Rémy Cointreau SA (RCO) Earnings Call Transcript & Summary

Hello, and welcome to the Rémy Cointreau Q4 Sales Publication Call. My name is Laura, and I will 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, the CFO, to begin today's conference. Thank you.

Hello, everyone. As you've seen in the press release, full-year sales were down 19.2% in organic terms, including a roughly flat performance of minus 0.7% in Q4. This performance reflects some positive phasing effect in China as well as a stabilization in EMEA following some destocking in this region in Q3. In addition, we benefited from a positive calendar effect linked to the Chinese New Year. We estimate that at around 4 points, i.e., around EUR 10 million. In parallel, the U.S. showed a sequential deterioration versus Q3, which was driven by some shipment phasing. As mentioned in January, we anticipate the [ same ] shipment for Q4 to Q3 to [ optimize ] as much as we can our level of [ inventories ] at the end of our fiscal year. Overall, the 12-month sales decline is split between a volume decrease of minus [ 14.6% ] and minus 4.6% of price/mix effect, impacted clearly by the America region as a result of the sharp Cognac's underperformance compared to Liqueurs & Spirits. Finally, the cost-cutting plan is right on track, and we confirm the EUR 100 million cost savings for the year. Looking at the overall sales performance by region, Americas was down 39.6% in 12 months, including a sequential deterioration in the last quarter, Q4, due to negative phasing effects, both in Cognac and Liqueurs & Spirits. APAC was up plus 2% in the 12 months, including a significant growth in the last quarter, driven by Cognac in China, positive phasing and as well some calendar effect. EMEA, last [ button ] of the mix, was up plus 0.7% in the 12 months. In the last quarter, sales were up strong double digits despite contrasted trends among subregions and continued soft consumer trends. This was sales, [ sell-in ]. Now let's talk of the best approximate [ financial sellout ], value depletions at a group level over the past 12 months. In the U.S. value depletions were down mid-teens and now high single digit, excluding the [ VSOP ]. As compared to pre-COVID level, value depletions were up plus 10% and increased by 45%, 4-5, excluding the [ VSOP ]. In China, despite high comps and a complex environment, value depletions were up low single digit in the 12 months, of which plus high single digit in the last quarter. On a 4-year basis, China value depletions were up plus 75% versus pre-pandemic and were multiplied by 3 versus Q4 '19/'20, which is huge in terms of exit rate. Finally, in EMEA, value depletion were down low single digits this year. This represents an increase of more than plus 20% if you compare to 12 months in '19/'20. Overall, at group level, a general [ equation ], this means that 12 months value depletion grew at approximately plus 40%, 4-0, on a 4-year basis, so clearly faster than selling, which was up plus 16 on the same period. Last word, in terms of organic guidance, organic guidance, I repeat, is confirmed. Now on Pages 3 to 7, we picked up some initiatives that have been undertaken over the quarter. Let's start with Page #3, with LOUIS XIII and the opening of 2 boutique in [indiscernible] in China, bringing the total to 10 boutiques of [indiscernible] store, which if you want, for the brands. First one in a Heifei, 5 million people, seen as the future Chinese Silicon Valley. The boutique is located Hefei Yintai Mall, the first and only high-end luxury mall in the town. Our 68 square meter boutique is located on ground floor among luxury brands to leverage high premium traffic. The second one, second boutique, in Suzhou City, 8 million people, one of the fastest-growing city in terms of GDP per capita. The mall has opened in 2023 last year, and the boutique is also located among key luxury brands. With these new boutiques, as Éric Vallat pointed out and said during H1 result, the objective is to test the franchise model with the key strategic partners [indiscernible], adding a strong expertise in luxury [ or goods ] good sector. Through this model, the ambition is to address Tier 1 and Tier 2 cities in a quicker way without any difference for the final offer for the clientele in terms of look and feel, pricing or selling [indiscernible]. Page 4, quick word on Bruichladdich, which recently reveals a new luxury redefined range, featuring first permanent high-age statement whiskey range, the 18- and the 30-year old Single-Malt Scotch Whiskeys. So far, these new ranges have been rolled out in EMEA and the U.S. and are about to be launched in China. The new luxury [ refined ] range is conceived, distilled, measured and bottle only in [ Islay ]. The [ borrowings ] future and industry first bespoke sustainable [indiscernible]. The first permanent 18-year old Single Malt in Bruichladdich portfolio is an ultra-high provenance Single Malt whiskey. Every single element is fully traceable from farm to glass, which for whiskey of that age is quite unique and incredible. Bruichladdich 30-year-old is the story of the distillery resurrection, [ embody that ]. The Bruichladdich story almost ended in the late 20th century when the [ doors of ] distillery were forced to close in 1994. Over the next 7 years, the 2 remaining members of staff [indiscernible] the cask, which continued to mature in the depths of the warehouse before the distillery was restored in 2001. Bruichladdich 30 has been still using this high-legacy cask. Bruichladdich 18 is priced at GBP 150 and Bruichladdich 30 at GBP 1500, [ 1.5 thousand ]. At the same time, Port Charlotte unveils its first 18-year-old Single Malt Scotch Whiskey. This release priced at GBP 175, is the oldest expression with the heavily [indiscernible] single-malt scotch whiskey to be released to date. So far, the results are very