Rémy Cointreau SA (RCO) Earnings Call Transcript & Summary

Hello, and welcome to the Rémy Cointreau H1 sales publication. My name is Natalie, and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Luca Marotta, CFO, to begin today's conference. Thank you.

Good morning, everyone. As you've seen in the press release, H1 sales were down minus 22.2% in organic terms, including a decrease of minus 10.8% in the second quarter. Even if Q2 sales have shown a sequential improvement compared to the Q1, this is not enough and below our expectation. This performance has been mostly impacted by the Americas, where the recovery is slower than expected. In parallel, the rest of the world grew at plus 13.8% year-on-year in H1. H1 sales decline is split between a volume decrease of minus 18.9% in H1 and minus 3.3% of price/mix effects impacted by the Americas region as a result of the strong Cognac's underperformance compared to the Liqueurs & Spirits division. Overall, H1 sales were up plus 20.9% in H1 as compared to pre-COVID level despite but including clearly the important U.S. destocking. Looking at the overall sales performance by region. Americas recorded a decline of minus 49.9% in H1 year-on-year, mostly impacted by the Cognac division on the back of, first, a sharp normalization of consumption. Second, a meaningful destocking in absolute value. And third, tougher market conditions, including a persistent promotional environment and the rise in financial cost. Compared to [ H1 ] '19, '20, Americas is down minus 3.2% at this stage. APAC, Asia Pacific region was up plus 16.6% in H1, led by China, Southeast Asia, the continued recovery of Travel Retail. This represents very important plus 55.8% growth over four years. EMEA was up plus 8.9%, showing relatively good resilience despite a touch softer demand. EMEA is up 19.4% versus four years ago. This was sales sell-in. Now let's talk of value depletion at group level of the last 6 months. In the U.S., value depletions were down high single digits. Compared to pre-COVID, value depletions up plus 30% and [ stripping out ] VSOP plus 70%, 7-0. In China, value depletions were down mid-single digit in H1 against very high comps. On a 4-year basis, China value depletions were up plus 45% in H1 and following only plus 20% in the previous quarter. H1 negative performance reflects Q2 value depletions, high comps and a touch softer demand during the summer in China. Finally, in EMEA, value depletion were up mid-teens, led by Africa and Middle East, Benelux and Eastern Europe. This represents an increase of around plus 30% versus H1 '19-'20. So we can say and see very clearly that overall, at group level, this means that depletion on a 4-year basis grew almost 2x faster compared to sell-in, plus 35% versus around plus 21%. This is the mathematically clear demonstration that sell-in is impacted by some conjunctional short-term effects while the underlying consumption has clearly accelerated compared to four years ago. To sum up for this very first slide, an important one. Following our performance, which is unfortunately below our expectation assumption and taking into account our new assumption for the coming months, we have decided to adjust our full year guidance. We now expect a decline between minus 15% and minus 20% on an organic basis and a contained decrease in operating margin on an organic basis as well. This is also thanks to a deployment of a major cost-cutting plan. I will detail it more in the last slide of this presentation. On Pages 3 and 4, we picked up some marketing initiatives that we have undertaken over the last quarter, first in the U.S. and then in China. Let's start with Page 3 and the new Rémy Martin campaign with Usher, Life is a melody for 1738 and XO as well as the new chapter on Cointreau with Aubrey Plaza for the Cosmopolitan cocktail. [ Nutrition ] are far from being satisfying in Cognac. However, it is important. It is a key to keep our long-term vision live. We continue to strengthen our brand equity by growing long-term awareness and visibility of the brand. Preparing the recovery is key for -- on Cognac, and we will continue to selectively invest in A&P, advertising and promotion. On Cointreau, the situation is clearly different as Cointreau benefits from a strong momentum, and the objective is to leverage it and to continue to gain market share. Page 4, just a quick word on China and more particularly on Mid-Autumn Festival. Sell-in was solid despite its lower-than-expected economic recovery in China that depletions were below expectation. In this market, our main objective has been to support depletion, fostering the below-the-line concrete initiatives, a little bit more than above-the-line advertising actions. E-commerce and off-trade of mobile channels are the two very important channels for us and lots of animation has been done -- being done to support our brands, including the launch of a new SKU for XO with a 50cl format on JD.com. In addition, we did several animation to continue to