Rémy Cointreau SA (RCO) Earnings Call Transcript & Summary

Hello, and welcome to the Rémy Cointreau Q4 Sales '24/'25 Call. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Luca Marotta, CFO, to begin today's conference. Please go ahead, sir.

Good morning, everyone. Thank you for joining us today. As outlined in our press release, full year sales declined by 18% on an organic basis, in line with our revised sales guidance. In the fourth quarter, sales were down 19%, reflecting a number of different dynamics. In the U.S., we delivered a very strong sales growth, but from a very low base of comparison. As a reminder, last year, most of the H2 shipment occurred in Q3, which means a very weak Q4. In China, however, sales posted a significant decline impacted by, first, a stellar base of comparison. Last year, following substantial destock in Q3, we experienced a sharper restocking in Q4. Second point, the inaccessibility of the duty-free channel, which weighed heavily representing approximately 4 points of impact at group level or if you want in absolute value around EUR 10 million. And third point, a negative calendar effect linked to Chinese New Year, with an impact of around minus 2 points or EUR 5 million at group level. So technical negative factors in the Q4 for around EUR 15 million. Without that, Q4 sales would have been down minus EUR 13 million and not minus EUR 19 million, so 6 negative points. All these factors clearly played out in a persistently harsh market environment. Breaking down the Q4 sales decline of 19% in volume and price/mix effect. Volume decrease was of minus 4.6%, primarily driven by China, and the price mix effect was negative of 14.4%, largely due to the underperformance of high-end brands in APAC region. On a more positive note, our yearly cost optimization program is progressing very well. Now let's look at the sales performance by region over the past 12 months. Americas declined by 20.2% over the full year. As already said, sales returned to a very strong growth, but from a very low base of comparison. And the volume depletions showed a sequential improvement from Q3 to Q4, but they are still negative. APAC region sales decreased by 18.2% in full year '24/'25. This performance includes a sharp sales drop in Q4 impacted in China by an exceptionally high base of comparison, disruption in the duty-free channel and Chinese New Year timing effect, representing on APAC region level 12 points or the same EUR 15 million that we commented before at the group level because they all belong to APAC. Third, ongoing challenging market condition in China. Meanwhile, sales in the rest of Asia were slightly up in Q4. Third region, big EMEA region reported a decline of 13.8% for the year, including a mid-teen decrease in the last quarter. While sell-out trends were positive in a tough and volatile market, we made the decision to optimize year-end inventories to try to start a new fiscal year on solid footing. The region was also marginally impacted by the timing of Easter, which had a negative calendar effect, more or less EUR 2 million to EUR 3 million. This was shipment sell-in. Now let's talk the best approximation of sellout, value depletion at group level over the past 12 months, same yearly horizon. And let's start with the U.S., in which value depletion declined by mid-teens with volume down high single digits compared to pre-COVID, so '19/'20, 12 months value depletion are down mid-single digits in the U.S., but excluding VSOP, they are up plus 35%. In China, value depletion declined by more or less 10% year-on-year versus a flat trend over the first 9 months. So after a strong December also benefiting from a favorable calendar effect of Chinese New Year, momentum reversed sharply from mid-Feb. Still 12 months value depletion remain plus 35% overall in China, if you compare our sales to pre-COVID level in '19/'20. In EMEA, value depletion were down high single digits year-on-year excluding Russia, because there is a scope perimeter topic here, 12 months value depletion are up low to mid-single digits versus '19/'20 level. So what you can say after all these figures that group-wide overall, if you consider the performance of '24/'25 yearly level, value depletion declined low double digits, outperforming, if we can say that, because it's negative, but outperforming the decline of sell-in trends was minus 18%. If you do the same exercise on a 5-year basis, value depletion grew by mid-single digit, so a growth also ahead of sell-in trends that were negative of mid-single digit. To conclude this very first slide, we reaffirm -- confirm our full year organic margin guidance that will be between 21% to 22% of net sales. And we will clearly analyze that during the yearly conference call on the 4th of June. Now Slide #3 and 4, I'd like to briefly highlight some of the key marketing initiatives we undertook during the last quarter. As part of our U.S. strategy to drive sales and more specifically to boost visibility for VSOP, we launched a new limited edition in February called, This Is My City. This initiative leverages Rémy Martin's strong ties to music and culture to raise awareness of the limited edition bottles and engage both Cognac enthusiasts and music lovers. So it combined initiatives. In parallel with our decision to allocate additional A&P investment to VSOP in order to support the brand's turnaround, this type of initiative helps to strengthen VSOP brand equity and reinforce its presence, particularly in the off-trade channel. Each limited edition is available only in its respective city or state, so Detroit, Chicago, New York, Atlanta and it is sold at the same price as the classic range. Activation is supported below the line, so directly on the field by a dedicated campaign, so including retail, e-retail and digital initiatives with a strong focus on cocktail culture especially Remy Ginger cocktail. At this stage, early results are very encouraging and are