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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, and welcome to the 2021 to 2022 Q1 sales publication. My name is Jess, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand you over to your host, Luca Marotta, CFO, to begin today's call. Thank you.
Good morning, everyone. Thank you for being here with us this morning. As you have seen in the press release, the Q1 sales showed a strong start to the year at 105% growth compared to last year on an organic basis. In addition, this performance implies that sales were up plus 36.5% compared to Q1 '19/'20. To put it another way, we are well above the prepandemic levels. This performance reflects, first of all, a broad-based growth with all regions, all brands contributing to this growth. While the U.S. continued to enjoy what we call the new paradigm, Greater China confirmed the recovery seen in H2 '20/'21 and Europe as well is gradually emerging from the sanitary crisis. From a channel point of view, the group relied on the sharp on-trade reopening in the U.S. and more importantly, a stronger resilience of the off-trade channel to a level much above Q1 '19/'20, both in the U.S. and in Europe. At the same time, Greater China continues to perform very, very well. Second point on this performance, this reflects a low base of comparison across the world. This effect, however, will ease throughout the year. And finally, as expected and guided, some significant replenishment effect mainly in the U.S. As a reminder, we ended the year '20/'21 with an extremely low level inventories, and we are facing a stronger demand on the back of the new U.S. paradigm. Looking at overall global sales performed by region, Americas as global region generated a triple-digit sales growth led by strong underlying demand and some replenishment effect. APAC region posted a sales growth that was close to triple digit, confirmed the H2 '20/'21 sharp recovery. And finally, EMEA region recorded a very high double-digit growth supported by on-trade reopening since May, June and a low base of comps and low inventories at the end of the previous year. This was sell-in. This was what is inside our shipments. In terms of value depletions, value depletions at group level or the best approx of the final sell-out, we recorded a strong double-digit growth in Europe and in Greater China over the last 3 months. While depletions, as you can see in the U.S., were down mid-single digits versus last year. One additional word for the U.S. In the U.S., this reflects a high base of comps and a low level of current inventories still now, especially on 1738 Accord Royal. Excluding -- stripping off 1738, the group U.S. value depletions would have been up mid-single digits. And on top of that, like many industries, many sectors, we faced some global supply chain tension at both customs and truck levels. This extended and continues to extend the total supply chain's lead time. On a 2-year basis, U.S. group value depletions were up, as you can see, very strong double digit, which illustrates quite well and clearly that we drove the up-beating dynamic of the market. To conclude, it is very important for this slide, we reiterate, we repeat, with regards our strong confidence for the full year. Now let's move to the Q1 sales analysis, Slide #3. Some figures here, sales amounted to EUR 293.1 million, up EUR 143 million year-on-year or plus 95.3% on a reported basis, but this reflects a very strong organic gains at plus 105% or EUR 157.6 million, which can be divided in plus 75.2% volume effect and plus 29.80%, plus 30% on price/mix. A small marginal scope benefit of EUR 1.4 million, i.e., plus 0.9%, linked to the turnover of the acquisition of Brillet and Telmont and a negative currency translation impact of around EUR 16 million, minus EUR 15.9 million, or 10.6% dip. This was largely driven by the U.S. dollar, which contributed negatively to EUR 16 million to the total loss in terms of our cash utilization in the period. Most of our other currencies also deteriorated, including Japanese yen, Russian ruble, Hong Kong dollar. Only 4 currencies generated marginal currency gains, so Australian dollar, British pound, Chinese yuan and Canadian dollar. Now let's turn to Slide #4, which shows on the left, in gray, our quarterly performance of the past 9 quarters and the 12 months rolling organic performance of our group brands, in red, which stands on a 12 months rolling basis at plus 26.6% at the end of June. The Q1 '21/'22 performance confirmed the recovery seen in H2 '20/'21. Of course, low base of comps, as represented, have been a key support to this outstanding quarterly performance, but this performance was already estimated and we are performing as we expect. Beyond that, our sales are also well above pre-COVID levels and grew by 36.5% compared to Q1 '19/'20, as shown by the right part of the slide in red. Now let's turn to Slide #5 and to dig into organic trends, global trends by region. And let's start with the Americas, whose organic sales were up triple digit in Q1 versus last year and close to triple digit versus Q1 '19/'20 as well. In the U.S., sales were equally up triple digit, benefiting from a strong underlying demand, which confirms the new paradigm of consumption. The quarter also enjoyed significant replenishment on the back of the low level of inventory at the end of March. And Rémy Cointreau recorded very dynamic trends supported by sharp on-trade reopening and a strongly resilient off-trade. However, very high comps, coupled with the low level inventories and high demand weighed on cognac depletions. And in addition, the industry's lead time has increased on the back of supply chains, global tension in terms of both customs and trucks. I repeat that because it's very important. As a result, our group brands, total brands value depletion were slightly down at minus 5% over the last 3 months but implying plus 10% growth over 6 months and plus 33.1% growth over the 12-month period ending June. In Canada, sales growth was also triple digit led by Cognac division and St-Rémy, while Latin America enjoyed the same pace of growth, thanks to early sign of recovery in tourist areas. End of June, the Americas accounted for 59%, 5-9 percent, of our group sales, up 3 points year-on-year. APAC, Asia Pacific organic sales growth was close to triple digits versus last year as well and up double digit, excluding Asian Travel Retail on a 2-year basis. So a very sound strong performance. Greater China grew at a very strong double-digit growth in Q1, led by continued strong momentum both in on and the off-trade. From a subregion