develop off-trade and social gatherings. In the meantime, we continue to work on gaining new distribution listing in on-trade for XO, which will be a strong game changer over the midterm. Here, you can see on the slide, an example of the modern on-trade animation to enhance our visibility. Now let's -- back to [ call ] figures. Moving to the H1 sales analysis, Slide #5. Sales amounted to EUR 636.7 million, down by EUR 230.4 million year-on-year or minus 26.6% on a reported basis. This reflects, first, a very strong organic decline of EUR 192.7 million, which is minus 22.2% of organic sales decrease. This performance is split between minus 18.9% on negative volume effects and minus 3.3% as a result of price/mix linked to the Americas underperformance. Regarding the latter of the price/mix, this is a combination between a positive pure price effect, low to mid-single digit and the negative mix effect around high single digit. Second, a negative currency translation impact of EUR 37.8 million, which means a 4.4% loss in H1 2024. Why? This loss was largely driven by the deterioration of the Chinese yuan for EUR 20 million, EUR 20.3 million and USD for $12.7 million. In addition, Canadian dollar, Australian -- dollar and Japanese yen posted a slight marginal loss, respectively, EUR 1.2 million, EUR 0.8 million and EUR 0.7 million. Slide #6, an important slide showing the performance by division versus H1 '19/'20. On the left, the evolution of the Group sales at constant exchange rate. In H1, we grew at plus 20.9% on a full year basis, including a volume effect of 3.9% and huge price/mix effect of 17%. Looking into the performance by division on the right part of the slide, you can see that on the one side, the Cognac revenue with growth at plus 9.4%, thanks to the second quarter, which improved sequentially. Volumes remain significantly negative, but price/mix is still strongly up by 28.9%. On the other side of the slide, Liqueurs & Spirits was up 55.8%, which is amazing and showed a well-balanced breakdown between price/mix and volume. Now Slide #7, dig into organic trends by region at the end of H1. And let's start with APAC, Asia Pacific organic sales, in which sales were up at plus 16.6% year-on-year in H1, which means plus 55.8% on a 4-year basis. Looking at volume value equation, the performance year-on-year is equally driven by volume and price/mix. Inside this region, clearly, China has a very important weight. China sales were up high single digit in Q2, benefiting from a solid level of sell-in during MAF, Mid-Autumn Festival, and despite a slower-than-expected recovery post-COVID. Over the period in terms of channel, direct channels and off-trade and e-com outperformed and offset the weaker performance displayed by other channel and the on-trade, which for us remains a small part of our business, less than 10% so far -- as far as I speak of total sales [ on-trade channel ]. Meanwhile, value depletions at group level were down mid-single digit, i.e., past 45% versus '19/'20. This change in trend reflects softer demand in July and August, exacerbated by some calendar effect, Mid-Autumn Festival was 3 weeks later this year, and very high comps. They are below sell-in, which implies now mathematically a higher level of inventories in China compared to the end of the Q1. This will weigh -- will impact on the expected shipment before Chinese New Year as we will destock to ensure a sound level of inventories post the Chinese New Year. Remaining part of Asia reported a mid-teens growth in H1, boosted by a strong rebound of some countries like Japan. End of September 2023, APAC accounted 40% of our group sales, up 12 points versus last year. Americas. Americas organic sales recorded a decline of more or less 50%, 49.9% compared to H1 of last year, mostly impacted by volume, while price/mix was also negative due to the strong underperformance of Cognac compared to the Liqueurs & Spirits. More specifically, in this region, talking about the U.S., sales were down at very strong double digit in Q2, showing, however, a sequential improvement versus Q1. This performance reflects continued destocking in absolute value on Cognac alongside tougher market condition, including promotion and rising financial costs, which impacts the capacity of financing for both retailers and wholesalers. In the meantime, Liqueurs & Spirits division in the U.S. showed a sharp rebound as expected. Overall, Q2 was slightly above pre-COVID level in the U.S. If we achieved the strongest destocking in absolute value, this is important as it's not visible in terms of days of coverage due to the further deterioration of depletions. Consequently, the level of inventory is still at around 5 months at the end of the Q2. On a 6-month basis, value depletions are still down high single digit year-on-year, down low single digits, excluding VSOP, and approximately up plus 30% versus H1 '19/'20 and plus 70% of 4 years basis excluding VSOP. Talking about Canada, sales showed also a very strong decline in