Earnings Transcript for RCO.PA - Q2 Fiscal Year 2022

Marc Hériard Dubreuil: Good morning, everyone. And thank you for being with us this morning for Rémy Cointreau Half Year Result. I hope that you're all safe and healthy. I'm here with Éric Vallat, CEO; and Luca Marotta, CFO. Today, we will present Rémy Cointreau H1 Result and we are proud of what was achieved by the teams across the world. So first, let me start by thanking all of them for their efforts, commitment and achievement in this context. H1 has been a half year packed with initiative both in terms of business and sustainability topics. I will not come back on all these events, but I would like to comment, just a few of them. First, the share buyback program that we announced last June to ensure that the Group keeps an attractive level in terms of shareholder returns and because we think that the level of valorization remains attractive. Second, the recent announcement of an €80 million loan, it bears interest and a fixed rate of 0.6% per annum and offers a maturity of seven years in keeping with the Group's desire to back its long dated assets with appropriate financial resources. Femi control is thus extending the maturity of its debts and continue to gradually reduce its average cost of funding. Third, the official relaunch of Champagne Telmont last June. As a reminder, we bought J. de Telmont in October 2020. Since then, strong progress has been done, including the rollout of an ambitious plan, [gold in nominee dri]. Lastly, the one that makes me proudest the announcement of our plan, APlanetOfException that I will not detail now as Éric will comment it later. All in all, H1 was an excellent semester for Rémy Cointreau. As we operate in a very resilient business, we reach an all-time high in almost all KPIs including sales, gross margin, cost margin, and EPS. So now, I will turn over to Éric, who will take you through the H1 business review.

Éric Vallat: Thank you very much, Marc and good morning, everyone. Thank you for being with us this morning for H1 results presentation, which we're happy and proud to share as you can imagine. I'll begin with a quick overview of H1 results. Then Luca, we'll go into more details before I conclude with the outlook. So looking at Slide 5, as you've seen from the press release, just issued this morning, our 2021-2022 H1 results were excellent showing a strong acceleration compared to last year, but also versus H1 2019-2020 which is obviously very interesting to look at as well. Back in October, you saw our sales numbers. We talked about plus 52% organic growth, reflecting a continued very strong trend in the China and in the U.S. as well as a solid momentum in Europe. With a 27% almost of organic growth versus 2019-2020 H1, our sales ended the semester well above the pre-pandemic level. In terms of profitability, the current operating profits stood at €220 million up 104.5% on an organic basis, representing 33% of margin. As mentioned by Marc, this is the highest level ever. This performance has been driven by a significant increase of the gross margin to 69.1% and a good control of our overhead costs while investing on critical capabilities. The free cash flow as you can see as well came at €29.5 million leading to a very healthy a ratio of 0.77. Let me now move to Slide 6. These results have been achieved notably thanks to a good progress made against our four strategic priorities set last year. As you may recall the first priority is to increase value per case and as mentioned several times, it will be achieved thanks to a strong focus on retail price through price increases, among others, but also through product mix management. Looking at our H1 numbers, we managed to leverage up trading trends with a positive mix price sales effect of plus 16.8 points at Group level driven by an increase of 20 points in Cognac. These great results for Rémy Martin are driven by the success of our intermediate quality products in Cognac such as 1738 in the U.S. and CLUB in China. 1738 grew 60% in H1, and its contribution to VSOP sales rose by 13 points, versus H1 2018-2019 only three years ago. CLUB grew more than the 50% in H1, and its contribution rose to total sales -- by its contribution to total sales sorry, rose by 16 points versus H1 2018-2019 in China. This tells the magnitude of what has been achieved on the intermediates. And if we look beyond retail price, the gross margin increased by two points organically versus two years ago at Group level. This has been achieved thanks to the investment behind our accretive brands, both in Cognac and Liqueurs & Spirits among which Cointreau enjoyed stellar results. Let's switch now to priority number two, enhanced portfolio management. As you know we have assigned clear roles to each brand and we have split them in three groups with a clear set of priorities for each. The objective is to maximize our gross margin not only by growing our accretive gross margin brands such as Cointreau, the Botanist or PHD malts beyond our cognacs of course. It is only the beginning, but this is exactly what is happening thanks to strong focus and efforts Cointreau sales were up 50% versus last year and versus two years ago, the Botanist grew 80% versus last year and 30% versus two years ago. And finally PHD malts increased by 35% versus last year, but 50% versus two years ago so this is happening. The third priority is to implement client-centric model as you may remember. We delivered solid progress here with the opening of boutiques worldwide, of which our first Rémy Martin boutique in Hainan with a brand new concept. We also accelerated sharply on e-commerce with the opening of six mono-brand e-boutiques, leveraging a common platform. I will come back to that later. Lastly, we are scaling up our capabilities on CRM to leverage the data acquired. As a result in China, for instance, our direct sales grew by more than 60% in H1 versus two years ago, which is huge. And finally, our fourth-priority achieve a responsible growth that I would like to develop here on the next slide. We have indeed taken a substantial step forward a few weeks ago, and I would like to thank all the teams for their engagement and work which has enabled us to commit to a very ambitious project. We are leveling up our game while we should already be proud of what we have achieved so far. Indeed, for the past decade, Rémy Cointreau has worked to reduce its environmental impact, and especially its carbon footprint. The group releases 0.5 kilo of CO2 for each euro of its operating profit, compared to an average of 4.5 kilos for the global beverage and food industry. The Group therefore combines a high level of profitability and a low carbon footprint. It's a very good starting point, but climate change remains a key challenge for everyone and that includes us. This is why our results should not prevent us from accelerating. On