standpoint, which is interesting, the strong performance of Mainland China and Hong Kong more than offset weaknesses in Taiwan, the latter one being impacted since May by the resurgence of the COVID cases. Looking inside Mainland China, specifically, value depletions, so the health of the business -- were up very strong double digit in Q1 led in terms of range by Rémy Martin CLUB, also XO and LOUIS XIII. From a channel standpoint, all channels are booming. E-commerce, which accounted for 30% sales in Q1, was up 50% year-on-year. And on, off-trade as well are outperforming of the market, while our own boutiques recorded an amazing start to the year. Rest of Asia also reported significant growth in terms of top line compared to last year, led by Australia, and this is despite the implementation of several health sanitary restriction in the north of Asia and lockdowns in the south. End of June 2021, APAC accounted for 23% of our group sales, down 1 point versus last year. Last but not least, EMEA organic sales showed a very high double-digit growth in Q1 versus last year, but still slightly down on a 2-year basis. All brands and countries, the top performers, including U.K., Benelux and Germany, contributed to this excellent performance, led by the gradual on-trade reopening since May, June and the strong resilience of the off-trade. More broadly, more largely and beyond the low base of comps, this performance reflects some replenishment effect linked to the positive expectation before the summer season. End of June, EMEA region accounted for 18% of group sales, down 2 points versus last year. Now we switch from region to division. And moving to our Q1 sales growth by division versus last year, i.e., Q1 '20/'21, Slide 6. Our 105% organic sales growth, so more than double the last year, group level, was driven by an outstanding performance of the Cognac division, up at 114.4%, while Liqueurs & Spirits were strongly up at 90.5%, so by the same speed, and Partner Brands “only” plus 55.3%. In the Q1, Partner Brands accounted for 3% of group sales, stable year-on-year. But it's very interesting also to look Slide #7, where we have the same chart but versus Q1 '19/'20 pre-COVID, prepandemic levels. As you can see, all division recorded a strong double-digit organic growth on a 2-year basis, i.e., before the pandemic. Cognac up 29.8%; while Liqueurs & Spirits, up 58%, so more than that. With the latter, we can start to measure all the work that's been done in the last 2 years by our teams, especially on some brands like Cointreau, our single-malt whiskey, and the Bruichladdich gin, which gained market share across the globe, and this according to the strategic plan highlighted by Éric Vallat 1 year ago. Finally, Partner Brands were up as well, plus 21.8%. All in all, the group was up 36.5% in terms of top line on organic basis versus Q1 '19/'20.Now let's turn to Slide #8 and the analysis by division, starting with Cognac. We just mentioned that Cognac posted an organic growth of 114.4% in Q1 versus last year and up more or less 30%, 29.8%, versus 2 years ago. But what happened inside the regions? In North America, Cognac sales were up triple digit supported by strong underlying demand, fueled by sharp on-trade reopening as well as solid resilience off-trade. The overall performance has been also reinforced by significant U.S. replenishment on the back of low level inventory end of March as well as new paradigm which requires more stock. This comp is coupled with high comps on extended lead time weighed on depletions of -- particularly on 1738. This translated into a decrease of 15.9% in our volume depletions in this case in the last 3 months' period versus last year, but which nevertheless represent an increase of 48.5% versus 2019. So down the short-term specific element on volume depletions, but very, very strong compared to 2 years ago. Excluding 1738, which was victim of its own success and touched by the logistic perturbation as well, volume depletions would have been slightly positive over the last 3 months as well. This technical effect on depletions this time will gradually ease in the coming months and the strong underlying demand to become increasingly visible in our volume depletion as well. Price/mix effect on depletion were positive by 2, 3 points in the 12 months period ended June and even stronger in the last 3 months, 6, 7 points. Within APAC, Greater China recorded a growth close to triple digits with Mainland China enjoying a very strong growth across the Cognac portfolio. In Mainland China, value depletion trends were up strong double digit in Q1, led by CLUB, XO, LOUIS XIII, with all channel showing very dynamic trends. Hong Kong showed encouraging trends with early signs of local consumption recovery, even if on marginal basis and Macau as well was back to growth. However, Taiwan sales were down impacted by the resurgence of COVID cases. Finally, sales in Southeast Asia recorded a triple-digit growth supported by strong head on consumption despite the closure of several on-trade markets. North Asia, Japan, was up double digit as well in a continued challenging sanitary context. Inside EMEA, Cognac sales was -- generated a very strong double-digit growth. This performance reflected broad-based growth, led by U.K., Germany and Switzerland for Cognac. It was helped by a low base of comps as well as solid expectation before the summer season in Mediterranean countries. Talking about the volume value creation of the Cognac business, the 114.4% organic sales growth was driven by 94.6% volume increase and a 19.8%, around 20%, price/mix gain. End of June, Cognac division accounted for 68% of our sales, up 2 points year-on-year. Now let's move to Slide #9 and a few words on the new Remy Martin campaign in the U.S. As already mentioned by Éric Vallat at our full year result 1 month ago, the growth of our sales has allowed our sales to invest even more than budgeted -- than estimated to increase the awareness and the relevance of the brand in the U.S. We launched the next iteration of our Team Up for Excellence campaign with the American artist, Usher, a few weeks ago. Beyond driving relevance and awareness, the objective was to leverage the excellent momentum that we experienced in the U.S. The first results are very promising and created a buzz on social media. With more than 3 million viewers on YouTube, we reached our targeted audience and an all-time high on social share of mouth. As a result, Remy Martin was ranked the third top spirit brand on social media by The Spirits Business, and we received an award at the Cannes Lions Festival of Creativity. Meanwhile, we