Q2, impacted by more or less the same factors and events as in the U.S. In parallel, Latin America was down low double digits in Q2 as well. End of September, Americas accounted for only 37% group sales, down 19 points year-on-year. So APAC 40%, Americas 37%. EMEA organic sales were up plus 8.9% in H1 and a plus 19.4%, more or less 20% versus 4 years ago. This year-on-year performance was only driven by price/mix while volumes were slightly negative. Inside that, by subregion, Western Europe was up high single digits in Q2 led by some Southern Europe countries like Spain, Greece and Italy. U.K. was also up high single digit, but also benefiting from a positive phasing effect linked to the duties increase in August. Remaining part of EMEA, we generated a very strong double-digit growth in Africa, Middle East, while Benelux and France recorded softer trend. H1 value depletion were up mid-teens year-on-year, representing plus 30% of the growth versus 4 year ago, so more than the sell-in. At the end of September 2023, EMEA region accounted for 23% of group sales, up plus 7 points versus last year. Now let's turn to Slide #8 and switch from a regional standpoint to analysis by division, to the footprint. Starting with the Cognac. Cognac posted an organic decline of minus 30% in H1 2024, reflecting a significant decline of minus 39% in volume and a strong price/mix gain of 8.9%. End of September 2023, Cognac division accounted for 60% of our sales, down 8 points year-on-year. Now let's begin and start with APAC. In APAC, let's start with China. In China, Cognac sale were up high single digit in Q2 on top of a very high base of comparisons. Indeed, sales growth represents an increase of more than plus 100% versus Q2 '19, '20. If sell-in is below our expectation, they remain very solid and represent a good achievement in the current environment. The recovery post-COVID is lower than expected and affected by softer consumer confidence. Having a good comprehension, the current trend is a relatively complex because of size and the visibility is currently quite limited. Key takeaways so far are: first, on-trade channel was weaker and is just starting to show some sign of improvement, while, second point, off-trade and direct sales demonstrated a better resilience. Overall, talking about value depletion. Value depletion were down mid-single digits in H1, so as a result, in Cognac, as already said, for the group level -- at the group level, at the end of H1, our level of inventory is higher compared to the end of April Q1 in China. Our objective is to now destock and ensure a sound level post Chinese New Year. In other regions, Taiwan generated an outstanding performance in Q2. Macau continued to be weak in terms of sell-in, but value depletions with a strong acceleration, which bodes well for the coming months. And finally, in Hong Kong, we recorded a very strong quarter supported by dynamic value depletions. In Americas, let's start with North America, so U.S. and Canada. North America Cognac sales declined meaningfully year-on-year on Q2, impacted by destocking, consumption normalization [ and ] high comps. In the meantime, market conditions are getting tougher and tougher. The rise in financial interest is reducing significantly wholesalers' and retailers' financing capacity. Moreover, persistent markets, not by us, the market overall promotion adds pressure [ on ] Rémy Martin volumes as we have decided not to make any compromise on pricing, fostering the long-term value creation instead of not sustainable and [ quick wins ] in volumes. As a consequence, U.S. value depletion in Cognac have deteriorated sequentially in Q2 versus Q1. They were down minus 32.8% year-on-year, i.e., minus 10.6%, more or less minus 11% compared to the Q2 '19/'20. In this context, the level of inventories in Cognac is now in terms of coverage above more or less -- above 4, 5 months in terms of the coverage for the Cognac. It will be lower for the Liqueurs & Spirits division, given [ 5 as an ] average for the U.S. in terms of value depletion at group level. Price/mix effects were positive 7 points year-on-year in the last 12 months period ending September '23, led by price increases. On a 4-year basis, price/mix was up plus 26 points. Latin America side was up mid-single digits in Q2, led by VSOP. And then talking about the third region, EMEA. Cognac sales were up low to mid-single-digit in Q2, led by Africa, Middle East and Western Europe. In parallel, Benelux, France were softer in Q2 in a more promotional market. And finally, Travel Retail Europe and some Eastern Europe countries were negatively impacted by the global geopolitical context. Now let's turn to the Liqueurs & Spirits division, Slide #9. Liqueurs & Spirits division posted a flat performance on organic basis in H1 2024 including a decline of minus 6.5% in volume, mainly due to the Americas in Q1 and a positive price/mix effect of 6.6%. As a result, we have more or less a 0, 0.1% increase. At the end of September, Liqueurs & Spirits