Rémy Cointreau SA (RCO) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for being with us this morning for Rémy Cointreau half year results. I hope that you are all safe and healthy. I'm here with Éric Vallat, CEO; and Luca Marotta, CFO. Today, we will present Rémy Cointreau H1 result, and we are proud of what was achieved by the teams across the world. So first, let me start by thanking all of them for their efforts, commitment and achievement in this context. H1 has been a half year packed with initiative, both in terms of business and sustainability topics. I will not come back on all these events, but I would like to comment just a few of them. First, the share buyback program that we announced last June to ensure that the group keeps an attractive level in terms of shareholder returns and because we think that the level of valuation remains attractive. Second, the recent announcement of an EUR 80 million loan. It bears interest and a fixed rate of 0.6% per annum and offers a maturity of 7 years. In keeping with the group's desire to back its long-dated assets with appropriate financial resources, Rémy Cointreau is thus extending the maturity of its debts and continue to gradually reduce its average cost of funding. Third, the official relaunch of Champagne Telmont last June. As a reminder, we bought Domaine de Telmont in October 2020. Since then, strong progress has been done, including the rollout of an ambitious plan called In Nomine Terrae. Lastly, the one that makes me proudest, the announcement of our plan, A Planet of Exception that I will not detail now, as Éric will comment it later. All in all, H1 was an excellent semester for Rémy Cointreau. As we operate in a very resilient business, we reached an all-time high in almost all KPIs, including sales, gross margin, COP margin and EPS. So now I will turn over to Éric, who will take you through the H1 business review.

Thank you very much, Marc, and good morning, everyone. Thank you for being with us this morning for our H1 results presentation, which we are happy and proud to share, as you can imagine. I'll begin with a quick overview of H1 results, then Luca will go into more details before I conclude with the outlook. So looking at Slide 5. As you've seen from the press release just issued this morning, our '21, '22 H1 results were excellent, showing a strong acceleration compared to last year, but also versus H1 '19, '20, which is obviously very interesting to look at as well. Back in October, you saw our sales numbers. We talked about a plus 52% organic growth, reflecting a continued very strong trend in the China and in the U.S. as well as a solid momentum in Europe. With 27% almost of organic growth versus '19, '20 H1, our sales ended the semester well above the pre-pandemic level. In terms of profitability, the current operating profit stood at EUR 220 million, up 104.5% on an organic basis, representing 33% of margin. As mentioned by Marc, this is the highest level ever. This performance has been driven by a significant increase of the gross margin to 69.1% and a good control of our overhead costs while investing in critical capabilities. The free cash flow, as you can see as well, came at EUR 29.5 million, leading to a very healthy A ratio of 0.77. Let me now move to Slide 6. These results have been achieved notably thanks to a good progress made against our 4 strategic priorities set last year. As you may recall, the first priority is to increase value per case. And as mentioned several times, it will be achieved, thanks to a strong focus on retail price, through price increases, among others, but also through product mix management. Looking at our H1 numbers, we managed to leverage up trading trends with a positive mix price sales effect of plus 16.8 points at group level, driven by an increase of 20 points in cognac. These great results for Rémy Martin are driven by the success of our intermediate quality products in Cognac, such as 1738 in the U.S. and CLUB in China. 1738 grew 60% in H1, and its contribution to VSOP sales rose by 13 points versus H1 '18, '19, only 3 years ago. CLUB grew more than the 50% in H1, and its contribution to a total sales by -- its contribution to total sales, sorry, rose by 16 points versus H1 '18, '19 in China. This tells the magnitude of what has been achieved on the intermediates. And if we look beyond retail price, the gross margin increased by 2 points organically versus 2 years ago at group level. This has been achieved thanks to the investment behind our accretive brands, both in Cognac and Liqueurs & Spirits, among which Cointreau enjoyed stellar results. Let's switch now to Priority #2, enhance portfolio management. As you know, we have assigned clear roles to each brand, and we have split them in 3 groups, with a clear set of priorities for each. The objective is to maximize our gross margin, notably by growing our accretive gross margin brands, such as Cointreau, the Botanist or PHD Malts, beyond our cognacs, of course. It is only the beginning, but this is exactly what is happening, thanks to strong focus and efforts. Cointreau sales were up 50% versus last year and versus 2 years ago. The Botanist grew 80% versus last year and 30% versus 2 years ago. And finally, PHD Malts increased by 35% versus last year, but 50% versus 2 years ago. So this is happening. The third priority is to implement client-centric model, as you may remember. We delivered solid progress here with the opening of boutiques worldwide, of which our first Rémy Martin boutique in Hainan, with a brand-new concept. We also accelerated sharply on e-commerce with the opening of 6 monobrand e-boutiques, leveraging a common platform. I will come back to that later. Lastly, we are scaling up our capabilities on CRM to leverage the data acquired. As a result, in China, for instance, our direct sales grew by more than 60% in H1 versus 2 years ago, which is huge. And finally, our fourth priority, achieve a responsible growth, that I would like to develop here on the next slide. We have indeed taken a substantial step forward a few weeks ago, and I would like to thank all the teams for their engagement and work, which has enabled us to commit to a very ambitious project. We are leveling up our game, while we should already be proud of what we have achieved so far. Indeed, for the past decade, Rémy Cointreau has worked to reduce its environmental impact and especially its carbon footprint. The group releases 0.5 kilo of CO2 for each euro of its operating profit compared to an average of 4.5 kilos for the global beverage and food industry. The group therefore combines a high level of profitability and a low carbon footprint. It's a very good starting point. But climate change remains a key challenge for everyone, and that includes us. This is why our results should not prevent us from accelerating. On the contrary, they should help us accelerate. And this is why we have launched our very ambitious project, A Planet of Exception, to strengthen even more our participation in global efforts to combat climate change and to achieve worldwide carbon neutrality. We are already carbon neutral from this year onwards, by the way. Indeed, we are the first company of our size in wine and spirits to contribute to projects covering the full scope of our carbon emissions, Scope 1, 2 and 3. With South Pole, the group will fund meaningful and relevant certified projects in renewable energy and in forest restoration and sustainable management. These actions will also support initiatives to protect the territories and communities most vulnerable to climate change. This is great. We're very proud to be carbon neutral, but this is just the beginning of the journey. The real challenge is not to be carbon neutral through compensation, the real challenge is to reduce our own emissions. That is why the project, A Planet of Exception, is also focused on reducing the group's carbon footprint in conjunction with its official membership of the Science-Based Target Initiatives. The group thus confirms its long-term targets of reducing the intensity of its carbon emissions by 50% across the entire value chain by 2030 and to reach net 0 emissions by 2050. To achieve such, we've launched several initiatives around 4 major areas: packaging; transport; purchases of agriculture raw materials; and energy. I am talking here of initiatives, such as: 100% renewable energy on our production sites, which is already the case in many of them, notably on our French sites; gift box removal; redesign of our bottles; use of recycled glass; 0 plane policy for shipments; maritime selling transport testing; and so on, to name a few. And the good news is that we strongly believe that this is not only costly, it's also valuable for our clients. And it's contributing to the desirability of our group and our brands. I would like now to take you through a short business review before giving the mic to Luca. And I'm going to switch to Slide 9 and be quicker here. So the Slide 9 gives me the opportunity to remind you of our H1 sales numbers by division, which were already detailed by Luca back in October. Cognac, which represented 72% of our sales, grew 55.2% organically in H1 and 27% versus H1 '19, '20. Liqueurs & Spirits, which contributed to 25% of our sales, recorded a 46.9% growth and 26.9% on a 2-year basis. Lastly, our partner brands, 3% of the group sales only, were up 23.6% in H1. On Slide 10, just a word on the regions now. The slide shows an outstanding growth in the U.S. and in China, while Europe benefited from a strong momentum. Americas was a key driver, with a remarkable 60.2% increase and 59.2% on a 2-year basis, confirming the new paradigm in the U.S. Asia Pacific was up almost 50% in H1 and plus 7.2% versus 2 years ago despite the collapse of the travel retail activity and a lot of lockdowns outside of Greater China. And lastly, EMEA displayed a 33.5% growth, benefiting from the rebound of European consumption in on-trade 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 in particularly -- in particular, sorry, Chinese and U.S. tourism. Moving on now to the next slides, let's focus on the Cognac division, whose great key figures are summarized on the slide you can see now. But I'm going to move now to Slide 12 to go more into details. These are figures that you know already, but this slide gives me the opportunity to highlight again the amazing trends that we enjoyed in H1 for our Cognacs in all regions, all regions. The Slide 13 shows the operational performance of the Cognac division. Current operating margin increased by 9.8 points to 40.5% over the semester. This is a record, but not a normalized level in the short term, as you can imagine. This breaks down into an organic increase of 9.2 points, a positive currency effect of 0.6 point and a neutral scope effect. The organic improvement reflects a significant gross margin improvement of 4 points, resulting from a well-balanced contribution in volume and mix price. On top of the price increases decided in October '20 and in April '21, we benefited from the strong performance of our top end portfolio, including intermediates quality products, 1738 and CLUB, but also XO, which has been showing interesting trends in China and in the U.S. These gross margin gains have been partially reinvested behind our brands in A&P. The ratio rose by 0.5 points, particularly in the U.S. and in China to continue to grow the awareness of our brands and to fuel their future growth. And we will accelerate in H2 as many programs conceived in the first semester are now ready or about to be broadcasted. Finally, the P&L benefited from a good control of our distribution and structure costs compared to a sharp rise of our sales. The ratio decreased by 5.7 points. Let me now move to the next slide, Slide 14, and let's focus on the Liqueurs & Spirits division whose key figures are encapsulated on the slide. So like for our Cognacs, Slide 15 shows sales numbers that you know already. We have now a second engine of growth, well balanced among all regions. This is a key in our 10-year road map and reinforces our confidence in our ability to reach our long-term targets. But moving on to Slide 16, and I'll spend a bit more time here as this is a new slide. The Liqueurs & Spirits current operating margin stood at 23.1%, an all-time high. This performance reflects a very strong organic improvement of 8.4 points, partially offset by a negative scope effect, including the consolidation of Belle de Brillet in May '20 and Telmont in October '20. This very strong organic performance was driven by the combination of a very strong improvement of the gross margin, 3.8 points, of which 50% came from a very positive volume effect and 50% from a strong positive price mix. Here again, we benefited from the price increase achieved in October '20 and April '21 and from the stellar growth of our accretive brands, which, as you know, are key in our strategy, such as Cointreau, the Botanist and our whiskey portfolio. In parallel, we have reinjected part of our gross margin gains in A&P. The sales ratio grew by 0.3 points. We have reinforced our marketing investments on Cointreau, the Botanist and the whiskey portfolio to leverage the booming mixology trends and the on-trade reopening as well as to prepare their future growth. At the same time, we remained disciplined with our distribution and structure costs. Our sales ratio decreased by 4.9 points. Let me now give the mic to Luca, who will -- which will allow me to have a glass of water even though I must say, a glass of champagne would probably be more appropriate to celebrate such results. Luca, the floor is yours.