managed to increase our visibility through a wide billboard campaign in several key city in the U.S., as you can see. This campaign will be deployed all around and throughout the year. Now let's turn to Liqueurs & Spirits division, Slide #10. The Liqueurs & Spirits division posted very strong growth, plus 90.5% in the Q1 versus last year, i.e., plus 58%, if you compare to 2 years ago, Q1 '19/'20. Looking at the volume value creation of the Liqueurs & Spirits for Q1, the plus 90.5% of organic sales growth was driven by both volumes, 68.9%, and price/mix, plus 21.6%. It's very interesting to look that the price/mix is quite the same in terms of increase between Cognac and Liqueurs & Spirits -- around a little bit more for Liqueurs & Spirits, 20%, very strong. End of June, Liqueurs & Spirits accounted for 29% of sales, down 2 points versus last year. Now let's review overall and very scientifically, the performance of the division by region. In North America, sales were close to triple-digit growth as well, not only driven by, first of all, Cointreau, which was up triple digit. This performance reflect a steady high demand in key states such as California, the sharp reopening of the on-trade as well as the strong resilience of the off-trade. Continued booming at-home consumption and its successful strategic focus on the original Margarita Cocktail have been key drivers. As a result, volume depletion were up plus 21.8% in the last 3 months versus last year and up 52.2% on a 2-year basis. Besides, price/mix benefits added around 2 points in the 12-month period ending June 2021. Second, very strong results for The Botanist in the U.S. and better-than-expected sales in Canada for St-Rémy. Moreover, Latin America recorded as well a triple-digit sales growth, thanks to low base of comps, early sign of recovery from tourist areas.In EMEA, the second region in terms of weight for Liqueurs & Spirits, sales grew very close to triple digit, led by all brands and regions, particularly Western and Eastern Europe. Overall, better-than-expected performance was due to an early on-trade reopening as well as solid expectation from our distributor before the summer season. As a result, Cointreau posted very strong start to the year, resulting from market share gains in the off-trade and strong on-trade activation. Metaxa generated a very strong growth, led by solid commercial execution in Eastern Europe and some replenishment in Greece clearly ahead of the summer season. And finally, Botanist and our whiskey portfolio recorded triple-digit growth, reflecting market share gains in Western Europe as well as some new listing gains like in France. In APAC, Liqueurs & Spirits division, a recovery that we have seen in H2 '20/'21 in Greater China -- that has been confirmed in Q1, led by the amazing traction of our single-malt whiskies portfolio with the younger generation, more sophisticated new crowds, including Octomore, the most peated whiskey in the world, which is particularly well appreciated in the south of China. As aware, business grew at a very strong double-digit growth led by Southeast Asia, thanks to amazing growth of Cointreau in Australia and in New Zealand. Moving to Slide #11. Some initiatives made by Cointreau to continue to leverage the cocktail culture around the Cointreau margarita. Given the strong progress that we did last year on the off-trade market, the objective is to continue to hammer, to leverage this gain, notably in on-trade. This is what we did in the U.K., for instance, with the Margarita Day to celebrate it, Cointreau has teamed up with SUPPER London delivery service to launch the first home deliveries of margaritas. This also the case with our Cointreau Margarita Terraces in London, where we have selected 5 key terraces in May to celebrate the return of the hospitality. And last example on the right, with our commando teams in 5 key cities in China, where Cointreau celebrated the Margarita Original through a series of exceptional events with our key business partners, media and key opinion leaders. But Liqueurs & Spirits division is not only about Cointreau. There are other brands. And this time, we took the opportunity to say a specific word on The Botanist and our whiskey portfolio. Let's start with The Botanist and the launch of its first innovation, a limited edition bottling to celebrate its 10th anniversary, crafted by our head distiller, this small batch of Islay dry gin has been matured in ex-Bordeaux French red wine cask since 2011. Through this innovation, we drove positive uplift in all metrics and channel, more than plus 300% in social media engagement, plus 22% of new website visitors and multiplied by 4, the number of sign up in their CRM platform. Last but not least, the opening of our first pop-up store in Tokyo at famous Roppongi Hills where during a week they organized some tasting workshops, introduce our whiskey brands in unique place with an exceptional decoration highlighting the importance of transparency. Throughout this 360 degrees activation, which brought people into the Bruichladdich universe, the results were really strong in terms of media coverage and also in terms of sales result. The latter increased by more than 80% in the Q1 in Japan, and we were out of stock following the success of this event. Now last slide, and then we can go to sleep. No, no. We go to Q&A, I'm joking. Let's turn to Slide #13 and the '21/'22 full year outlook. On the heels of the strong performance in Q1 but expected, we reiterate our strong confidence in our ability to continue to outperform the exceptional spirit market and to generate a year of strong growth. '21/'22 is expected to be, as already said, a year of 2 halves, with H1 benefiting from low base of comparison and some replenishment effect that would be mostly skewed to Q1; and the second half of the year, H2, will renew with higher comps. Being ahead of our 2030 road map and given the favorable environment, we have decided, as you know, as already stated and communicated, to step up our '21/'22 strategic investment campaign, including strategic advertising promotion, strategic OpEx, CapEx and strategic increase of our working capital to fuel the rebound and to fuel our brand awareness and desirability. The expected mid-teens growth of operating profit, that is what we guided for, at this stage should be tempered by the currency effect, which we expect between minus EUR 16 million to minus EUR 20 million at COP level and by a marginal negative scope effect of minus EUR 2 million linked to the acquisition of Brillet and Telmont.Now I'll be happy to take your questions. Thank you so much.