division accounted for around 33% of sales, up 8 points versus last year. Now let's review the performance of the division by region, starting with Americas and North America's first of all. North America sales were up a very strong DD during year in Q2 as expected and following some negative phasing momentum in Q1. This represents an increase of around plus 65% versus Q2 '19, '20. This performance reflects a strong momentum, both in sell-in and value depletion on some brands like clearly Cointreau, but also The Botanist and Bruichladdich. More specifically on Cointreau, Q2 U.S. value depletion were up plus 9.2% year-on-year, which moves plus 75.1% versus Q2 '19, '20. Besides that, price/mix was up by 6 points versus the last year and the last 12 months ending September and up plus 30 points on a full year basis. In parallel, Liqueurs & Spirits division in Latin America, sales were down in Q2 year-on-year in the market showing softer [ touring ] trend for these kind of brands. In EMEA sales grew up -- grew at the low to mid-single digit in Q2 year-on-year, led by Bruichladdich, Whisky, Single Malt, The Botanist and Cointreau. U.K. continued to benefit from positive restocking effects just before the duties increased in August and Western Europe outperformed and generated a strong growth. In the meantime, Benelux, Africa and Middle East continued to show solid dynamics led by the Whiskeys and Cointreau. Finally, as already said, for Cognac is also valued for Travel Retail for Europe and some Eastern Europe country will still -- are being impacted negatively by geopolitical context softness. In APAC, China posted a high single-digit sales decline in Q2 year-on-year, with approximately plus 60% compared to 4 years ago the same momentum and impacted by the continued destocking in Whiskey specifically. Rest of Asia performed well, a recorded mid-teen sales growth in Q2, led by some countries like Japan, New Zealand, Australia and Vietnam. Before to conclude, one last word on the performance of the non Group brands, which represent now only 2% of our group sales, stable year-on-year, they were down minus 1.6% in Q2, mostly affected by the U.K., where Passoã is facing a strong promotional environment and competition. In conclusion, before switching to the Q&A, on Slide #10. Worsening market condition in the second quarter, primarily in the United States, has [ allowed ] us to update our underlying assumption for this fiscal year 2024 as follows. First, in the United States, market conditions, I repeat, has significantly deteriorated in Q2 on the back of a very strong promotional environment and the rise in interest rates that has cut -- reduced distributors' financing capacity. As a result, the rebound in sales initially expected for Q3 in the U.S. is now anticipated for the next fiscal year in '24/'25. Second, in the APAC region, Asia Pacific. Group expects to generate a positive growth this year, but at a pace below initial assumption given the lower-than-anticipated post-COVID economic recovery in China. Last but not least, in the EMEA region, the group expected more moderate annual growth in a persistently inflationary context. In this context, Rémy Cointreau is determined to protect its profitability for this fiscal year through tight cost controls, while continuing to roll out its medium-term plan. [ This end, it will ], first of all, maintain a strict and uncompromising pricing policy; second, protect its gross margin in a persistently inflationary environment; third, selectively reduce A&P spend, clearly, particularly for the most affected Cognac division; fourth, significantly reduce other operating costs. As a result, Rémy Cointreau has adjusted its full year 2024 objectives and now expects a decline between minus 15% and minus 20% in sales on an organic basis compared to the previous guidance, which was stable. Second, a contained organic decrease in operating margin compared to stable previously, thanks also to deployment of the major cost-cutting, downsizing plan. Lastly, based on the shift in its geographical mix and the renminbi decline, the group expect exchange rates to have a negative impact for the full year on sales between EUR 50 million and EUR 60 million, of which 2/3 in H1, no change compared to the previous guidance in operating profit between minus EUR 10 million and EUR 15 million, mostly on H1, no change compared to the previous guidance. Rémy Cointreau is today ahead, clearly ahead of its strategic 10-year plan and is underpinned by a very solid foundation and long-term vision. This makes '23, '24 a harsh year but a transitional year, which [ allowed ] the group to return Cognac inventories in the United States to [ better ] levels to absorb the effect of post-COVID normalization before adding into '24, '25 years in the best possible condition, resuming, regain the trajectory of growth [ accepted ] for '29, '30. Thank you for your attention. And now after [ a bit of water ], I would be happy to answer to your questions. Thank you.