encouraging as the new ranges have been well received by the trade, and sell-in has been 60%, 6-0, above target. Page #5, one word on the release of our latest innovation for the gin The Botanist. Following the release of a [ driver ] retail exclusive, The Botanist [indiscernible], The Botanist has added 2 new additions, the Botanist Cask Rested and Cask Aged, each peer inspired by [indiscernible] tequila indirectly. The Botanist Cask Rested Gin is [ combination ] of around 16 different cask types from a variety of regions and being aged in Bruichladdich warehouse, on Islay, for a minimum of 6 months. The Botanist Cask Aged Gin is a [ combination ] of around 6 different cask types from the right regions and being aged in Bruichladdich warehouse for a minimum of 3 years. Botanist Islay Cask Rested and Cask Aged Gin will allow us to compete in the premium spirits category with these products, recruit new drinkers for other super-premium spirit -- from other super-premium spirit categories, catapults The Botanist into new occasion, a new type of consumer, reinforce our distilling expertise, aging credential and provenance. Botanist Cask Rested is priced at GBP 50, 5-0, and Botanist Cask Aged is price at GBP 70. So far, in term of result, these 2 launches are promising, with selling being almost 3x bigger than our internal target. Page 6, a few illustrations of the activation made in China for this Chinese New Year. Our teams have done an amazing job to support growth in a very complex market affected by a persistent to low confidence since the reopening post-COVID. As you know, Chinese New Year 2024 was not a great [ vintage ] and showed soft trends. However, our value depletion has proven to be resilient, and we continue to gain market share, led clearly by CLUB and XO. By channel, e-commerce has been a very efficient weapon once again for us to face these headwinds, boosted by our Super Brand Day on January 12, which recorded 10% of sales growth. Our e-commerce channel grew by almost 30%, 3-0, over the last quarter compared to last year. Page 7. Last, but absolutely not least, Travel Retail, as expected, as guided, as announced, Travel Retail sales are now back to pre-COVID level, even above that time, with sales up high single digit versus full-year fiscal year '19/'20, and this despite the only partial recovery of the Chinese tourism. Many activation in Chinese New Year and the 300-year celebration of Remy Martin have been done to support the strong sales acceleration in Q4. So now let's stop about marketing initiative, let's talk about figures again. Slide #8 and moving to the 12-month sales analysis. Sales amounted to billion EUR 1,194.1 billion, down by EUR 354.3 million year-on-year or if you want, minus 22.9% on a reported basis. This reflects, first, a very strong organic decline of around EUR 300 million to [ 97.2 ], i.e., as said, minus 19.2% of organic sales decrease. This performance is split between minus 14.6% of negative volumes and as said, 4.6% of price/mix negative one, linked to the Americas underperformance. Regarding the later one, this is a combination of a positive price effect, low to mid-single-digit positive, and negative mix effect around high single digit. So pricing without mix was still positive. Second, a negative currency translation impact of EUR [ 57.2 ] million or a 3.7% loss in the top line in term of conversion for the full year 2024. This loss was largely driven by the deterioration of the Chinese -- the Chinese one for EUR [ 30.3 ] million and the U.S. dollar for [ 19.7 ]. In addition, Canadian dollar, Japanese yen and Hong Kong dollar posted a slight loss of, respectively, EUR 1.8 million, EUR 1.7 million and EUR 1.1 million. On the small positive side, we have to highlight Polish zloty, British pound and Swiss franc for less conversion gain. On Page #9 or Slide #9, the user performance by division to be compared to the 12 months '19/'20. I will not detail the figures, they are all on the slide. In a nutshell, volume performance is strongly down in Cognac amidst the current U.S. [ context ], while price/mix continues to be very strong. Overall, total Cognac sales are still up, plus 5.8% compared to pre-COVID, including important destocking in the U.S. In parallel, at the same time, Liqueurs & Spirits continue to generate a significant increase in performance that was pre-COVID, driven both by volume and price mix. And all 3 regions are clearly in very positive lens. Now we begin a bit more, Slide #10, into organic trends by region. Let's start with APAC, whose full-year organic sales were up plus 2% i.e., plus 51.4% compared to 4 years ago. Looking at the volume-value equation, the performance year-on-year was mainly driven by a [ positive ] price/mix. Specifically on China, China sales recorded significant growth in the last quarter, boosted by some effects, first, positive shipment phasing linked to orders initially planned for December and finally booked in January; a positive calendar effect, i.e. the EUR 10 million, which is 4 points at group level, but 13 points specifically at APAC level. And overall, in terms of Chinese New Year, we can say that it was fairly soft, that was above better than our internal expectation. And indirect channels outperformed direct channels, following meaningful destocking in Q3, as you remember, while e-commerce was once again up plus 30% to reach almost 25% of sales on the Q4. Despite this context, 12 months value depletion at group level were up low single digits versus last year, of which high single digit in Q4, i.e., up plus 75% on a 12 months versus '19/'20/; and if you focus only on the Q4, more than 3x bigger than the [indiscernible] in Q4 at that time. Consequently, at end of Q4, inventory in China are back to a clearly healthy level. Rest of Asia reported very strong double-digit growth in Q4, led by Cognac and driven by Malaysia, Singapore