Thank you, Éric. Now let's move on, on the detailed analysis of the financial statement and begin with the H1 income statement. So as already mentioned, organic sales were up 52%. On that basis, gross profits increased by 61.4% in organic terms, implying a strong 4 points organic improvement in gross margin, reaching an all-time high. This good performance was driven by a well-balanced combination of, first of all, strong volume effect, around EUR 87 million, led by the Cognac division in our key markets, U.S. and China. But on top, a strong mix price effect of EUR 83.5 million, including 2/3 of that as a pure mix effect resulting from our value strategy and a pure pricing effect for 1/3, following price increases in October 2020 and April 2021 in all regions. Sales and marketing expenses were up 34.5% in organic terms, reflecting our clear and shared decision to accelerate our investment to fully leverage the on-trade channel reopening. But within this total were to split between A&P expenses grew around 60% organically, i.e., an organic increase of around 30% on a 2-year basis, so more than our organic sales growth. And this is in accordance with our long-term plan. We have decided to partly reinvest the gross margin gains in absolute value in advertising investment to support our brands in the rebound, increase our -- and their midterm growth potential by developing the awareness and strong long-term attractiveness. Most of the increase technically comes from the above-the-line line: classic media, digital, PR. And besides, we have to highlight that around 40% of our total spend in A&P is now digital. In parallel, distribution costs increased by around 10% organically i.e., an organic decrease, reduction of around 10% on a 2-year basis. This is reflecting an increase in terms of a key account in our international subsidiaries as well as some strategic OpEx to accelerate on retail and direct to client and also on commercial excellence programs. This was partially offset, as you remember, by some efficient productive savings installed -- initiated during the pandemic. Another important aggregate is administrative expenses, which increased by around 33% on an organic basis, i.e., around plus 20% on a 2-year basis, showing a limited increase compared to our sales growth. This organic increase includes, first of all, around EUR 2 million of donation to the Rémy Cointreau Foundation; around EUR 5 million, EUR 4.9 million to be precise, of charges related to mid- and long-term retention measures, employee savings and the employee stock ownership plan; and third, for the remaining part, mainly reflects some additional important headcount, key headcount, and a key investment in e-commerce, CRM and brands development and protection. All in all, the current operating profit of Rémy Cointreau Group reached an all-time high at EUR 212.9 million, up 104.5% on an organic basis and up 100.4%, so doubled, on a reported basis, i.e. after taking into account 2 small negative effects, negative transaction currency effect of minus EUR 1.9 million and a scope negative effect for EUR 2.4 million. Let me say that the amazing thing is this half year amount looks like an annual result. So we are very proud and satisfied also financially speaking of this very important result. So let's move now to the analysis of the group's current operating margin. It was up 8.3 percentage points to reach 33% in H1 published. Again, this is an all-time high, can be normative, but is a good starting point. This breaks down into an organic increase of 8.5 points, a positive currency effects of 0.4 points, meaning that the loss in bottom line in currency is less in proportion to the loss in published in turnover, and a slight negative scope effect of minus 0.6 points linked to the consolidation of Brillet in May and Telmont in October 2020. The organic improvement of the current operating margin basically reflects the strong increase in the gross margin as well as a good control of our distribution and structural cost ratio. As you've seen, we increased investments, but their increase is far lower than the top line increase. So there is a deleverage. And this has been partially reinvested in A&P. To dig in more details. Gross margin was up 4 points, as Éric already said, as a result of a well-balanced, strong volume and mix price contribution as well as a very healthy level of cost of goods. So on that point, this semester reflected a perfect alignment of stars. Second point, the NPL ratio, which increased by 0.8 points at the group level. The acceleration in A&P was particularly focused in our key markets, geographically speaking, U.S. and China, and an average dedicated to our 5 global brands. The ratio of the distribution structure cost decreased by 5.3 points, reflecting, as already said, a good control of our costs despite a strong recovery of the business and despite the fact that we are clearly investing also behind our strategic operating expense, and we are very proud of that. Now let's take a look at the remaining part of the income statement. Starting with other nonrecurring operating expenses, stood at EUR 13.6 million, including provisions for international and customer risk related to prior periods. Then let's talk a bit about taxes. The reported tax rate decreased from 38 point -- 33.8% last year to 30.3% in H1 '21, '22, benefiting, profiting from the drop in tax rates in France as well as a very positive geographical mix. But there is something more to say. Excluding nonrecurring items, the effective tax rate was 28% for this part of this semester compared to the 33.8% last year. At this point in time, we think it is reasonable to expect the yearly tax rate to land at around 31%, so better than our previous guidance on that specific items. As a result, net profit came in at EUR 134 million, up 106.1% on a reported basis. And excluding the nonrecurring items, net profit came in at EUR 148.2 million, up 127.4%. So in any case, also net result more than doubling last year result at the same period. The net margin, excluding nonrecurring items, stood at very strong level, an all-time high again at 23%, up 7.8 points. And excluding nonrecurring items, EPS, earning per share came out at EUR 2.95, up 126% on a reported basis, EUR 2.95 on 6 months, quite strong result, very spectacular, I would say. Let's move a bit, try to understand what's happening between the recurring and global net profit. So the analysis on nonrecurring items, i.e., the reconciliation between net profit and probably excluding these nonrecurring items. Nonrecurring items mainly integrated 3 components: as already said, EUR 13.6 million of provision for international customer risk relating to prior periods that I've just mentioned; EUR 3.4 million of nonrecurring tax items linked, related to this provision; and then a net EUR 4 million nonrecurring charges on deferred taxes related to the impact of, on one side, the decrease of the legal tax rate in France, which is positive on a yearly level, but is negative on deferred tax asset, because