contributing to the stabilization of VSOP volume depletion in the last period. Page #4. There are a few examples of our activation in China for the Lunar New Year. Our teams delivered a good job during this crucial period, navigating the current complexities of the Chinese market with agility and resilience. While Chinese New Year 2025 was not a particularly strong season overall, we nevertheless managed to achieve a modest depletion growth despite the multiple headwinds and clearly gaining market share. Among the key initiatives, our teams delivered and leveraged successfully. The temporary opening of the House of Rémy Martin in Shenzhen as part of our 300th anniversary celebration of the Rémy Martin brands anniversary, supported by the comprehensive 360 degrees campaign spanning media, social media, e-commerce and trade channels. Second, initiatives, the release of the special anniversary episode of the acclaimed known series, Blossoms Shanghai, further reinforcing Remy Martin XO roles in entertainment and story telling. These initiatives helped drive brand relevance, strengthen our emotional connection with consumers during the gifting season and enhance desirability for the XO range. Third, collaboration with the Chinese artist, Huang Yuxing, we designed 2 exclusive local gift packs for the year of the snake. These were launched exclusively on e-commerce platforms for Rémy Martin XO and Club, creating strong appeal among younger, dynamic and digital savvy consumers. Now let's back to added figures. Turning to Slide #5, and let's talk about the full year sales with the bridge. Full year sales amounted to EUR 984.6 million, representing, as I already said, a year-on-year decline of EUR 209.6 million or if you want, minus 17.5% on a reported basis. This performance was shifted by the following factors. First of all, a strong organic decline bigger than the published one of EUR 215.3 million, so minus 18% of organic sales decrease. We can split this yearly global performance between minus 11.8% negative volume effect and minus 6.3% of price/mix. So this minus 6.3% of price/mix impact resulted from a slightly negative pricing effect minus low single digit and low to mid-single digit and negative mix effect. Why? This is clearly linked to the underperformance of high-end products and to a lesser but mathematically waiving effect by the Cognac division overall in the global turnover picture. We have also to highlight the second element, a positive currency translation impact of EUR 5.7 million or 0.5% gain for the 12 months. This conversion top line gain was mainly driven by the improvement of the U.S. dollar around EUR 4 million, EUR 3.8 million; British pound for EUR 1.3 million and Chinese RMB for EUR 1 million. However, these gain were partially offset by a negative impact from the Japanese yen, EUR 0.6 million negative and Canadian dollar for EUR 0.4 million. This was the global picture for the turnover of '24/'25. So on Slide 6, we provide, as usual, a breakdown of performance by division compared to 5 years ago, 12 months '19/'20. I'll summarize the key highlights. In a nutshell, Cognac volumes declined significantly in the current U.S. environment, although price/mix effects of the 5-year remains strong. Overall, total Cognac sales were down 17.8% versus pre-COVID, while value depletion were ahead, declining mid- to high single digit. Cognac at group level, even if both are negative, value depletion run better or less worse than sell-in. In parallel, Liqueurs & Spirits sales showed significant growth since the opposite for the Cognac of 33.7% compared to pre-COVID, driven by both volume and price/mix. Sales once again, are below the value depletion trends, which grew by over 40% over the same period. So also for the Liqueurs & Spirits division over 5-year value depletion, best approximation of final consumer sellout has run better than sell-in. At group level, the consequence, what it is. This figure revealed a symmetry between sell-in minus 4.8% over 5 years and value depletion, which are up at mid-single digits, more or less plus 5%, emphasizing the better resilience of end market compared to 12 months '19/'20. And I'll be back on that point on Q&A session, a tangible destocking in absolute value on which we need to reflect. This is something positive to capitalize on. Now let's now turn to Slide #7 to delve into organic trends by the region. This slide shows the performance at group level. Starting with APAC. Fully organic sales declined by 18.2%. That -- it is a very important plus 23% compared to full year '19/'20. If we look for this region overall, at the volume value equation, full year performance was primarily impacted by the value component due to the underperformance of high-end brands and as well partially by channel mix performance. Inside APAC, biggest clear role is for China. In China, sales declined sharply in the last quarter, impacted, once again, I repeat it, very important, by several factors: an exceptional stellar base of comparison. Second, the inaccessibility of duty-free channels, which weighed heavily on APAC sales, less 8 points during the fourth quarter. And third, a negative calendar effect around Chinese New Year, 4 points waving on APAC performance considering the different calendar last year compared to this year. In addition, the market environment was particularly harsh as highlighted, from mid-February. This was sell-in. In parallel, best approximation of sellout full year value depletion in China were down around 10%, as I already said, but still more or less up plus 35% if you compare to the full year '19/'20. Comparing China to '19/'20 is clearly acknowledging a change of dynamics and paradigm positively. As such, inventory levels in China remained healthy at the end of March. Elsewhere in the region, APAC region, rest of Asia delivered growth in Q4 rising by a low single digit, led by Cognac and, to a lesser extent, Liqueurs & Spirits. Country-wise, Australia performed particularly well in the last quarter. By the end of March 2025, APAC region accounted for 40% of group sales, stable versus the previous year. Second region by relevance in terms of weight is Americas, in which full year organic sales declined by 20.2% year-on-year and were down by 23.6% compared to full year '19/'20. The performance is more or less similar to APAC. What is different is this compounded this performance compared to '19/'20. Year-on-year performance includes a mid-teens negative volume effects and a mid-single-digit negative price/mix impact, reflecting an unfavorable mix of products, states and format as well as the price smart adjustment on VSOP. In the U.S., we saw very strong sales growth in Q4 benefiting from a very low base of comparison, and also on a positive note, sequential improvement in volume depletion, primarily driven by Cognac and clearly, notably the VSOP. On a full year basis, value depletion were down mid-teens, including high single-digit drop in volumes. On a 5-year basis, value depletions were down mid-single digits, so negatively but better, less worse than sell-in and up plus 35%, excluding tipping of VSOP. In this context, inventory levels in terms of coverage are close now to 4 months at the end of March based on depletion, future forecast. In Canada, sales grew by low single digit in Q4, mostly driven by Liqueurs & Spirits and Latin America delivered low digit growth in Q4, primarily supported by Cognac. In terms of weight end of March 2025, Americas represented 37% of group sales, down 1 point. Last but not least, big EMEA region in which full year organic sales declined overall by 13.8% and were down 5.4% compared to full year '19/'20. This decline mainly reflects a negative volume effect. So a good job in terms of price/mix. Inside that, we need to give some colors to highlight the performance by subclusters. In Europe, third-party distributors, sales fell by very strong double digits in Q4 despite positive sellout trends. Why? Tough and volatile market and as highlighted in this first chart, we decided to optimize year-end inventory to try to start the new fiscal year on very solid footing. So sales were also impacted, mainly in this part for Europe by the calendar shift of Easter more or less EUR 2 million to EUR 3 million. UK and Nordics subcluster witnessed Q4 sales down by high single digits, largely due to pressure on Cognac in a challenging and promotional market environment. Benelux and France posted a strong double-digit decline in the last quarter, impacted by promotional competition in Cognac and ongoing softness in Liqueurs & Spirits. Last but not least, AMEI and Eastern Europe declined by mid-single digit in Q4, affected by ongoing destocking and very aggressive promotional activity by the competition. Across EMEA, full year value depletions, so the best approx of sellout declined at a lower extent by high single digits and rose low to mid-single digit compared to 5 years ago when we exclude Russia that was there 5 years ago. Inventory levels for the region remain healthy across most areas. End of March 2025, EMEA represented 23% of group sales at 1 point versus last year. So more or less, the regional weight remained the same over the year as the ongoing dynamics in the short term, that's changed a bit, plus 1 point for EMEA and minus 1 for the Americas and flat for APAC. Now we have to do another part of the exercise. So we turn down the Page #8, and we analyze the performance by division. We start with the heart of our performance for the good, for the bad, which is Cognac. Cognac division posted a full year organic sales decline of 21.9% so bigger than the average, driven by a 15.6% drop in volume and a negative price/mix of 6.3%. End of March 2025 accounted -- Cognac accounted for 62% more or less 2/3 of our total sales, down 3 points compared to the previous year. Let's begin by region inside only the Cognac division. What we find, starting with APAC. Mainland China, Q4 sales were significantly negatively impacted by huge base of comparison and persistent adverse market condition. All channels declined in Q4, except for our deadly weapon, e-commerce, which grew by 10% and reached more than 30% of sales penetration over the full year, because clearly if we do that, this math for the Q4 is much more than 30%. Despite slight growth in value depletion during Chinese New Year, up low single digits versus last year, Q4 value depletion were sharply negative, affected by an unfavorable calendar and a very weak performance from mid Feb. Excluding calendar effect, value depletion would have been down by high single digit in Q4, so negative, but less negative. While Hong Kong and Macau posted a weak result, Taiwan recorded strong growth in both sell-in and depletion during the last quarter. Overall, full year value depletion in China saw decline by around 10% in Cognac, like the group level measure in China. But we are still approximately, once again, plus 35% above 5 years ago result. Remaining part of Asia, sales were up mid- to high single digit in Q4 led for the Cognac part by Australia and Singapore, while other countries continue to face tougher and fierce promotional market condition. For the Cognac inside the Americas, in North America, so U.S. and combined with Canada, Q4 sales increased by mid-teens, supported by a very low base of comparison and on a positive note, a continued sequential improvement in volume depletion, primarily driven by VSOP. In the U.S. specifically, Q4 value depletions declined high single digit year-on-year, with volumes down low single digit. But GAAP versus peers narrowed with VSOP volume being now flat in Q4. This is important. Performance was mixed out but encouraging across states. Control states continue to outperform the average. So they are down by low single-digit in value, while open states remained more volatile. Some green shots here and there, emerging in open