and New Zealand. End of March 2024, APAC as a global region accounted for 40%, 4-0, of our group sales, up 7 points compared to last year. Second region, Americas. Americas full-year organic sales were down 39.6% i.e., minus 4.1% versus 4 years ago, mostly impacted by volume differences, while price/mix was also negative due to the strong underperformance of more mix than price of Cognac compared to Liqueurs & Spirits. Let's talk more specific of the U.S. Sales recorded a significant, important decline in the last quarter, showing a sharp sequential deterioration from Q3, impacted by, first of all, negative phasing effect both in Cognac and Liqueurs & Spirits sell-in as we have decided to ship most in Q3 to give more time to the wholesaler to be play -- optimize as much as we can our intermediate inventories at the end of our fiscal year. Second point, a sequential visible deterioration in depletions against high comps in a market still very, very promotional. Despite a continued destock in absolute value in Q4 in terms of volumes and value even more, which bring down to the level of inventories to the level of pre-COVID, even less for some brands or for some states in terms of money, in terms of value, working capital mobilized by the wholesalers, by the retailers; this is not yet visible in terms of days of stock coverage due to the sequential deterioration of the depletion of the quarter. I'm sure some questions will be on that. And as a consequence, the level of inventory, in terms of the coverage, who want to do some math, is still around 5 months overall at the end of Q4. On a 12-month basis, value depletion are down mid-teens year-on-year, down high single digits, excluding the VSOP, and approximately plus 10% compared to 4 years ago, versus 12 months, plus 45% compared -- if we compare without VSOP. In terms of Canada performance, sales were up a very strong double digit in Q4, led by Liqueurs & Spirits and Cognac. And in parallel, Latin America was also up a strong double digit in Q4, led essentially by Liqueurs & Spirits division. End of March, Americas accounted for 38%, 3-8 percent, of our group sales, down a massive 12 points compared to last year. Finally, EMEA full-year organic sales were up plus 0.7%, so slightly positive, and grew by 7.6% if you compare to 4 years ago. This year-on-year performance include a strong price/mix effect, very strong, while volumes were strongly negative. Beginning by subregion, Western Europe was up a strong double digit in Q4, driven by some countries like Greece, Spain, Austria, even on small bases in Switzerland. Markets remain soft overall, but demonstrate a continued resilience of the on-trade channel, mainly in Southern Europe. U.K. was up mid-single digit in Q4, led by Cognac division in a tough market still dominated -- clearly dominated by promotion and down-trading. The rest of EMEA region, sales were up double digit led by Africa, Middle East and Eastern Europe, the latter benefited from a positive phasing effect. Meanwhile, Benelux showed, at the same time, a good momentum, essentially in Liqueurs & Spirits and essentially in Cointreau, but the Cognac division was affected by peers' huge drastic promotion. Over the last 12 months, value depletion of the region for EMEA was down low single digit year-on-year, representing more than 20% of the value deputation growth versus 4 years ago. But as a consequence, the [ fork ] between sell-in and depletion, inventories in the region were slightly up versus the end of December. End of March 2024, EMEA region accounted for 22% of group sales, up 5 points compared to the previous year. Now let's turn to Slide 11 and the analysis by division, starting with Cognac. Cognac posted a full-year organic decline of 25.1%, reflecting a significant decline of 29.7% in volume and the strong price/mix gain of 4.6% at the end of March 2024. At the same date, end of March 2024, Cognac division accounted for 65% of our sales, more or less 2/3, down 6 points year-on-year. Let's start to begin by region, starting with APAC for Cognac. And clearly, we start with China. In China, sales recorded a significant growth in the Q4, boosted by favorable phasing of shipment and positive calendar effect. Over the same EUR 10 million, which is for the Cognac division, overall is [ waiting ] for 7 points. Overall, the underlying trends remain a bit soft due to a low consumer confidence and persistent cash pressure in the trade. But despite this context, value depletions, the best approach to the final consumption, has been quite resilient, up double digit in Q4 year-on-year, and I repeat because it's massive in terms of change of gears, 3x more than 4 years ago, driven by CLUB [indiscernible] and to a lesser extent, Rémy XO, which gained market share this year. On a 12-month basis, value depletion were up low single digits, i.e., around plus 75 versus full year '19 to '20. As a result, end of March, our level of inventory is back to '20 level. Zooming by channel, on-trade for us continue to underperform. It is a weakness sometimes, sometimes a strength as well, impacted by some down-trading and a lower spend per capita. Within the off-trade, banquets and key account customers are a bit more resilient, while e-commerce, as said and I repeated, still very dynamic, boosted by Super Brand Day in January. In parallel, we recorded a strong quarter for Hong Kong and Macau, while Taiwan was weak, impacted by some unfavorable phasing effect. Remaining part of Asia, sales grew a very strong double digit in Q4, led by Southeast Asia, particularly Malaysia, Singapore and Vietnam. Japan recorded a weak performance, reflecting a soft [ Chinese yuan ]. In Americas, in North America, Cognac sales recorded a significant decline in Q4, impacted by the U.S. market, while Canada was up strongly double digit in Q4. U.S. decline reflects the continued destocking, our