[Operator Instructions] And the first question comes from the line of Laurence Whyatt from Barclays.
Three for me, if that's okay with you. You mentioned there was a strong replenishment in the U.S. channel. And I understand at the end of last -- or the end of the full year, you're on about 30 days' worth of stock in the channel. Could you let us know what sort of levels we are now at in the U.S. in terms of your cognac portfolio? Are we back to the 90 days of stock that you would normally expect to be in the channel? Secondly, you mentioned that Germany, the U.K. and Switzerland were very strong in EMEA for the success of the Cognac business. You mentioned sort of Eastern and Western Europe for Liqueurs & Spirits. I was wondering if you could be a bit more specific on which exact countries were driving the success of Liqueurs & Spirits in EMEA. And then finally, you mentioned before that you are going to be upweighting your advertising cost -- advertising spend this year to take advantage of your strong sales. I was wondering if the cost of advertising have changed at all recently. Has there been any change there? Are you getting the same bang for your buck in the advertising? And similarly, on costs, have you experienced any increasing in logistic costs or any other costs potentially related to COVID or elsewhere?
Thank you for your question. If I answer analytically, we'd stay here 2 hours. But okay, I will try to be synthetic. So let's start with the stock level in the U.S. and where we’re also in the other because it's a global question. So in the U.S., as far as I speak, at this stage, our level of inventory is still low, not only on 1738. Replenishment has happened. That will continue partially into Q2, probably until October as well. So as we state where we stand, we stand more than March for the SOP, more or less, around 1.5, 1.7 months. It's very complicated to be precise because the new paradigm is changing, it's improving. So the coverage in months doesn't mean so much. So the absolute value are booming because you have to cover much more. And the "issue" if we go to that, mathematically speaking in 1738, where we had only just a few days, weeks in March, now has increased as well, but it's no more than 1 month on average. So it depends state by state from the [ investment ]. So there is clearly a revenue that will continue in the Q2, probably until October, and we are still on the low level. One word. We haven't said that 90 days is the new normal compared -- we said the new paradigm, we said more around 2 months of coverage at the end of the Q2. Now for this victims of our success and also the increase of lead time will answer that on top for the logistic reason. We have a little bit more of time to reach this kind of stock level. But the major reason is that the success is clearly better than expected in terms of the final underlying demand. One word on China in terms of stock, the sell-in, sell-out were quite aligned. So our level of inventory is healthy. And in the rest of the world, we have done, as you remember, a good job previously. So we were very, very low. So we are profiting of that where this cleaning up inventories according to this division was already done particularly in the EMEA and positive -- on the positive side, we have more positive expectation from the retailers before the summer season. Okay. COVID is not behind us. It's still there, always, so things can change. But at this stage, we are still a little bit on the low level and the performance are a little bit better than expected for the EMEA. This was the first question. EMEA performance in -- for key countries in the Eastern Europe was the classical important countries for Liqueurs & Spirits, so Czech Republic and partially Russia and some other minor countries, more the total ecosystem of the Eastern Europe that's as what -- according to our expectation, that case for Liqueurs & Spirits. A&P cost change -- no, we didn't see that. We are not seeing an increase of the cost of doing business in terms of advertising and promotion. So it's real -- a will from our side to profit off the increased gross margin that I confirm, despite all the impact that we might have a negative way from the logistic crisis will be increase in gross margin for the year. That will be the first driver to fuel an increased pattern, as already stated 3 months ago, 6 months ago of the investment. We are not changing guidance in terms of increase in spending. We are still set on the same hypothesis. The strong performance for Q1 in sales is not something which is not unexpected, if everything is going according to our global overall region. Separately, if you go into detail from one key state, one key brand, we might have some difference. But overall, we are running at the pace we have estimated and we stick to our plans. No increase to A&P-based cost, different things for logistics. So what happens in terms of what's happening at this stage and not only for Rémy Cointreau, it's something that is impacting all the industry liqueurs and spirits and all the industry for what we understand and what we know as well. On the back of the pandemic and the sharp global economic recovery, the world supply global chain at worldwide level is under tension at both level, containers level, customs timing and also trucks, mainly in the U.S., as you know. And several industries are impacted by this scarcity of capacity. In this context, higher demand that we are witnessing right now by our final consumer versus offer has, in a way, "magnified" the logistic issues, magnified in 2 bracket, and the low level of stock at the end of March. So that this was an increase even more for our sales compared to the others in terms of realization based to these difficulties. Being a little bit less philosophical, we observed an increase of the lead time. So from 1 to 2 month, 2 months for the -- some countries in Asia or Australia as well and 20 to 30 days for the U.S. Also, without being polemics but it's a fact, lack of labor force in the U.S. to be truck drivers or dock workers, does not help at all. So we are stuck more time that we should need at custom level, at the docks and the ports. Tension will probably remain for a while because all the market is dynamic. We are beating the market in many, many countries but also they are not sleeping, our competitors. They are also performing very well. So there is a fight. It will be not solved overnight in this context, there will be some other costs. This is not expected, but we are managing to integrate that. And that and our gross margin will continue to be strongly accretive in terms of basis point compared to the previous year -- compared to last year. So we are adjusting our internal cost-saving footprint to be able to deliver these objectives despite the tension on logistics. And in this context, we expect -- should expect to continue to replenish throughout the second quarter in term of sell-in or even until October and to land, more or less, around 2 months of inventories. But clearly, this dephasing between demand, operation and then because of the 3-tier system or 5 to 6 in China, you have the additional lead time to reach the final sell-out, might create also, in the coming months, some discrepancies that needs to be explained by us, to you, by Célia that are launched by me when we meet, by Éric Vallat because otherwise people will be complicated to understand because we highlighted many times in the past, technical effect of the sell-in. Now we are entering a new more complex world. We will highlight the technical effect on the sell-out or on depletions because sell-in comes first. And then this increasing lead time process could change a bit the reading of the figures. I hope I was a little bit -- I was clear -- I'm sure I was long but I hope this is clear.
