Remy Cointreau SA
PAR:RCO
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Remy Cointreau SA
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Good morning to you all. We are here today to present the financial results of Rémy Cointreau for the year to 2019/2020. As a non-Executive Chairman, I will present to you the context in which we ended last fiscal year, then Éric Vallat, our new CEO; and Luca Marotta, our CFO, will present to you our detailed results. After that, even more importantly, Éric will describe to you our midterm strategy. Then we will answer to your questions.
Clearly, the last three months of last year, we are very singular. Since the previous centuries, the companies, which make up now the Rémy Cointreau Group, have been through severe crisis, destruction of all vineyards, fire, prohibition was economic presses, epidemics, but not quite as pandemic like the one we are just having now. And then as you can see on these photos, they came in very different locations around the world. Our teams reacted all over to help their communities as much as they could and worked as much as possible to be the most efficient when operation could start again. This is in that context that we ended last fiscal year.
As you know already, our results were down. Sales were down on an organic basis by 11%. Even Rémy Cointreau Group brands were down by 6%. Our current operating profit was down by 22%. Even our current operating margin was down by nearly 3%. And finally, our net profit was down by nearly 32%. Yes, the results of last year show a decrease. But those results are not as bad as they look, and our potential of recovery in the medium-term is very high.
Now I will hand over the mic to Éric and Luca, who will explain to you, in spite of those last year's figures, that we are very confident for our future.
Thank you, Marc, and good morning, everyone. Thank you for attending this call. I wish in the coming months, I will have the opportunity to meet. But meanwhile, I'm happy to share – to take advantage of this call to update you on the business in 2019/2020, and as promised also to share about the strategy in the coming years. I will do this later on after Luca. But let me start by business update. In 2019/ 2020 was indeed a single year, as Marc was saying, that led to a decrease of our total sales by 11.2%, and our group brand sales by 6.3% in organic terms.
Our results have been affected by external factors, among which COVID-19, threats of import taxes in the U.S obviously, geopolitical instability, particularly in Hong Kong. And as we all know, this is not going to improve. They have also – they have also been impacted these results by decisions we took ourselves, notably in the EMEA region, with changes in route to market in Italy, in Spain, in Germany as well as in Czech Republic and Slovakia. A lot of markets, as you can see. We also terminated several Partner Brands distribution contracts whose impact was EUR 56 million in sales, which accounts for almost 5% of our sales. And EUR 56 million sales, this translated into a EUR 9 million CLUB impact, having said that, the CLUB is showing good resilience at 21%.
The gross margin improved by almost three points. This is mainly driven by the refocus on group brands, and we benefited from positive currency effect as well. Part of the margin has been reinvested in sustained strategic A and Bs despite a slowdown in Q4 due to COVID. Lastly, structure cost ratio increased substantially due to lower sales as the savings initiated since February will pay-off mostly in 2021.
Let us now move to the next slide, Slide 7, about the nonfinancial achievements. We could have chosen many, but we chose to focus on three. The first one is that we achieved 100% sustainable agriculture in Cognac with our 900 wine growers now involved in the process of sustainable farming, as a former CEO of Rémy Martin was quite impressed when coming back of how this accelerated. We were below 50%, only 1.5 years ago. So it's a great achievement indeed.
Second, we were ranked number one of EthiFinance, Gaïa rating 2019 among 230 French mid-cap companies. This index, as you may know, ranks companies on their sustainability performance and transparency. And third, we are very proud of our Bruichladdich Distillery, which was awarded the B-Corp label during confinement, by the way. It's a worldwide certification, as you know, that rewards the businesses for achieving the highest levels of social and environmental performance, public transparency and accountability. As such, the distillery joins a restricted circle of 3,200 plus businesses globally, which have implemented a rigorous approach to business decisions by focusing on people and on the planet, in addition to profit. I'm proud to say that Bruichladdich, the first whiskey and gin distillery in Europe to be granted the label. It has been a long process, but it is paving the road for the future. And one thing that COVID thought us is that businesses can do more than just profits. They can have a positive impact. This gives the purpose and contributes to pride, which is a great source of motivation. The impact of the B-Corp label resonates way beyond I like and tell you within the group.