the contrary, they should help us accelerate. And this is why we have launched our very ambitious project the APlanetOfException to strengthen even more our participation in global efforts to combat climate change and to achieve worldwide carbon neutrality. We are already carbon neutral from this year onwards, by the way. Indeed, we are the first company of our size in wine and spirits to contribute to projects covering the full scope of our carbon emissions scope, 1, 2 and 3. With South Pole, the Group will find meaningful and relevant certified projects in renewable energy and in forest restoration and sustainable management. If these actions will also support initiatives to protect the territories and communities most vulnerable to climate change. This is great, we're very proud to be carbon neutral. But this is just the beginning of the journey. The real challenge is not to be carbon neutral through compensation. The real challenge is to reduce our own emissions. That is why the project APlanetOfException is also focused on reducing the Group's carbon footprint in conjunction with its official membership of the science based target initiatives. The Group thus confirms its long term targets of reducing the intensity of its carbon emissions by 50% across the entire value chain by 2030, and to reach net zero emissions by 2050. To achieve such, we've launched several initiatives around four major areas packaging, transport, purchases of agricultural, raw materials and energy. I am talking here of initiatives such as 100% renewable energy on our production sites, which is already the many of them that will be on our French sites, give books removal, redesign of Alberto, use of recycled glass, zero plane policy for shipments, maritime setting, transport, testing, and so on to name a few. And the good news is that we strongly believe that this is not only costly, it's also valuable for our clients and it's contributing to the desirability of our group and our brands. I would like now to take you through a shorter business review before giving the mic to Luca, and I'm going to switch to Slide 9 and be quicker here. So the Slide 9 gives me the opportunity to remind you of our H1 sales numbers by division, which were already detailed by Luca back in October. Cognac which represented 72% of our sales grew 55.2% organically in H1 and 27% versus H1 2019-2020. Liqueurs & Spirits which contributed to 25% of our sales recorded 46.9 gross and 26.9 on a two year basis. Lastly, our Partner Brands 3% of the Group sales are neat, we have 23.6% in H1. On Slide 10, just to weld under regions now. The slide shows an outstanding growth in the U.S. and in China, while Europe benefited from a strong momentum. Americas was a key driver with a remarkable 60.2% increase and 59.2% on a two year basis, confirming the new paradigm in the U.S. Asia Pacific was up almost 50% in H1 and plus 7.2 versus two years ago. Despite the collapse of the travel retail activity and a lot of lockdowns outside of Greater China, and less the EMEA displayed 33.5% growth benefiting from the rebound of European consumption in on trade during summer. On a two year basis, the performance is still negative, minus 8% as travel retail continued to suffer from lack of international tourism, in particularly -- in particular, sorry, Chinese and U.S. tourism. Moving on now to the next slide, let's focus on the Cognac division, whose great key figures are summarized on the slide you can see now. But I'm going to move now to Slide 12 to go more into details. These are figures that you know already but this slide gives me the opportunity to highlight again the amazing trends that we enjoy in H1 for our connection of regions, all regions. The Slide 13 shows the operational performance of the Cognac division. Current operating margin increased by 9.8 points to 40.5% over the semester. This is a record but not a normalized level in the short term as you can imagine. This breaks down into an organic increase of 9.2 points positive currency effect of 0.6 point and the neutral scope effect. The organic improvement reflects a significant gross margin improvement of 4 points, resulting from a well-balanced contribution in volume and mix price. On top of the price increases decided in October 20 and in April 2001, we benefited from the strong performance of our top end portfolio including intermediates quality products 1738 and CLUB but also XO, which has been showing interesting trends in China and in the U.S. These gross margin gains have been partially reinvested behind our brands in NP. The ratio rose by 0.5 point particularly in the U.S. and in China to continue to grow the awareness of our brands and to fuel their future growth. And we will accelerate in H2, as many program conceived in the first semester are now ready or about to be booked protested. Finally, the P&L benefited from a good control of our distribution and structure costs compared to a sharp rise of our sales, the ratio decreased by 5.7 points. Let me now move to the next slide, Slide 14. And let's focus on the Liqueurs & Spirits division whose key figures are encapsulated on the slide. So like for our Cognacs, Slide 15 shows the sales numbers that you know already. We have now a second engine of growth well balanced among all regions. This is a key in our tenure roadmap and reinforces our confidence and our ability to reach our long term targets. But moving on to Slide 16 and I spent a bit more time here as this is a new slide, the Liqueurs & Spirits current operating margin stood at 23.1% an all-time high. This performance reflects a very strong organic improvement of 8.4 points partially offset by your negative scope effect including the consolidation of Belle de Brillet in May 20 and Telmont in October 20. These very strong organic performance was driven by the combination of a very strong improvement of the gross margin 3.8 points of which 50% came from a very positive volume effect and 50% from a strong positive price mix. Here again, we benefited from the price increase achieved in October '20 and April '21 and from the stellar growth of our accretive brands, which as you know, are key in our strategies such as Cointreau, the Botanist and our Whiskey Portfolio. In parallel, we have reinjected both of our gross margin gains in A&P. The sales ratio grew by 0.3 points. We have reinforced our marketing investments on Cointreau, the Botanist and the Whiskey Portfolio to leverage the booming mixology trends and the on trade reopening, as well as to prepare their future growth. At the same time, we remained disciplined with our distribution and structure costs, our sales ratio decreased by 4.9 points. Let me now give the mic to Luca who will -- which will allow me to have a glass of water even though I must say a glass of champagne would probably be more appropriate to celebrate such results. Luca, the floor is yours.

