Rémy Cointreau SA (RCO) Earnings Call Transcript & Summary

Hello, and welcome to the Rémy Cointreau Full Year Sales Publication. My name is Jess, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand over to your host, Luca Marotta, CFO, to begin today's call. Thank you.

Good morning, everyone. Thank you for being here with us this morning. I think that as you have seen in the press release, we generated an outstanding growth of 27.3% in organic terms this year, representing an increase of plus 29.4% versus 2 years ago, 2020. This performance reflects a significant mix price improvement, plus 9.2; as well as an exceptional volume growth of 18.2. As expected and mentioned several times, sales were down at 9.4 in Q4. which represents a growth of plus 4.2 if we compare the Q4 to the '19-'20 period. In fact, the quarter has been impacted by the strategic inventory management on Cognac, [indiscernible] and on the whiskey portfolio, as well and the negative calendar effect of guidance expected of EUR 6 million represented an impact of 3 points of growth at group level in Q4. Apart from this specific peculiar effect, the underlying consumption trends remained very robust, both in Americas and in EMEA. When it comes to APAC, as a Pacific zone and more particularly to China, the country was affected by some drastic lockdowns in March. But forwardly, this is temporary and occur -- is occurring during the low season. So the impact of that on the activity is limited. Now looking at overall sales performance by region, starting with Americas. Americas were up plus 30% this year boosted by the new consumption paradigm in the U.S., which translates into a [indiscernible] consumption level as demonstrated by the 2-year performance, which stood at selling shipment basis at plus 54.2%, 54% higher than 2 years ago. APAC sales posted a 25.8 percentage growth, i.e., plus 19.8 growth on a 2-year basis. This has been driven by the outstanding performance of CLUB, XO and [indiscernible], while the whiskey portfolio, at the same time, [indiscernible] continued their strong expansion. Finally, last but not least, EMEA [indiscernible] grew on the year at plus 22.4%, led by the remarkable growth of Cointreau and the whiskey portfolio. Again, we are now almost back to pre-COVID levels for the zone, specifically minus 3.5% if you compare EMEA 2 years ago. This was shipments sell in. In terms of the value depletions at group level, the best approximate final consumption results and performance, we recorded a very strong double-digit growth in China and in this EMEA zone over the last 12 months. Talking about the U.S., depletions were up mid-single digits over the last 12 months. But if we strip out the SOP, which is not our priority in terms of volume growth, depletions were up and depletions at strong double digits. Moreover, to better perceive this performance, it is key to consider the meaningful basal comparison. While I mean -- it means that more than plus 50% of value growth last year, which clearly shows that -- and what we call being the new paradigm in the U.S. The awards on a 2-year basis in terms of value accretions in the U.S., we are up plus 60, 6-0, which demonstrates that on top of the huge rise linked to the paradigm in 2021, the strong dynamics are there last and continued in '21, '22, both in terms of volume and value. What I mean that plus 60 can be divided in plus 45 more or less in terms of -- over 2 years -- in terms of volume depletion and 15 points of mix price effects, which demonstrates on a mark-to-market basis how huge our pricing power and valuation value power is in the U.S. To conclude the word on the slide, I'm sure you want to be to know something about that. I would like to reconfirm our full year guidance, both for our current operating profit in absolute value and our expectations in terms of current operating margin. So after the introduction on Pages 3 to 7, let's talk a bit about some initiatives that have been undertaken over the last quarter and illustrates our ambition to reinforce our advertising and promotional investment in the second part of the year particularly on our global priority brands. And let's start with Page #3 and the first results with the new Remy Martin XO campaign in China. As shared in the previous session, we have launched an important new campaign for XO in China beginning of January, embodied by the actor-singer [indiscernible]. The objective is to connect with the new generations. So far, the results are very promising through this parallel 360 degrees campaign, which generates a lot of buzz and visibility, as you can see in the slide. Configures more than 1.3 million of outdoor media in 19 cities around 440 millions of impression on social media, levering more than 100 influencers, around EUR 225 million on coverage in terms of press release and, more concretely, on a store basis around 400 stores in 58 [indiscernible] equipped with trade visibility. More important, we continue to recruit for our CRM program with that with more than 10,000 new members. The pandemic forced us to postpone power of the communication plan, especially on activation [indiscernible] and [indiscernible]. Thus, as we said for the results in terms of invoicing division, this is absolutely temporary and will be done in the coming months. Nothing is changing in terms of expectation and execution in China. Page 4, a couple of words on the [indiscernible] and the launch of this new campaign mid-March. Following on from its 2-part [indiscernible] campaign involving various high-profile international office, which our team has raised a new film and type of billing time with the objective to generate a single [indiscernible] bars around the world. The third [indiscernible] on the team of time brings together U.S. performance at the Solange Knowles, Chinese couture designer Guo Pei and [indiscernible] Director. The result is a powerful theme [indiscernible] named in some around 1,000 articles worldwide and viewed over 20 million times. Page 5 Cointreau. Cointreau In the U.S. In Nottingham, [indiscernible] margarita drinkers love sports and watching sports. We have decided to leverage game day occasion in Q4 to recruit margarita drinkers. Q4, as you know, is full of [indiscernible] and sporting events in the U.S. from January with the NFL playoffs to March with basketball matches. During this activation, Cointreau has affirmed its positioning as the essential and unique original ingredient for margarita in both retail and media. [indiscernible] activation in 14 major chains, total wine [indiscernible] for instance. One of these initiatives was our partnership with one of the most, if not the most, highly engaged sports property, the Bleacher Report and leveraging our new collaboration, we do believe the [indiscernible] new -- the new same -- new early same quarterback. It's a bit early to have a provisional result. But so far, sales had strong accelerating in this period and were up plus 90%, 9-0, compared to 2 years ago the week leading up to the Super Bowl. Page 6, illustrates that we couldn't [indiscernible] our single-malt whiskies in China with nice performance and increasing success. As you know, Bruichladdich is enjoying fantastic success in China within the new generation, was one of our best performance during the Chinese New Year. In order to enhance brand location, increase its awareness, we've opened our first pop-up stores in a shopping mall in Beijing that will travel around the country. These new concepts that we call Know What Is In Your Whiskey is capitalizing on the current transaction that we see with consumers to discover the uniqueness