firm position on pricing in a persistent promotional market and soft underlying demand. At the same time, Q4, U.S. had value depletion, so not sell-in but value depletion. We're down very strong [ double digit ] year-on-year, with a strong underperformance of VSOP. Strangely, the two extremes of the portfolio outperformed, on one side with XIII, back to very strong double digit growth; and on the other side, Rémy V representing our first enterprise, even on a marginal quantity, is showing good momentum, even, if I repeat, on a very marginal basis. Considering the deterioration of the depletion, the level of [ inventories ] on cognac is, as said, still around 5 months in terms of days of coverage. It's not absolutely the same picture considering volume and value in absolute value compared to 4 years ago, clear. This includes a flat price/mix effect year-on-year in the last 12 months period ending March 2024. But on a full-year basis, price/mix or value depletion is clearly up 20%. That's the reason why sometimes in your calculation, you are maybe a bit too focused on a year to go and -- year-to-date on volumes, and you forgot for us compared to our peers that you have a positive accretive value on value depletion much better than our peers. This is also the reflect of the clear -- of the strategy sticking to that. So you have paid some prices on volume, you have some benefit from [ rent ]. It is visible, not only in sell-in, even more in sell-out. Latin America sales were down at very strong double digit Q4, still impacted by fierce promotional competition. EMEA, Cognac sales were up a very strong double digit in Q4, led by Africa, Middle East, Western Europe and Eastern Europe. U.K. showed a good resilience in a very tough market, while, as said, Benelux recorded a strong decline in sales, impacted by very strong promotional competition. Overall, underlying demand in EMEA for Cognac remains a bit soft as inflation is weighing on purchasing power. Let's now turn to Slide #12, so the performance of the Liqueurs & Spirits division. This division was down minus 4.6% on an organic basis in the full year, including a decline of 6.4% in volume and a positive price mix of 1.8%. At the end of March, in terms of weight, Liqueurs & Spirits accounted for 33%, 3-3, of sales, up 6 points versus last year. Now let's review the performance by region. Let's start with Americas. In North America, where sales were down at very strong double-digit year-on-year in Q4, impacted by the U.S. market, while Canada was up a very strong double digit. U.S. trends reflect the important restocking made in Q3 to optimize our inventories at the end of March as well as very-high comps. More specifically on Cointreau, as you can see, U.S. value depletion was down mid to high single digit year-on-year this quarter, but still almost plus 65%, 6-5 percent, compared to 4 years ago, affected by tougher comps in Q4 as we were cycling adverse phasing from prior year. In addition, the current context is driven by more global general caution from retailers. Besides that, price/mix value depletion was here down 4 points versus last year, in the last 12 months, ending March 2024 and up 10 points on a full-year basis comparing to pre-COVID. In parallel, Latin America sales were up at a very strong double digit in Q4, led by Brazil, Puerto Rico, Barbados, mainly Mount Gay, and the cruise business. Some regions in terms of weight for Liqueurs & Spirits is EMEA. EMEA sales were up mid-teens in the last quarter, supported by all subregions, particularly Benelux and Western Europe. St-Rémy for the U.K., Bruichladdich for U.K., Metaxa, Greece and The Botanist in Germany are some example of brands and country clearly outperforming, performing better than it's better and better than last year. However, markets remain soft, generally, overall and highly -- very highly competitive on the back of the persistent inflation. Solid innovation pipelines, as we have seen for The Botanist, Bruichladdich and also [ one ] for Mount Gay, strong activation plans on Cointreau and new listing on St-Rémy U.K. have made it possible to sustain a good momentum, while holding on to existing price point, even increasing compared to the previous year. Third region in terms of weight, APAC, in which we have China. China, we posted a very strong double-digit decline in the last quarter, impacted by continued destocking in whiskies, essentially, and a weak end demand, mainly from younger generation, which has proven to be more volatile for this kind of category. The rest of Asia was up high single digit in the last quarter, mainly driven by New Zealand, Singapore and Japan, with St-Rémy, Bruichladdich and Telmont, our champagne, outperforming. One last word for the record on the performance of the new group brands, which now represent 2% of group sales, stable year-on-year, and they were down and grew by [ 6.1% ] in full year [ '22-'24 ]. Last slide, and then I can drink, water, not Cognac. Slide 13, I would like to reconfirm our operating profit margin guidance, organic operating profit margin guidance that we updated end of October. In a nutshell, we expect a contained organic decrease in comp margin and now EUR 7 million to EUR 10 million of negative ForEx effect. Throughout the year, we kept a very tight control on costs. We maintained a firm pricing policy, and we reduced selectively our A&P, mostly for the Cognac division. More importantly, we allowed, we committed, and we are realizing the cost saving plan of EUR 100 million. In parallel, we don't have to forget that we protected as much as we can our gross margin in a persistently inflationary environment and despite a negative mix linked to the underperformance of Cognac and the performance, mathematically speaking, of the U.S. Thanks for your attention. And now, I am happy to answer to your questions after [ I drink ] water.