Luca Marotta: Thank you, Éric. Now let's move on the detailed analysis of the financial statements and begin with the H1 income statement. So, as already mentioned, organic sales were up 52%. On that basis, gross profits increased by 61.4% in organic terms, implying a strong four points organic improvement in gross margin reaching an all-time high. This good performance was driven by a well-balanced combination of; first of all, strong volume effect around €87 million led by the Cointreau division in our key markets U.S. and China. But on top, a stronger mixed price effect of €83.5 million including two-thirds of that as a pure mix effect resulting from our budget strategy and the pure pricing effect for one-third, following price increases in October 2020 and April 2021 in all regions. Sales and marketing expenses were up 34.5% in organic terms reflecting our clear and shared decision to accelerate our investment to fully leverage the Cointreau channel reopening. But within this total we have to split between A&P expenses grew around 60% organically, i.e. an organic increase of around 30% on a two year basis. So more than our organic sales growth and this is in accordance with our long term plan, we have decided to partially reinvest gross margin gains in absolute value in advertising investment to support our brands in the rebound, increase our and their midterm growth potential by developing the our earnings and strong and long term activeness. Most of the increase technically comes from the above the line, classic media, digital PR, and beside we have to highlight that around 40% of our total spend in A&P is now digital. In parallel, distribution costs increased by around 10% organically i.e. an organic decrease reduction of around 10% on a two year basis. This is reflecting an increase in terms of a key account in our international subsidiaries, as well as some strategic OpEx to accelerate on retail and direct to clients and also on commercial excellent projects. This was partially offset as you remember by some efficient productive service installed initiated during the pandemic. Another important aggregate is administrative expenses, which increased by around 32% on organic basis, i.e. around plus 20% on two year basis, showing a limited increase compared to our sales growth. This organic increase includes first of all around 2 million of a donation to the Rémy Cointreau foundation, and around the 5 million, 4,9 million to be precise of charges related to mid to long term retention measures, employee savings and the employee stock ownership plan. And third for the remaining part mainly reflects some additional important ad count key -- and the key investment in ecommerce, CRM and brands development and protection. All in all, the current operating profit of Rémy Cointreau Group reached an all-time high at €212..9 million up €104.5 million on an organic basis and up €100.4 so its doubled on a reported basis, i.e. after taking into account two small negative effects negatively transaction currency effects minus €1.9 million and scope negative effect of €2.4 million Let me say that the other thing is half year amount looks like an annual result. So we are very proud and satisfied also financially speaking of this very important result. So let's move now to the analysis of the Group's current operation operating margin. It was up 8.3 percentage points to reach 33% in H1 published again, this is an all-time high can be normative but is a good starting point. This breaks down into an organic increase of 8.5 points. It positive currency effects of 0.4 points, meaning that the loss and bottom line in currency is less in proportion to the loss in publishing turnover. And as the light negative scope effect of minus 06 points linked to the consolidation of Brillet in May and Telmont in October 2020. The organic improvement of the current operating margin basically reflects the strong increase in the gross margin, as well as a good control of our distribution and structure cost ratio as you've seen, we increased the investment but their increase is far lower than the top line increase. So there is the leverage. And this has been partially reinvested in A&P. To dig in more details, gross margin was up four points as Éric already said as a result of a well-balanced strong volume and mix price contribution, as well as a very LT level of cost of goods. So on that point this semester reflected a perfect alignment of starts. Second point the A&P ratio which increased by 0.8 points at the group level, the acceleration in A&P was particularly focused in our key markets, geographically speaking U.S. and China, and average dedicated to our five global brands. The ratio of the distribution structure costs decreased by 5.3 points, reflecting as already said, a good control of our costs despite a strong recovery of the despite the fact that we are clearly investing also behind our strategic operating expense. And we are very proud of that. Now, let's take a look of the remaining part of the income statement. Starting with other non-recurring operating expenses stood at €13.6 million including provisions for international and customer exit related to prior periods. Then, let's talk a bit about taxes. The reported tax rate decreased from 33.8 last year to 30.3 in H1 2021-2022. Benefiting profiting from the drop in tax rates in France, as well as a very positive geographical mix. But there is something more to say, excluding non-recurring items the effective tax rate was 28% for this part of the semester, compared to the 33.8% last year. At this point time, we think it is reasonable to expect the early tax rate at around 31%. So, better than our previous guidance on that specific items. As a result, net profit came in at €134 million at 106.1% on a reported basis and excluding the non-recurring items, net profit came in at €148.2 up 127.4%. So, in any case, also net result more than doubling last year result at the same period. The net margin excluding non-recurring items stood at very strong level and all time high again at 23% up seven 7.8 points and excluding non-recurring items EPS earnings per share came out at 2.95 at 126 reported basis, 2.95 on six months. quite strong result very spectacular I would say. Let's move a bit try to understand what's happening between the non-recurring and global net profits. So the analysis non-recurring items i.e. the reconciliation between net profit and disclosing these non-recurring items. Non-recurring items mainly integrated three components. As already said €13.6 million of provision for international custom risk rating to prior periods that I've just mentioned. €3.4 million of non-recurring tax items linked rated to this provision and then a net €4 million non-recurring charges on deferred taxes related to the impact of on one side the decrease of the legal tax rate in France, which is positive on early level that is negative on deferred tax asset because you have to valorize it. Now, the tax assets for the future switching from 28.4 to 25.8. So, your value -- your tax assets is decreased -- has been decreased. And on the other side another non-recurring item which is the increase of the legal tax rate in the U.K. on deferred tax liabilities are linked to brands from 19 to 25. This for a total amount around €4 million. So let's now analyze the cash flow generation in my preferred chart, the net debt. Free cash flow generation stood at €29.5 million H1 2021-2022 compared to the €32.6 million last year. This light mathematical reduction reflects many things. First, a huge increase of the FDA plus €111.5 million on the back of the significant operating profit growth partially offset by a strong increase of the total working capital outflow which can be split between different components as well. First of all is stable working cap inflow are related to eaux-de-vie and spirit in ageing process at €23.9 million inflow. This is the consequence of a higher level or purchases in Cognac eaux-de-vie and other ageing liquid to prepare and secure the future, but as you might understand big term of our success in top line, this had been upset by a stronger level of demand especially in the USA. And then you have another component other working capital items of flows were up strongly €87.8 million year-over-year and this reflects a meaningful increase of our accounts receivable for around €70 million, €69.5 linked to the outstanding level of sales recorded in H1 and an increase for the remaining part €18.3 million in other stock excluding eaux-de-vie and other ageing liquids for renaming part. Then, you have to consider other elements that imply an impact on the free cash flow, an increase of €24.9 million the tax outflow reflecting the higher level of profits. So, we pay more taxes because we are more successful in terms of profit before tax in absolute value. And in the meantime, capital investment outflow whereas likely up €3.2 million and mostly reflected investment in the Cognac site, whiskey production sites, Isla, Seattle, France as well, as well as the group information system both in the transactional part and the DSS, Decision Support System part. In parallel of this free cash flow movement, other cash flow outflows increased versus last year. We record an outflow of €14.8 million H1 that's an outflow of €8.9 million last year, but it was largely driven by the share buyback €154.5 million at the end of September, but partially offset by the non-cash effect of the partial redemption of the OCEANE for €149.1 million. So as a September -- 30 September, 2021 around the 56%, 55.8 of the OCEANE bonds, convertible bonds in circulation have been the subject of request of conversion into Rémy Cointreau shares. 1.4 million shares were so exchanged on the basis of the 75,000 existing share, and 1.3 million new shares. The remaining part of the Rémy Cointreau bond correspond to 1.1 bonds. As a result, end of September 2021, our net financial debt stood at €300 million, 299.6, down from €427.3 million in September 2020 and leading to a decrease of the A ratio from 2.04 in H1 2020-2021 to 0.77 at the end of September 2021. A few comments now on the net financial expenses, which were a charge of €7.4 million H1 is slightly down from €8 million last year. Net debt servicing cost was slightly down showing a continued optimization of our cost of depth in line with the deleveraging of the group and cost of net debt stood at 1.07 and this moment in time. Net currency losses also improve towards €0.4 million loss in H1 versus €0.6 loss last year. As you know, this is a volatile non-cash items related to the ageing of the Groups non-euro debts and future flows. Last but not least, other financial expenses were almost at minus €1.5 million in H1 compared to minus €1.3 million last year the same period. So let's now move on the impact of the currency hedges quite technical element. The Group reported a negative translation and transaction impact of respectively minus €11.7 million or sales and minus €1.9 million operating proxies in H1 clearly better than our expectation. These mainly reflects a deterioration compared to last year of the average euro dollar translation rate over the period which came out at 1.19 per year in H1 to be compared to 1.14 last year at the same period. But the meantime our average hedge rate was slightly -- or is slightly up at around 1.18 per year in H1 versus 1.16. So, these effects our ageing policies, which is very prudential and there is flow through here. But now looking at our forecast, which is more important for the full year 2021-2022 and assuming an average euro U.S. dollar conversion rate of 1.18 yearly level and euro U.S. dollar hedge rate of 1.19 at yearly level. We might anticipate and guide for a neutral zero impact on sales, meaning that in the second part of year, we think remaining this kind of spot rates that we are recovering says and around only minus €5 million euro on operating profit. But as you know, the evolution of exchange rates and mainly on the euro U.S. dollar exchange rate remains very volatile. So, on that point, we will update you very precisely at the end of Q3 clearly also the end of Q4. As a reminder, the sensitivity versus our expectation for the Group is the following; €0.01 increase in the U.S. dollar versus the euro is around €5 million to €6 million euro gain on sales and around €4 million gain on operating profits or things like. This is only dollar than the other currencies. At this stage, we already covered 100% of our net U.S. dollar is positive for this year, of which around 40% remaining options. Having in mind, that this year is very important Chinese Yuan is very well oriented and accretive to the group performances. So let's now move on to the my last slide and this is less technical, and more important. It is the structure of the balance sheet with total assets and liabilities of €2.83 billion, up €0.2 billion compared to H1 2021. On the asset side, global inventory increased by €134 million to €1.51 billion to the purchase of eaux-de-vie to fewer our long term plan. Inventories account for 53% around our total asset stable in terms of weight versus last year, that in value is another beating record. On the liability side, the shareholder equity is up by around €120 million, reaching another historical level mainly driven by the strong progression of the net income at the early redemption of the OCEANE. This has been partially offset by the share buyback program and the dividend recognition. Net gearing, groups net to debt equity ratio decreased over the period from September-to-September from 29% to 19, thanks to a lower net debt and higher equity. So now, I'm very happy to switch back to our CEO, Mr. Éric Vallat that will highlight and show to ourselves our future highway of outlook.