of our whiskies, their histories, their values and their worth. In parallel, we have launched just before the Chinese New Year, and limited the addition called Black Art 9.1, 9.1, in private dinners in 6 specific targeted cities. There are not many of those of [indiscernible] left in the overall [indiscernible] this type. This is a 29-year old book library Black Art version 9.1, and the oldest Black Art ever borrowed. Particularly, 12,000 bottles available and sold worldwide that more than 75% were dedicated to China and were sold very quickly. And it is a precious item $600 to $700 per barrel. This is valuation. Finally, the Page #7 is coming back on the launch of The Botanist first campaigns in the Super Bowl and already mentioned the to strengthen its investments in The Botanist to boost brand visibility and desirability. The Botanist is perfectly positioned today to take advantage of the rapid growth in the U.S. gin category, and new consumption trends like mixology and [indiscernible]. With this goal to become a dispute leader in high in gin, we will mobilize our assets to achieve that growth. The results of the campaign were really positive. Over 13 million campaign views on YouTube. It was the #2 ranked Super Bowl ad for social impact [indiscernible] big household name such as Google Pixel and [indiscernible] models. And it was also the #1 most inspirational Super Bowl ad. Now let's move to Slide #6 and back to figures, and let's start the 12-month sales analysis. Sales amounted to EUR 1,312,900,000, EUR 302.6 million year-on-year or plus 30% on a reported basis. This reflects a very strong organic gain of EUR 276.1 million, i.e., as said, 27.3% of organic sales growth, which includes split plus 18.2 volume effects, [indiscernible] and 9.2 in price/mix; a small scope benefit of EUR 2 million, i.e., a gain of 0.2% linked to the acquisition and integration [indiscernible] and a very positive currency translation impact of EUR 24.5 million top line, which means plus 2.4% gain for the full year, including EUR 19.2 million gains in the Q4. This gain was largely driven by the Chinese yuan, which contributed by EUR 17.5 million to the total gain and, to a lesser extent, the U.S. dollar, which contributed by EUR 2.6 million or the GBP 2.3 million. At the same time, some currencies were negative. Japanese yen and Polish zloty posted a slight deterioration of EUR 0.7 million in conversion. Now let's turn to Slide #9, which shows as usual, on the left, our quarterly performance over the past 12 quarters and, as read, the 12 months rolling of that performance of our group brands, which stands at 27.7% at the end of the -- trends have gradually normalized throughout the year. On top of that, our group sales were well above record levels showing a very strong increase, as you can see, of 29.4% compared to '19/'20. Even Q4, which was impacted by strategic inventory management, our decision and our Chinese New Year calendar stood above Q4 '19/'20 for plus 4%. Now let's move to our full year sales growth by region of on Slide #10. Our 27.3% organic sales growth at group level was driven by an outstanding performance in Americas up 30% at 54.2% versus 2 year, confirming, I repeat, very important, the new U.S. paradigm. The very strong growth in Asia Pacific zone at plus 25.8% versus last year, i.e., plus 19.8% compared to 2 years ago, despite, remember that, collapse compared to 2 years ago in the travel retail activity. It was important in the year back. EMEA was also strongly up, plus 22.4% versus last year, benefiting from the rebound of European consumption on the back of the on-trade channel opening. On a 2-year basis, the performance is now close to the pre-COVID level, minus 3.5, and should be exceeded very shortly. Let's begin this organic time per region on Slide #11, and starting with the Americas, whose organic sales were up plus 30% in '21, '22. In the U.S., sales were down low single digits in Q4 strongly impacted by strategic inventory management decision on cognac, mostly on VSOP, and fully leveraged as well with price increases in April and managed the supply sustainability. Apart from the specific effect, consumption remained very robust in both on- and off-trade. Throughout the year, it has benefited from the new consumer trends, notably the upmarket move and the mixology. And in light of these excellent results, we ended the year with a low level of inventory, especially in VSOP. In parallel, full year value depletions are positive, being up mid-single digits overall or strong double digits, if we exclude VSOP, which has been clearly tempered by our decision to foster the high-end segments and 1738 as well. In Canada, sales were up very strong double digit following a weak Q3. Conversely, Latin America enjoyed a strong double-digit growth in Q4 on the back of the continued recovery of tourism and led by lack of Latin spirits. End of March 2022, the event has accounted for 52% of group sales, stable year-on-year. APAC organic sales growth was excellent in '21, '22 at plus 25.8%, in line with value depletions. China sales were down double digits in Q4 impacted by 3 factors. First one, there is a high base of comparison. Remember that we were up triple digits last year. So the base comp is meaningful. Second, the Chinese New Year calendar effect, as said, EUR 6 million, which is at APAC region level and represents around 9 points of growth. And third, strategic inventory management as well. China, apart from some restriction at the beginning of the quarter and the lockdowns in March, consumption remained strong, including the Chinese New Year, which was in line with our expectation and, as a result, successful. CLUB, XO and our whiskey portfolio have been the best weapons in China to continue and realize gain in value market share during this critical period. All in all, very important, very, very important. We ended the year with an extremely low level of inventories, extremely low, which will give us a lot of agility and responsiveness as the country dynamics restarts. Looking into value depletions, they were up a very strong double digit across the portfolio. The main part of Asia reported a strong double-digit growth in Q4 driven by the gradual lifting of health restriction and the strong performance of LOUIS XIII and Cointreau in Southeast Asia. Conversely, South Korea and Japan were affected by the return of sanitary measures. At the end of March 2022, APAC accounted for 30%, 3-0, of sales, stable versus last year. Third reason, EMEA organic sales were up plus 22.4% in '21, '22, in line with value depletions. The overall performance in the quarter was led by Western Europe and the rest. Western Europe was up double digit in Q4, led by France, Greece and Italy, particularly in Cointreau, LOUIS XIII and Mount Gay. U.K. was down low single digit in Q4 impacted by, once again, our strategic metric managed decision on Cognac, while Cointreau and LOUIS XIII, so the high-end, posted a very strong performance. The rest of the EMEA region, very good dynamics led by LOUIS XIII, Classic Laddie and VSOP. Conversely, Eastern Europe, in particular, Russia, was impacted by geopolitical conflicts. At the end of March, EMEA region accounted for 18% of our group overall sales, stable versus last year. Now let's move to the 12-month sales growth by division, Slide 12. Our 27.3% organic sales growth in group level showed a broad-based growth with the Cognac division, up plus 26.3%, i.e., plus 30.7% over 2 years. Liqueurs & Spirits being up plus 31.7% in the year, i.e., 27.5% compared to 2 years ago. And meanwhile the entire partner brands, which now represent around 