you have to valorize, right? Now the tax assets for the future, switching from 28.4 to 25.8, so your value, your tax assets is decreased -- has been decreased. And on the other side, another nonrecurring item, which is the increase of the legal tax rate in the U.K. on deferred tax liabilities linked to brands from 19 to 25. This for a total amount of around EUR 4 million. So let's now analyze the cash flow generation in my preferred chart, net debt. Free cash flow generation stood at EUR 29.5 million, H1 '21, '22 compared to EUR 32.6 million last year. This light mathematic reduction reflects many things. First, a huge increase of the FDA, plus EUR 111.5 million, on the back of the significant operating profit growth, partially offset by a strong increase of the total working capital outflow, which can be split between different components as well. First of all, a stable working cap inflow related to eaux-de-vie and spirit in aging process at EUR 23.9 million inflow. This is the consequence of a higher level of purchases in Cognac eaux-de-vie and other aging liquid to prepare and secure the future. But as you may understand, victim of our success in top line, this has been offset by a stronger level of demand, especially in the U.S.A. And then we have another component, other working capital items outflows were up strongly, EUR 87.8 million year-on-year. And this reflects a meaningful increase of our account receivable for around EUR 70 million, EUR 69.5 million, linked to the outstanding level of sales recorded in H1 and an increase for the remaining part, EUR 18.3 million, in other stock, excluding eaux-de-vie and other aging liquids for the remaining part. Then we have to consider other elements that imply an impact on the free cash flow, an increase of EUR 24.9 million of the tax outflow, reflecting the higher level of profit. So we pay more taxes because we are more successful in terms of profit before tax in absolute value. And in the meantime, CapEx investment outflow were slightly up, EUR 3.2 million, and mostly reflected investment in the cognac side, whiskey production, sites, Islay, Seattle, France as well, as well as the group information system, both in the transactional part and the DSS, Decision Support System part. In parallel, of this free cash flow movement, other cash flow outflows increased versus last year. We recorded an outflow of EUR 40.8 million H1 versus an outflow of EUR 8.9 million last year. But it was largely driven by the share buyback, EUR 154.5 million at the end of September, but partially offset by the noncash effect of the partial early redemption of the OCEANE for EUR 149.1 million. So as of September -- 30 September 2021, around 56%, 55.8%, of the OCEANE bonds, convertible bonds in circulation, have been the subject of request of conversion into Rémy Cointreau shares; 1.4 million share were so exchanged on the basis of the 75,000 existing share and 1.3 million new shares. The remaining part of the convertible OCEANE bond correspond to 1.1 bonds. As a result, end of September 2021, our net financial debt stood at EUR 300 million, EUR 299.6 million, down from EUR 427.3 in September 2020, leading to a decrease of the AE ratio from 2.04 in H1 2021 to 0.77 at the end of September 2021. A few comments now on the net financial expenses, which were a charge of EUR 7.4 million H1, slightly down from EUR 8 million last year. Net debt servicing cost was slightly down, showing a continued optimization of our cost of debt, in line with the deleveraging of the group. And cost of net debt stood at 1.07 at this moment in time. Net currency losses also improved to a EUR 0.4 million loss in H1 versus EUR 0.6 million loss last year. As you know, this is a volatile noncash items related to the hedging of the group's non-euro debts and future flows. Last but not least, other financial expenses were almost at minus EUR 1.5 million in H1 compared to 1 -- minus EUR 1.3 million last year the same period. So let's now move on the impact of the currency hedges' quite technical element. The group reported a negative translation and transaction impact of, respectively, minus EUR 11.7 million on sales and minus EUR 1.9 million on operating profit in H1, clearly better than our expectation. This mainly reflects a deterioration compared to last year of the average euro-dollar translation rate over the period, which came out at $1.19 per euro in H1 to be compared to $1.14 last year at the same period. But in the meantime, our hedged rate was slightly -- only slightly up at around $1.18 per euro in H1 versus $1.16, so this effect of our hedging policies, which is very prudential and there is some fluency here. But now looking at our forecast, which is more important for the full year '21, '22 and assuming an average euro-U.S. dollar conversion rate of $1.18 at yearly level, and euro-U.S. dollar hedge rate of $1.19 at yearly level, we might anticipate and guide for a natural 0 impact on sales, meaning that in the second part of the year, we think remain at this kind of stop -- spot rate, that we are recovering sales, and around only minus EUR 5 million on operating profit. But as you know, the evolution of exchange rates and mainly on a euro-U.S. dollar exchange rate remains very volatile. So on that point, we will update you very precisely at the end of Q3, clearly also, at the end of Q4. As a reminder, the sensitivity versus our expectation for the group is the following: $0.01 increase in the U.S. dollar versus euro is around EUR 5 million to EUR 6 million gain on sales and around EUR 4 million gain on operating profit, all things alike. This is only for the dollar than the other currencies. At this stage, we already covered 100% of our net U.S. dollar exposure for this year, of which around 40% remaining options. Having in mind that this year, it's very important, Chinese yuan is very well oriented and accretive to the group performances. So let's now move on to my last slide, and this is less technical and more important. It is the structure of the balance sheet, with total asset and liabilities of EUR 2.83 billion, up EUR 0.2 billion compared to H1 2021. On the asset side, global inventory increased by EUR 134 million to EUR 1.51 billion to the purchase of Young eaux-de-vie to fuel our long-term plan. Inventories account for 53% around of our total asset, stable in terms of weight versus last year. That's in value, this is another beating record. On the liability side, the shareholder equity is up by around EUR 120 million, reaching another historical level, mainly driven by the strong progression of the net income at the earlier redemption of the OCEANE. This has been partially offset by the share buyback program and the dividend recognition. Net gearing, group's net to debt equity ratio decreased over the period, so from September to September, from 29% to 19%, thanks to a lower net debt and higher high-risk equity. So now I'm very happy to switch back to our CEO, Mr. Éric Vallat, that will highlight and show to ourselves our future highway of outlook.