states, Illinois was strongly up, reversing a bit to the trend what we discussed together end of December as well as of Georgia, while California, despite being negative, showed a limited decline of low single digit, meaning that it is sequentially improving. So sequential improvement in California means sequential improvement in the U.S. California is very important for the U.S. In this context, inventory levels in the U.S. now stood close to 4 months in terms of coverage estimation end of March based once again, depletion simulation forecast for the future. That still clearly need to be achieved. On a 12-month basis, value depletion included a 4-point negative price/mix year-on-year value depletion of sell-in, but remained up plus 12 points compared to '19/'20. Latin America. In Latin America, Q4 sales posted significant growth driven by Mexico, Puerto Rico, Brazil and Dominican Republic. We are talking of more figures, but positive, mainly led by what? XO, LOUIS XIII. So small figures, but positive and nice part of portfolio. In EMEA, third region by weight -- in terms of weight for the Cognac division. Q4 sales were down by very strong double digit, impacted by inventory optimization and negative calendar effects such as timing of Easter. Market context remained highly promotional across most countries. In the U.K., sales were down single digit. Benelux and Europe third-party distributors posted significant declines, especially in Germany, Austria and Switzerland. In AMEI and CIS, sales declined by mid-single digit, but were supported by some restocking in South Africa and Nigeria. Value depletion across EMEA were down by a very strong double digit in Q4 compared to last year for Cognac. Now let's turn to the same analysis by region inside the Liqueurs & Spirits division, Slide #9. Liqueurs & Spirits division full year organic sales decline of 9.6%. So clearly, negative but far less than the Cognac one, driven by a 9% drop in volume and only a minus 0.6% impact from price/mix. The end of March 2025, Liqueurs & Spirits accounted for 36% of total sales, up 3 points versus last year. Now let's review the performance by region. North America, sales recorded significant growth in Q4, supported for -- this division was even more important than for Cognac, a very low base of comparison and better resilience in value depletion relative to the market. While depletion underlying trends slowed down dare to say compared to Q3, they remained solid, very solid versus peer. Take an example, Q1 Cointreau U.S. value depletion in Q4 were mid-single digit year-on-year, but still up plus 55% compared to Q4 '19/'20. The gin, our gin, Botanist showed positive momentum with value depletion up by high single digit year-on-year doubling, so 100% growth compared to 5 years ago, the double. Additionally, it was volume. Price/mix was up plus 1 point compared to last year for the 12 months period ending March 2025, had increased 17 points, so more the Cognac division in terms of valorization on a 5-year basis. In Latin America, sales increased by low to mid-single digit in Q4, led by very strong growth in Mexico and Brazil and mainly driven by Cointreau. Second region in terms of weight for Liqueurs & Spirits is not in that case, APAC, but is EMEA. EMEA in which sales declined by single digit in Q4 mostly impacted for Liqueurs & Spirits by softer performance of Benelux and while the U.K. remained nearly stable and Europe third-party distributor also was negative. Overall performance reflects the group's strategy to optimize inventory levels at year-end as well as negative calendar effect linked to the time of Easter. It is clearly visible also for this division. Beyond this technical calendar factor and will to start with solid footing, the consumer environment remained subdued as well. This was sell-in in terms of value depletion. They were down low double digit year on year despite positive sellout trends. So there is a disconnection between final sell-out in euro for Liqueurs & Spirits and intermediary wholesaler dynamics. In APAC, which is the third region by weight for Liqueurs & Spirits, so were very promising for the future. In China, sales grew by strong double digits in Q4, driven by Cointreau and to a lesser extent, the gin Botanist, which continue to benefit from a growing trend of mixology. Today, there are low figures through, but they are very promising. Bruichladdich whiskey single malt remained under pressure in line with the broader challenges of the most prestigious whiskey categories in this country. Q4 value depletion were strongly positive for both Cointreau and Botanist in China. The rest of Asia, sales increased by a low single digit in Q4, supported by the recovery in Australia, it's top market in the region. Japan returned to very strong growth in the last quarter, benefiting from positive phasing effect, reversing the impact seen in the Q3 and strong performance across the portfolio out of Cognac, so whiskey, Cointreau, clearly and Telmont, our champagne. In terms of division, what we are missing, we are missing on group brands. Group brands represent now 2% of the group sales, unchanged versus last year and posted a full year decline of 27.2% or 25.1% over 5 years, mostly impacted by the performance of Benelux and U.K. We are almost finished with the prepared presentation. In conclusion, on Slide #10. I would like to reconfirm our organic COP margin guidance. In a nutshell, we expect to land between 21% and 22% of COP margin in organic terms for full year '24/'25. Based on the recent evolution of our main currencies and our hedging policies, the group now expect FX rates to have a positive impact on the bottom line on current operating profit of around EUR 5 million. The impact on the conversion top line is already highlighted in the first part of the presentation. So thank you for your attention. And now I will drink a bit of water, and I will be happy to answer to your questions.