3% of our total sales, which was stable versus last year, were up at plus 15.2%, i.e., plus 13.5% compared to 2 years ago, supported by strong dynamics in EMEA region. Now let's be using the Slide #15 in the announced by division, starting with Cognac. Cognac said -- posted an organic growth very strong of 26.3% in '21, '22, including an exceptional volume increase of plus 12.5% and outstanding terrific price/mix gain of 13.8%. End of March, the Cognac division accounted for 72%, 7-2, of our sales, down 1 point year-on-year. Cognac in the Americas. In all North America, Cognac sales were up a very strong double digits in '21, '22. Before, however, sales were down low single digits, impacted by strategic inventory management, mainly focused on VSOP, as you know, I repeated, very important. Looking at the rest of the portfolio in the U.S., i.e., 1738, Louis XIII and XO, it continued to perform very well in the Q4, enjoying buoyant demand. And despite the fact that we tender our selling clearly before the average price increase that were very important -- significant. In terms of sell-out, the evolution remains very dynamic in on-trade, while off-trade generated a stellar growth in Q4 compared to 2 years ago. Finally, all in all, value accretion were up at low single digit over the 12 months and up mid-teens, excluding VSOP. More important, I repeat, it was on top of a very high base of comparison. Now look at the same numbers of the last 3 months. Depletions were up mid-single digits and increased a very strong double-digit growth, excluding VSOP. So the last 3 months is even accelerating the 12 months, 12 former months' trend. Price/mix effect on Cognac in North America were strongly positive, as you can see in the spreadsheet, by 10 points in the 12 months period ending March '22 led by price increases but as well by price/mix effects. Latin America was also impacted for Cognac by strategic inventory management decision in VSOP, 1738 and XO, while Louis XIII generated very strong performance. Cognac inside APAC. In fact, China recorded a very strong double-digit growth in the year '21, '22 led in terms of ranges by CLUB, Louis XIII and XO. In Mainland China, sales were down double digits, as I said before, impacted by meaningful high base of comparison. Sales were up triple digits last year and unfavorable calendar, from the Chinese New Year, around EUR 6 million, and a strategic inventory management decision. While Chinese New Year depletions were in line with the expectation led by the off-trade, particularly CLUB and XO. March, as I said, was affected by implementation of strict lockdowns. However, the impact of the activity has been limited, considering that it was still its low season and a bit [ yuan depletion ] in China with an extremely low level of inventories. Looking at other areas. Hong Kong showed positive strength until January, but was impacted by COVID restrictions since then. Macau generated very good performance, led by Louis XIII and CLUB. And Taiwan also recorded a very strong growth led by 1738 and XO. Remaining part of Asia, we recorded a very strong double-digit sales growth in '21, '22, with contrasted trends in Q4. While the north of Asia was impacted by health restrictions, the south part of Asia showed an excellent performance led by Louis XIII. And finally, EMEA, even if it's a smaller region that we have for the Cognac, had Cognac sales that generated a double-digit sales growth across the region, particularly Benelux, Germany, France and U.K. And in Q4, the overall performance was impacted by, as you know, as understood our strategic inventory management decision, notably in Africa and U.K. In parallel, Western Europe and Benelux continued to perform well, led by Louis XIII. Now let's go to Liqueurs & Spirits division, Slide #14. Liqueurs & Spirits division posted an incredible 31.7% organic sales growth in '21, '22, reflecting an increase of 24.6% in volume and price/mix gain of 7 points, 7.1. End of March, Liqueurs & Spirits accounted for 25% of our sales, up 1 point compared to the previous year. Now let's review the performance of the division by region. In Americas, North America contributed very strong double-digit sales growth in '21, '22, including growth of high single digits in Q4, led by whiskeys portfolio, Cointreau and The Botanist, global partnership brands. This performance reflects good dynamics in the on-trade channel, while off-trade continued to perform strongly, up double digits compared to 2 years ago. Specifically, Cointreau's value depletion were up strong double digits over the last 3 and 12 months compared to last year, representing terrific, stellar growth compared to 2 years ago. Besides that, price/mix for Cointreau was flat compared to last year in the last 12 months period and in March on top of a high single-digit increase in price/mix last year. This evolution also reflected some adverse mix format effect linked to the outperformance of the Cointreau 1 liter, which is a non-trade SKU, versus the 750 known SKUs, which is more off-trade. In parallel, Latin America recorded a strong performance in Q4 driven by Mount Gay and the Whiskey portfolio on the heels of the gradual recovery of tourism. EMEA for the region [indiscernible], sales grew at very strong double-digit sales growth in '21 and '22, led by all regions and brands. In Q4, sales were up high single digits, led by Western Europe and the U.K. And said, while on-trade continued to benefit from its recovery, off-trade remained resilient and performed well. Cointreau outperformed in the last quarter, supported by some market share gains in the U.K. and Western Europe. Whiskey portfolio was partially affected by strategic inventory management decision, mostly on Port Charlotte, while The Botanist showed good dynamics led by travel retail in Europe. APAC, which is still a small region for Liqueurs & Spirits, now the growth in Whiskey has changed. China posted very strong double-digit growth in '21, '22 with contrasted trends in Q4 line with Cognac' performance. Northern region was impacted by health restriction and the South showed a good performance led by Cointreau. Last slide of the presentation before Q&A, Slide #15. As usual, we talk about guidance. Hence, we confirm our full year guidance. As already mentioned, we expect to generate a very strong organic operating profit growth that will be only driven by the H1 outstanding growth and the H2 profitability will be impacted by 3 elements guided by, I repeat this. First, a meaningful, important increase of our marketing communication spend in second part of the year, H2. Second, before the price increase that we applied beginning of April, the new fiscal year, we strictly manage our strategic inventories allocations talking about the ODV and spirits, i.e., we manage the inventory of our most accretive brands. And third, the very high base of comparison of H2 last year. But all in all, we confirm, yes, we assure the organic improvement of our operating margin for the full year. A word on scope and FX in terms of impact on the bottom line. For the full year, we expect a negative scope effect on operating profit of EUR 2.4 million, which loss, while we now anticipate around EUR 5 million of positive currency impact on operating profit. One last word regarding the start of the year. We feel confident, absolutely confident, very confident in our '22, '23 outlook, all things alike. And the group anticipates a strong start to the year despite the high base of comparison and the context, which is still characterized by the pandemic in China. Thank you for the attention, and now, let's go back to the Q&A.