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

So just a couple for me then. I wonder, firstly, could you talk a little bit more about China in the quarter? Clearly, the performance was certainly good relative to your expectations around Chinese New Year. But how do things developed through the quarter? I don't know if you can talk about how the early part of the quarter compared to trends through March as we've headed into April because it looks like things perhaps deteriorated a little bit from the consumer offtake standpoint. So just some general broader comments on that. And then maybe sticking with the go-forward commentary sort of more generally, clearly, the U.S. was weaker overall than I think we expected from a depletion standpoint in Q4. If we have got a weaker exit rate perhaps in China, coming into the new fiscal year, how do we think about fiscal 2025? When I look at consensus, I think we're looking forward to the consensus of mid-single-digit organic sales growth, a little bit higher maybe, sort of 6%, 7% organic EBIT growth. Are you happy with where people are sitting as you head into the new fiscal year?

So with your three questions, we can last 1 hour, I guess. Thank you for your question. So we start with China, as asked. So as you have seen, we are satisfied with the performance of China. In a nutshell, overall, our timeline of our press release is seeing sequential improvement, which is true, because compared also to general competition, we can say that we are doing better in China. We are doing worse in the U.S. and for Europe, considering the size of the region and the volatility of subregion. We are doing sometimes better, sometimes worse. But overall, it can count less compared to our peers in Europe. So this is [ now ] the general element of the quarter. So coming back to China specifically, full-year sales were very strong and Q4 was clearly strongest -- stronger, what I can see on some performance over our peers. Why that? It was clearly some soft comp essentially in January and in February. And then March, we can compare things comparable, so those phasing positive effect in terms of comps, EUR 10 million of positive effect. But if we strip out of that, it remains a very positive performance, either in [indiscernible] as well. If you remember that in end of January, we highlighted an exit rate of depletion that we're cleaning up big time, [indiscernible]. So that's the reason why we can say the soft Chinese New Year, it has been realized. It's not better than soft, but is above expectation, clearly. And we are -- I think we are very satisfied with that. Why so, we are not so much bullish on the future on China because still, we have to consider there is cash pressure in the trade. There are high comps that will be cycling in the Q1 and Q2 of the new fiscal year. And the level of confidence remained a bit blurred, a little bit low. So we witnessed, we analyzed, we dig in, we dissect the performance, we -- we interpreted the figures that for China, we cannot be very bullish for the future. We think that we are doing more than fine. And if I can, I repeat, better than our peers. But we remain humble, not swagger at all, and we look forward to continue to increase our performance in China as best we can, but we cannot commit to have this exit rate of the Q4, clearly based on China, also replicated in Q1 or Q2 of the next fiscal year. In terms of brands and channel, I think that during the call, I gave also already some counter. So I don't think you need to begin more. Let's talk now about U.S. because it's clearly there that we still have a painful situation. So we are clearly experiencing huge comp compared to last year, also because of the Super Bowl, which is not there the same extent. We are showing very good results compared to 4 year growth. But -- the reality is that the spark of the recovery, which is linked to the depletion is not yet there. So this part is essential. Depletion need to be positive again, because all the math, all the compounders are linked to this indicator to be able to capitalize on confidence on compounders, on sales, on activation that are showing that in a very clear way. So far it's quite the opposite in terms of depletion. Q4 show a deterioration. So we have done the maximum that we can and we'll be back on that point because it's important to highlight that, that so far, the situation has been deteriorating in Q4 compared to the Q3. Why that, we want to give some elements on top of the depletion, comps, I repeat that are very high on top of the Super Bowl. The promotional environment that is not moved smoothened but the opposite. So we are facing also a fierce competition on that. And at the end, overall, on a longer period, strategic asset will remain where they are. In the short period, when there's cash pressure in terms of capital -- return on capital rotation, in terms of wholesale, you might prefer a brand that with promotional intensity are showing faster cycle of selling to the retail point of sales. And so indirectly, it's slightly penalizing ourselves because being firm, strict on our -- respecting our strategy is implying in the short-term debt we need to hold on. So on top, further deterioration in our opinion of the global U.S. spirits market. We are not yet out of the crisis in the U.S. Our better -- best estimation is there will be much more skewed on the H2 of the fiscal year '24, '25. And U.S is so important. They are so key that 5, 10 points of different positive, negative can change all the group's footprint overnight. So the volatility is very important. China is a very good news, but the U.S. needs to add a spark positive spark, which is in a nutshell positive depletions in value, in value, in value. Some of you have done a very good exercise in terms of [ math ] so far this morning, to name one essentially to UBS, a very good one, but it's in volume. It's not in value. There's a huge mistake because where -- you can capitalize on value depletion creative impact. So sorry, I will be a little bit longer because it's important. You can say that we're passive. You can say that we're waiting and see and look at the sky, nothing happened. And we are sticking to our strategy. So we are all the lazy guys that want to move, the opposite. We remain strict on our strategy. We remain strict on our baseline, on our trade, and our believers. So we changed the maximum, what we can to improve the performance, and we are convinced we'll start to bear fruit. We changed the way we are doing A&P in the U.S., much more on BTL activation, moving the needle on the point of sale and less on brand hours, because as we're seeing and Eric is hammering on that every time speaking, Eric Vallat, BHT brand is the maximum level in the U.S. compared to our previous year. So strategy is there. The consumer top-of-mind knowledge is there, so probably we need to change something and we are changing some in terms of activation, marketing initiatives to be more consumer-centric, a little bit less brand overall umbrella centric. And then without elaborating on the economics, there is lot of purpose, we made some organization in term of the way we are approaching our marketing and our sales. It's not only an economic exercise. We're not doing that to have savings. Clearly, it's the secondary element because we have to change from a regional standpoint for mirroring more the wholesaler organization. So creating new responsibility, full P&L exposing for our teams, a more embedded integrated sales and marketing, e-commerce, trade marketing and linked to the wholesale footprint. And as every change needs also to have sometimes to unfreezing warming [ non-interforming ] with the law. On top, there is an increase in competition. So the time I acknowledge that is less fast than we expected. So we are not only wait and see in terms of altitude. We stick to our fundamentals, but we are moving. I acknowledge that so far, value depletion not showing what we want. It's the spark. This spark needs to be there. When you will have it, you will have some reaction that are going beyond the mathematical compounder. You will see very strong acceleration evenly on compounders. Sorry for this long answer. So back to your third question, which is the consensus, the guidance and so on. So let me start for the fiscal year 2024. Top line is there. It is, as you highlighted, a small bit. What does imply in terms of organic comp consensus. So far, the company consensus for the year is minus 28.4%. The visible Alpha operating profit consensus is minus 28.8%. I'm okay with the consensus. And okay, what does it mean, okay? No more, no less. -- no more, no less. What's happening in terms of organic sales consensus for full year '24, '25. If you have followed me in delirium, a long, long answer, we have understood that we have a strong belief in thermal strategy, but visibility remains quite blurred, volatility and [ fork ], different fork performance between regions and brands quarter-by-quarter are blurring even more our global visibility. So at this stage, we cannot commit on any guidance. We have one positive element and one negative element to highlight. So let's start with the compounders of the consents of the sales, as are shown by the company consensus is at 4.7%, visible at 4.5% and Bloomberg very optimistic 6.3%. On the positive side, we acknowledge and we highlight the fact that the consensus and is now taking into account our natural growth [indiscernible] of the high single digit that is clearly too optimistic for '24-'25. So it's clearly less than a single digit. On the negative side, -- turning back to my point, visibility is very, very limited. There is fog. There is fog. I cannot say nothing more clear. I don't want to hide myself or say, I don't give you this figure. I will give you this figure. The visibility is limited. I commit myself to be very clear what happened -- what's happening. I cannot commit to something or tomorrow because more than ever what will happen to note is unclear. The exact timing of the U.S. recovery is key. The spark -- the spark, so far, the best case scenario is a U.S. recovery in H2 of '24-'25. Beside of that, we didn't even close the year in terms of the economics. And I'm sure at this point with Eric, with Marie-Amelie during full year results will be back clearly. So far, I repeat I cannot give you a specific sales guidance for next year. Visibility is very limited and not only for something that belongs to our responsibility. Global macroeconomic is very complex as well. Sorry for the longer delivery.