Now let us move to Slide 8, which will tell you more about sales growth by product division. But this slide actually shows you results which I think are not going to surprise you, excluding technical factors. Sales are almost flat for Liqueurs & Spirits and minus 3.8% for our cognacs. The technical and exceptional factors are the termination of distribution contracts for Partner Brands, as explained, and obviously, COVID impact, which we evaluate at EUR 36 million on last year's in sales.
Moving now to Slide 9, the breakdown of group sales nothing really new here, despite a faster decrease in sales than the rest of the portfolio, the House of Rémy Martin remains predominant, obviously. I just would like to comment that the split by region would have been more balanced between Americas and Asia without the pandemic crisis. As you know, COVID impacted China from January onwards, a few months earlier than the rest of the world. And EMEA is obviously impacted by the route-to-market changes that I detailed a few slides ago.
Moving now to Slide 10 which is giving you the breakdown by region, no real news either here. Cognac's business is made the mostly in the U.S. and in Asia, which should not hide the potential to grow in the long run in EMEA and more particularly in Africa and Russia. I would like to stress here the solid performance of our intermediates for Cognac, CLUB in Asia and 1738 in the U.S. in line with the strategy. Liqueurs & Spirits achieved a strong growth in the U.S., which was driven notably by very impactful campaigns that ended up paying, and we are outperforming competition. And PHD whiskeys also enjoy a great momentum, had been enjoying a great momentum for the past few months and are still today. China is showing strong growth, but remains obviously smaller for Liqueurs & Spirits division today. I'll also get back to this later on.
Moving now to Slide 11, the COP, an update on the COP and the waterfall chart which shows you more details. As already mentioned, COP is down 18.6% and 22% in organic terms. We benefited from a EUR 9.1 million positive currency impact notably from the U.S. dollar. But I will let Luca elaborate later on. The volume mix effect is largely penalized by the volumes, which declined 10% for the House of Rémy Martin and 3% for Liqueurs & Spirits, despite a positive mix. And the positive price mix on the contrary is led by the price increases taken in April 2019 and by positive mix – product mix, but mostly market mix.
A&P spend is more or less stable with an increase in strategic investments, offset by tactical cuts particularly in Q4 in Asia Pacific. Others account for EUR 12.6 million, a noticeable amount, that is led by a EUR 9 million increase in strategic distribution costs and the EUR 5 million increase on holding costs, largely related to the reorganization of the Executive Committee. Some cost control measures were partially offsetting these factors. As a result, the COP margin is down 2.5 points to 21%.
Let us now move to Slide 12, the net profit. Net profit, excluding nonrecurring items, declined by 26.9%, and the net profit group share was down 28.8%, but Luca will come back to that more in detail. I will not elaborate here.
Slide 13, so the House of Rémy Martin. Let's move to the division's performance. The House of Rémy Martin organic sales declined by 7.5%, this comes after a record year in 2018/2019 and three years in a row of double-digit growth. In absolute value, sales remained way above historical average track record. Asia Pacific growth has been driven by China, which achieved a double-digit growth despite COVID impact, and enjoyed promising sales in the run-up to Chinese New Year. This has been more than offset by Southeast Asia, economic challenges and more importantly, by travel retail, along with the Hong Kong protest throughout the year. U.S. sales were penalized by the reduced level of inventories carried by U.S. retailers. But the sales in the off-trade since the lockdown have proven their good resilience, particularly our key and iconic products, VSOP and more importantly, 1738. Lastly, in the EMEA region, the good growth in Africa and in the Nordics was more than offset by the weakness of our sales in Western Europe and in Russia.
Moving now to Slide 24[ph]. Just to share a little bit about the marketing initiatives at Rémy Martin, beyond the figures. In 2019/2020, there have been a lot of launches of many marketing initiatives, among which the launch of Tercet, whose positioning is bridging a gap between 1738 and XO, in line with our value strategy. The launch has been monitored very carefully and is driven by sellout to preserve its long-term potential, 2019/2020 actually also saw the launch of the new global campaign, team up for excellence with a great and well appraised event in Versailles with influencers, price teams and partners from all over the world. This campaign enhances our know-how and quest for excellence. Behind every success and individual, there is a collective story and teamwork, which calls for celebration moments and which, by the way, reflects our values.