[Operator Instructions] The first question comes from the line of Laurence Whyatt from Barclays.

Three for me, if that's okay. Firstly, you flagged major price increases across your regions. I was just wondering if there are any specific regions do you expect more price than others or any brands you'd expect more price than others. And if you could give any sort of quantification to major, does that mean double digits across the board? Secondly, your stock levels. You've given some good indications of the level of inventory, low in the U.S., very low in China. Do you have any indication of when -- of how much stock your wholesalers are obliged to hold and when you'd expect that to recover? Should we expect that will come back in, in Q1? And then finally, on VSOP, you've mentioned throughout the presentation that VSOP has been below the rest of Cognac. Would you expect VSOP to be declining from here on as you focus your attention on other higher-priced products?

Thank you for your question, Laurence. So allow me to be a bit long on price increase. Its important. So I'll be quite precise on the magnitude, distinguishing the regions and the major countries. Overall, '22, '23, straight from my brain. is and will be a strong year of pricing power at a group level, combined price increase and still mix improvement in terms of channels, in terms of format, in terms of decision, in terms of countries, states inside the U.S. These additional parties are already very accretive and is linked to the strategic inventory management decision we took in advance. Before jumping high, you have to retain your breath. So we retain our breath. Your outlook performance was impacted in Q4 but gives more magnitude to jump higher. Figures, inside North America and U.S., price increase will be for the Cognac between high single and double digits, being more on the high single for the entry and the intermediate level and more double for the high end. Front row, Liqueurs & Spirits, mid-single. It's important. And Whiskey's a bit higher than low single. In fact, China, Cognac, the entry part of the portfolio is high single. High-end, more moderate, more mid-single. Still very, very important price increase. Cointreau in China, low single. And Whiskey in China, mid to high single digits. Inside Europe, a little bit more complicated situation because of many different country and dynamics. But overall, the inflation being an element and something which is also supporting our actions indirectly, will be above general inflation in a key market in Cognac, slightly below general matching inflation in key markets in Liqueurs & Spirits. We will implement a price increase very gradually also in France, which is traditionally a complicated capital of price increase, in line with the inflation in the key countries like U.K. In terms of color, clearly, cognac and global priority brands also in Europe, in which we have decided in the past for to retain our brands. They will be more linked to the increase of price increases. And also on top of that, which is very important, I'd like to be clear on that, gives to ourselves to make bolder decision to improve our mix in terms of performance in terms of choice of countries, arbitration and space also inside the U.S. So a very strong pricing year, combining strong price increases and important mix target of all to realize in '22, '23. All in all, without guiding the top line group level for the year, we are confident, as you can see. And compared to this year, we expect to have more price/mix effect in '22, '23 compared to '21, '22 and lower volume impact because Cognac growth for this year, very strong double digit, can be something that we can target for the middle floor. The better way to help that is to increase even more our pricing power and our mix position. Second question, stock. End of March by region, U.S., very low on VSOP. Maximum 2 weeks and quite low also on 1738, maximum 1 month. But not only for U.S. It's a global thing. Something I would like to do, [ takes you forever ] while you are changing gears. You're entering U.K. plus 60. For the U.S., plus 60. You will see that in China compared to 2 years ago, Liqueur & Wine division, talking about months in a changing gears mode and when you have some volatility for different quarters. Considering our decision of not only the external events, it does not make a lot of sense because what is 1 month today can be 1 week or the week in 3 or 6 months. What is important is to analyze the results and the stock position over a longer and more strategic point of view, so 1 or 2 years, 3 years. Quarters are not meaningful, not in the more performance and not only but also in terms of finger-pointing stock of performance at an even moment in time. U.S., so as I said, very low, particularly in VSOP and 1738. China, very, very low. So we think that we are very well positioned compared to our competition in China to profit when restart -- they announce the restart or the fact that our wholesaler also intermediate. XO acquisition is very, very long term for goods, and direct-to-client market is there. So we are there to perform right away, and we are very confident when the dynamics will start to profit of our competitive position and our portfolio in China. Being in that position, if I may, quite a better way compared to our competitors. Rest the world, talk about Europe. Performance are catching up with the average -- weighted average of the group, and we are not stocking. We still remain very, very clean on our inventory, particularly in Europe. The levels are not so low like in China on VSOP, but they are very, very healthy. So the correlation between the demand in Europe in this setting starts to be witnessed, a lot of demand even in this region. So a very healthy and low situation in terms of stock. The third question, which is more than financially more strategic. I think that Éric Vallat will be much better than me to answer to this question during our June results. VSOP is a key pillar of our portfolio. We are not giving up on VSOP, not at all. It's a jewel, but a nice to have. So once again, if we think of our brand globally, we think much more than that. Our wishes and need of volume expansion because we have to prioritize that. So think of VSOP that all along the year, we will have a volume growth expansion, which is not the core part of this and our strategy and more the valorization of the products not only in terms of price, but term of position, in terms of sales, in terms of format, going to avoid boxes and they impact SKUs more and more to increase the perceived and intrinsic value of the VSOP references. So it is not our core, such a level of volume growth, but still remain one key pillar much more in terms of valorization at group level, playing an additional element and direct quality role, increasing the upper part of the portfolio, starting with 1738, in that case, will have also add more fuel and more available space or room to be valorized and to be distinguished by VSOP in terms of positioning and in terms of consumers. Sorry, I was a little bit too long, but I answered in a wider way to your question to give some additional but important, I think, flavor for what will happen in the next coming quarters and years.