[Operator Instructions] We will take our first question from Edward Mundy from Jefferies.

So 2 questions, please, for me. The first is just to come back on what you're saying about China, which was flat from a value depletion standpoint to the end of December, but down around 10% for the whole year with the big drop-off from mid-February. I appreciate there are quite a lot technical factors flushing around. But could you perhaps provide a bit more color around that drop-off in the most sort of recent months in the half and whether that's continued into April? And then the second question, look, I appreciate that you normally give guidance with the full year results in May. But look, the trading statement talked to a resumption of that trajectory set for 2029 to 2030. There's still a fair amount of macro tariff volatility out there. Could you perhaps talk in the broadest terms about fiscal '26 at this stage? And how you're thinking about a range of outcomes on both top line and bottom line?

Thank you for your question. So I tried to highlight in a clear manner what are the factors that technically waived on China and clearly on APAC in the Q4. So exceptional comps, duty-free channel, not accessible. So waiving a huge way on the group and the group level on China as well and on forward calendar. That is true that after good, considering the situation, Chinese New Year from mid Feb, the environment turned down a more harsh environment. The synthetic and important thing to highlight, this is more linked to a lack of confidence in terms of wholesaler and global environment being also indirectly hit by the pressure of the trade war with the U.S. overall, not for Liqueurs & Spirits, and it's not a consumer behavior topic. So we acknowledge the fact that the distribution in the market is much more difficult than 2, 3 months ago, but it is more a global topic than a specific one. Every time, I repeat, we have the opportunity to get in touch with the consumer, we are beating the competition having -- and we are also positive. Let's look at the dynamic by channel. E-commerce grew by 10% for B2C, D2C and also B2B that was supposed to suffer from this lack of confidence. So it's more an overall shadowing negative effect and cloudy one, that waives on that. So it is more freezing the ability of the wholesaler to get more stock before price increase because they know that if tariff will withstand, there will be more or less a price increase as part of the mediation plan and wait and see attitude even more than before. So it is something that will last, we hope not. And we hope also that the duty-free topics will be solved. So far, we are very cautious. No, we are not betting on the clear reopening from day 1 for the future. But the technical factors plus the lack of confidence are clearly the triggering elements that made the exit rate end of March more negative than before. April is first sign are not changing very much the global situation for the bad and for the positive also because every time we are getting in touch with final consumer, we gain market share. For the second question. So let's talk a bit of guidance. We'll be much more precise clearly with Eric Vallat on 4th of June when we comment and we disclose the full year result. But for the '25/'26, it's clearly early stage to try to give specific indication. Let's start with the top line. Because at the end, for everybody, part of the recovery mitigation plan is you want to consider the situation, which everybody is -- needs a top line back to growth in '25/'26. So far, [indiscernible] to my knowledge, is betting on '25/'26 sales consensus plus 4.6%, more or less the same for Bloomberg, so we can say mid-single digit. It is early. We'll comment on that. We'll be more precise with Eric Vallat on 4th of June. But what I can say that this is consistent with our midterm guidance that fits mathematically with the '29/'30, so mid- to high single-digit top line. Nothing more to add, we'll be giving more and more color. So is it scaring me this consensus? No. So we'll comment on that. And at this stage, overall, it seems like a good approx. What you have to understand is that the compounders inside that are moving pieces. Growth equation is very, very complex for the next year. It involves several parts that are not totally clarified at this stage, that will change eventually the commercialization politics inside the country. Let's start by China. Acknowledging the fact that the consumer behavior is not a topic for ourselves or at this stage for our analysts, it is more the external and macroeconomic and trade war impact that may have a negative impact in terms of confidence. So China, it's just to confirm officially start until 5th of July. It's easy to understand that the involvement of DIS on this equation can potentially -- could potentially change the game for China as well and the group level. In the U.S., the news flow in a particularly volatile environment, and they are changing one day to another. So overall, considering the actual environment, we'll be more precise with the actual consensus don't scare us. This was top line for '25/'26, which is consistent with the mid- to long term. So your question is what happened to the bottom line? So if I had a crystal ball, I will be rich. But let's try to factor that in a clear way -- the clearest possible before the 4th of June. A third glance, so normally speaking, we do not expect an organic improvement in COP margin for '25/'26. Why? Because at this stage, we are factoring what this seems to be there for '25/'26, affect a risk of tariffs in both China and U.S. that if it is the case, will not be fully offset during the first year. And on that point, we'll be very clear the 4th of June, I comment on that with Eric on the gross impact, net impact and some color in terms of mitigation plans. I can already tell you that part of mitigation trend -- plans is not only cost cutting or supply chain optimization, is also growth. So part of our -- we are fine with plus 4.6% at this stage is that we are betting, and we are counting on top line growth clearly coming from the U.S. because I'll be back on this point later, they need to send a lift back after 2 years of very negative performance, and they are sit on a lower stock in absolute value compared