Éric Vallat: Thank you, Luca. And moving on to Slide 27. So as you can imagine, the good news is that we are ahead of our 10 year plan, which will allow us to invest on A&P to grow the awareness of our brands and prepare their future, and to invest on capabilities as well to unleash our potential and evolve our business model. And this is critical to achieve our ambition of being the leader in exceptional spirits. Building exceptional brands takes time and relies on four early years indeed. The Foundation, which you can see here is a great product. Of course, if the product is not right, there's not much you can do. We spent the past 10 years and I should even say centuries on investing behind our products on terroir, distillation processes, ageing capacities, storage, and the payback is striking. Beyond the numerous accolades, our Cognac products were granted and I am extremely proud to say that for instance, our Mount Gay XO Triple Cask Blend has been just elected rum of the year by the Whisky Exchange, who also elected in the past few days Port Charlotte 10 as whiskey of the year. And these are our clients speaking its clients. So it's really interesting for us. This gives me also the opportunity to stress by the way that Bruichladdich Distillery launched the first ever biodynamic single malt scotch release. In other words, as you have understood, we have amazing products but beyond products and this is the second line of the slide, we need to build exceptional and aspirational and attractive brands. Here we have room to improve. By history we are better in [indiscernible] than in [indiscernible], sorry for the French but it is a great opportunity for us, which is why we are increasing A&Ps and you will see more and more programs which focus on global priority brands. A great product and an aspirational brands are great. But we know and this is the third line of the slide that it is useless if the experience and the journey proposed to our clients is not aligned. This is probably the biggest challenge in the spirits business, as the access to the end client is more limited. But with ecommerce and CRM growing, we have more and more opportunities. But above all, we have replaced the brand which compares to known and which is probably the only one in the industry that has the ability to reinvent the way we sell to our clients. And to have a direct dialogue with probably up to 80% of our clients in 10 years. This is very disruptive, but this direct dialogue is opening the door to unique and tailor made experiences. And we are going to learn a lot from retailers. We are already for the rest of the portfolio. Even if all we not be applicable, of course to our brands. Lastly, the world is changing. The potential to grow is huge and this is the last line of the slide. But we must acknowledge that it will be more complex than in the past with many more levers and more demanding clients, whom we will sell to more and more directly. So needless to say, we need to invest on data management or DTC or capabilities, to name a few. So I think I'm really clear on what it takes to build exceptional brands. I think I also explained that we are now aware would just like to illustrate now, a little bit what I just said and first speaking about our global priority brands of course. As you can see, we are leveraging our reserves to make this year a year of exceptional investment behind our brands as well to prepare the future. And we're investing on the four early years I just referred felt to being consistent with our strategy. I said we have great products, but we need to be aspirational brands, as I said particularly on the ones identified as a priority. We launched for instance, [indiscernible] in four cities, and we will have covered 13 cities by the end of the year. [indiscernible] is a unique product and we are strengthening the status of the brand as a true icon generating a huge media value and more than 800 publications to date. And to increase the buzz we tied up with A-list celebrity in China, William Chan who is among the top 20 influencer's. [indiscernible] as shared in previous sessions, XO is the game changer. The liquid is well appraised and we have an opportunity to begin our fair share. This is why we are about to launch a new campaign and the 360 action plan like we did with CLUB five years ago with the success we know. So as you can see, we're not giving up on products of course. Moving to Slide 29, I'm speaking a little bit beyond Cognacs. Our global priority brands aren't quite hold the botanist and our PHD Malts. Just two examples here to illustrate the strong end piece of brand behind our brands to build these aspirational brands. On Cointreau, which is present in more than 500 cocktails, we leverage the comeback of the cosmopolitan which has been made the third most popular cocktail according to bartenders in the U.S. Indeed, Cointreau is the number one branded spirit in cosmopolitan on premise menus listings. So in its two Cointreau partnering with one of the U.S. biggest female celebrities, and one of the most prestigious media houses to reestablish the cosmopolitan as the go to cocktail for catching up with friends and loved ones this holiday season. Cointreau was announced few days ago that the brand will be working with actress and entrepreneur Jessica Alba in a program which Condé Nast titled -- the program would be titled Catching Up Over Cosmos as a twist. As an additional PR layer to the program, Cointreau is partnering with Jessica Alba to launch a limited edition cosmopolitan cocktail kit sold exclusively online. We are also investing behind strong campaigns on the botanist and leveraging the film, Water of Life focused on single malt from [indiscernible] whose focus is on -- and who is hero, guess who [indiscernible]. Moving to Slide 30, a few words on the update. I was referring to which is about building exceptional brands, the client journey, and the DTC related activities. We have opened six e-boutiques in H1, six at QuickBase Domaine des Glaces for Domaine des Glaces [indiscernible] U.S. for [indiscernible] for 10 more in some of the countries France and U.K., and Westland. We have a very ambitious roadmap to accelerate now that we have a platform. We are of course addressing the whole e-comm ecosystem, with some great achievements like being the number one in foreign spirits on W11 in China. We also just opened our first Rémy Martin boutique in Hainan with a striking and brand new concept. Moving now to Slide 31. To illustrate again, our D2C actives which are physical and virtual, I just wanted to highlight here that as to data in CRM we're working on capabilities of course, but we also tested a brand new approach to capture data with cognac entering the world of gaming with a pioneering approach with the Louis XIII Mysteries, an online game launched on the U.S. website this September. The Louis XIII Mysteries is a modern concept, in which players are challenged to find hidden codes to answer the game's 13 puzzles. It's accessible on the homepage of the Louis XIII website. Players had -- it was accessible. Player had six weeks to try their luck and apply their correct knowledge. Conversion rate was over 54% and average time spent over 19 minutes, much more than what we would have expected. So I think a good illustration of this new approach. Moving to Slide 32, and before concluding on the financial outlook, a quick word on cash or location to illustrate this year investments. In 2021-2022 we will continue to ensure a well-balanced location including of course, a greater focus on strategic working capital, meaning inventories in eaux-de-vie for Cognac and ageing liquid for whiskies. Sourcing is a key priority. We intend to buy more in order to face the demand which is getting stronger and stronger. Overall, we expect around €70 million of our strategic working capital versus 60 last year. The level is slightly up only versus previous year, but it hides a higher level of purchase offset by a stronger demand. CapEx, we expect to spend between €50 million to €60 million a big part will be dedicated to our production sites. Something like 50%. The rest will be split between infrastructures including 80%, while 10% would be located to the development of our direct selling business model, meaning e-boutique, CRM and data capabilities. In parallel, we intend to maintain an attractive level in terms of shareholder returns for all our stakeholders. This includes dividends. We cannot share now, what the Board will decide of course for 2021-2022, but the last distribution equates to a dividend of €1.85. It has the meaning of a payout of 63% of the recurring EPS and a yield of 1.3%. But it's also a share buyback here, the last share buyback launched is not completed. As of now we spend around €170 million. And lastly, still in this category stakeholders also include our employees and we are proud to have launched a very successful employee stock ownership with more than 75% of subscription in France versus 40% on average, as a benchmark, so it's a great success. And we intend to extend this program beyond France worldwide next year. To conclude with Slide 33. I am we are fully confident that we will continue to outperform the exceptional spirits markets in 2021-2022. As already mentioned, this will be a year of two halves, both in sales and cup organic growth. We expect to generate a strong organic sales growth for the year above our previous internal expectations with H1 being strongly above H2 growth Obviously, we confirm our intention to significantly increase our marketing and communication spent, particularly in H2 to support our brands through the recovery and boost their medium term and long term growth potential. We also upgrade our organic growth expectations from strong to very strong. Considering the Group's plans to set up marketing and communication spend and manage its strategic inventory in Q4 and given high comps in H2. The organic COP growth will be driven only by the H1 outstanding growth. This performance will be tempered by some negative fixed exchange rate effects around minus €5 million and the scope effect of €2.4 million. Consequently, we upgrade our COP margin forecasts from a stable to an improvement. And the last slide before we hand over to questions, of course, you will not be surprised to hear that we, in this context, confirm our 2030 targets with confidence which were shared 1.5 year ago and would like to thank you very much for your attention. And we are now ready to take your question.