The next question comes from the line of Olivier Nicolai from Goldman Sachs.

Just a few questions, three, actually. First of all, could you comment on global duty-free trends, including and also excluding Hainan? And how does it compare to pre-COVID levels? Secondly, on China, you don't seem to be too worried, particularly because it's a low season at the moment for cognac consumption. But could you comment on the current depletion that you're seeing maybe in April in China? And how much of your business is coming from Shanghai or Beijing? And just lastly, a bit of a technical one, but just on FX, you flagged a EUR 5 million positive impact on your EBIT for this year. I assume if it's just translational FX or it's the part of transactional FX here. And if it's just transitional, when can we expect a transactional part to kick in? Is it going to be for next year? And if you could quantify, although I'm asking a bit for too much now.

Yes. We start with the more technical one, the last one. The EUR 5 million was our best approximation of the impact of operating profit. So it is the combination of bottom line translation conversion. So it is the hedge, including more cost on benefit revenue impact. For next year, '22, '23, it will be a very important element to follow, but it is early. I'll be more precise, beginning of June will be quite solid because already we cover some of our needs. But spot rate of dollar, for instance, [ also for China yuan ] is changing, increasing its momentum. It's quite volatile. Good sense at this moment because we are very exposed to U.S. dollar, the overall currency, thanks to that. We'll take some assumption. We don't have other choice than to share with you every quarter, not only starting June. Every quarter, we share our expectation in terms of conversion to line, impact on the line, the mix of conversion and hedging and try to catch up. But it will give very complicated things to estimate all around the year. Let me remind that we are an organic growth group. So we are looking at organic growth line. So it's very important that the KPI -- the key KPIs are organic, so previous year exchange rate and exchanges. But I understand the need for you to also to try to estimate the published EPS or the price for the group throughout the year. Once again, I will be more precise in the end of June also because the currencies are quite changing in every day, in effective ways. In terms of for full year performance, for full year '21, '22, the performance was very good compared to the previous year, plus 50%. But still, if you compare to 2 years ago, around [ 9 60 ]. So the short term is booming, but the values are not meaningful. So we continue to increase, but we do not seem to be back to the old level at least '23 to 2024 or at least '23, '24. We are increasing our performance but on a very small base compared to the old good days. All regions contributed to this short-term performance, positive performance with a small exception, which is the Asian travel retail, which is U.S. dynamic, the Americas and the European travel retail. And this is most important because it is in Asia that used to be the most important part when we're talking of the travel retail business. So better on the short term, not yet for the old base level. And no normalization, in our opinion, before 2024. In terms of China, can you repeat your question because there was some noise. I didn't understood correctly the question on China.

Yes, no worries. Just you flagged in the presentation that it was a low season, so it doesn't really matter too much. But if you could comment on the current depletion that you are seeing perhaps in April in China, and also how much of your sales are coming from cities like Shanghai or Beijing?

Okay. So in terms of the actual run rate, both in top line and bottom line, situation is in some part of China is still blocked, but it is not the major part because maximum, we can say that 30% is concerned because in Guangdong and Fujian are making 2/3 of our sales. So we are not so much exposed compared to other peers to Beijing. Shanghai is important but is clearly far less important than Shenzhen and parts of the country. And in terms of consumption, everything is linked to the decision of lockdown because compared to, for instance, COVID in the Western world, you are less free to move to buy. So I think it's much more rough in this part. But the good news for you or still for us is that the weight of Shanghai and Beijing is clearly not so important if you compare to the south part of the China. Clearly, we have also other elements to consider on consumption but the operation because strict lockdown impact the daily way to do business in terms of logistics, how we move goods in all China. This is still something that needs to be said. But when and progressively, and maybe, we will change in the next coming days or hours, will be more positive. The dynamics will start, once again, because on top of the fact we need to be less exposed to this Shanghai and Beijing areas, our stock level, I insist, are very, very, very low.