[Operator Instructions] We will now take our first question from Simon Hales from Citi.

Luca, a couple of questions really for me, please. Firstly, I wondered if you could just talk a little bit more about the scale of the cost-cutting initiatives you're going to put in place through the end of the year? And how much protection these cost cutting this year may actually get to your EBIT margins in 2024? And then looking ahead, I assume, obviously, things like marketing spend cuts this year will only be temporary and they'll therefore, sort of rebound into 2025 and beyond. But how do you think about some of the more permanent cuts you're talking about around structural operating costs? How big will they be? Where are they coming from? So that's the first question. And then secondly, can I just sort of come back to the whole level of inventories in your major markets? I was just wondering if you could just expand a little bit on the inventory positions in the U.S. and China at the end of the quarter. What level of inventories are now in China at the end of September versus Q1? In the U.S., are the Liqueurs & Spirits inventory levels okay because -- are all of the problems just really in the Cognac business? And I appreciate it's tough to generalize. But what do you think the right level of inventory are in key markets like the U.S. and China now, in the new higher rates environment that wholesalers are operating in?

Thank you. So on the next [ 13 years ] I will try to answer. Thanks for your very [ nice ] questions. So I will not detail in a very analytical way today because it's still a sales call, and we'll be more precise in November. But we can say already very, very clear things about the cost cutting. We are working on that to cut it -- to offset as much as we can, the important sales effect to protect our profitability because I'm sure you've noticed the range between [ 50 and 20 ] is quite large. It means between EUR 230 million to EUR 310 million mathematically speaking, internal sales. If you apply that the gross margin normalcy level makes a hell of a difference in terms of profit theoretically missing, if you don't operate on cost, if you are [ minus 15 and minus 20. ] So we already set some targets. And when we talk about major cost cutting, we're not talking only about A&P, we are talking about everything. We're talking about industrial costs. We're talking about A&P. We're talking about OpEx. And the magnitude of the overall impact will be between 10% and 15%. So to give you a number, we are looking for EUR 100 million of cost savings. How much will be long lasting, how much will be temporary, that would be injected into the second question, if the top line is [ better than I think ], clearly, this is part of our future adjustment. But so far, we are running for that kind of magnitude, I repeat, 10% to 15% reduction -- point of the reduction of the cost base considering A&P, OpEx and part of the nonstrategic industrial costs and a split between long-lasting and short term. If you want to be more precise, I can. It is more -- it will be more on the A&P this year, 15% to 20%, and OpEx more or less 10%. As a result, I repeat, 10% to 15%, [ in order ] of magnitude. And what will be the impact of the operating contained means -- what does it mean in English? It's more [ exact in English than in France. It's more contained that our first intention is to protect the trajectory in terms of market share and growth for the future year. So I don't know. Following the depletion journey, what will we end the year, at minus 15%, minus 17%, minus 14%, minus 20%. But we have to be prepared also for the worst situation, that is why this is quite a very important call for a group like us. We are calling for a major cost-cutting plan right now. And I repeat, some of these measures will be long lasting. It's not only about temporary. In terms of -- I think I've answered to your first, second and third question because it was all those combined. In terms of level inventories. The situation in the U.S. in terms of coverage has not improved. It's not because we are not lowering the [ fees ] because what we can do more than be minus 50%? So we are not pushing, so saying we are not compromising on promotional. We are not compromising in the short term. That's that -- the main distraction was the Q2 in terms of depletion. We are expecting to have a sequential improvement, and we had a very negative Q2. It's clearly visible, so we do have to be scared to admit that. There will be an improvement also in the future quarter, but it's in the Q2, makes a miss that needs to be taken into account very clearly. So, so far, despite the fact that we made the huge sacrifice to reduce the [indiscernible] freight chain and being -- level the inventory in absolute [ then, ] the coverage is still more or less 5 months, maybe a touch more than [ before the coverage because ] it's more in Cognac and less in Liqueurs & Spirits. Does it mean something? No. No. No. Please do not think in terms of amount of coverage. So to your second question on the U.S., we cannot [ modelize ] a normative level in terms of months because what is today is 5, 6, 7 months in [ some stage becomes ] all of a sudden 35 days if you are experiencing a new jump that we are prepared to follow. And because we think that this short-term [ conjunctural ] and the appetite for the Cognac is not lost. It's part of the historical curve of up and downs in Cognac. It's maybe even the most schizophrenic in terms of normalization as well as most schizophrenic in the rise toward the last 3 years. So we remain very [ count ] despite the fact that I'm talking very passionate, but don't think in terms of normative. If you want absolutely [ modelize ] that, 3 to 4 months sometimes means adding, mixing products and being out of stock in some point of sales. Being back to your question on level inventory, we have to talk about China. China is a bit more in terms of stock coverage compared to the Q1. Why? Because Mid-Autumn Festival, on the heels of very strong Mid-Autumn Festival last year, was a very good one in terms of placement of selling, the depletion and final sell-out was a little bit disappointing, a little bit, but disappoint compared to our expectation. So as a fact, we don't want to order stock in Chinese New Year. So we have to get [ redeploy ] with this stock in Chinese New Year and to give all the [ challenges ] to continue to serve to a very strong year for the following one. Even at reducing the guidance for China per se, we will perform a positive year [ bought on ] sell-in and [ bought on ] depletion. So on a temporary basis, if you want, also the first sign of September, first sign of October are quite encouraging. So I agree with some of our peers, they're saying there are some signs of the project development -- developed in China is the fact that we want to be cautious because this success in [ math ] in terms of selling compared to depletion, and we don't want to over promise for the Chinese New Year to be able to normalize the level. Rest of the world overall remain very sound, but slightly increasing. Why? Because in some European and also Asian countries, this summer was slightly disappointed. So last point, which is very important, I think, for everybody. Let's try to pick some figures behind the difference between the initial guidance, flat on top line, and the new one, which is [ minus 52 ] in '20. On purpose, I want to highlight that very clearly, to be clear for everybody. So we are talking about the magnitude of the sales difference compared to [ Q1 ], I repeat between EUR 232 million to be precise, and EUR 310 million, if you apply minus 15% to minus 20% to the previous top line of the last year at organic basis. How we can split the effect by region. 60% to 65%, so we can say a [ multitude ] of this is linked to the Americas and U.S. 25% China, but it still remains a positive year, both in depletion and sell-in and the remaining 15% to the rest of the world. Now let's dig into the biggest part, 2/3, Americas. Why 2/3? 1/3 of this 2/3 is linked to the difference between the H1 expectation that we had and the H1 sales mix. So it is what we have today, end of September compared to our initial assumption of forecast. Deterioration and depletions Q2 has impacted the expected sell-in. But this is only 1/3 of the 60% ]. Why were we have a [ multiplicatory ] effect on the remaining part of the year? Because we were expecting to have a V-shape, now it's more a U-shape, a little bit more lasting of the neutral part of the U. So 2/3 of the 60% are related to H2. On top of the deterioration of the depletion forecast that implies less sell-in, we have to consider that the restocking effect, that it is clearly a consequence of the realignment will not be strong as expected and will be probably delayed to the next fiscal year. So I repeat, this difference in terms of previous actual guidance is fully order of magnitude [ 2/3 ] for the Americas, 25%, China; 50% of the rest of the world. We thought it was very important for us to disclose this kind of element to help you [ modelize ] also next year, even if nobody has a clear visibility, none that I know we have. This is important to try to set some scenarios. Last but not least, despite that, it will be a growing year for the group out of the U.S., a growing year with performance in many countries, at least equal if not better than our peers.

