of logistics is increase. How much in terms of overall inflation? I cannot say precisely today. It will be more precise in November of -- in June for the full year. But the cost of doing business for logistics is increasing. Like as well next year, cost of goods will increase because we already highlighted that the cost of liquid will be increasing. Is this is a threat to our gross margin, which is the first tool -- first, to improve our profitability for the long-term to 2030? Mathematically, yes; in reality, no, because still strong pricing power, and we're back to your second question. A lot that we are already doing to gain in terms of mix management, priority of state or brands of ranges, formats of states, we can improve our results very, very much. So all in all, you will see gross margin end of H1 and end of the year will be clearly beating last year. And next year, even if in 2023, even if the context is more on a given moment, more complex, we will do all the best we can to continue to be accretive. So gross margin will be the final judge of the situation. The cost of the business is higher, but we have a lot of opportunities to improve our net value by bottles sold. In terms of glasses, there is some tension, but we are trying to manage it. We make some arbitration. And at this stage, it's not the major cause of our logistic-specific disruption. It's more the fact that sometimes you have no enough boats. Sometimes, you have your container stocked in a given port of the world, i.e., New York for more days than necessary. And you have some strikes or some lack of truck drivers to speed up depletion because this is what the way it is today. Glass, it's part of the equation, but it's not a major factor of disruption. Cost will increase, but please take into account that the journey to the valorization has just started to Rémy Cointreau.

As there are no further questions that we can take at the very moment, I'll hand the call back to Mr. Marotta to conclude today's call. Thank you.

So in a word, thank you for your attention today, was a very strong set of turnover performance. We'll be more precise on the overall H1 performance end of November. We'll discuss that altogether, a lot of Q&A and meetings. We are beating our entire expectation. We are continuing in our journey to the 10 year's plan. So far, so good. We are very optimistic. The underlying demand is stronger than ever. We might have specific issue here and there on a given quarter, that the global horizon is very positive for our group. And it will be a very strong year in terms of top line and bottom line increase, giving a new vision in our personal opinion and perception of the group, Rémy Cointreau in absolute value in terms of scale for the whole Liqueurs & Spirits environment in the world. A very respectful, modest one, but consistent opinion. Thank you so much, take care, and talk to you soon in 1 month.

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