Moving now to Slide 15 about LOUIS XIII's marketing initiatives. LOUIS XIII has also been very active. The brand launched its second limited edition of the time collection after celebrating the origin in 1874. The limited edition attributes to the city of lights in collaboration with Lamone de Paris, 1,000 years old institution. It refers to year 1900 when – by the way, we trace was present at the universal exhibition, just to reflect its long historical patrimony. But beyond the product and the PR, this innovation has been designed to engage a direct dialogue with our clients who could register to obtain medal from Lamone de Paris, which you can see in the picture.
LOUIS XIII also launched, by year-end, its first owned e-boutique in the U.K. This is the first move in the industry beyond sales. This boutique will increase the visibility of the brand and will help reinforce our understanding of the e-commerce ecosystem. And above all, will enable to engage a direct dialogue with our clients. So as you can see, these two examples illustrate that we trade being one of its kind luxury brand in the industry, is moving forward in all direct-to-client-related activities. LOUIS XIII's unique positioning allows the brand to pioneer direct sales in our industries. It's a fantastic path finder for the group and probably even for the industry.
Let us move now to Slide 16, which shows you the COP waterfall. So COP was down 15.3% in reported terms and 18.2% in organic terms, with a EUR 6.8 million currency gains. Volume mix has been penalized by the 10% decline in volumes, as I said, but the house enjoyed a positive price mix of EUR 10.7 million, thanks to solid pricing and some positive mix driven by CLUB in Asia and 1738 in the U.S.
A&P expenses increased by EUR 1.8 million in the full year, this was driven by the strategic investment in the new global campaign I just described of Rémy Martin, which was partially offset by some tactical cuts in Q4. Other expenses were up EUR 11.3 million in the full year, largely due to an EUR 8 million increase in strategic distribution costs, such as brand ambassadors and private client directors. As a result, the COP margin is down 30.4% to 27.1%.
Let us now move to Slide 17 about Liqueurs & Spirits. So Cointreau enjoyed a robust performance in the Americas, benefiting from sustained A&P investments. The results of Cointreau in the U.S. are a great illustration of a well thought campaign, which can deliver in sales. Another good example by the way of this is in Australia, where the art of the mix campaign was also well executed. A&P spend is – sorry, it's too early to speak about the A&P spend of Cointreau. But just to say about Metaxa, that it's been impacted by travel retail. And route-to-market changes in EMEA in some of its key markets, but this should not hide the product/mix improvements with 12-Star share growing.
St-Remy now, St-Remy, performance was held back by EMEA and Asia, but the Americas, again, delivered a strong and promising performance, thanks to successful marketing initiatives in the U.S. and in Canada. Mount Gay, sales weakness was expected. It is led by the voluntary slowdown in shipments ahead of the gradual restaging of the brand. First feedback in the U.S., which is a key market for Mount Gay, are encouraging, and the liquids have been praised in many competitions. The Botanist now, The Botanist is enjoying its continued growth. It grew strongly and quickly all across the board, confirming its great potential. The brand with strong sense of place and nature is well positioned to keep growing in the coming years.
Lastly, Single-Malt Whiskies benefited from a strong momentum worldwide, particularly in the U.S. particularly. The launch of the new Port Charlotte bottle is very successful and demand exceeds expectations.
Let's now move to Slide 18, some marketing initiatives on the Liqueurs & Spirits. We picked 3 of them. The first one is about Cointreau and the launch of Le Cocktail Show. Communication campaign, which has generated a lot of buzz and which is very meaningful for Cointreau, which is used, as you know, in almost 400 cocktails now. Emphasis is put, obviously on the Margarita, given its awareness, given its success worldwide and knowing that the original recipe was made with Cointreau. Metaxa leveraged a great partnership with one of the top bars in the world, The Clumsies in Athens. This partnership with the strong involvement of The Clumsies themselves, the bartenders, is a great way to create excitement on the brand and truly unique liquid in trade and beyond. I consider it the best practice in the group.
And lastly, The Botanist launched its first real communication campaign called, Wild, A State of Mind. It's a great way to enhance this unique sense of place in nature, and an absolute must to leverage awareness and keep growing as the beauty of The Botanist is that if you taste it, you buy it. And the other beauty is that there are no volume constraints that I'll get back to this later on.