And we'll now move on to our next question from Andrea Pistacchi of Bank of America. [Operator Instructions].

I just wanted to follow up on the U.S., please. I mean, you've made it very clear that you need a spark for the performance to improve. What do you see -- what do you think could be the spark? What is needed sort of in potentially in H2 '25? Is it an improvement in the environment in the U.S.? Is it promotions, promotions easing -- I mean nothing seems imminent as you're saying, but what do you think -- what shape could this Spark have? And this is sort of the second part of my first question, if I may, on the U.S., you say that drive -- to have growth in the U.S., I think if I understand, you really need this spark. I mean you need depletions to clearly inflect or turn positive. But in Q1 and Q2 in the U.S., if I haven't got the numbers wrong, you're up against sort of shipment comps of like minus 80%, minus 50% in the next couple of quarters. So on those comps, do you still think it will be -- I mean will it be difficult to deliver growth because of what is happening to depletions? And the second question, please, Luca, is on cost savings. You confirm that this year, you'll be delivering that EUR 100 million that you announced. Now some of these savings are temporary. But at the same time, you'll have a positive carryover effect into fiscal '25. So I was wondering if you could just give a bit of color on sort of what cost savings will look like in fiscal '25, even if just qualitative?

Thank you, Andrea, for your questions. So shape and natural spark. I cannot be more clear and if you want, dramatic on debt was the positive depletion indicator, following all the activation, the change of execution in terms of how our team are addressing the market, conjoint plan with our -- what to say there, conjoint action by state. All that is there, is in place, it's improved, it's improving, it's increasing. So -- do we need to show that with figures to be able to capitalize on that? And the impact on our compounders, starting with the sell-in will be even more, even stronger than what the map will drive. And this comes back to the second question. So your question is you're phasing in the U.S. in Q1 is finger in the nose. So why you're prudent? Because so far, the exit rate in the Q4 was bad than depletion. So even if you compare in terms of value of stock and volume stock compared to 4 years ago is lower. If you are well say, if you are a retailer, you give short-term priority to the most fast moving element of the portfolio that you have. So once again, depletion being depressed, do not announce even if on very easy comps to be very broad and positive. Clearly, on the positive side, this is an opportunity. A clear change, I come back to the spark can improve big time that feature. So we could be more volatile, more on the positive side. I can commit to that, no. It is finger in the nose, no. It's not finger in this nose. Once again, Q4 showed a deterioration. I would have preferred to have in other words, a slightly miss on the top line for the group as improving depletion in the U.S. in Q4, if I had to choose. So that's the reason why you cannot extrapolate the minus 0.7% that we had the group level overall in Q4 as the starting point in Q1. We need to be cautious. I'm not there, I'm realistic. Cost saving, I confirm that the cost savings will be realized, will be much more precise on nature, much more quantitative beginning of June. Part of that is more or less 60% highlighted will be temporary. So we'll be back -- so this is something that qualitative will have an impact on the profit and loss equation for next year, because we will do a lot of things to try to mitigate this automatically negative carryover because the long lasting are there embedded in the backbone of the new overhead footprint, OpEx footprint. But we cannot replicate the same level. So clearly, there is a potential trend that OpEx next year will grow at a speed clearly at the same level, it may be higher than the top line considering at the end what will be the next fiscal year. In terms of qualitative element, something that not everybody has quoted, these are not net credit cost savings, the EUR 100 million, gross savings -- so gross savings. So it means that part of the EUR 100 million also has been put to continue to finance some strong A&P, some strong manufacturing investment project, some strong OpEx specific head count recruitment. So it's the gross, gross global impact, not a network. It has been used also to improve the footprint of the profit to loss 2024, as we see in 1 month and will have the same effect next year. But the carryover is there, you're right.