Operator: [Operator Instructions] The first question today comes from the line of Olivier Nicolai calling from Goldman Sachs. Please go ahead,

Olivier Nicolai: Marc, Éric, Luca. First of all, congratulation on your results. Three questions, please. So I was keen to get a bit more detail on your guidance and how it compares to the current market expectations. So you are not expecting approaching margin improvement this year. Historically, you've been aim for about 100 bps of margin improvements a year on average. Will that be a reasonable assumption for this year, essentially, I'm trying to understand how should interpret a very strong growth for COP growth for this year? Secondly, Éric, you mentioned M&A in one interview this morning. I was wondering, if you could share with us the criteria you are after and which category or region you would like to strengthen. And just lastly, I think on the tax rate, obviously, coming down and you're expecting 31% of this year now going forward, the tax rate in France is set to decrease sever next year. So just wondering if you could give us a bit of midterm assumption for tax rate for the group or as equal? Thank you very much.

Luca Marotta: So thank you for your question. So let's try to talk about consensus. We are clearing -- building the year on the years of very strong H1 both in top line and bottom line. So we already shared the top line for the second part of the year will be slight growth, but clearly growth in Q3 and a negative Q4 because for some categories, some brands, we have a strategic management over strategic stock, strong pricing power, price increase that will appear at the beginning next year. So it's important to preserve our strategic stock and not to sell too soon. Despite the fact that we have to balance the strong demand, avoid to be out of stock in key states and keep point of sales and get a look at the figures. But all-in-all, top line will be for second part of the year, I repeat in growth, but growth for the Q3 and decrease for the Q4. In the same time, the investment in A&P will grow big time, but in absolute value and in ratio compared to turnover, even if the H1 was showing a strong increase in A&P, the H2 will be far stronger over in the technically, October, November, December, and also Chinese New Year, very important months after Christmas in all over the world. We supported by many initiatives that are from brand building to the mid, long-term, but also more on a specific level. You had main example by Éric just before. OpEx, OpEx will continue to grow. Clearly, the big leverage that we observed in the H1 will be lower because the top line will not growing as fast as the first part of the year. So as a result, the H2 operating profits per se, will be negative compared to last year, but the all year operating profit for the all year organic terms will be growing faster in top line. What does means in terms of estimation? I cannot write you -- I cannot write for you your estimation, but if you look at the consensus right now, we’re comfortable yearly level with your estimation in top line, if you look -- the consensus in bottom line, operating profit at organic level, I think that the consensus is a bit cautious. So we will increase our profitability compared to the previous year on a yearly level, clearly not with this kind of plus 8.5 point that we are observing now, but we are improving the guidance. We said mid-teens as a result, a flat profitability. Now we are clear saying that we are growing more than that more scale in top line. And the bottom line is growing faster, meaning that implying that the profitability for the group end of the year will be stronger. That H2 operating profit will be not growing. I hope it is clear.

Olivier Nicolai: Okay.

Luca Marotta: Tax rate at this stage, we think that the year will be 31%, clearly there is a strong attraction by the French tax rate and could be have an impact. It is early to now to shoot some guidance for the '22, '23 and next year. Clear, there is this kind of moment on France that we have to be very cautious because we don't know -- we do not master where the tax rate environmental worldwide level can be in future year. We are still in a pandemic. We are a lot of initiative made by the different countries that need to be financed. And actually, we are experiencing this year, a perfect alliance on stars also in geographical mix. If next year, the geographical mix could be little bit different, there will be a slight positive impact. For this year, it’s 31%. And clearly you can modelize that for the future year, it should be going down. How much is too early. I prefer to guide you year-by-year. So next meeting in June will be clear guidance for the '22 to '23. And I talk to you very transparently with our assumption. This year is better than expected. And France tax rate is clearly playing a big role, positive role for the APS accretive journey this year.

Éric Vallat: And second question actually, which was on M&A. Thank you for giving me the opportunity to clarify again, first that we are not currently in the mood of external growth. I would like to recall that when we launched our 10-year plan, we said, it's a transformation, the group we are going for. It's a lot of projects ongoing, and this is our number one priority. And I think that we see some of the results of what we are working on, but it's only the very beginning. And the process is ongoing and I wouldn't like us to deviate the focus from this transformation of the group, which once achieved will make us even more prepared for our potential acquisition on top of that. So it's being more ambitious for external growth in the long run saying that we are not focusing on it today. Of course, it does not mean that we are not looking at what's happening and that given our means, we are not necessarily – I mean if there is a great and fantastic opportunity we might seize it, but this is not today what we are working on. I said it will take two to three years. I stick to that. It's been now 1.5 year since we launched the plan, so still some more time to go for the internal transformation. Now as to the criteria of a potential acquisition, the things I can and would like to say at this stage is once again, first any single acquisition will have to match our values for sure. The strong link to take the importance of sustainability as well, any acquisition will have to display a strong pricing power as well. We would like it to be ideally accretive at least not to take too long before being accretive. We know that there's a cost related to that, but clearly it's something that would matter to us. And lastly, it'll be very important for the acquisition, whatever it is to be complementary to our existing portfolio. That's one thing, or to kind support the transformation we are going for. And two, let's say help the business model evolve towards what we are aiming at. I'll give you just one example. Being very strong in Cognacs, we have – we are very strong in Asia and in U.S. but our distribution is a bit weaker and less controlled in Europe for instance. So an acquisition that would help us reinforce the level of control in Europe would be of interest as well. Lastly, it would not be a necessarily a small acquisition. We know that whatever the size it's same kind of amount of work and we would look potentially at the bigger acquisitions than the ones we did in the recent past. But again, it is not a topic of the day for us.

Olivier Nicolai: Perfect. Thank you very much.

Operator: The next question comes from the line of Simon Hales calling from Citi. Please go ahead.

Simon Hales: Thank you. Good morning Marc, Éric and Luca, congratulations again on the results. A couple of questions for me. Perhaps Luca, you can just go back on the outlook guide. You're clearly sort of talking about operating profit being down organically in the second half. I think if I look at the consensus coming into today, consensus is already expecting organic EBIT to be down around about 9% in the second half. And if you can comment on that figure, do you think things will be much worse than that given the step up in investment that you are expecting in H2? And then perhaps secondly, related to that step up investment can just talk a little bit more and sort of generally about where that step up in A&P spend is really going to be going, what sort of the project, which brands, which market, should we be real like ought to see that them being increased in?

Luca Marotta: So I will answer to the first one. If I understand correct your question, try to figure out what kind of operating profit in H2 we are talking about. We clearly be a positive operating profit, but not the same pace profitability of the H1. And if you compare that to the H2 of the last year will be decreasing. How much I can’t give you a specific figure, because we don't want to guide like that. But in terms of mathematical expectation, if I say that the top line we are okay with the consensus organically on the yearly level with more Q3 than Q4. And we think that you are cautious on the yearly consensus in terms of bottom line. You have already the H1. So you have the element to modelize that in terms of negative performance compared to the previous year for the H2. At the end organically, if you start from the absolute value over last year, we’ll be growing the bottom faster than the top line. And as a result, the profitability of the group will be increasing compared to last year to give you an help more than 0.1 base point. So we are increasing in invisible way, the profitability. So with yearly level, it will be an increase of profitability, very clearly stated. And H2 operating profit will be decreasing. I repeat, it's very important, why? Because we are stepping up big time and your second question in A&P and much more than H1, much more in value in ratio compared to the top line. And we continue to invest behind our strategic operating expenses. E-commerce, CRM, data management, new accounts, additional position, because when you have this new paradigm also on the field, you have to feed that, it's not automatic. We have not an automatic possibility to have a commercial synergies to feed the digital paradigm. So we need to invest not only in A&P, but also in OpEx. And then on top, we are successful. So in a way in OpEx, you pay, you must account the price of the success because medium to long-term and short-term, via cost increase, but everybody's happy from investor to shareholder returns, because the net result is far better than we expected, and far better than two years ago clearly. We are doubling the size of the performance of the company in relative. So now the second question for the investment in terms of geographical and more brands footprint.