Thank you, Luca. And moving on to Slide 27. So as you can imagine, the good news is that we are ahead of our 10-year plan, which will allow us to invest on A&P to grow the awareness of our brands and prepare their future and to invest on capabilities as well to unleash our potential and evolve our business model. And this is critical to achieve our ambition of being the leader in exceptional spirits. Building exceptional brands takes time and relies on 4 layers indeed. The foundation, which you can see here, is a great product, of course. If the product is not right, there's not much you can do. We spent the past 10 years, and I should even say centuries, on investing behind our products, on terroir, distillation processes, aging capacities, storage, and the payback is striking. Beyond the numerous accolades our cognac products were granted, I'm extremely proud to say that, for instance, our Mount Gay XO Triple Cask Blend has been just selected Rum of the Year by The Whiskey Exchange, who also elected in the past few days, Port Charlotte 10 as Whiskey of the Year. And these are our clients speaking, it's clients. So it's really interesting for us. This gives me also the opportunity to stress, by the way, that Bruichladdich just launched the first-ever biodynamic single-malt scotch release. In other words, as you have understood, we have amazing products. But beyond products, and this is the second line of the slide, we need to build exceptional and aspirational and attractive brands. Here, we have room to improve. By history, we are better in savoir faire than in faire savoir, sorry for the French. But it is a great opportunity for us which is why we are increasing A&Ps, and you will see more and more programs which focus on global priority brands. Great products and an aspirational brands are great. But we know, and this is the third line of the slide, that it is useless if the experience and the journey proposed to our clients is not aligned. This is probably the biggest challenge in the spirits business as the access to the end client is more limited. But with e-commerce and CRM growing, we have more and more opportunities. But above all, we have LOUIS XIII, a brand which compares to non and which is probably the only one in the industry that has the ability to reinvent the way we sell to our clients and to have a direct dialogue with probably up to 80% of our clients in 10 years. This is very disruptive, but this direct dialogue is opening the door to unique and tailor-made experiences. And we are going to learn a lot from LOUIS XIII, we are already for the rest of the portfolio, even if all will not be applicable, of course, to all brands. Lastly, the world is changing. The potential to grow is huge, and this is the last line of the slide, but we must acknowledge that it will be more complex than in the past, with many more levers and more demanding clients whom we will sell to more and more directly. So needless to say, we need to invest on data management, on D2C, on capabilities to name a few. So I think I made it clear on what it takes to build exceptional brands. I think I also explained that we are now on our way. I would just like to illustrate now a little bit what I just said. And first, speaking about our global priority brands, of course. As you can see, we are leveraging our reserves to make this year a year of exceptional investment behind our brands as well to prepare the future. And we are investing on the 4 layers I just referred to, being consistent with our strategy. I said we have great products, but we need to build aspirational brands, as I said, particularly on the ones identified as a priority. We launched, for instance, N°XIII in 4 cities, and we will have covered 13 cities by the end of the year. N°XIII is a unique product. And we are strengthening the status of the brand as a true icon, generating a huge media value and more than 800 publications to date. And to increase the buzz, we tied up with A List celebrity in China, William Chen, who is among the top 20 influencers. Our Rémy Martin -- on Rémy Martin, as shared in previous sessions, XO is the game changer. The liquid is well appraised, and we have an opportunity to regain our fair share. This is why we are about to launch a new campaign and a 360 action plan like we did with CLUB, 5 years ago with the success we know. So as you can see, we're not giving up on products, of course. Moving to Slide 29 and speaking a little bit beyond cognacs. Our global priority brands are Cointreau, The Botanist and our PHD Malts. Just 2 examples here to illustrate the strong A&P support behind our brands to build these aspirational brands. On Cointreau, which is present in more than 500 cocktails, we leverage the comeback of the Cosmopolitan, which has been made the third most popular cocktail according to bartenders in the U.S. Indeed, Cointreau is the #1 branded spirit in Cosmopolitan on premise, menus, listings. So in H2, Cointreau is partnering with one of the U.S.' biggest female celebrities and one of the most prestigious media houses to reestablish the Cosmopolitan as the go-to cocktail for catching up with friends and loved ones this holiday season. Cointreau has announced a few days ago that the brand will be working with actress and entrepreneur, Jessica Alba, in a program which Condé Nast -- with Condé Nast titled -- the program will be titled, Catching Up Over Cosmos -- Cosmo, and Cosmos as a twist. As an additional PR layer to the program, Cointreau is partnering with Jessica Alba to launch a limited edition cosmopolitan cocktail kit, sold exclusively online. We are also investing behind strong campaigns on The Botanist and leveraging the film, Water of Life, focused on single malts from Islay, whose focus is on -- and whose hero, guess who, is Bruichladdich. Moving to Slide 30, a few words on the third layer I was referring to, which is about building exceptional brands, the client journey and the D2C related activities. We have opened 6 e-boutiques in H1, 6 at a quick pace: Domaine des Hautes Glaces -- for Domaine des Hautes Glaces; for Telmont; for Bruichladdich in the U.S.; for Rémy Martin; for Telmont in some of the countries, France and U.K. and Westland. We have a very ambitious road map to accelerate now that we have a platform. We are, of course, addressing the whole e-comm ecosystem with some great achievements like being the #1 in foreign spirits on Double 11 in China. We also just opened our first Rémy Martin boutique in Hainan with a striking and brand new concept. Moving now to Slide 31, to illustrate again our D2C activities, which are physical and virtual, I just wanted to highlight here that as to data in CRM, we are working on capabilities, of course. But we also tested a brand-new approach to capture data with LOUIS XIII cognac entering the world of gaming, with a pioneering approach, with the LOUIS XIII Mysteries, an online game launched on the U.S. website this September. The LOUIS XIII Mysteries is a modern concept in which players are challenged to find hidden codes to answer the game's 13 puzzles. It's accessible on the homepage of the LOUIS XIII website. Players had -- it was accessible. Players had 6 weeks to try their luck and apply their cognac knowledge. Conversion rate was over 54%; and average time spent, over 19 minutes, much more than what we would have expected, so I think a good illustration of this new approach. Moving to Slide 32, and before concluding on the financial outlook, a quick word on cash allocation to illustrate this year of investment. In '21, '22, we will continue to ensure a well-balanced allocation, including of course, a greater focus on strategic working capital, meaning inventories in eaux-de-vies for cognac and aging liquid for whiskeys. Sourcing is a key priority. We intend to buy more in order to face a demand, which is getting stronger and stronger. Overall, we expect around EUR 70 million of strategic working capital versus EUR 60 million last year. The level is slightly up only versus previous year, but it hides a higher level of purchase, offset by a stronger demand. CapEx, we expect to spend between EUR 50 million to EUR 60 million. A big part will be dedicated to our production sites, something like 50%. The rest will be split between infrastructures, including IT, while 10% would be allocated to the development of our direct selling business model, meaning e-boutiques, boutiques, CRM and data capabilities. In parallel, we intend to maintain an attractive level in terms of shareholder returns for all our stakeholders. This includes dividend. We cannot share now what the Board will decide, of course, for '21, '22, but the last distribution equates to a dividend of EUR 1.85, meaning a payout of 63% of the recurring EPS and a yield of 1.3%. But it's also share buyback here. The last share buyback launched is not completed. As of now, we spend around EUR 170 million. And lastly, still in this category, stakeholders also include our employees. And we are proud to have launched a very successful employee stock ownership, with more than 75% of subscription in France versus 40% on average as a benchmark. So it's a great success. And we intend to extend this program beyond France worldwide next year. To conclude with Slide 33, I am -- we are fully confident that we will continue to outperform the exceptional spirits market in '21, '22. As already mentioned, this will be a year of 2 halves, both in sales and COP organic growth. We expect to generate a strong organic sales growth for the year, above our previous internal expectations, with H1 being strongly above H2 growth, obviously. We confirm our intention to significantly increase our marketing and communication spend, particularly in H2, to support our brands through the recovery and boost their medium-term and long-term growth potential. We also upgrade our organic growth expectations from strong to very strong. Considering the group's plans to set up marketing and communication spend and manage its strategic inventory in Q4 and given high comps in H2, the organic COP growth will be driven only by the H1 outstanding growth. This performance will be tempered by some negative fixed exchange rate effects, around minus EUR 5 million, and a scope effect of 2.5 -- EUR 2.4 million. Consequently, we upgrade our COP margin forecast from stable to an improvement. And the last slide before we hand over to questions, of course, you will not be surprised to hear that we in this context confirm our 2030 targets with confidence, which were shared 1.5 years ago. And I would like to thank you very much for your attention, and we are now ready to take your questions.