Slide 19 now. So the Liqueurs & Spirits' COP waterfall. COP was down 3.5% in reported terms, and 9.9% in organic terms, with – despite the EUR 2.5 million positive currency impact. The volume mix was penalized by the decline in volumes, even though it was only despite 3.4%. But there has been a slightly positive price mix of EUR 0.7 million, thanks to pricing, while mix was less favorable due to the good performance of Cointreau whose margins are very good, the gross margin, but whose absolute price is less.
A&P expenses declined by EUR 2.6 million in the full year due to tactical cuts in Q4 and other expenses increased by EUR 1.4 million, reflecting some increase in CLUBs for Cointreau, Mount Gay, Metaxa, and the malts. Lastly, the COP margin as a result is down 0.4 points to 14.3%.
Let us now move to the last two slides. I'll be quick here. Luca will elaborate, but not on this one, by the way, he will elaborate more on the whole P&L analysis. But the sales of our Partner Brands – sorry, moving to the next slide myself. I don't think I have. The sales of Partner Brands decreased by 69% due to the termination of sizable Partner Brands distribution, as I explained. In Czech Republic and Slovakia, the impact, as I said, is EUR 56 million. It's in line with the group strategy of gradually refocusing on our own group brands.
And the last slide for this business update for me, and then I will pass the mic to Luca, is about the COP for our Partner Brands. And as you can see, and as I said, the EUR 56 million impact in sales translates into a EUR 5 million impact in COP.
Thank you very much. Luca, the floor is yours.
Thank you so much, Éric. Let's move on to detailed analysis of the financial statements. And let's begin with the income statement as usual. Despite an 11.2% organic sales decline, gross profit showed resilience as they were down 7.3% in organic terms, implying 2.8 points increase in gross margin. This very good performance was driven by the group refocus on its group brands as we terminated a number of dilutive Partner Brands contract as well as a positive leverage from price mix as we continue to take notable price rises across all world regions.
So the 2.8 points overall gain in gross margin splits between a 0.4 point increase for the group brands on like-for-like basis and 2.4 points benefit from the termination of the Partner Brands dilutive contracts. Sales and marketing expenses were flat in organic terms. This reflected an increase in the first nine months of the year, offset by specific tactical cuts in the last quarter, Q4, as the COVID-19 pandemic started putting pressure on the top line.
Within this total, we have to highlight that A&P, advertising promotion expenses, were down 1% organically, and distribution expenses were up 2%. As in both basis, despite cuts in the Q4, we maintained our long-term strategic and important investments. Our administrative expenses grew at 5.7% on organic basis, entirely totally driven by the EUR 5 million increase in holding costs, while other administrative costs were well under control. As Éric said, the increase in holding costs was largely due to the evolution of the Executive Committee. All-in-all, current operating profit declined by 22% on an organic basis and by 18.6% on a reported basis, i.e., after taking into account positive currency effect for EUR 9.1 million.
The next chart is one of the most important of our presentation, financially speaking, is the analysis of the group's current operating margin, which declined by 2.5 points, 250 basis points to 21% over the full year. By the way, these breakdowns into an organic declined of 2.9 points and positive currency effect of 0.4%. There was no scope perimeter effect this year. The organic decline of the current operating margin budget reflects the significant increase in A&P and distribution and other cost ratios, which resulted from the sharp decline in sales, in particular in Q4 while gross margin was clearly up strongly and all along during the year. So indeed, as already mentioned, the gross margin rose 2.8 points, led by refocus on group brands, pricing benefits and market mix gains.
Second element, the A&P expense ratio increased by 1.9 points, 190 basis points, as A&P spend was down 1%, while sales declined 11.2% organically over the period, as already mentioned. And despite that result, some tactical specific cuts in expenses in the Q4, particularly in Asia Pacific. Last but not least, the ratio of distribution structure cost increased by 380 basis points, 3.8 points. Again, due to the negative leverage of declining sales and at the same time, distribution costs up 2% and holding costs by EUR 5 million over the year.