That's really helpful, Luca. So just probably make final comments altogether, I appreciate all the comments around what's driving the new organic sales guidance range. If I'm [ aligned ] to what you said around your cost reduction plans, is it broadly fair to say that your organic cost reduction this year will probably be running at about 500 basis points worse than whatever your organic sales decline ends up being?

How much you said because you were not clear?

[ 5%. 5 or... ]

So you're saying that it is minus 15% in top line, it implies minus 20% in operating profit. This is your question?

Correct, yes.

It's too early to answer. If we are in the smallest part of the range, 15%, I have some good expectation to be able to contain a bit more. So less than 5%. So I don't know -- I don't want to commit but that less than 5%. If you are in the highest part of the range, top line [ at one point as ] a usual -- I cannot cut [ no, it's -- I cannot cut ] my fingers. So it is [ 20%, it would be 5, maybe 6 ]. But compared to the actual consensus, we are clearly missing the [ concession ] top line, but you were collectively a bit too pessimistic in terms of our ability to cope facing this strong wind. So in operating price, when we say contained, we will contain. I repeat, I repeat. [ 5 between 15 ], I want to be able to reduce operating profit less than 5 points gap. If this 20%, maybe [ 5 or 6 ] because at one point, there is a mathematical -- I cannot cut cost forever. I cannot be more clear than that.

We will now move to our next question from Trevor Stirling from Bernstein.

Luca. Well, I hope you have some [ singles ] left at the end of all of this. Just one question from my side, Luca and it's probably a tough one to answer. But focusing in on the minus 30% value depletions in Cognac Q2 U.S. I appreciate there's a lot of moving parts here, but can you estimate at all how much of that is retailer destocking? How much of it is the fallout from the competitor promotions? And how much of it is really underlying demand? And I appreciate that's a really tough one.

I think it will be something strange for you. It's my first time in 10 years. I don't know. I'm not able to answer, really. And the answer will be a long one. I don't have a clue. This means that we are counting what happens on the [ feel of the bottles ] and I fear the visibility for the future is not [ revealed ] I can say that, I agree with that. So it's a consequence, knowing that we are not able to [indiscernible] to split it up in a causal track very clear with visibility. It depends on whether on a factual basis, I [ agree with you on that ]. I admit that it is a very important point, but I would be a liar if I answer to that.

Then maybe just one follow-up then, Luc. You've clearly given that lack of uncertainty that informs, I guess a lot of the uncertainty on where you're going to end up in terms of sales depletions as sales for the year. Is your assumption that value depletions are stable by the end of fiscal year '24?

You're talking about the U.S.?

U.S. Cognac, yes.