[Operator Instructions] The first question today comes from the line of Olivier Nicolai calling from Goldman Sachs.

First of all, congratulation on your results. Three questions, please. So I was keen to get a bit more detail on your guidance and how it compares to the current market expectations. So you're not expecting operating margin improvement this year. Historically, you've been aiming for about 100 bps of margin improvement a year on average. Will that be a reasonable assumption for this year? Essentially, I'm trying to understand how I should interpret the very strong growth, for COP growth for this year. Secondly, Éric, you mentioned M&A in one interview this morning. I was wondering if you could share with us the criteria you are after and which category or region you would like to strengthen? And just lastly, I think on the tax rate, obviously coming down, and you're expecting 31% for this year. Now going forward, the tax rate in France is set to decrease further next year. So I was just wondering if you could give us a bit of a midterm assumption for tax rate for the group, all else equal.

So thank you for your questions. So let's try to talk about consensus. We are clearly building the year, on the yields, a very strong H1, both on top line and bottom line. So we already shared that top line for the second part of the year will be a slight growth, a growth. But clearly, a growth in Q3 and a negative Q4 because for some categories, some brands, we have a strategic management of our strategic stock, a strong pricing power, price increase that will appear at the beginning of next year. So it's important to preserve our strategic stock and not to sell too soon despite the fact that we have to balance the strong demand, avoid to be out of stock in key states and key point of sales and get a look at the figures. But all in all, top line will be for second part of the year, I repeat, in growth, but growth for the Q3 and a decrease for the Q4. In the same time, the investment in A&P will grow big time, both in absolute value and in ratio, compared to turnover. Even if the H1 was showing a strong increase in A&P, the H2 will be far stronger. O&D, technically, October, November, December, and also Chinese New Year, very important months after Christmas in all over the world will be supported by many initiatives. They are from brand building to the mid to long-term, but also more on a specific level. You had many example by Éric just before. OpEx, OpEx will continue to grow. Clearly, the big -- the leverage that we observed in H1 will be lower because the top line will not growing as fast as the first part of the year. So as a result, the H2 operating profits per se will be negative compared to last year. But the whole year operating profit for the whole year in organic terms will be growing faster than top line. What does it means in terms of estimation? I cannot write you -- I cannot write for you your estimation. But if you look at the consensus right now, we are comfortable, a yearly level with your estimation in top line. If you look the consensus in bottom line, operating profit at organic level, I think that the consensus is a bit cautious. So we will increase our profitability compared to the previous year on a yearly level, clearly, not with this kind of plus 8.5 point that we are observing now, but we are improving the guidance. We said mid-teens, mid-teens, and as a result, a flat profitability. Now we are clearly saying that we are growing more than that, more scale in top line. And the bottom line is growing faster meaning that -- implying that the profitability for the group end of the year will be stronger. But H2 operating profit will be not growing. I hope it is clear. Tax rate. Tax rate, at this stage, we think that the year will be 31%. Clearly, there is a strong action, a traction by the French tax rate, and it could be -- have an impact. It is too early to now -- to shoot some guidance for the '22, '23 and next year. Clearly, there is this kind of movement on France, but we have to be very cautious because we don't know, we do not master what the tax rate environment on a worldwide level can be in the future year. We are still in a pandemic. We have a lot of initiative made by the different countries that need to be financed. And actually, we are experiencing, this year, a perfect alignment of stars also in geographical mix. If next year, the geographical mix could be a little bit different, there will be a slight less positive impact. For this year, it's 31%. And clearly, you can modelize that for the future year, it should be going down. How much? It's too early. I prefer to guide you year-by-year. So next meeting in June will be a clear guidance for the '22, '23, and I'll talk to you very transparently in what are our assumption. This year is better than expected. And France, tax rate is clearly playing a big role, a positive role for the EPS accretive journey this year.

And the second question actually, which was on M&A. Thank you for giving me the opportunity to clarify again, first, that we are not currently in the mood of external growth. I would like to recall that when we launched our 10-year plan, we said it's a transformation of the group we are going for. It's a lot of projects ongoing, and this is our #1 priority. And I think that we see some of the results of what we're working on, but it's only the very beginning. And the process is ongoing. And I wouldn't like us to deviate the focus from this transformation of the group, which once achieved will make us even more prepared for a potential acquisition on top of that. So it's being more ambitious for external growth in the long run, saying that we are not focusing on it today. Of course, it does not mean that we are not looking at what's happening and that given our means, we are not necessarily -- I mean if there is a great and fantastic opportunity, we might seize it. But this is not today, what we are working on. I said it will take 2 to 3 years. I stick to that. We -- it's been now 1.5 years since we launched the plan. So still, some more time to go for the internal transformation. Now as to the criteria of potential acquisition. The things I can and would like to say at this stage is, once again, first, any single acquisition will have to match our values for sure, the strong link to terroir, the importance of sustainability as well. Any acquisition will have to display a strong pricing power as well. We would like it to be ideally accretive or at least not to take too long before being accretive. We know that there's a cost related to that, but clearly, it's something that would matter to us. And lastly, it will be very important for the acquisition, whatever it is, to be complementary to our existing portfolio. That's one thing, or to kind of support the transformation we are going for, and to, let's say, help the business model evolve towards what we are aiming at. I'll give you just one example. Being very strong in cognacs, we have -- we are very strong in Asia and in U.S. But our distribution is a bit weaker and less controlled in Europe, for instance. So an acquisition that would help us reinforce the level of control in Europe would be of interest as well. Lastly, it would not be necessarily a small acquisition. We know that whatever the size, it's same kind of amount of work. And we would look potentially at bigger acquisitions than the ones we did in the recent past. But again, it is not a topic of the day for us.

The next question comes from the line of Simon Hales calling from Citi.

Marc, Éric, and Luca, congratulations again on the result. A couple of questions from me. Perhaps, Luca, I can just go back on the outlook guide. I mean you've clearly sort of -- talking about operating profit being down organically in the second half. I think if I look at consensus coming in today, consensus is already expecting organic EBIT to be down around about 9% in the second half. And if you can comment on that figure, do you think things will be much worse than that given the step-up in investment that you're expecting in H2? And then perhaps secondly, related to that step-up in investment, can you just talk a little bit more and sort of generally about where that step-up in A&P spend is really going to be going? And what sort of project? Which brands, which market should we really be looking out to see that spend being increased in?

So I will answer to the first one. If I understand correctly your question, try to figure out what kind of operating profit in H2 we are talking about, will clearly be a positive operating profit, but not the same pace of profitability of the H1. And if you compare that to the H2 of the last year, will be decreasing. How much? I cannot give you a specific figure because we don't want to guide like that. But in terms of mathematical expectation, if I say that the top line, we are okay with the consensus organically on a yearly level, with more Q3 than Q4. And we -- I would think that you are cautious on the yearly consensus in terms of bottom line. You have already the H1, so you have the element to modelize that in terms of negative performance compared to the previous year for the H2. At the end, organically, if you start from the absolute value of last year, we'll be growing the bottom line faster than the top line. And as a result, the profitability of the group will be increasing compared to last year. And to give you and help, more than 0, 1 point base point. So we are increasing in a visible way the profitability. So we -- at a yearly level, it will be an increase of profitability, very clearly stated. And H2 operating profit will be decreasing. I repeat, it's very important. Why? Because we are stepping up big time, and this is your second question, in A&P and much more than the H1, much more in value and in a ratio compared to the top line. And we will continue to invest behind our strategic operating expenses: e-commerce, CRM, data management, new headcount, additional position. Because when you have this new paradigm -- also on the field, you have to feed that. It's not automatic. We have not an automatic possibility to have commercial synergies to feed the digital paradigm. So we need to invest not only in A&P, but also in OpEx. And then on top, we are successful. So in a way, in OpEx, you pay. You must account the price of the success, because medium to long term, and also short-term, MBO cost increase. But everybody is happy, from investor to shareholder to -- because the net result is far better than we expected and far better than 2 years ago, clearly. We are doubling the size of the performance of the company in relative. So now the second question for the investment in terms of geographical and more brands footprint.