Now let's take a look at the rest of the income statement, the remaining part, beginning with the other operating expenses, which totaled a charge of EUR 19.7 million, of which the biggest part, EUR 18.8 million is linked to a partial write-off of Westland brand goodwill. When we acquired this brand in 2017, the global amount of intangible assets was overall EUR 36 million, of which 10 million for the brands, EUR 10 million, and around EUR 26 million for goodwill. This year, impairment tests over the same horizon, 12-year span, showed that the goodwill needs to be revalued at EUR 7 million. So as a result and impairments of depreciation of this intangible which is a nonrecurring cost for around EUR 19 million.
Finance costs decreased to EUR 28 million in the full year. I'll come back to this on a later slide. The tax rate, tax rate, as already guided two months ago – one month ago, sorry, rose from 29% to 36.3% due to a very unfavorable change in the geographical mix, particularly deterioration of Asia Pacific in the Q4. Excluding nonrecurring factors impacting this specific line, the tax normative, normal rate would have been 33.9%, so around 34%. At this point in time, given the uncertain global tax environment, we think it is reasonable to expect the tax rate to remain stable around 34% in the 2021 environment, so out of nonrecurring elements.
Now let's move to profit from discontinued operation. We recorded EUR 6.4 million net profit gain on the disposal, our Czech and Slovakian distribution subsidiary and that occurred in April 2019. As a result, our net profit, bottom line came in at EUR 113.4 million, down 28.8% year-on-year on a reported basis. But excluding nonrecurring items, net profit came in at EUR 124.2 million, so down 26.9%, and the net margin stand at a very resilient level of 12.1%.
So let's look at the reconciliation table, next slide between net profits, bottom line and net profit, excluding nonrecurring items. Nonrecurring guidance amounted to around EUR 11 million, EUR 10.8 million to be precise, expenses in the full year. The three main elements in reconciliation, EUR 18.8 million goodwill write-off on Westland, which is charged and need to be reversed. EUR 6.4 million gain record on the disposal of Central Europe distribution subsidiary, it's something that need to recharge the other, the other way around, and EUR 2.5 million net tax gains related to the different nonrecurring elements.
Now, let's move the chart, which we will analyze the cash flow generation with debt. End of March 2020, our net financial debt stood at EUR 450.9 million, up more than EUR 100 million compared to the previous year, to be precise, EUR 107.6 million.
Try to make it simple, this was largely due to the lower EBITDA level down EUR 45.6 million, combined with EUR 132 million dividends paid this year. An important generous amount that included an exceptional dividend of EUR 1 per share on top of the EUR 1.65 per share ordinary dividend.
Besides, 100% of these dividends were paid in cash in 2019/2020, while 89% of dividend were paid in shares last year as most shareholders has opted for the script option in 2018/2019.
Now digging into the cash flow statement more in detail, let's start with the total recurring free cash flow, which was EUR 15.7 million free cash flow cash generation in the full year versus a cash inflow of EUR 8.5 million previous year. So a positive delta, even in a very negative according to the global figures here, of EUR 7.2 million on free cash flow. This slide but important improvement was driven by a substantial positive swing in other components of working capital, which was an inflow of EUR 45.9 million this year versus an outflow and negative cash out of EUR 47.3 million last year.
This can be explained by two major factors that we have to remember because next year can be some reverse effect. First one, a phasing effect, previous year, huge finish of the year, this year with COVID and lower net sales. Also a lower level of account receivable and which impact this kind of lines in terms of free cash flow. This is a balancing important effect between the two years, which accounts for half of this variation. And the other side, an increased level of factoring programs towards the end of the year to secure the payment of our receivable in the context of COVID-19 crisis, also to be able to have treasury in a positive liquid position in our balance sheet. If you look, and we will, in our assets, you will find more liquidity available at the end of the year compared to the previous one.
In contrast, on a negative side, mathematically speaking, but on a very positive side, strategically speaking, strategic working capital outflow remained roughly stable versus last year, but a very high level, EUR 119 million, more than EUR 100 million. We continue to buy a greater-than-needed level of cognac, [ph] but which is very important for the future and also did not borrow as much we should have, given the pandemic outbreak in Q4. So it's a combination of increased in barren supplying or the B, mainly cognac and also an increase in stock on finished product because of the slowdown in Q4 linked to the pandemic.