And we will now move on to our next question from Celine Pannuti with JPMorgan.

My first question is on the U.S. Can you tell us how big is the [ VSOP ] and now for the portfolio? And can you talk about the promotional intensity? I mean you mentioned that it has worsened. I think you had promotion in the October, November, December quarter, what happened to promotion for you in this quarter. And so maybe coming back to my point on the [ VSOP ]. Are you -- I mean, what can be done really to make sure that you limit the retention impact from competitors being aggressive on pricing. My second question maybe is bouncing back on what you were just saying. And gross margin you mentioned for this year, fiscal year '24 protection. In fiscal year '25, can you talk about -- can you continue to do that if you don't have a pricing benefit and with top line growth, maybe below your algorithm, can gross margins to be flat in '25. And then did I understand correctly that you are mentioning that some of those costs are coming back in the P&L for -- on the SG&A line?

Thanks for the first question. So in terms of weight, is lowering and now less than 50% in terms of value the sales in U.S. in total. And clearly, as you highlighted, and it's very visible, our portfolio of VSOP on the last year and 4 year ago, it's worse than the rest of the remaining part of the portfolio. Clearly, we are doing much better with the other part of portfolios starting with [indiscernible] till date. It is still an important weight, but declining, which is part of our strategy indirectly. It's a little bit sharper than what we want. I don't am saying that I'm happy with that, that is less than 50%. So your second question in terms of promotion. The global environment is increase, is not reducing the promotion. We had some normal promotion in O&D. So no different than the usual one. overall, I don't think that we can see easily a change of this promotional war in next coming quarter also because globally, the U.S. periods going to be is flat, plus 1%, plus 2%, but we are playing in some categories in some segments, we are clearly running worse than the average. So it's 1% plus 2% is including RTD and depends on more dynamic than Cognac so far. So I think that we continue -- we think that we'll continue to be a distinctive element of the market. And I repeat, we will not enter in this promotional work. As you have seen we will be a little bit maybe less optimistic in term of price increase. We will moderate that. You highlighted that on the gross margin, but we would play on SKUs, on ranges, more in the mix, but will not enter on a face-to-face race with our major competitors or without doubting any one. Second one, which is very important in the U.S. or in the U.S., but it's clearly very promotional, is quite inconsistent and not prices state by state. If you enter in that, you end up nowhere having lose -- having lost all your credibility. And we are doing the opposite. I repeat the organization of the sales team has been done not forecasting also for efficiency and mirroring what we have an increase in terms of distribution partner and in terms of activation and NP as well. In terms of gross margin, as you have understood we are -- it's clearly more or less at the level of 2020 target in terms of gross margin, we reached already a very high level. In terms of this year and next year, you will look as more opposed because there is a clear negative mix even before pricing linked to the under performance of Cognac versus Liqueurs & Spirits as well as a negative product mix in some other parts of the world, including in China, because CLUB is clearly beating VSOP, but it's better to do even more of [indiscernible] than Club. So Club being our jewel as a slightly negative impact on the overall gross margin. And all that clearly is talking about gross margin in comparable environment. We are clearly not talking. It's an importance. We are not neglecting that, talking directly to the [ back ways note and ] now. And I'm not neglecting that is a threat, but it's not growing our end. So much common investigation. We are doing what we can. We are part of the 3 sampled company. We think that we have done everything correctly. By the end, you know what, I cannot master that. On a comparable basis, we are so coming back to your question of gross margin level already at more or less 2030. So this year, next year, will be added more temperate, I cannot be precise at this stage. It depends on what will happen by brands, by region. and also on the fact and the saving part of the saving has been done this year, the lasting one on the manufacturing side, on the logistics side, and we cannot replicate this kind of saving forever. So a little bit more moderate. And at the same time, last your question, as you highlighted, it will be a negative carryover in terms of OpEx or the part, 50% of the EUR 100 million, so more or less at this stage, EUR 60 million, but we'll be more precise at the end of the year in terms of the OpEx that will be back. Does it mean that we will witness the profit and loss declining the venture in gross margin, increasing OpEx and modest top line and then declining bottom line? No. No, no. we will not witness that. So potential other plan of specific improvement to the profit and loss next year on all lines. And don't forget, A&P are moving more on the efficiency level. Our sector situation is calling for priority choices.

And we'll now move on to our next question from Edward Mundy of Jefferies. [Operator Instructions].