The next question comes from the line of Fintan Ryan from JPMorgan.
Just 3 for me, please. Firstly, just to confirm on the guidance, I think you said that you're still in for mid-teens organic EBIT growth. But think back when we spoke in June, you'd been looking for mid -- as well as mid-teens organic sales growth. Given the story you talked that we just discussed, is it fair to say that maybe the end Q1 meant maybe that the organic sales outlook is a bit higher than you previously anticipated, but you're still keeping your sort of -- the powder dry in terms of organic EBIT growth?Secondly, Luca, you mentioned the sort of the focus on the rollout of Cointreau in China. I appreciate you said sort of the launch -- test launch at 5 cities currently. But is there any sort of changes in terms of how you're pitching the product to the Chinese consumer versus the margarita serves that you're sort of talking about in sort of Europe and North America? And any sort of complementarities or differences in terms of route-to-market and appreciate e-commerce as well might be a bigger driver for that brand. And then finally, just sort of a more technical point, just -- so that you're in a minor legal dispute with the Canopy Growth over one of their RTD products called Quatreau. I think that in terms of the press article I read yesterday, we think one of Rémy Cointreau's arguments was that they're looking to launch into the RTD space. I appreciate probably there's a lot of things going on in the background. But can you elaborate on like what you'd be looking at or considering in terms of RTD launches? Are there like key brands that be behind that or markets that you'd be targeting?
Thank you for your questions. So let's start with the consensus. So at this stage, we start with the full year and then we elaborate on the H1. On the full year, we confirm what we already said. So we stick with mid-teens in terms of operating profit growth and as well indirect in terms of top line because as you know, we don't guide on top line, but we considered that we are confident to have a muted comp evolution, meaning at this stage, at yearly level, on the heels of the year of 2 halves, strong H1, even strong Q1, a little bit less strong, more than little bit less strong H2. We seem to have an equal speed between top line and bottom line, mid-teens. At this stage, talking a bit more technically with the consensus in term of yearly level, we are relatively comfortable with what you expect globally because the market does not fully consider at yearly level that there will be a year of strong investment in A&P, but strategic OpEx as well. Consensus is not the mid-teens, and we confirm that we are -- we plan to be growth by around mid-teens. And more technically, consensus is not aligned to our ForEx impact negative expectation that I reask and reiterate just before because if we say something, we should like to -- that you listen to that. In terms of the H1 consensus, we are comfortable in terms of top line operating profit as the market seems to have considered different term of pace of growth between Q1 and Q2 linked to the comps and the replenishment. So overall, the plus 105% of top line is a very good result, but is a small quarter. Last year, the absolute value speaks for themselves, EUR 150 million in terms of top line Q1, EUR 280 million Q2. So it's still early. And everything is going as expected, and we stick to our plans, investing more. In terms of the second question in China, the clear turning point in Liqueurs & Spirits in China at this stage is not Cointreau. It's more the whiskey, where we are grabbing new consumers, younger generation, new crowd, some of which is really new and very positive because it continues like that, we might have positive result at very high double-digit growth on this product for the following quarters and years. So that's clear, very strategic. On Cointreau, nothing changed in terms of global consumption. We are still in the on-trade more the off-trade but we are also profiting of different commercial footprint for Cointreau to be able to tackle better the intermediate level. So we change something on the commercial level. But in terms of consumption days, there is no major switch. I insist the big news out of Cognac for China is single-malt whiskey.Quatreau, there was a -- as you know, we do not comment current legal compliance. The risk -- our approach is drink less but better is mostly throughout mix and price, not volume. So overall, as global drinking process, we are not interested in this market, ready to drink or so at this stage. No need to replace alcoholic volumes by nonalcoholic volumes. But with that said, some of these new categories, [ that lower meet ] -- could make some sense for some of our brands in the future, and we are monitoring closely consumer trends which are emerging, we remain open for all options. But no decision or plan has been set forth. So why we are making compliance on that? Because it's our brand. They are calling it Quatreau. When you spell it, there is a clear confusion. So I don't want anybody to be called with my name if it's not me. I don't want someone call Marotta or using the success of Cointreau to be on the field and surfing on the wave of something that does not belong to them. So simple as that. It's our property and we will -- we fight for that but without answering a more deep analysis.
The next question comes from the line of Simon Hales from Citi.
A couple for me, please. Can I just go back to the EMEA region? Obviously, a good start to the year. I think you've talked about seeing some restocking or some replenishment of the on-premises being reopening there. I wonder if you could sort of help us really quantify that, how much of a benefit you saw in Q1 from that. And should we expect that to continue at all into Q2? Or do you think ahead of the summer season now, the on-premise and stock levels are at the right levels? And secondly, I may have missed this, but with regards to logistical costs and the tension you're seeing in the supply chain, do you think those costs have worsened since you talked to us at the full year results in terms of how you see that outlook for the whole of the fiscal year? Or is it in line with your expectations overall? And then finally, I wonder if you could just update us a little bit on the Travel Retail situation. You didn't mention it much, but I think there is hopefully some increase to it into the Americas and in parts of Asia.