Éric Vallat: Yes, so A&P, who are we, first who are we going to invest behind mostly and not solely, but mostly the global priority brand. So I remind you, Rémy Martin, Louis XIII of course PHD Malts, the Botanist and Cointreau. If you take for instance, Cointreau I referred to cocktail, cocktail is the main focus of communication, especially with the reopening of on trade, but not so, really as we know now it's growing also in off trade. And I refer to the JC Galba communication and for Cointreau, we are also going to invest behind production because a lot is going to happen next year. But of course you prepare it this year. If you take for instance Rémy Martin the focus will be 1738 in the U.S. also celebrating the sidecar because it's the 100 years anniversary of the sidecar which by chance is made of Rémy Martin and Cointreau, cognac and Cointreau. And we are going to invest on XO in China. For the Botanist the focus will be more on the U.S. more particularly, as well as for PHD. But for PHD we are now leveling up also in China because we see single malts booming. And we see Bruichladdich taking its fair share. So this is it for the brands now geographies. Of course, it's mostly a U.S. first China second. But do not underestimate the level of investment we are leveling up also in markets like the U.K., Australia, for instance, where we see an interesting potential for many of our brands. Now, I refer to who, and where I'm going just to say a word of what I explained a bit of the what when I spoke about each brand, but just to say that, first, it's not only major coverage, but it's also production. Because again, it's about preparing the future with great tools coming up. Second is going to be 70% digital. Third, it's going to be mostly ATL so clearly building on the OMS building on the desirability of the bronze. But we will have also very focused BTL to leverage the on trade recovery that we've witnessed, particularly in the U.S. And that's it for the A&P and as Luca said, it's not only a matter of A&P it also matter of OpEx and capabilities. As you understood also, the more we spend, the more we want to make sure we evaluate the outcome of each of our actions. So A&P is a lot of spend, but for the good, I believe and again, it's preparing your future growth. Don't forget that you should take the Botanist for instance, but this applies to many of our brands, we have a jewel in our hand, we lead that awareness. So usually, if you spend behind the jewel and you grow its awareness. And when you taste it, you like it. There's a lot we can leverage. Not going to be easy either, but the potential is huge.

Simon Hales: That's really useful. Can I just check everything in terms of the investments that was coming through in the second half? I mean are these plans in line with your original budgets? Are you actually pulling forward do you think some spend that you've planned for next fiscal year into the current year given the strength of the top line that you've seen?

Éric Vallat: It's not necessarily that we are pulling forward, it's we are amplifying - we are amplifying what we're doing? All the tools I was referring to for next year we are budgeted as such. Now we also have a lot of tools that exist for this year and that we are amplifying and leveraging more plus some initiatives for the second semester that were not planned, that we believe can be very impactful. They are too early to disclose, to answer your question, we are spending more. Not only that we are moving forward but we're also amplifying for this year. Because again this year is going to paint more and you will see the ratio of A&P really increase even versus first semester for the second one.

Luca Marotta: And Simon that's Luca speaking, insisting on another point, it's not only a matter of A&P , because we are ahead of expectation we improve we insist we accelerate also another capabilities like data mining and interpretation because after an increase step up in A&P you have to analyze to understand your final clients. So the there is also the possibility for the group to feed this change. So the possibility for the group to feed this change of paradigm most in terms of the gear the scale of the company and not only in terms of the initiative that visible for the client, but also the internal intelligence, which is - is not cheap. So the cost of doing business in terms of model business model, profit or loss is more rigid. But clearly the pay up - that the payback at this stage, we think for the future will be strong so not only A&P but also OpEx and structuring OpEx.

Simon Hales: Understood, thank you.

Operator: The next question comes from the line of Mitch Collett from Deutsche Bank. Please go ahead.

Mitch Collett: Good morning and I've got questions on A&P as well. So I think Éric, you said in the presentation that 40% of your current A&P spend is digital. I think you just said in the answer that 70% I think is the rate for the incremental investment. And so first of all, can you confirm that I've understood that correctly? And then can you maybe comment on whether or not you get a better return on that digital investment? And whether you find it easy to find places to invest in a way that benefits your brands and then my second question, I guess, is it more of a philosophical one about investing in A&P? When you produce a supply constrained product, I appreciate that you're very much investing for the long-term. But can you talk about how you expect that to benefit the brands going forward, and whether it's going to manifest itself really in, in consistently high price increases, rather than necessarily higher volume growth given the supply constraint?

Éric Vallat: So on point one, I was referring to ATL A&P is made of ATL and BTL. So in fact you're right, it's not 70% of total A&P 70% of ATL. Okay, so really the investment behind awareness and behind the desirability. Now, as to your second question so first, as you may recall of course, Cognac is 72% of our sales in H1. But as you may recall, the 10-year strategy is also meant to leash the potential of Liqueurs & Spirits. And these, particularly because there is no liquid constraint, so part of the A&P focus is also again on leveraging the awareness and the desirability of the Botanist, the opportunities we have for Cointreau in many more markets, given the success of the axis on cocktails. And this is going to deliver volume, we strongly believe. As to cognac your right to say that we are constrained, and we stick to our 2%, 3% volume growth in the future. And as I think you rightly said and if not, that's the way I took it, but clearly, there is also behind the A&P investment we are doing, there is clearly the idea that it will reinforce our pricing power on cognac. And so we displayed and we stick to that 2.3 - 2%to 3% volume growth and a 6% to 8% value growth we are very comfortable with that. And the more we invest behind our cognacs, the more we are comfortable that we can achieve it because as you've seen most of the A&P is focused on the upgrade. So it's focused on 1738 in the U.S., and it's going to be focused on XO in China. And this can contribute substantially to our price overall mix beyond price increases, as well as to the gross margin mix within our cognacs.

Mitch Collett: Understood and just the question on whether you get a better return on digital investment that is traditional?

Éric Vallat: Yes, you're right. So you know, the thing is it's more difficult to evaluate the return on traditional media. So it's not easy to compare. And I would say it's what we get with the digital media even though we still need to improve and that's why that the management is key. But clearly, we get a better visibility on the outcome and the results and the return for sure. Is it better for some of the initiatives we took for sure. I refer to the gaming, we were very positively surprised. The return in terms of conversion rate, as you know, we don't like to look only at the number of clicks or because this is not engagement, we look more at engagement as well. And when you look at engagement on this kind of initiative, it's absolutely striking. So with I would say that with digital, what matters more for me is one, we can tell - we made more who we are reaching very interesting. Two, we can have a better evaluation of the return and three, there is a lot we can test and learn about at depending on what but in some cases, lower cost than in real life. But we will never give up on traditional media either. It is statutory, and it is very impactful. So for me, it's important to make sure that we professionalize even more on digital, that we keep a good and big share on digital but we shall never give up on traditional media, which plays a strong role in building the status of our bronze.

Luca Marotta: Mitch, this is Luca speaking some precision on your first question. Thanks for your question also to try to have a deeper look inside what our A&P what is inside, where we stand 10 years ago where we are now. So let me take three minutes inside the A&P, you have above the line activities classic media, digital, PR and below the line so more direct point of sales, testing, education, human activation, and commando steam. When I joined the Group in July 2013, the split was one-third above two-third below. Now it's the reverse in terms of return, even before talking about figures it can say and clearly understand that below the line activities are important to the brands for some brands more than others, but there is a clear connection with volumes. So, in a shortcut, the more at the above the line journey you are able to perceive to do for a, given company if your product is good, clearly the quality and the product at the end are good are - clearly well connected with the value strategy. Because you get out or the overall volume and you enter in another medium to long-term valorization of the brand supporting at the end, the valorization version to price increase channel management. All of having said that, so now we are two-third, one-third and inside the big increase of A&P, we are clearly increasing faster above and below and inside - the above faster digital then everything. Now it's two-thirds above the line inside 70% of digital 70% of 66 makes the 42, 40 around that we show the overall the global A&P. So you have the connection of figures. But I didn't want to start like that I want to try to explain where we stand before where we are. And why we think that on top above the line increase is accretive to the journey of the valorization.