So A&P, who are we? First, who are we going to invest behind? Mostly, and not solely, but mostly, the global priority brands. So I remind you, Rémy Martin, LOUIS XIII, of course, PHD Malts, The Botanist and Cointreau. If you take, for instance, Cointreau, I refer to cocktail. Cocktail is the main focus of communication, especially with the reopening of on-trade, but not solely. As we know now, it's growing also in off-trade. And I referred to the Jessica Alba communication. And for Cointreau, we are also going to invest behind production because a lot is going to happen next year. But of course, you prepare it this year. If you take, for instance, Rémy Martin, the focus will be 1738 in the U.S. Also celebrating the Sidecar because it's the 100 years anniversary of the Sidecar, which by chance is made of Rémy Martin and Cointreau, Cognac and Cointreau. And we are going to invest on XO in China. For The Botanist, the focus will be more on the U.S., more particularly as well as for PHD. But for PHD, we are now leveling up also in China because we see single malts booming. And we see Bruichladdich taking its fair share. So this is it for the brands. Now geographies. Of course, it's mostly a U.S. first, China second. But do not underestimate the level of investment. We are leveling up also in markets like the U.K., Australia, for instance, where we see an interesting potential for many of our brands. Now I referred to who and where, I'm going just to say a word of what. I explained a bit of the what when I spoke about each brand. But just to say that, first, it's not only media coverage, but it's also production, because, again, it's about preparing the future, with great tools coming up. Second, it's going to be 70% digital. Third, it's going to be mostly ATL. So clearly, building on the awareness, building on the desirability of the brands. But we will have also very focused BTL to leverage the on-trade recovery that we've witnessed, particularly in the U.S. And that's it for the A&P. And as Luca said, it's not only a matter of A&P. It's also a matter of OpEx and capabilities. As you understood, also the more we spend, the more we want to make sure we evaluate the outcome of each of our actions. So A&P is a lot of spend, but for the good, I believe, and again, it's preparing future growth. Don't forget that if you take The Botanist, for instance, but this applies to many of our brands, we have a jewel in our hand with little awareness. So usually, if you spend behind the jewel and you grow its awareness, and when you taste it, you like it, there's a lot we can leverage. Not going to be easy either, but the potential is huge.

That's really useful. Can I just check, Éric. In terms of the investment step-up that's coming through in the second half, I mean, are these plans in line with your original budgets? Or are you actually pulling forward do you think some spending you planned for next fiscal year into the current year given the strength of the top line that you've seen?

It's not necessarily that we are pulling forward. It's -- we are amplifying. We're amplifying what we're doing. All the tools I was referring to for next year were budgeted as such. Now we also have a lot of tools that exist for this year, and that we are amplifying and leveraging more. Plus, some initiatives for the second semester that were not planned that we believe can be very impactful, they are too early to disclose. So to answer your question, we are spending more. Not only that we are moving forward, but we're also amplifying for this year, because, again, this year is going to pay tomorrow. And you will see the ratio of A&P really increase even versus first semester for the second one.

And Simon, this is Luca speaking, insisting on another point, it's not only a matter of A&P, because we are ahead of our expectation. We improve, we insist, and we accelerate also in other capabilities like data mining and interpretation, because after an increased step-up in A&P, you have to analyze to understand your final clients. So there is also the possibility for the group to feed this change of paradigm most in terms of the gear, the scale of the company. And not only in term of the initiatives that are visible for the client, but also for the internal intelligence, which is not cheap. So the cost of doing business in terms of model, business model profit and loss is more rigid, but clearly, the pay up -- payback at this stage and we think for the future, it will be strong. So not only A&P, but also OpEx, structuring OpEx.

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

I've got questions on A&P as well. So I think, Éric, you said in the presentation that 40% of your current A&P spend is digital. I think you just said in the answer that 70%, I think, is the rate for the incremental investment. So first of all, can you confirm that I've understood that correctly? And then can you maybe comment on whether or not you get a better return on that digital investment, and whether you find it easy to find places to invest in a way that benefits your brands. And then my second question, I guess, is it more of a philosophical one, about investing in A&P when you produce a supply-constrained product. I appreciate you're very much investing for the long term. But can you talk about how you expect that to benefit the brand going forward and whether it's going to manifest itself really in consistently high price increases rather than necessarily higher volume growth given the supply constraint?

So on Point 1, I was referring to ATL, A&Ps made of ATL and BTL. So in fact, you're right. It's not 70% of total A&P. It's 70% of ATL. Okay. So really, the investment behind awareness and behind the desirability. Now as to your second question. So first, as you may recall, of course, Cognac is 72% of our sales in H1. But as you may recall, the 10-year strategy is also meant to unleash the potential of the Liqueurs & Spirits. And this particularly because there is no liquid constraint. So part of the A&P focus is also, again, on leveraging the awareness and the desirability of the Botanist, the opportunities we have for Cointreau in many more markets given the success of the access on cocktails. And this is going to deliver volume, we strongly believe. As to Cognacs, you're right to say that we are constrained. And we stick to our 2%, 3% volume growth in the future. And as I think you rightly said, and if not, that's the way I took it, but clearly, there is also -- behind the A&P investment we are doing, there is clearly the idea that it will reinforce our pricing power on cognacs. And so we displayed, and we stick to that 2.3 -- 2%, 3% volume growth and a 6% to 8% value growth. We are very comfortable with that. And the more we invest behind our cognacs, the more we are comfortable that we can achieve it, because as you've seen, most of the A&Ps focused on the upgrade. So it's focused on 1738 in the U.S. and it's going to be focused on XO in China. And this can contribute substantially to our overall mix beyond price increases as well as to the gross margin mix within our cognacs.

Understood. And just a question on whether you get a better return on digital investment versus traditional.

Yes, you're right. So the thing is it's more difficult to evaluate the return on traditional media. So it's not easy to compare. And I would say it's -- what we get with digital media, even though we still need to improve, and that's why data management is key. But clearly, we get a better visibility on the outcome and the results and the return, for sure. Is it better? For some of the initiatives we took, for sure. I referred to the gaming. We were very positively surprised, the return in terms of conversion of rate. As you know, we don't like to look only at the number of clicks or -- because this is not engagement. We look more at engagement as well. And when you look at engagement on this kind of initiative, it's absolutely striking. So with the -- I would say that with digital, what matters more for me is, one, we can tailor made more who we are reaching, very interesting; two, we can have a better evaluation of the return; and three, there is a lot we can test and learn about at -- depending on what, but in some cases, a lower cost than in real life. But we will never give up on traditional media either. It is statutory and it is very impactful. So for me, it's important to make sure that we professionalize even more on digital, that we keep a good and big share on digital, but we shall never give up on traditional media, which plays a strong role in building the status of our brands.