Thank you for the question. Could you repeat more synthetically the second one on the logistic cost? Because the sound is very, very low so I cannot hear you very well.
Sure, Luca. It was just about whether...
Your pool is too noisy, sorry. Joking, sorry.
It was whether or not you think with that logistical cost backdrop, the tensions in the supply chain, the extra costs there have been getting worse since you updated us at the full year results in early June or whether what we're seeing there is really in line with the expectations that you thought for the full fiscal year anyway.
Clear. So EMEA region, slightly better than expected. In terms of quantification, we are not talking a big amount, EUR 3 million, EUR 4 million. Can we expect this to continue in the Q2? It depends clearly on the summer season. It depends on the delta variance because we have some very good expectation. The kickoff was very good, but now there's the match to play. The match is now August, all these green parts which are healthy measures that are very important, but can also limit a bit the enthusiasm maybe. So I'd like to be prudent on the Q2. I can reask what are our expectation for global Europe for the year in terms of sell-in, so top line. It is a mid-single-digit growth because low inventories at the end of the year. Depletion sell-out as well, mid-single digit in terms of value depletions. Remembering that we are clearly linked to the final consumption and the fact that the dynamics of consumption will be there because we have less pricing increasing power compared to cognac. So it's more a volume game. Also because most of the Liqueurs & Spirits brands that's very important for Europe are already very accretive in terms of gross margin. So the more you sell, the more you are beating the gross margin at group level. So good results. What we do in the Q2, it depends very much on the on-trade lasting performance. Logistic costs, it is clear worse than expected. So even 1 month ago, so we are -- the situation is sharply deteriorating, but we are taking all the measure and we are confident that we will expect our overall financial economic estimation that are based as a first tool on the sharp increase of the gross margin. So we will offset this logistics increase, thanks to cost-saving program or increasing our gross margin. Travel Retail. Travel Retail, if you can see the performance in Q1 compared to last year, it's clearly a very good one, it is very small basis. So '21/'22 will be still another tough, tough year. Recovery will take some time. We do not expect to be back for Travel Retail, all region considered, to pre-COVID level before 2023/2024. So it's taking a bit more time as well at this stage. Historically, if you remember, Travel Retail was very important for us, around 10% of our top line. So clearly, when we say that we are able to grow 36%, 36.5% compared to the '19/'20 2 years ago, without restating the Travel Retail, we are clearly booming on local markets. There can be a switch between Travel Retail and local market maybe partially, but it's not the same consumer. So Travel Retail, a little bit longer than estimated, even if -- this doesn't affect at all the estimation of the year. Travel Retail is very, very marginal at this stage, and we planned a year with a cautious configuration of Travel Retail performance. So no issue on Travel Retail lack of speed at this stage compared to where it used to be. No issue in terms of bottom line or gross margin because of the logistic tension. We operate as we can do, and we will do to respect our commitment.
The next question comes from the line of Trevor Stirling from Bernstein.
Luca, 2 questions from my side, please. So first one, Luca, you mentioned at the start, there are 3 factors behind it, the spectacular growth in the quarter. There's an easy comp from last year. There’s underlying demand and then there's replenishment effect as well. I know it's really tough, but is there any way of estimating the split between those 3 factors?And the second question is really around supply and supply strategy and how you're going to keep up with this amazing level of demand. I think in the past, you talked about your cognac can support 4% volume growth. Is there way a of accelerating the expansion of the vineyards in Petite, Grande Champagne? Or what's -- has anything changed in terms of supply strategy?
Thank you so much for your interesting question. So the Q1 split, I'm not able to make a very analytical disclosure. What I can say that -- more than half of that growth is linked to the strong underlying demand. Because as you remember, we said we estimated the Q4 to Q1 impact restocking, mastering, assembly and then a restock in the Q1, we estimated that between EUR 40 million and EUR 50 million. We can say that we have done 2/3 of this amount in Q1 and 1/3 remains, EUR 15 million to EUR 20 million, for the Q2 logistic, we’re meeting all that. So it means that more than the half of the growth is sound, clear there for the underlying new paradigm in the U.S. and not only in the U.S. Supply in the future. Clearly, we cannot sustain the growth that doubles the cognac sales every quarter. It's impossible. We guided for the 2030 plan on a CAGR between 2% or 3% of cognac volumes and 6% to 8% in terms of the price/mix. So high single-digit progression compound average growth rate, long term for the cognac. So clearly, we cannot expect to continue to grow like that. How to face that? Two things. We have 2 things long term. So retain also sometimes that we have done in terms of strategic management of the stock, stock at central level and the local level before selling too soon. And pricing power with this clearly reinforced because if there is a strong underlying demand, if we are in a moment in which the demand exceed the offer and the brands are well supported, well communicated with a strong campaign to increase awareness, pricing power is even stronger. That's the reason why A&P expense you see today increase in the P&L to translate in terms of top line and bottom line tomorrow, quite easily. What is at stake is the pertinence and the relevance of the content of the A&P, not the expense in our assessment. Don't be afraid of expenses. Expenses are future operating profits. We don't plan to increase that. As far as I know, the land in terms of coverage of the supply in terms of cognac region, but we guided for EUR 80 million of working capital or the supply increase every year, and we are committed to that. It's not easy because we are not only the only one growing. There is a strong pipe here that we are committed to feed our future without increasing our working capital of already every year as hunger every year, every year without changing the vision for the year. We are not searching a new land. We know that this land, it is good one, and we have to work our fair share is the increasing share of buying. Thank you so much, Trevor. I hope it's clear.