to 3, 4, 5 years ago. So at this stage, as I said no organic improvement in COP margin for '25/'26 if both tariffs in China and U.S. stand because part of mitigation are also counting on the expected top line back to growth that need to be also fueled with AMP. We already said with Eric that we'll be more below the line, more volume oriented, more depletion oriented and a little bit less on brand awareness. Because brand awareness is fine, but now there is a fire. We need to extinguish the fire. So as to fuel with specific costs like specific A&P, specific overhead part of the growth, meaning will be reinvested. And so as a consequence, the impact is the tariffs in China and the U.S. are there can't be offset during the first year. What if, which is the question of you and many of you, Barclays, I can name you all with a different intensity of opinion and aggressiveness. What if no tariff, organically, it's no tariff in both China and in the U.S., organic operating profit improvement. I repeat, what if not tariff organically, organic COP margin included for both countries. Why I'm insisting on organic? I cannot commit. I can only disclose, give some color on FX. But in this moment, part of the trade uncertainty is waiving clearly on the dollar. For us, the dollar is very important. So on that part, I will every quarter, give you our latest estimation but I will never commit -- we've never committed on that, but even more in '25/'26 on FX guidance, only organic one. What if only tariff in the U.S. and not in China? That, I don't know if it is true, but seems to be a little bit more of the positive attitude more on the China level, considering the dialogue between Europe and China at this stage. What if it is only U.S. tariff, COP margin should be in terms of percentage, slightly down, meaning that the growth of operating profit will be lower of the growth of the top line. Once again, if both tariffs are there, we will not be able to offset totally the impact in year 1. We will highlight that if we'll be 40%, 60%, 50%, 70%, we will adjust all around the year. The 4th of June with Eric Vallat will give you the global direction, gross net mitigation plan for both and then also Eric Vallat will fly for new destinations, for new adventures and also with the new guy or girl at the helm, we will adjust that considering dynamics of the market, tough environment and a very complex situation. So I cannot be more transparent than that. And I challenge you, I challenge you to say who is able today for fiscal year according to our calendar to give you some more precise or is saying that this year, we will offset both component of tariffs, it happens. It is quite impossible because it's an important one. Last part of your question, sorry for my long answer, it is for '29/'30. So your hidden question is, why you are reassuring that the mark, why you are saying? Because it is, it was and is clearly a firm commitment. So we cannot overnight only profiting of something which is very complicated, a change on the people at the helm and getting out of commitment. So we have to wait and understand all the elements that are behind that before reconfirming or cancel that one. Mathematically, is achievable. Despite expected declines in result for second considered this year, despite a complex situation, we were fairly ahead of the schedule, and we demonstrated the elasticity, both on positive and negative is still there. '25/'26, we expect a very substantial strong restocking effect in the U.S., helped by more than low ridiculous comps. But -- and but is key in the answer. We have to understand this guidance, what happened? Because spending on several important parameters that are not sit only in our wheel of decision in our capacity to decide tariffs, trade war, China, and also eventually, but it is too early to say, eventually adaptation of the strategy that will not change. So clearly, we have to understand what the new guy or girl at the helm will decide in terms of the execution of the strategy. We are talking more of adaptation, but it's too early to talk about that. So at this stage, it is confirmed. It is achievable. The 4th of June, I'm sure that we'll be back on that point because, as said, mathematically, it sits to one point, the ability of the U.S. to start strongly the year and to send the lift back with the restocking effect. So if there will be some news, positive or negative, they will be acknowledged. So far, '29/'30 guidance is confirmed. On that point, No, no, sorry. I will finish with one because the part of your question also to see something -- to say something that I commit during the presentation, which is very important to try to put figures behind concept that otherwise are cloudy and smoky. Why we are counting overall group level and mainly in the U.S. for the future? Look at the math. Everybody is thinking saying that we are too optimistic in terms of depletion coverage in terms of stock, [indiscernible] okay? But highlighting the fact that we are now below pre-COVID levels in absolute terms that the stock coverage is [indiscernible]. I don't want to comment on that. Everybody is on our conviction. Look at figures. What happens in 5 years, in absolute terms, to our value stock, best approximation stock sits everywhere in the -- at the home of the consumer, in their stomach, in the wholesaler, whatever it is. Over 5 years, compared to pre-COVID, we have destocked more or less EUR 100 million, so 10% of the group turnover. Why EUR 50 million more at group level in value depletion, apple-to-apple comparable, and we sold in terms of sell in, EUR 50 million less. The main part has been done clearly in the U.S. and a major part, EUR 80 million of that in '24/'25. So the lift now, the elevator is a minus 3% and the normative is floor #15. And the energy is there. The graphites of the nuclear reaction is ready. So it's up to us to let it possible. Compounders are very positive for us in the near future. We are betting on that. Sorry for my long question and sometimes out of the topics, but I think, and I thought it was important for you to understand part of this match on the destocking effect over the long period and the fact that they are hitting positively the future quarters. We hope that, and we count on that. We count on the U.S.