Mitch Collett: That's great, far more comprehensive as great. Thank you.

Operator: The next question comes from the line of Lawrence [indiscernible] from Barclays. Please go ahead.

Unidentified Analyst: Good morning, Éric, good morning, Luca, thanks very much for the questions three from me as well. It can't help noticing that your targets for 2030 have partially already been hit in these results do you hit your 33% EBIT margin in this first, and I appreciate there's going to be a lot of advertising coming in second half. But also on the gross margin, you're over halfway there in 18 months on a 10-year journey. And historically, your second half gross margins have been higher than your first half. So just you reiterated your 2030 targets but just given the pace that you appear to be achieving them. Do you still see them as being reasonable or are they sort of a conservative estimate? My second question is around your VSOP product you focus a lot on in the slides on XO and you mentioned you're investing on 1738 in America in the U.S.? You still have a lot of VSOP that sold and obviously that takes up some of the volumes that could go elsewhere at their age for a little bit longer. What do you see as the future of VSOP is that a brand that you would expect to sort of decline over time, and perhaps go the same way as invested maybe a decade ago now. And then finally, your net debt is now extremely low, and you are clearly funding your inventory with equity. Because it's potentially not the most efficient use of equity and wondering if potentially, you could be slightly more aggressive on your balance sheet, and if that's something that you would be comfortable doing? Thank you very much.

Éric Vallat: Okay, so I think that we answer in a conjoint manner, so you want to start and I complete on the margin on the 2030, or we start you complete.

Luca Marotta: Please do.

Éric Vallat: Okay so, historically and it's still the same. The yearly results of Rémy Cointreau are linked to a phasing H1, weight and profitability is more in profitability, it is far higher bigger than the H2 there is a couple of exceptions, because you have the China crisis and when there was the gift crackdown and 2013, but normally, it is normal to have in value and profitability, an impact which is far bigger in the H1 compared to the H2. Because even before increasing more the A&P then now, Chinese New Year R&D for the U.S. and many other countries in terms of Christmas activation. The fact that the strategic management of the stock in the Q4 is something which is not totally new to brands that is strong pricing power makes the figures structurally unbalanced. The fact now we are at 33%, 33.2% if you consider even at organic level compared to the last year scope and rate. It doesn't mean that we are able to continue to have this kind of result in every quarter and every semester, because this is the result of a change of paradigm. The fact that investment are stepping up, but we are clearly not yet in terms of the ratio and I repeat in A&P it's very visible, but also in OpEx. So it will be a journey would not be a straight - a straight line journey. And at this stage, we are clearly in advance more in bottom line than the margin compared to our journey in 10-year. So it is very good news. It is increasing our confidence. That's mathematically we don't see any reason to change the guidelines of 10-years right now, because we have to structure even more our investment. On top as we highlighted gross margin at this stage is very positive. But this year, I highlighted that America to, it is alignment of stars, strong rebound, strong valorization, strong price and mix effect on bottom - on top line and bottom line gross margin. COGS that we are fairly positive this year, starting from next year will be a little bit more complicated in terms of inflation cost increasing of the cost component. So, this is not an issue per se, but we cannot mobilize a four or even three points of jump in terms of gross margin profitability every year. So, at this stage 33% and gross margin value of the H1 can't be mobilized - as a starting solid point for the future. It's starting solid point in terms of absolute value, but we will have some up and down following the footprint mainly or the top line and if you remember the year in which our top line will be very, very accretive this year will be special, we'll profit to invest even more. So for the both element I repeat very strong result very promising do not justify to change our journey which is very complicated it will reach 72% and 33% over highest biggest amount of turnover it is not easy. On top changing gear, changes scale makes that for the same profitability at gross margin of bottom line level you will have much more money at the end so there is also a balance between ratios and size from the - top to the bottom so.

Luca Marotta: Nothing more to add.

Éric Vallat: Nothing to add has been very clear VSOP and [indiscernible].

Luca Marotta: So VSOP and [indiscernible] so first you know, we are how to put it everything we do, when we invest on the desirability and the awareness of our cognacs even if it is focused on 1738 like so, it benefits VSOP because VSOP is any way a product which is iconic within Rémy Martin portfolio and where we are the absolute leader. So, we are not crazy of course, and we know that there is a halo effect of our campaigns whose hero is not VSOP but they also benefit VSOP. Second, we removed the $50 threshold. As you know from our overall strategy and VSOP is another product we are very proud of and which is a very key product. So, I do not expect it to become what U.S. has become at least not in the coming years for sure. Having said that, we are lucky to be in a business which is driven by demand which is probably more than the offer in the long run of course, cognac region has planned to plant, but it would take two decades before it delivers full speed. So, we are in a context of scarcity and this we take it as an opportunity of course to grow their share of the upper grades, it is not an intention as such to reduce VSOP the intention is to grow 1730 CLUB and XO and should we be very successful, then indeed, it will have to be at the expense of VSOP. This is typically what we aim at it is not against VSOP it is towards the higher end and this is what is happening indeed. So let's see where it takes us, but clearly, should we be successful as we hope to the share of VSOP will decrease and in absolute value it's difficult to say, but it could be. But the overall mix would improve in such case very sharply and would drive an improvement for sure of the gross margin and the average pricing. On net debt your third question and of September is €300 million clearly is less financing our stock compared to some years ago. It is also the effects of some operation which are not free cash flow oriented like the share buyback and the conventional use and clearly its effect is a low level but in the second part of year you will see that we'll increase also because the dividend will pay in October and all in cash. With the end also the share buyback, but the real question is that increase the debt to do what. So if - we have some additional program, which fits with our capital allocation strategy that Éric highlighted, which is organic. So, if we are able to buy even more and we are trying to find the even other option, we will do it for sure - the market is booming at this stage. So, we are not alone on this competitive arena, we are - more than fair share. We try to increase the more ought to be buying it is the clear first point of capital allocation, increase of debt. In terms of resources at this stage, we are more than enough you see that in the balance sheet in terms of we have €100 million, 99 of the treasury and yes. So, we have more than we need at this stage. So, I agree with your point that it is important to invest more in our opinion. The first capital location which we had to accelerate and we are also very dedicated to that is buying of all the cognac and other aging, aging product and building the capability so increasing CapEx. On that point I have to say that there is a strong will that also the pandemic is not playing a nice role because we have sometimes some difficulties to complete some capital expenditure program or because of not a lack of program, but because there is some physical problem to solve before completing all the financing. So the debt is mathematically low at this stage we might increase if there is a strong opportunity and term of organically we are doing all we can do - to increase the capital location strategic levers, if you want to add something.

Unidentified Analyst: That's great, thank you very much.

Operator: The next question comes from the line of Andrea Pistacchi calling from Bank of America. Please go ahead.