The next question comes from the line of Ed Mundy from Jefferies.
Three for me, all on the U.S. The first is really -- you talked about this new paradigm of consumption more buoyant, consumption trends in the U.S. Is that a comment on cognac or you think that's a comment for the overall spirits market? And then second is on the U.S., as consumption patterns normalize and people start going back out to the on-trade, have you seen any evidence of downtrading in the off-trade from perhaps, let's say, cognac back to brandy? And then the third one in the U.S., looking back at Slide 8, I know you show your volume depletion trends of minus 15.9% for the last 3 months. And I appreciate that's tough comps and supply constraints as you flagged. But have you seen volume depletions improve as you've gone into Q2?
Thank you so much. So the new paradigm, we are clearly interested for the cognac, but it's not only cognac, it's all the top rating categories. So more single-malt whiskey than blend one, uplift in the luxurious tequila more than the entry one. So it's more that people like to please themselves, they are more interested in high quality, we also, in priced product. So it belongs to cognac, but not all. Clearly, looking in our market, cognac, we have to educate on cognac and Remy Martin what we consider this to be our product superiority by adopting sometime also some different crowds, some whiskey crowd in terms of communication on the website and the social networks to have a switch in terms of the base of consumption and retaining them. And once again, A&P is very important, not only in terms of global advertisement in terms of country and states and local advertising and also partnering. We like our source and leverage the others' book [ of beer ] drinkers, increasing cognac visibility on e-commerce website. So there is a wave more wide than cognac. We are clearly here. There is a momentum in which we need to profit to changing gear. Changing gear is also linked to increase of A&P expenses. In terms of the on-trade, we didn't witness a downtrading. We witnessed -- compared to the expectation, reopening certain sites that are overall faster than expected. Too early to be too enthusiastic because COVID is still there. The variants are there that -- but as far as I speak, the on-trade reopens and -- a little bit faster, 85% of the on-trade, as far as I speak, reopened in the U.S. compared to 70% expected. And the spend trend is quite the opposite, increased by 20%. Personally, we did not witness any downtrading. We are witnessing an increase in expenses per capita. But then I don't have a clear average basket per unit analysis to legitimate digging inside the range, this global statement. So increased on-trade presence, increased spending per capita. In EMEA, it's too early to say, but as I said, more dynamics than expected. So I assume it should be a good one. And China, I don't talk too much, much of China, but China is strong and sure value, as far as I speak, both in off-trade without major disalignment between sell-in and sell-out. So it is a machine gun, which is performing as expected, very, very good. The last words, off-trade. We were scared about the off-trade collapse reducing and not at all. Off-trade remained much, much above '19/'20 levels in many parts of the world. We might discuss that sometimes in the U.K., e-commerce could be for a month, a bit lower than expected when compared to previous month. Overall, off-trade dynamics has not been lost, are there, very strong, very dynamic. To support that, we have to continue to invest. Q2 depletion minus 15.9% on cognac account. It is more linked clearly sublimate, magnified, as I said, by the supply chain tension because a strong part of the sell-in, it is all in the docks in this moment or in the wholesale warehouse because they don't have the trucks to deliver to the retail. So they will be reversed progressively in the Q2 and also maybe a part in October. But don't be scared about this sell-in and depletions figures. Consider to normalize all that, the performance of the industry by state, by country. And of our several major competitors over 2-year basis, over 2-year basis, as we said, in Italian, [Foreign Language], on 2-year basis, everything is there because pre-COVID no perturbation. It is a global year-to-date all reason message compound analysis of what we are experiencing right now compared to the pre-COVID level. And if you do that, you will see that in the short term, Remy Martin U.S. is a little bit more penalized than our competitors because of new paradigm. We should do it in 2 years. We are far better than the market, far better than our competitors. And if you do that, stripping out 1738 with the victims of own success, it is clearly being good.
The next question comes from the line of Olivier Nicolai from GS.
I've got 3 questions, please. So you mentioned a new paradigm on cognac. But are we seeing the same as well for your Liqueur & Spirits division? It looks like we hear a lot more about Bruichladdich, about The Botanist over the last few quarters. Your portfolio has improved significantly compared to 8 years ago when you joined Rémy. So how should we think about the sales growth algorithm for the division in the medium term? Is kind of a mid-single-digit organic sales growth reasonable? Just to stay on this division. You've been very active in M&A. Which category or geographies exposure do you still think is missing for the division? And then lastly on FX. The euro has weakened quite a lot against the dollar since your last update in June, and yet your FX guidance is unchanged. Now I understand you probably don't want to update us every month on FX. But if euro-dollar stays where it is at $1.18, could Rémy benefit from it this year? Can we expect an update at H1? Or is everything locked for this year?