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

I think 3 for me as well, I'm afraid. Luca, can I just sort of follow up on those comments just around China at the end there. I wonder if you could just give us any idea of the seasonality over the next sort of 2 to 3 months of your Chinese business. How do we think about sort of April, May, June, July in the context of the year? And then related to that, obviously, you've stressed how low inventory levels are for cognac in China at the moment. But given what's going on, even if less than 30% of your sales base is being impacted, as things stand by restrictions, is that stopping wholesalers at the moment wanting to take on more inventory as we come into the first quarter of your new fiscal? That's a rather long-winded first question. And then secondly, you've clearly been up-weighting investments across the business through the year and through the second half of the year. Have any of the situations with regards to the restrictions in China had any impact or delay to some of your investment plans in that market? And then finally, I wonder if you could just talk a little bit about your Russia and Ukraine exposure and how you see the impact of that situation there sort of hitting sort of the group as we move into the new fiscal year. What costs are you continuing to carry in relation to your import business into those regions?

Okay. Thank you. So China business split and weight in terms of phasing. So when we talk to the fact we have Chinese New Year, 11/11, 12/12, which are special days accounted for 2/3 of the business. Q1 for us, so April to June, is not seasonal. It's not -- so it means that -- in terms of value quarter. It is not important. Logistics and global dynamics, distraction can limit intermediate movements and restocking, even if we are talking out of the specific low down areas, yes. So that's reason why, even if the global nature of the business, it is less Shanghai and Beijing than our competitors, clearly, would like to have progressive lockdown easing situation to be able to start to work like sales in normal situation because, otherwise, it's not so easy to operate like that. Our teams are very spot on, on the goal in China. So they think of all solution to try to offset some situation, following the rules and respecting all the rules. So we are there. But clearly, the lockdowns condition are most stricter in China compared to Western World and plays a role on the main operations conducted. A&P, regional balance. Yes, we switched some investments in March, more in the U.S. and other parts of Asia. We were very successful, as I highlighted. And less in China to avoid to have some direct and not brand long-term-oriented investments. I'm talking more about the -- more linked to the volume sales part investment, rebalancing that by regions. As you can -- you will see during June result presentation, I confirm to you that our A&P growth was important in the second half of the year, filling the vision not only for this fiscal year, but starting and supporting the strong rebound compared to 2 years of the new paradigm in the consumption. In terms of Russia-Ukraine situation. And so for us, quantitatively speaking, Russia and Ukraine are marginal in term of width. We are clearly affected in the sad and tragic events that have impacted Ukraine. And seeing the priority of the conflict, our priority has been not on the business -- not only the business, but even more clearly to do everything we can to protect, support and help our colleagues in those countries. So together with the whole conflict member -- team member around the world, we have expressed our sadness and compassion but also a more concrete way, mobilize all means to have Ukrainians to get the essential products they need, to give some financial support through our distributor in Ukraine and also to find the best option to welcome sometimes refugees entering France. Also, we've done the same thing with our Russian operation or our employees. So we continue not to sell to Russia. We've maintained that our operation there to be ready if the situation will allow us to do that, to reopen the operation. Because we are not a political institution. We are clearly attentive to that, but we are there to support all the people and to profit the business in a healthy way when the condition will be better. So concretely, our last shipment in Russia was in January, and since then, we have suspended all our shipment ambition plan until further notice. And we support all the people in Ukraine and in Russia as well. We believe in diplomatic efforts, and we hope that Europe and Russia will find a very peaceful solution of the conflict. In terms -- last but not least, as what I said at the beginning, in terms of the impact on our figures, Russia and Ukraine are marginal, less than 1% top line, and not important in terms of bottom line. In terms of brands, a little bit more important for our Metaxa, St-Rémy and some part of our Cognac portfolio. But at a group level, I repeat very much.

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

Three from me also, please. The first one on the U.S., where underlying trends clearly remained strong. And in fiscal '22, I think you delivered low single-digit value depletions on what were very difficult comps. Now this year, comps are normal, and you flagged the strong pricing that you're taking. So what sort of -- are you able to quantify what sort of depletions do you expect in the U.S., value depletions? And would you expect volume depletions to be positive? The second question, just going back to the point about FX. I mean, without, of course, giving us any number yet that's premature for the new fiscal year, but can you remind us the hedges, are they typically 18, 24 months out? Or are they shorter than that? And then please, the last question, you said in your guidance that you're anticipating a strong start to the year. Now there are a lot of moving parts affecting Q1, the positive underlying trends, the restrictions in China, stock replenishment, et cetera. Can you, I mean, just in broad terms, talk about how these moving parts move in the quarter? And when you say strong, how strong is strong? I mean you're not going to give us a bit of flavor on what you mean by strong, please.