Mitch, this is Luca speaking. Some precision on your third question. Thanks for your question. Also, to try to have a deeper look inside what's our A&P, what is inside, where we stand 10 years ago, where we are now. So let me take 3 minutes. Inside A&P, you have above-the-line activities: classic media; digital; PR. And below the line, so more direct point of sales, testing, education, human activation and commands team. When I joined the group in July 2013, the split was 1/3 above, 2/3 below. Now it's the reverse. In terms of return, even before talking about figures, you can say and clearly understand that below-the-line activities are important to the brands, for some brands more than others. But there is a clear connection with volumes. So in the shortcut, the more above-the-line journey you are able to perceive to do for a given company, if your problem is good, the quality and the product at the end, are clearly well connected with the value strategy, because you get out of the overall volume and you enter in another medium to long-term valorization of the brand, supporting at the end, the valorization to price increase channel management. All of -- having said that, so now we are 2/3, 1/3. And inside the big increase of A&P, we are clearly increasing faster above and below. And inside above, faster digital than everything. Now is 2/3 above the line, inside 70% of digital, 70% of 66 makes the 42, 40 around that we showed overall the global NPE so you have the connection on figures. But I didn't want to start like that. I want to try to explain where we stand before, where we are, and why we think that, on top, above-the-line increase is accretive to the journey of the valorization.

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

Three from me as well. I can't help noticing that your targets for 2030 have partially already been hit in these result. You hit your 33% EBIT margin in this first half. Now I appreciate there's going to be a lot of advertising coming in, in the second half. But also, on the gross margin, you're over halfway there in 18 months on a 10-year journey. And historically, your second half gross margins have been higher than your first half. So just -- you reiterated your 2030 targets, but just given the pace that you appear to be achieving them, do you still see them as being reasonable? Or are they sort of a conservative estimate? My second question is around your VSOP product. You focused a lot in the slides on XO, and you mentioned you're investing on 1738 in America or in the U.S. You still have a lot of VSOP that's sold. And obviously, that takes up some of the volumes that could go elsewhere if they're aged for a little bit longer. What do you see as the future of VSOP? Is that a brand that you would expect to sort of decline over time and perhaps go the same way as VS did, when was it -- nearly a decade ago now? And then finally, your net debt is now extremely low, and you are clearly funding your inventory with equity. It's potentially not the most efficient use of equity. And wondering if potentially, you could be slightly more aggressive on your balance sheet and if that's something that you would be comfortable doing.

Okay. So I think that we'll be answering in a conjoined manner. So you want to start and I complete on the margin, on the 2030, or we start, you complete?

Please do.

Okay. So historically, and it's still the same, the yearly results of Rémy Cointreau are linked to phasing. H1 weights and profitability is far higher, bigger than the H2. There is a couple of exceptional because you have the China crisis and when there was the gift crackdown in 2013. But normally, it is normal to have in value and in profitability an impact, which is far bigger in the H1 compared to the H2. Because even before increasing more the A&P than now, Chinese New Year, O&D for the U.S. and many other countries, in term of Christmas activation, the fact that the strategic management of the stock in the Q4 is something which is not totally new to the brand, that is strong pricing power, makes the figures structurally unbalanced. The fact now we are at 33%, 33.2% if you consider even at organic level compared to the last year's scope and rate, it doesn't mean that we are able to continue to have this kind of result in every quarter and every semester, because this is a result of the change of paradigm, the fact that investments are stepping up, but we are clearly not yet in term of the ratio. And I repeat, in A&P, it's very visible, but also in OpEx. So it will be a journey. It will not be a straight line journey. And at this stage, we are clearly in advance, more in bottom line than in margin compared to our journey on 10 years. So it is very good news. It is increasing our confidence. But mathematically, we don't see any reason to change the guidelines at 10 years right now because we have to structure even more our investment. On top, as we highlighted, gross margin at this stage is very positive. But this year, I highlighted that, and Éric too, is the alignment of stars. Strong rebound, strong valorization, strong price and mix effect on bottom -- top line and bottom line gross margin. COGS that are fairly, fairly positive this year. Starting from next year, we'll be a little bit more complicated in terms of inflation cost, increasing of the cost component. So this is not an issue per se, but we cannot modelize a 4 or even 3 points of jump in terms of gross margin profitability every year. So at this stage, 33% and gross margin value of the H1 can't be modelized as a starting solid point for the future. It's a starting solid point in terms of absolute value. But we will have some up and down following the footprint, mainly on the top line. And if you remember, the year in which our top line will be very, very accretive, this year, a little bit special, will be profit to invest even more. So for the both element, I repeat, very strong result, very promising, do not justify to change our journey, which is very complicated, safe to reach 72% and 33% of the highest, biggest amount of turnover. It is not easy. On top, changing gears, changing scale makes that for the same profitability at gross margin or bottom line level, you will have much more money at the end. So there is also a balance between ratios and size from the -- from the top to the bottom. So...

Nothing to add. That's been very clear.

VSOP and...

So VSOP, I'll take it. So first, we are -- how to put it? Everything we do when we invest on the desirability and the awareness of our cognacs, even if it is focused on 1738 or XO, it benefits VSOP. Because VSOP is anyway, a product which is iconic within Rémy Martin portfolio and where we are the absolute leader. So we are not crazy, of course. And we know that there is a halo effect of our campaigns whose heroes are not VSOP, but they also benefit VSOP. Second, we removed the $50 threshold, as you know, from our overall strategy. And VSOP is a noble product, we are very proud of, and which is a very key product. So I do not expect it to become what VS has become, at least not in the coming years, for sure. Having said that, we are lucky to be in a business which is driven by demand which is probably more than the offer in the long run. Of course, cognac, region has planned to plant, but it will take 2 decades before it delivers a full speed. So we are in a context of scarcity. And this, we take it as an opportunity, of course, to grow the share of the upper grades. It is not an intention as such to reduce VSOP. The intention is to grow 1738, CLUB and XO. And should we be very successful, then indeed, it will have to be at the expense of VSOP. This is typically what we aim at. It is not against VSOP, it is towards the higher end. And this is what is happening indeed. So let's see where it takes us. But clearly, should we be successful as we hope to, the share of VSOP will decrease. And in absolute value, it's difficult to say, but it could be. But the overall mix would improve in such case very sharply and would drive an improvement for sure of the gross margin and the average pricing.

On net debt, your third question, end of September is EUR 300 million. Clearly, it's less financing our stock compared to some years ago. It is also that the effect of some operations which are not free cash flow oriented like the share buyback and the conversion of the OCEANE. Clearly, its effect is a low level, but in the second part of the year, you will see there will be an increase, also because the dividend were paid in October, and they were all holding cash. It will be the end also of the share buyback. But the real question is that, increase the debt to do what? So we have some additional program which fit with our capital allocation strategy that Éric highlighted, which is organic. So if you are able to buy even more, and we are trying to find even other option, we will do it for sure. It's -- the market is booming at this stage, so we are not alone on this competitive arena. We have our more than fair share. We try to increase more of the eaux-de-vie buying. It is the clear first point of capital allocation, increase of debts. In term of resources, at this stage, we are more than enough. You see that in the balance sheet in terms of -- we have EUR 100 million, [ 99 ] of treasury in yet. So we have more than we need at this stage. So I agree with your point that it is important to invest more. In our opinion, the first capital allocation, which we had to accelerate, and we are also very dedicated to that, is buying of eaux-de-vie cognac and other aging product and building the capabilities, so increasing CapEx. On that point, I have to say that there is a strong will. But also, the pandemic is not playing a nice role because we have sometimes some difficulties to complete some capital expenditure program because of not a lack of program, but because there is some physical problem to solve before completing all the financing. So the debt is mathematically low at this stage. We might increase if there is a strong opportunity. And in term of organically, we are doing all we can do to increase the capital allocation and strategic levers. If you want to add something?

It's clear.

The next question comes from the line of Andrea Pistacchi calling from Bank of America.