We are now taking our next question from Sanjeet Aujla from UBS.

Luca, two quick ones from me, please. Just coming back to the U.S., I think you highlighted 4 months of inventory. So it's ticked down a little bit from December, which is ultimately based on your forward depletion expectations. Are you able to share those forward depletion expectations? We've seen some sequential improvement. But what are you building into the plans for fiscal '26 on depletions, please? And then secondly, on FX, I appreciate you not guiding and it's particularly volatile, but can you just give us some mark-to-market sensitivities on FX and where your hedging is today on the transactional side, please?

Thank you for your question. On the first point, if I give you that, I need to disclose the guidance right now for the future because U.S. are so important in the equation for next year and the spark being the depletion, I come to the conclusion I need to give the -- so on that point, we'll give you our estimation on the 4h of June with Eric. 4th of June will be a conference call of 7 hours and half, that's a joke. So committed -- take some sandwiches with you, sunglasses, cream. So that point will be addressed on 4th of June. Clearly, restocking is huge. So we're counting on double-digit next year in top line. The depletion underlying would be more precise during the conference call on the 4th of June. In terms of FX, give me a second because there, otherwise Chris Pitcher will shout at me, because I'm not precise. If the tariff environment is complicated, the consequence on the FX are a nightmare. Why that? Because everybody is covering the flows, but not the P&L flows, it's the intercompany flows. So every move what we call supply optimization, inventory management, you are delivering before time, after time. So this is something which is not really correlated. On top, we build the budget when some weeks ago, and the dollar was 107, 106, 108, and now it's 115. And nobody knows what it will become. As you know, our hedging policy is to cover by anticipation, we prefer not to be practical and get all the option, but to be sit on very predictable, sure figures. So the only thing I can say, and today, I was prepared for your question and Chris Pitcher's question as well, to give you what is 3 different scenarios and what if considering what we have covered the expected phasing of the future year and the movement of the spot rate for the uncovered part of the '25/'26. So please listen to me carefully and every 3 months at the quarter, I will update you on that sensitivity analysis. If we consider what was normal until the 20th of March, EUR 1.07 to U.S. dollar spot rate, hedging what we've done, option, all the cooking will determine hedge rate of 109. So in that part, the impact on ForEx on operating profit is marginal, negative from EUR 3 million to EUR 5 million. Second hypothesis, 1.15 spot rate more or less today. Hedging rates switched from 109 to 112. So the negative ForEx impact, the increase from -- between EUR 10 million to EUR 15 million on COP with more precise also in June in terms of phasing, but first scenarios, 3 to 5; second one, 10 to 15. Let's imagine a crash negative scenarios where the dollar is 1.25 spot rates at the average of the full year. Hedging rate deteriorate, became 114. So as you see, this cautious approach limits the losses because the impact will be clearly bigger but still limited. So no more 10 to 15, but 15 to 20. So once again, 107, 3 to 5 on a yearly basis, 115, 10 to 15. In worst case, 125, 15 to 20, this to give you some indication. Do I commit on that? No, I will give you every quarter the estimation. We do not guide never but even more next year on published effect. I'll give you our estimation every quarter to adjust. The guidance will be done as usual on organic terms. As you have seen and noticed, I gave you a fix impact on bottom line, not in top line because we do not cover all the flows only the net positions so the bottom line. In terms of sales, the conversion impact will be more severe because they're more linked to the spot rate and will be communicated following 2 or 3 scenarios as said in June as usual and every quarter adjusted. Only to remind you, if you are in negative scenarios of EUR 125 million with EUR 15 million to EUR 20 million of bottom line negative impact, the impact in top line, which is not covered will be harsh, more important. So in terms of percentage of profitability, published rate not also value will be increasing. I hope it was clear enough on that point.

We are now taking our next question from Laurence Whyatt from Barclays.

I think it would be really helpful if we could just get some clarification on your U.S. expectations. Because, of course, we're sitting here looking at, say, the Nielsen data, NABCA data, which is still looking relatively negative in recent months, sort of the group looking at sort of mid-teens negative with the Cognac business ticking just north of negative 20%. So in terms of understanding the sort of restocking effect that you anticipate, would you anticipate that wholesalers would increase their stock levels, even if your depletion levels would remain negative in the near months. Or is there a scenario where we still have negative depletions in Nielsen, yet the wholesalers increase their stock levels? Is it reasonable to expect we'd need to see positive depletions before we expect that sort of restocking effect to become very apparent in your reported numbers? And then secondly, just in terms of mitigation plans, of course, there's been some speculation with regard to moving production. Of course, that seems to be a desire of the U.S. administration. But are there any scenarios where you would consider moving your production sites, whether that's bottling or of course, there are restrictions, what you can do there? But are they any part of your mitigation plans?

I'll start with the second one, mitigation plan, we're switching operation in the U.S., no, not at this stage, not to my knowledge. No. Mitigation plan, we will disclose on the 4th of June are based on a going concern on the way we buy or the way we build our inventories, we deliver operation and we sell. So no change on that part so far. Second -- first question is what if -- as I said, I can't give you figures right now. We'll be more precise on 4th of June, but the restocking impact is important. So clearly, we are betting more symmetry between depletion and sell-in. It is not the case today, but the asymmetry is more -- a bit the other way around since many quarters. So depletion being still negative, but less negative sell-in. So the lift being a minus 3 as a floor. Technically speaking, even if it's not, we are wanting, we are not betting. Technically, even if depletion are negative, there is space to have positive sell-in in terms of base of comps that are changing. One technical point, Nielsen is only a part of the reality. We use Nielsen's panel for open stay that is under evaluating performance in chains and Liqueurs stores, as I already said. So yes, we combine that with a more global panel, including NABCA, so control states, which in the last 2 quarters, we overperformed, and with part, which is we call more or less combining the 2, we are covering 72%. We are still 28% not covered. That is the on-trade and the part of the other counties that are not -- other states that are not covered by both panel. It's not perfect overlap. So if you look only at Nielsen, you will not have the reality, what is our best estimation. We are highlighting that in our spreadsheet, but give you also Nielsen, NABCA discuss and total picture. I repeat, even if depletion are negative, technically, should drive to a top line increase because of the base of comps and the huge asymmetry sell-in, sellouts at group level and mainly in the U.S. in '24/'25, EUR 100 million less stocking value compared to 5 years ago and destocking of EUR 80 million in the last year.

And just to clarify, is it reasonable to believe that the wholesalers are going to look on a historic basis with regard to the sort of number of months of inventory? Or do you anticipate the wholesalers to look at the forward levels that you're anticipating as well?

It will be clearly a commercial debate. They will be trying to put the debate on the coverage without considering too much the historical level, consider that maybe this level will not be reached again. And our -- part of our job is also to convince them as part of our commercial people that this purpose needs to be moderate, considering also the normative figures in terms of depletion in absolute level. So clearly, it is part of our job to convince them to get out on normal algorithms of vendor inventory management based on stock coverage considering that having a lift at floor minus 3 is normal when you have a hotel which is built from the 15th floor or more. Clearly, will be a debate. It's there that our execution ability need to be -- need to deliver.