Thank you for the question. So the new paradigm for Liqueurs & Spirits. Thanks. It's very interesting question because the top-of-mind answer I have that is stalling the paradigm, more the new paradigm because we have the necessity to prove that we are successful in the division, that historically has good promises but the results were not what we expected for the year. And today, with the progress, what we are doing, we think they are much more optimistic. And it is less a price game, more a volume games. We have a lot of positive weapon not only controlled by the whiskies. It's not -- it's something that we will discover also by ourselves in terms of the future quarter to try to set also the vision, a clear one, for the future. We have strong expectation. The result are clearly better than expected in the short term in some part of the world that are very interesting, like whiskies for China and European countries, Cointreau out of the U.S. as well. A new paradigm in the U.S. maybe only for the fact that we are able to have a size that was not that big to allow ourselves to enter a new game like Cointreau, advertising in Super Bowl, playing in the A League. So the new paradigm, I think we will be more specific on that in the next coming quarters. Clearly, there is a lot of momentum of positive energy there. And we discover quarter-by-quarter where the limit are. We are very positive on Liqueurs & Spirits on some brands, and this is the very good news. In terms of M&A for Liqueurs & Spirits, as you know, the plant -- the strategic road map for 2030 is build on organic growth. So we are -- first of all, our best acquisition is to be able to beat the market for every brand we have. We have a lot to do about that. A lot to do in terms of our advertising inspiration, a lot to do in terms of net revenue management, a lot to do in terms of volume optimization, range, channel. So we have a lot to do in terms of a global mechanism of the existing brands. So at this stage, we do not target a specific category for M&A. We are clearly looking a lot of -- this year, a lot of topics every year with Éric Vallat, with the Board of Directors. But there is nothing cheap and relevant at this stage because also with the need to increase profitability in the long term, this acquisition should be sizable and also a little bit accretive, I don't say from day 1, but maybe for year 3 or 4 without waiting too many years. And there is nothing very interesting for sale as far as I speak or at least for our understanding of our knowledge on the market. So a lot of intellectual curiosity but nothing very concrete at this stage. And I repeat, the clear priority, also in terms of cash allocation, is to feed the existing growth, also in the [ Liqueurs & Spirits ] period. FX. So FX, we are not updating because at this stage, as you remember, we are -- we cover more than 80%, 85%, if I'm not mistaken, of our needs for this year. We have granted rate at a little bit more than $1.20. So we have clearly 60% of options. The options are very good. If you are deviating from the -- in terms of spot, either very bad or very good. If you are switching plus or minus EUR 0.02 or EUR 0.03, you are covered. You are guiding with sustained because you have the visibility but you are not gaining so much. If you want, what we can gain is on the 15%, which is not covered, the difference between $1.18 to the spot and $1.20 if you stay like that for the remaining part of the year. So in terms of bottom line ForEx, we stick to what we said and we'll be more precise at the end of the Q2 or more precisely in November with the half year result with Célia d'Everlange, we update all the figures. In terms of currency translation, the top line, if you consider to remain in terms of the spot, maybe the 2025 or year level will be a bit better, but we don't know. As you know, we don't cover top line. We cover all of the net impact, so we cover the bottom line. So far as I speak, it is not a matter of cautiousness. It's a matter that our policy allows ourselves to cover far in advance the needs for the next year. We are already covering '22/'23. So in '22/'23 with the cost of what you have to consider the time and the cost of option, we are already committing sometimes of '20/'21. So this is the price to pay when you have an insurance. You want to have the visibility on the future of your own ForEx, you have to cover in advance. Otherwise, you are exposed to the plus and minus volatility of the market. Once again, I will be very precise end of November with Célia and Éric on our estimation for the rest of the year.
The next question comes from the line of Richard Withagen from Kepler Cheuvreux.
I have 2 questions, please, Luca. First of all, on e-commerce in the U.S., can you say how wide your brands are distributed? And are you on all the platforms? Or are you putting bigger efforts behind some specific platforms? And why would you do that? And then the second question is on -- as you step up the investments in the business, what are your plans on opening more boutiques. And where especially are you targeting to open more boutiques?
Thank you for your question. I'm sure you'll be frustrated by I cannot answer to your question in a very specific way because I deliver to the competition, everybody is listening, the meat or the heart of our future strategy in a specific way. So I will answer in more global generic way. So e-commerce, before pandemic in the U.S., were at 4%. Now would be between 8% and 10%. We use a lot of platform according to the legislation, which is -- we cannot allow ourselves to be free as we can be in other states. We leverage it, but we still passing through the classical wholesale mechanism. It is an opportunity in terms of new customers and opportunities also in terms of profitability because even if in terms of channel management today is not factor. As a specific route to market, the more and more we are beating with this result, a new stock equation in terms of e-commerce in the U.S., demonstrating that the rotation and the return on employed capital of the whole chain, not only ours, but the wholesaler, is moving faster than of the sell-in, sell-out and remaining stock will be able to differentiate the trade allowances or at least to grab additional services from the wholesales for the new business that is booming and which the merit belong to both of us and that is true with the profit. So an increase in footprint overall. But I don't disclose the specific platform and why we are on that. In terms of boutiques, we have 5 today in China. So we can -- we are intending to increase the direct-to-consumer boutiques is one of the tool together with our other will be more in the future, but I don't disclose the calendar where because it's too sensitive. Sorry if it is plain. It is not funny for you, I understand, it's frustrating, but please understand that it's clearly important for our strategy.
There are no further questions in the queue. So I'll hand the call back to your host for some closing remarks.
Thank you so much for being with us today and a very strong quarter. The second one will be another quarter of growth, of double-digit growth. And we are continuing to perform as we expected. I repeat, a strong year, with a strong H1, less stronger but still positive H2 to drive Rémy Cointreau to a year of mid-teens operating profit growth and a muted operating profit evolution, meaning top line and bottom line organically, driving at the same speed. Thank you so much. I speak to you in October. Have a good summer, stay safe and enjoy life.
Thank you for joining today's call. You may now disconnect your lines.