Thanks, Andrea. So let's start with, once again, if you allow me with the technical part. I will give you, so far, our '22, '23 hypothesis to try to give you some help. But I will adjust this destination beginning of June, and I will do it again every quarter during the sales conference because it's important this year even more than previous year. Inside, if you can see that our universe of coverage of Beijing is $100 and Chinese yuan, a whole bag of currencies linked to dollar in a way, and weighted 91%. So we are really very dollar-dependent. So far, for '22, '23, we hedged 80% of our estimated needs, and the granted coverage of 1.18. 1.18 because, if you remember, we cover 24 months in advance, so we have some crystallization of the cost of the option of the volatility under Valentine. But 50% of this 80%, it is with options, meaning that spot changing, we will progressively reduce this 1.18. Or if it is a negative, we have a blocking loss point of 1.18, normal discussion for technicality like that. Our -- my personal and our personal destination for '22, '23 at yearly level, so our conversion rate at 1.12, a spot rate at 1.05 that combined with the 18% -- or 80% with option, yes, makes an average all weighted hedge rate at 1.15. So at this stage, so far, we have 1.12 in conversion top line and 1.15. It is too early to give you the absolute value that will impact the specific strategy during the June presentation. But clearly, if we consider that [ in depth ] , published results in '22, '23 will show a much more accretive impact in bottom line compared to the [ EUR 5 million ] of this year. This clearly means to our strategy an effect that spot rate at this stage is 1.05, 1.04. Everything can change because I think it's more volatile now. I hope it is clear. The second point, U.S. depletions for the year. Despite volatility by quarter that will continue to happen because we have to combine strategic management by us, a world in which logistics is very tense and some geopolitical tension, the underlying new paradigm is confirmed. What is -- what I mean is that at group level in the U.S., we target another strong year, both in top line and also in depletion. But adding ending the year with a low level in some key SKUs, the catch-up and the realignment of the new paradigm, considering also the complexity of logistics operations, will determine some volatility during the quarter. But all in all, at least at yearly level, we target a strong year for the U.S. both in top line in terms of shipment and efficiencies. What is strong for the U.S., clearly, we are talking about very high single to double digits, double-digit element on the heels of what we have already realized over 2 years, which is quite important. While we think 8%, 9% and 11% is not so big, don't forget that the new paradigm in the U.S. but all over the world, in this business which we have. We are talking of plus 60. Making plus 11 over plus 60 over 2 years ago. So we are accumulating, stratifying, customizing additional growth and less -- and safe in a world that the user base become part of the paradigm forever. So in our opinion, it's very important target, which means knowing that we consider the market for the U.S. being mid-single continue to gain market share in them because all the [indiscernible] top line, shipment and divisions are value-oriented. I don't think that we will have another year of double-digit volume growth. It is not our intention because the price and mix increase will be far higher all over the world, and in the U.S. in '22, '23 compared to the '21, '22. That gives even more profit for the year '23, '24 and '24, '25. In terms of what is strong, if you want, so let me allow to be a bit long also that because it's important to try to explain the way we are thinking to that. First of all, I repeat, we are today fully focused and very confident for the year '22, '23. We entered the year with a lot of serenity, calm, zen altitude, even if the global conflicts are very complex. We are very well positioned to take advantage of new paradigm in consumer trends, [indiscernible] growth. And we can understand our very strong pricing power, higher positioning, strong brand variability and the impact of the fact that our strong advertising promotion, long-term campaign are becoming effective. In Q1, we expect despite the very high comparison basis in the value chain channel, which remains characterized by the pandemic so far, a strong start to the year. What is strong? It is double digits. We expect a group level, combining all opportunity and risk so far an organic sales growth in Q1 at double digits. Some color by region, we expect strong double-digit growth in the U.S. because consumption is there. I said plus 60 compared to 3 years ago. And we had a note, so there is a realignment. And we'll continue to monitor the evolution of lockdown in China. But as I said, when we start, the dynamics can be reopened. The underlying demand is there, plus 60 [ versus ] over 2 years, and we are very understocked compared to our best competitors with the right portfolio, in our opinion, to profit on that. And Europe, it was aligned, and it's a little bit more normalized, okay. We have the world in these parts, so far, more aligned than in the past. So we're starting to compound in terms of performance with the weighted average of the company. This acceleration will translate to reconsider that the old common translation, that it increases the stock. I prefer to talk about the realignment because stock is stock. You have 10 people coming to your dinner. Everybody is to get 1 chicken, you allow 3. You give seven 3. Now you do another dinner one week later, yes, all these 10 people, it gives them 6. So you are doubling the stock coverage but you're still underreacting to the final demand, which is 10. So even if you're doubling the stock, you are still understocked. And we are in this situation in a lot of countries. So the restocking technical effect would be quite low, which is good because we have strong double -- it will be strong double digit in U.S. on the heels of underlying realignment and not on the heels of stock adjustment, 1 to 2 weeks in VSOP and much more in 1738. So we will enjoy a realignment but it is not a window dressing restocking impact in the quarter. Andrea, let me allow you to end with a final word. We have all collectively made a step back and think a little bit sometimes more strategically. I'm talking to myself. Not you, myself. Orders are important, where is the company. We have to publish results quarterly. We have to talk about FX. Sometimes, we have to take step back to the big picture. Compared to the years ago, set in, okay, shipment. Before pandemic, U.S. plus 54%; Asia plus 30%; Europe by the same level. But in terms of the ratio, the best approximate of final demand, U.S. plus 60%, of which 45%, 50% in front of a price mix. China, plus 60%, quite the same balance, and Europe, high single or double. So stock decreased the realignment. So compared to pre-COVID situation, we are in the new year and result are very reduced. Expectation there is very strong. Clearly, there a lot of technical elements, problem eventually that we have to manage, like every company, which is changing here. So the execution is more complex, but we are in a very good shape. Thank you so much.