Congratulations even on my part. Two questions, please. The first one, following up on the supply limitations. How rigid really is this 2%, 3% volume constraint that you talk about? And over what time frame? I say this because you're saying that you're planning to step up for the purchases. Obviously, you've just said that this is a very, very competitive space. Everybody else is trying to do so. But should we think about this 2%, 3% constraint as something that applies over, let's say, 5, 10 years, but you can still maybe deliver 2, 3, 4 years in a row with stronger growth? And the second question, on gross margins, please. In the second half, I mean, very strong growth. In the first half, you said the stars are aligned for this year. When we think of the moving part of affecting gross margin in the second half, price/mix still as strong presumably, less benefit from volume, COGS still favorable. How should we think about the second half versus the first half, please?

Yes, I'll take the first one. So indeed, we shared -- this 2% to 3% volume growth, and we shared it as an average for the coming 10 years. And I don't see it change drastically even though there might be some years where we will achieve more. I think, again, what -- don't underestimate the fact that the more we grow the high end, the more also we need to keep eaux-de-vies for longer aging, which is potentially driving for less volume but much more value. So it's not only a matter of availability. It's also a matter of stock management and success on the high end, which would be a very good news. Now having said that, we are in such a good position this year that we are leveling up our game, as you said, in a very competitive environment. I think there are 2 positive factors, but there is also one which is -- or 2 which are more negative. So it's very difficult to answer clearly to your question, beyond what I just said. The positive factors are what? One, cognac region is going to extend, probably 2,000, 3,000 hectares a year. But we know it takes time then before it delivers full speed, and it's only 2,000, 3,000 hectares a year. But it's potentially -- if you take the next 10 to 20 years, it's potentially an extension of the region by 1/3 to more. So it's something that is indeed material. Again, not impacting the coming 10 years, because it takes time to plant, to then to produce and then to age. But it's something that when we look at it very long term, which does matter. The other positive impact is obviously the situation we are in now, which is putting us in a very good place to add to a historical, very special relationship with the wine growers, driven by the fact that Rémy Martin was a wine grower himself, and we are still a family-driven business. And I think we have a unique relationship with our wine growers. Now we are piling up with, on top of that, additional financial means, more structured teams, which for sure will help us gain, or we believe, help us acquire more. At the same time, don't forget that the yield might be less in the future with more, let's say, sustainability practices, that can impact productivity, can impact for the good, we strongly believe. That's why we still believe our value strategy is the right one, because whatever we do anyway, we have this trend as well that we cannot totally ignore, and that is preserving the future of our business. So it's early to tell you. For sure, we can achieve more on 1 or 2 years. We will never do it at the expense of the potential of the high end.

Gross margin in the second part of the year will be less accretive in terms of margin expansion, so in relative value, not in absolute value, linked to 3, 4 element. The first one, as you highlighted, the compound effect of different price increases played a huge role for the first 6 months, and then we tried to have a comp which is a little bit less accretive. And on top, the volume effects will be slightly marginally less accretive in the second part of the year, because the highest and more accretive in terms of value per bottle and in top line and gross margin will be a little bit calmed down, and in Q4, to be witnessed in the profit and loss of the H1 next year with, on top, a new price increase. So we wait a bit to watch the movie, and the movie will be even nicer. And then we are taking clearly the -- to account, logistics and the supply chain element that started to eat the second quarter since July, very clearly, will be taken into account, and will be weighed a bit more on a marginal level, making that marginal level, gross margin will decrease a bit. On top of that, technical elements, but -- which is not important yearly level. When you have beating expectation, with strong expectation like -- beating result compared to expectation, all the supply chain is impacted. So you have some specific costs that sometimes you have to put in place to solve this specific problem. And you have an anticipation of absorption of indirect manufacturing costs. That implies a positive impact on the first part of this acceleration. In the second part, when you slow down the volume manufacturing, you increase a bit the indirect cost part. This is an accounting movement. This is changing nothing in terms of value, but it can place a bit in term of acceleration or deceleration of the marginality -- of the margin in relative in terms of gross margin. But the thing to retain is that this gross margin is still our first tool to feed the long-term journey of the group. This year, at this stage, it was clearly accretive. It will be as well at the end of the year compared to the previous one, can be plus 4 points. So we did -- we'll be clearly very accretive compared to previous year. And next year, the year after, will be a little bit more complicated, also because we have the cost of the liquids that is taken into account. But clearly, it's our commitment to growing valorization to try to sell any given bottle of our portfolio, making that at the end of the sale, we have more money to be invested, so more money in gross margin in absolute value and in relative.

The final question today comes from the line of Trevor Stirling calling from Bernstein.

Just add my congratulations. Truly outstanding series -- astounding indeed, series of results. I have 2 questions from my side, please. One is relating to the chart you showed where APAC was up 7% on a 2-year basis. I think you mentioned that Greater China clearly have much more than that and then travel retail a drag. I wonder if you're able to just say how much Greater China is up on a 2-year basis. And the second one, relating to the net carbon 0 by 2050 target. I understand that's across scope 1, 2 and 3. I'm particularly interested in [ Bruichladdich ] and sourcing eaux-de-vie at carbon neutral where you've got to influence thousands of people to change behavior. That sounds like quite a big challenge. And might you end up having to do actually an offset there that Bruichladdich will not be actually carbon-neutral themselves?

As to Greater China...

I will answer.

Yes. I'm not sure I have the figure in mind.

No, no. I will answer.

For 2 years.

Yes. You want to...

As to net carbon 0, just a quick answer there. So indeed, we are ambitious and aggressive there. We -- the thing I'd like to highlight is, if you speak of our wine growers, and I think this was the question and you have doubts of the ability to achieve this carbon neutral target of 2050. First, 2050 still a bit far away. But I can tell you that the thing that struck me the most when I came back to the group 1.5, or 2 years ago now was how the mindset of our wine growers had changed. When I had left the group in 2018, we were trying to convince them to go for a responsible agriculture to work on this label, HVE, that we've for years at our own domain. And we got some response, some interest. When I came back, I saw 50% of our wine growers committed. And now they are 100%. And we confirm our -- so they are already 100% engaged into this HVE process, which is not yet about carbon neutrality also, of course. But you see with the generation coming up, an amazing interest and a strong motivation on the topic. Plus, I think with our pricing power, we can accompany this move, and we can support it and make sure that the acceleration keeps going. As to carbon neutrality for the group, don't forget, so it's 3 scopes indeed. One scope is 7%, the 2 first scopes are 7%, Scope 1 and Scope 2. Scope 1 is 6%, Scope 2 is 1%. So the real challenge is Scope 3. And you know in the Scope 3, the biggest share is packaging. It is not at all eaux-de-vies and so on. It's really the packaging. So the big challenge for us is packaging. And here as well, we see -- and it's not relying on the owners, of course. It's glass. It's all the packaging around. So we already removed the boxes from VSOP. And VSOP is hitting records, showing that clients are prepared to that. But what is more important is the way we work now with our suppliers. And you can see that everybody is committed. And this is going to contribute -- and this is 93%. And out of this -- and in this 93%, packaging is huge. So for me, the biggest game changer is packaging.

Trevor, this is Luca. Talking about performance of top line compared to 2 years ago, pre-pandemic, so we highlighted one month ago that we are around plus 27% at the group level. Geographically speaking, clearly, Asia Pacific and Americas were clearly beating this figure. EMEA was declining. In terms of China at all, all different in China, it is the double of that, so around 50%. And clearly, USA also as well. So we are beating in terms of China performance, the global performance of the group. We are clearly, China and U.S.A. related, no mystery on that. So we overperformed on the China as -- considering China Mainland, Taiwan, Hong Kong...

Macau.

And Macau.

That was the final question on the phone line. So I'll hand back over to the hosts. Thank you.

Well, thank you very much, everyone. Thank you for your attention. And I hope you enjoyed our results. We were very proud obviously to share them with you and looking forward to our next encounter for the third quarter turnover results. Thank you very much.

Thank you.

Thank you.