Andrea Pistacchi: Yes, good morning, and congratulations, even on my part. Two questions, please. The first one following up on the supply limitations, how rigid really is this to 2%, 3% volume constraint that you talk about over what timeframe? I say that because you're saying that you're planning to step up of the repurchases? Obviously, you've just said that this is a very, very competitive space, everybody else is trying to do so. But should we think about this 2%, 3% constraint as something that applies over let's say, five, 10 years, but you can still maybe deliver two, three, four years in a row with stronger growth? And the second question on gross margins, please are in the second half I mean, very strong growth in the first half, you said the stars are aligned for this year. When we think of the moving parts of effective gross margin, the second half price mix, still as strong, presumably, less benefit from volume cognac still favorable? How should we think about the second half versus the first half, please?

Éric Vallat: Yes, I think the first one. So indeed, with 2% or 3% volume growth and we shared it as an average for the coming 10 years. And I don't see it change drastically, even though there might be some years where we will achieve more. I think again, what don't underestimate the fact that the more we grow the high end, the more so we need to keep or the visa for longer aging, which is potentially driving far less volume, but much more value. So it's not only a matter of availability, it's also a matter of stock management, and success on the high end, which would be a very good news. Now having said that, we are in such a good position this year that, we are leveling up our game as you said, in a very competitive environment. I think there are two positive factors, but there is also one, which is to which I'm only getting so it's very difficult to answer clearly, to your question beyond what I just said. The positive factors are what one, cognac region is going to extend probably 2,000, 3,000 hectares a year, but we know it takes time than before it delivers full speed, and it's only 2,000, 3,000 hectares a year. But it's potential if you take the next 10 to 20 years it's potentially an extension of the region by one-third more so it's something that is indeed material. Again not impacting the coming 10 years, because it takes time to plant then to produce and then to age. But it's something that when we look at it very long-term, which does matter. The other positive impact is obviously the situation we are in now, which is putting us in a very good place. To add to historical, very special relationship with the wine growers are driven by the fact that matter, was a wine grower himself and we are still a family driven business. And I think we have a unique relationship with our wine growers. Now we are fighting up with on top of that additional financial means more structured teams, which François will help us gain we believe will help us acquire more at the same time. Don't forget that the profitable yield might be less in the future with the more let's say, sustainability practices that can impact productivity can impact for the good. We strongly believe that's why we still believe our value strategy is the right one because whatever we do anyway. We have this trend as well that we cannot totally ignore, and that is preserving the future of our business. So it's early to tell you for sure, we can achieve more on one of two years. We will never do it at the expense of the potential of the high end.

Luca Marotta: Gross margin in the second part of the year will be less accretive in terms of margin expansion. So in a relative value, not in absolute value into three, four element the first one is what I highlighted the compound effect of different price increases, played a huge role for the first six months. And then we try to have a comp which is a little bit less accretive. And on top, the volume effect will be slightly margin less accretive in the second part of the year, because the highest and more accretive in terms of value per bottle and in top line and gross margin will be a bit come down and Q4 to be witnessed in the profit or loss of the H1 next year with on top a new price increase. So we wait a bit to watch the movie and the movie will be even nicer. And then we are taking clearly the inactive account logistics and supply chain element that started to eat the second quarter since July very clearly will be taken to account, and we wait a bit more on marginal level, making that marginal level gross margin will decrease a bit. On top of that, technical elements, but which is not important nearly level. When you have beating expectation, the strong expectation, beating result compared to expectation, all the supply chain is impacted. So, you have some specific costs that sometimes you have to put in place to solve this specific problem. And you have an anticipation of absorption of indirect manufacturing costs that implies a positive impact on the first part of this acceleration. In the second part, when you slow down the volume of manufacturing, you increase a bit the indirect cost part. This is an accounting movement, this change nothing in terms of value, but it can plays a bit in terms of acceleration or deceleration or the marginality of the margin in relative in terms of gross margin. But the thing to retain is that this gross margin is still our first tool to feed the long-term journey of the group. This year at this stage, it was clearly accretive. It will be as well at the end of the year, compared to the previous one, it can be plus four points. So we did set it by really clearly very accretive compared to previous year. And that next year, thereafter would be a little bit more complicated because we have the cost of the liquid that is taken into account. But clearly, it's our commitment to globalization to try to sell any given bottle of our portfolio making that at the end of the sale. We have more money to be invested. So more money in gross margin in absolute value and in relative.

Andrea Pistacchi: Thank you, very helpful.

Operator: The final question today comes from the line of Trevor Stirling calling from Bernstein. Please go ahead.

Trevor Stirling: Hi, Éric and Luca. My congratulations, truly outstanding series. Astounding indeed series of results. I have questions my side please. One is relating to the charter showed where APAC was up 7% on a two year basis. I think you mentioned that greater China can do much more than that. And then travel retailer drag, I want to be able to just say how much greater China is up on a two year basis? And the second one relating to the net carbon zero by 2050 target. Understand that's across Scope 1, 2, and 3, particularly interested in that sourcing at carbon neutrally, you've got to influence 1000s of people to change behavior. That sounds like quite a big challenge. And might you end up having to do that. Yeah. And offset there, that will not be actually carbon neutral themselves?

Éric Vallat: As to greater China, I will answer here. I'm not sure I have the figure in mind.

Trevor Stirling: No, no, I will.

Éric Vallat: Net carbon zero. Just a quick answer there. So indeed we are ambitious and aggressive there. The thing I like to highlight is, if you speak of our wind growers, and I think this was the question and you have doubts of the ability to achieve this carbon neutral target of 2050. First, 2050 still a bit far away. But I can tell you that the thing that struck me the most when I came back to the group, one and a half, two years ago now was how the mindset of our wind growers had changed when I had left the group in 2018, we were trying to convince them to go for a responsible agriculture to work on this label, HBE that we've had for years at our own domain, and we got some response, some interest. When I came back, I saw 50% of our wind growers committed, and now they're 100%. And we confirm our -- so they're already 100% engaged into this HVE process, which is not yet about carbon neutrality also, of course, but you see with the new generation coming up, and amazing interest and a strong motivation on the topic, plus, I think with our pricing power, we can accompany this move, and we can support it and make sure that the acceleration keeps going. As to carbon neutrality for the group, don't forget it's three scopes indeed. One scope is 7%. the two first scopes are 7% scope one and scope two. Scope one is 6%. Scope two is 1%. So the real challenge is scope three. And in the scope three, the biggest share is packaging. It is not at all, or the visa and so on. It's really the packaging. So the big challenge for us is packaging. And here as well, we see -- and it's not relying on nearness. Of course, its glass, it's all the packaging around. So we already removed the boxes from VSOP, and VSOP is eating records, showing that clients are prepared to that. But what is more important is the way we work now with our suppliers. And you can see that everybody is committed. And this is going to contribute and this is 93%. And out of this -- and this 93% packaging is huge. So for me, the biggest game changer is packaging.

Trevor Stirling: Thank you, Éric Vallat.

Luca Marotta: Trevor. Hi, this is Luca. Talking about performance of top line compared to two years ago, pre-pandemic. So we alighted one months ago that we are around plus 27 at the group level. Geographically speaking, clearly, Asia Pacific and Americas were clearly beating this figure. EMEA was declining. In terms of China at all, all different China. It is the double of that, so around 50% and the USA also as well. So, we are beating the terms of China performance, the global performance of the group. We are clearly China and USA related no mister on that. So with over performed on the China as a considering the China Mainland, Taiwan, Hong Kong in Macau.

Trevor Stirling: Thank you very much, Luca. It's great.

Operator: That is the final question on the phone line. So I hand back over to Éric. Thank you.

Éric Vallat: Well, thank you very much, everyone. Thank you for your attention. And I hope you enjoyed our results. We were very proud of this day to share them with you and looking forward to our next encounter for the third quarter turnover results. Thank you very much.

Luca Marotta: Thank you.

Éric Vallat: Thank you.