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

Just one question, Luca, you'll be glad to know. I'm trying to pull together a number of threads you mentioned, Luca. So in particular, focusing on the U.S. and the shape of the business as we move into the new fiscal year. So I think you mentioned, we ended the year with very strong growth -- or shipment growth for 1738 but VSOP in decline. I know you're short of aged ODV, and yet at the same time, you clearly -- as you say, you don't want to give up on VSOP. But is it sort of inevitable that, in the U.S. at least, you're going to continue to prioritize 1738 and will see that pattern going forward of maybe not VSOP in decline but the growth will come primarily on 1738? Is that the right way to think about the U.S. business for the next 12 months or so?

In volume, yes. We have expectation to be able in value with the optimization. VSOP will be maybe slightly positive of -- or equal value. But volume, yes, it's not a priority. 1738 will be for the intermediate, the first actor, the first knight on top. We have huge expectations and very good results on the retail team and XO as well. So there is a progressive and global portfolio trading that is there live now. Then, don't forget out of cognac that we are starting to realizing what we said 2 years ago, what Éric Vallat said, the journey, medium to long-term journey, we will based on cognac. But we also realize the final goal, the gathering maker of the areas of our brand will be Liqueurs & Spirits up in U.K. [ Part of what he was going to do. ] So Liqueurs & Spirits are starting to stronger perform compared to Cognac and in the U.S. as well. Quatreau even our very high business will be there and with a strong variation as well. Whiskeys, it's quite fantastic what happened this year in China and all over the world. So the fact that the cognac is important, it's the base, but it's not the biggest knight in terms of increased impact, gives us additional serenity. Personally, I prefer serenity than confidence. When you are calm with serenity, you are still concerned but in a zen way thereafter. But it is important, but VSOP, we will not give up for that. It's very important.

Next question comes from the line of Chris Pitcher from Redburn.

Following up from Trevor's, in terms of how the sales mix is changing in the U.S., can you give us a sense to how your customer profile is evolving? Is this the same drinkers trading up? Or is your balance of customer moving up the income bracket? And then perhaps globally, could you give us a sense to how the Louis class customer is changing? Because you've seen very strong growth globally. Can you give us an idea of what the profile is sort of by nationality and income bracket, if possible? And then just one quick question on currency windfalls. Is your strategy to reinvest any dollar benefit that you may see from transactional gains?

Okay. I'll start with the ForEx once again because you asked one point. Even if we never experienced a very, very strong disruption of positive impact of ForEx during my permanence, like Financial Director, 9 years in the -- so far in the group. The group is monitored, managed in organic terms. And the ForEx, positive or negative, is always something that is explained that is not changing our strategy on a daily basis, but that clearly is next year. We have, I don't know, EUR 40 million, EUR 50 million, EUR 60 million plus or minus in the published result expectation. Clearly, it's possible that Éric Vallat will ask myself to reduce this investment with an effort to increase that because the magnitude of ForEx impact has never been so big. This year, it could be. So it could be. But so far, we continue to manage the group in terms of organic terms without taking into account some tactical implications related to ForEx. Consumer change is clearly more sophisticated, clearly more trend. Talked about the COVID pandemic period to be touched in a different way. So we have less written standards than we thought and more conscious consumers, conscious with enough trading habits compared to the previous expectation. On-trade has been back to the -- to our previous expectation. But we didn't lose major brands with alternative brands, the off-trader is here. So it is more in cases and brings better in terms of volume drinking class. So and that is even if we have sometimes shy, not bullish on that. We are contributing to the ESG footprint directly. Our strategy is a positive internal ESG. It's very positive because this is a healthy consumption and a lower consumption than other companies, if I may. And this journey will drive better acknowledgment by the consumer, in our opinion, in terms of habit. Louis XIII. Louis XIII is a combination of the -- successful combination of the advertising and promotion company that [indiscernible]. And more complete, more in terms of sales. China is still very important, but it's not only China. U.S. has performed very, very well. Some countries in Europe as well as Australia. And I think -- we think part of that is the enormous investment that we made. And since 2014, '15, with brand ambassador and personal client director, people that on the ground on a daily basis are able to explain the taste, enjoy with direct to consumer, the precious result here. I can say that we switched, when I arrived in 2013 in that, the China crisis was a beautiful jewel, and today, is a very beautiful drink that is more consumed than before. Because we -- our consumer have less fear to drink it because there -- there is -- drinking that, the experience of that than in the past. And you have less respect in the terms of if you have with a jewelry you keep in the safe lock. It's less on the safe lock. It's more possible, more achievable, more down to earth even if it's at a strong price. So it means that in terms of occasion, advertising, promotion and, I insist, the activity on a daily basis of our brand ambassador, our PCD, not a lot of company will have the coverage to put 100 people on the tier, EUR 10 million of our overriding to that to support the progressive journey to the knowledge. And now I think that we are collecting the first result. On top, the more and more we're being direct with our operation into freestanding stores and also some economics positive impact, the more we'll be accretive. Probably in 5 years, we have -- we will have much more sales than in 2012 with Louis XIII with maybe 2/3 of the volume we used to do in the old days in China with Classic Laddie. Classic Laddie is no more the core business of that we are interested in.

There are no further questions in the queue. So I will hand the call back to your host for some closing remarks.

So thank you for your question. Very interesting as usual. So I can say see you beginning of June with the set of results. So as you understood, we are aligned with the consensus. We see that our profitability will improve compared to the previous year. We have expectation, confident, and very good expectation for the next fiscal year as well. Top line and bottom line as well. And you have also the occasion in June to ask a lot of strategic question to my boss, Éric Vallat, that he will illustrate how we continue to perform our track record compared to the 10-year plan. We are right, even slightly better positioned than 2 years ago. You have understood that. And we are a company which is now operating in a different mode and with different underlying views. Thank you so much, and see you again in June.

Thank you for joining today's call. You may now disconnect your lines.