We are now taking our next questions from Chris Pitcher from Redburn Atlantic.

We cover the currency. A couple of questions, please. on capital investment and ODV prices, given the recent campaigns finished, can you give us an idea of what sort of prices you're buying ODV at and whether you've thought about capital investment plans for the next sort of 3 to 5 years? And then just on a clarification, so the phrase restocking keeps getting used. But really what this is, is that EUR 80 million destocking, if inventory levels remain flat, you get a very significant benefit in the United States just from that part of it unwinding. You're not hoping to see a restock. I just wanted to check that.

Yes. The second part is that is mathematical -- the impact is with the mathematical destocking on this year. Then clearly, there is a restocking which is mathematical because you'll start for a very negative -- but as Laurence pointed out, they can be moderate or clearly multiplied, enhanced by the fact that the depletion parks becomes positive or not. If remains negative, you have more debate about the historical relevance of figures compared to the actual state-of-the-art if it is increasing and if the case in volume, it will be less in value because also our decision to reposition partially at least in some states, VSOP, it will be more easy to understand. In terms of...

Sorry, you said 4 months in the United States. And previously, you have set a range of 2 to 3, I think. That would indicate, perhaps...

In terms of negative, okay, but it's 4 months more or less when we were at COVID 2 to 3, we were out of stock in a lot of point of sales. So there is also a delay because it is stock in trade overall, there's a delay of execution between wholesaler and retailer. So 2 or 3 when there will be a restocking impact, will jump to 4 to 5 automatically because you need to feed up to feed the water that are waiting in the houses because it is more inside the building at wholesale level. Capital and cash allocation on a very long term, it is not the right conference. What I can tell to you that will disclose that once again in June. But the CapEx will be reconfirmed in terms of strategic intention, in terms of investing behind our strategic pillars for the future but will be probably reduced in terms of intensity in value. So the latest one was between 60%, 65%. Probably we will squeeze down a bit to tighter improve a bit our free cash flow conversion rate and to improve EBIT, although it is possible our return on invested capital. It's part of our business model to try to improve it a bit. In terms of prices, we are not counting on a price decrease in terms of our best buying pattern. You know it is published that everybody is trying to reduce the future engagement without betrayal, considering our DNA, considering with all respect, all the effort, all the vineyards have been done, accompany them, so it will be a decrease, but not decrease in prices, and with the way of cooperating that will be visible in the strategic working capital as a decrease but not from the first year on a very limited part because we are talking of engagement for the future. Where you can -- you will be seeing that more at the end of September when we will disclose in off-balance sheet elements in the URD document, our set of accounts and you will see the valorization of the future ODD commitment. And you will see this reduction, which will be visible. I repeat, it will not be a price reduction per hectoliter. It is more a containment of the buying pattern, respecting our past engagement and betting together for a bright future with the vineyards. We are not betraying our DNA.

We are now taking our next question from Trevor Stirling from Bernstein.

Just one question from my side, Luca. You've talked about the U.S. needing to send the lift back. And clearly, as we've talked in the past, the potential is there, but you need that spark and that clearly spark has to be depletions turning positive. You've mentioned about VSOP being stable in volume terms, still obviously negative because of the price adjustments. But the overall portfolio is still negative in volume. When do you think we can start to see that total portfolio into positive territory in value?

I hope sooner the better. I can only hope that will be soon because the comps are very low. The action that we are putting in place are giving some fruits, so far more volume level. Liqueurs & Spirits are waiving. But clearly, so far, we are still negative. So the restock impact will be there, but I'll be the happiest guy in the world even more than you all when we'll be back in sustainable positive lens and value depletion for Cognac division because at the end, in the U.S., the way the Cognac division is clearly overwhelming the rest on a more sustainable basis. So VSOP needs to continue to deliver, so improving volume because the value will be a little bit depressed with some price adjustment in some more commercial states. [indiscernible] need to continue to contribute even more than now. And the upper part of the portfolio I hope is now stabilized and need to grow based on very low comp, very low comp. So we are quite modestly reasonably optimistic on that. I cannot commit on a calendar on that, Trevor.

It appears there are no further questions. So I will hand you back to Luca Marotta for any additional or closing remarks. Please go ahead, sir.

So thank you for this -- joining this call today. As you've seen, with respect to our guidance, I confirm that we respect our bottom line guidance between '21 and '22. I'm fine with the consensus so far on our bottom line as well. So I give you another answer to question has not been posted or asked. So see you all or talk with you all with Eric on the 4th of June will be very intense with Marie-Amelie De Leusse as well, our Chairman, a very intense conference calls of the result and which I repeat is very important. We'll give you some information about the technical effect, the state-of-the-art tariff situation at that date, that's deadline. And what is the impact, qualitative and quantitative in terms of guidance in the short term and if any changes need to be applied to the medium- to long-term guidance. So it will be a very long intense one. And until then, take care. Have a nice day. Bye-bye.

This concludes today's call. Thank you for your participation. You may now disconnect.