Always on the negative mathematical side, but very positive on the strategic side, capital expenditure increased versus last year, as expected. But we have to say was below our initial expectation. We guided for EUR 70 million to EUR 80 million on CapEx outflow, but we postponed some programs with the pandemic this year. So this figure is slight. Over the next two, three years, we expect now capital expenditure to be between EUR 50 million and EUR 60 million per year. Tax outflows as well increased, which is a clear consequence of the strong profit growth posted last year, which has been paid this year on a cash basis.
So now let's focus on the nonoperating cash flow because the free cash flow was a good one. The non-operating cash flow were a negative EUR 122.3 million outflow in the full year to be compared to a EUR 69 million outflow the previous one. So a negative delta of more than EUR 50 million – EUR 54.3 million. As already mentioned, this negative nonoperating cash flow variance was mainly due to the dividend payments, mitigated by the proceed received for disposal of the Central European subsidiary that clearly the amount that we are talking about are not symmetric.
Beside, last year, as you can see, the cash flow evolution reflects the early repayment of the vendor loan by EUR 86.8 million, and a share buyback for a negative EUR 104 million, EUR 103.6 million. So after this complex, but I think, importantly, the description of the free cash flow and the net cash flow of the year, we can say that our net debt-to-EBITDA ratio stands end of March 2020 at 1.86 a ratio versus 1.19 one year ago, increasing, but still a very healthy level compared to our business model.
Now let's move in a quicker way to the next chart. Our net financial expenses was a charge of EUR 28 million in the full year, down EUR 4.5 million. This reflected, which is important, and additional, once again, EUR 1 million reduction in the gross debt servicing cost. Thanks, clearly, not to the debt because the debt is higher, but to further optimize cost of debt that now stand on weighted average at EUR 1.06 million to be compared to EUR 1.17 million in the previous one.
Remember that three, four, five years ago, we were at 5%. We also to profit from lower other financial expenses that we have to recall that last year, they were burdened by a noncash, nonrecurring charge of EUR 5.2 million related to the early repayment of the vendor loan. Obviously, there was no surcharge in 2019/2020. In contrast, on a negative side, net currency losses were slightly deteriorated this year to EUR 4.7 million, where there were EUR 4 million loss in last year. As you know, this is a volatile noncash charge related to the hedging of the group's non-euro debt.
Let's talk about exchange rates. Classical chart on that. As you – as mentioned earlier, the group reported favorable translation and transaction effects, which had an impact of EUR 9.1 million on COP in the full year. This impact is in line with the original guidance of EUR 9 million to EUR 10 million gain despite the lower-than-expected sales and profit. So the absolute value were less important than it needed. This is entirely driven by U.S. dollar and U.S. dollar-linked currencies strength since our publication last June. But for your information, the only negative transition currency effect was ruble with a negative EUR 1 million.
As shown by the green line, the average euro-dollar translation rate came out of EUR 1.11 million over the full year compared to EUR 1.16 million. As already mentioned, this is positive for the translation of the group sales, which enjoyed a 24.5% currency benefit, totally perfect in line with our guidance.
Meanwhile, the average hedged rate, the red line under our currency cautious hedging policies was EUR 1.16 million the full year to be compared to EUR 1.18 million over the same period of the last year. This is a chart that we started to implement last year. It's important to try to set the tone and the debate for the expectation in terms of ForEx translation, transaction for the next year for your model, assuming an average euro-U.S. dollar budget rate at 1.14, which is admittedly cautious compared to the current export rate, even if dollar is moving up at this moment.
And the Euro-U.S. dollar hedge rate at 1.15. We anticipate guess estimation of the published effect of EUR 20 million headwind on sales and a neutral zero impact on operating profit. The initial impact on COP could split between EUR 4 million gains in H1 and EUR 4 million loss headwind in H2. The top line translation of EUR 20 million headwind. At this stage, we'll be a little bit more on H1 compared to H2, but we can be sure of that because the volatility of the top line, considering the pandemic environment, it's much, much more important – much important than previous year.
Now as Éric reckon that the current spot rate of U.S. dollar is lower. It's closer to 1.12, if I'm not mistaken, more than 1.13. If the Euro-U.S. dollar was to remain around this level, the currency impact could improve bottom line globally versus our expectation. The sensitivity, it's written, vessel citation is the following: $0.01 increase in U.S. dollar currency linked versus euro, translate everything equals in EUR 5 million gains on sales and EUR 3 million gain on operating profit or things alike. At this stage, we have already covered 90%, of our expected net U.S. dollar exposure, of which around 50% in auction.