Yes. I will keep it to two. Luca, very interesting color. Just to sort of recap because there's a lot here. On the U.S. one of your competitors has started to see flattish consumption in the first quarter calendar and really low inventories. And the spark, I guess, is going to start prices. And it's pretty clear you don't want to enter into a commissional war, but is that a complaint where you start to become a bit more promotional to find that spark, which then allows you to accelerate sellout trends and then it allows inventories to be cleaned up. And I appreciate there's a bit of a balance between sort of the long term and short term. But do you -- is there a tipping point where you start to cut price and then we get the inventories through, number one. And then number two, just to sort of pick up on your last point, if I understand it correctly, but you do not expect to see declining bottom line in 2025. In other words, have we -- are we close to reaching a floor on operating profit, do you think and operating profit won't go down in 2025? Just wanted to sort of clarify that.

On the recap of the U.S., even if the promotional intensity is slowing down quite the opposite, it is creating more negative buzz and also reducing, as I try to explain our leadership call for the wholesaler because we are moving less fast than our peers, we will not increase our promotional intensity. We will be reducing our price increase. We'll be more playing on SKUs, we'll be more value for money in terms of offer, but no promotion. So mix potentially, yes, no promotion. And a lot -- it is in our hopes and wishes and plan for this new organization that is nearest to the trade than before. I repeat, we count on that. And A&P that are much more linked to the depletion activation. And if you want volume moving, then in the past 2 or 3 years. BHT [ brand held tracker ], grant us that. We have capital that is still there, and it's there. It's more -- much more than ever. So no promotional like that, that's less price increase and a more direct efficient impact of all touch points on a point of sales. So we want to speed up the depletion rate. So we can -- we are trying to improve, increasing the odds to have this spark. Spark also needs that [indiscernible]. We try to do that with my end and then the end of the spark with that, will be there. In terms of the bottom line, it is too early to talk about that, otherwise is a guidance. We talked about that in June. But -- this year, as you've seen, we are reducing minus 28% to [ 28.5%], we're reducing operating profit more than the top line, meaning that the profitability is declining in a contained way, but is declining. We don't want to do that at this stage for next year as well. So we will do all what we can without entering to specific figures will guide to decline in profitability next year. But we'll be more precise with Eric because at the end, everything depends on the top line. I can do whatever I can, the maximum is that financial directors, but we will manage 19% of top line, there is a limit also to the improving action. Top line needs to be there, a bit more continued.

And we'll now take our last question from Gen Cross with BNP Paribas.

Just back on U.S. Cognac. So I mean depletions have been obviously quite negative for some time now, and you mentioned that wholesalers are prioritizing some of the faster-moving brands. I just wonder if you could comment on whether you're seeing any impact in terms of the shelf space being allocated to the overall category and the Remy Martin that's the first question. And then just briefly on the Liqueurs & Spirits division. You commented in EMEA on firstly competitive environment in some soft markets. I just wonder if you could share some color on whether this is quite widespread or is more intense in some specific markets?

Thank you for your question. I get the first one. The second one, if you can repeat, the sale space, there is some more debate clearly. It is a little bit a state game, will be more in some state when you are for most priced SKUs behind the glasses. So in a specific environment, we need to be preserved, and the other part, it's quite the opposite. You can see very easily that the sub-space is there, but -- our products are not present because the wholesalers do not refurbish that. So it is more state by state, but we don't see these risk so far in a clear -- important way. It's not an issue so far. And can you repeat the second one, please?

Yes, sure. It's just on the Liqueurs & Spirits division. I think in EMEA, you commented on -- in the presentation on firstly competitive environment and some soft markets. I just wondered if you could comment on whether that's widespread across Europe or it's in specific markets that you're seeing that?

It is a bit all around in some market in which South Europe , you have a stronger on-trade performance is a little bit more moderate. In another one like U.K., Belgium, where there is more off-trade classical, classical footprint, it is bigger than South Europe. But overall, there is a very strong competition in terms of promotional and inflation impact. So it's causing instability in terms of expectation realization, it can be far higher, far lower. So it's more that the point which is annoying. In the end experiencing even if there is the third region term of weight, more than the previous year, change in discrepancies between forecast and realization. And it's not only in the negative side, it can be also on the positive 1% is being this year and the positive 1% is the example in the last quarter. We are clearly -- the sell-in performance was beating, what at the end we discovered being the depletion rate. So it is more complex to manage. And these are high competitive price position is increasing even more this volatility. On top, it's not a mystery that we have a portfolio, which is even inside Liqueurs & Spirits. It is not comparable to some of our peers in terms of size. So we are part from Metaxa, Cointreau, other brands are and our whiskey advanced are less and less important, more fight face- to-face. There compared to the previous question, we need to be aware that can be at such pace game more than in the U.S. cognac. So -- but we have a team which is highly reactive in Europe. It is clearly on the Board every day, because it's not the fact that we are the smallest division makes their work the easiest one, quite the opposite because you have a lot of countries, a lot of brands, a lot of priority is a very, very complex job to be in charge of the EMEA region and sub region .

I'm now happy to hand it back to Luca for closing remarks.

Thank you so much. Have a nice day. So see you in a month. Take the [ life fire ] because then it is spark. So I want this spark to be there. So waiting for this spark at the beginning of June. Thank you so much. Have a nice day.

Thank you, Luca. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.