Balance sheet picture, the overview of the balance sheet is showing that the structure strengthened another year with total asset abilities now EUR 2.79 billion compared to EUR 2.62 billion at the end of last one. This was mainly driven by the increase in inventory, as expected, as explained, and in level of cash to see cash is moving. As highlighted in our press release on April 2, the content of COVID-19, the group cautiously maximized drawing all it means on its available credit lines. Stock rose by EUR 118 million to reach EUR 136 billion end of March 2020 due to the combination of the newly distilled and acquired ODV cognac for 111, so nearly 100%. And a fairly low level of production into vines good for our ODV, given the negative sales outlook.
In clear, given that we do not anticipate much demand, we left our ODV aging, our sellers, which is totally understandable, it's signed with our long-term strategy. Stock accounts for 49%, of our total asset, up two points compared to last year. Net gearing, the group net debt-to-equity ratio increased clearly over the period, up eight points from 24% to 32% due to higher net debt and lower equity. However, it remains at very healthy, healthy level.
Let's move on ROCE, return on employed capital. Ratio declined sharply, 5 points in 2019/2020. This is due to a 4.4 point decline in the group brands ROCE to reach 18.2, and the swing in the Partner Brands ROCE from being very positive and to be now very negative. The lower ROCE for the group brands is due to a negative evolution of both numerator and denominator.
Let's start with the numerator, so the operating profit EBITDA. Both the cognac and Liqueurs & Spirits division recorded a decline in profitability in 2019/2020. So group brands' current operating margin was down 2.6 points to 23.8. And looking at denominator, capital employed for group brands grew by EUR 87.3 million, 7.2%, largely due to the significant increase in aging of the inventories, EUR 111 million as well to the CapEx investment division. Overall, to be simple. We can say that 70% of the ROCE decline was due to the numerator, so the lower profitability and 30% due to the higher capital employed.
Now post closing events. Since the closing of the fiscal year on March 31, the two key events occurred. On April 30, Rémy Cointreau acquired Maison de Cognac Brillet. The House of Rémy Martin will integrate around 50 hectares of vineyards located in Grand and Petite Champagne as well as the cognac brand Brillet within its portfolio, Belle de Brillet, which is a liquor, will join for its part, the group's Liqueurs & Spirits division. So there will be a split of these brands into different divisions. And on May 19, as Éric already mentioned, a very important event, our Bruichladdich Distillery, our Scottish Single Malt and The Botanist was certified B-corporation, which is very important.
Last slide for me. Let's talk about the unit dividend. As already announced on April 16, an ordinary dividend of EUR 1 per share will be put to a shareholder vote at a shareholder meeting on July 23, 2020. The dividend will show a significant mathematical decline versus EUR 2.65 paid last year, but we have to remember, as already said, we included EUR 1 of an exceptional dividend. So the comparison more one year compared to 165.
The group will offer an option to pay the dividend in cash or in share for the entire dividend. In this contest, the group majority shareholders had already expressed a switch to opt for full payment in shares. The dividend cut is part of our responsible civic solidarity measure taken by the group since the beginning of the current sanitary and pandemic crisis. For your technical information, shares will trade ex-dividend on July 28, and dividend will be made payable starting October 1. Overall, total dividend equates to a payout of 40% of the EPS, excluding nonrecurring items and a technical yield of 0.9% on the average share price over the financial year, which was a calculation weighted a little bit more than EUR 117 million – EUR 117.3 million.
Thank you for your attention. I will now hand it over to Éric Vallat for 2021 outlook and very important and sexy strategies.
Thank you, Luca. I try to embody your words as best as I can. But – so for the outlook 2021. First, it's difficult to speak about the outlook without speaking about COVID, obviously. As already explained, we evaluated the impact in Q4, and we gave you the numbers. A lot is written in this slide. And I'm sorry, I'm on Slide 36. I'm not sure you're there. Yes. A lot is written in this slide, and I'm not going to read it. But I would like to say that while the pandemic crisis is human drama, of course, it also gave us the opportunity to gain in agility and progress in risk management and inclusive communication.
COVID has also contributed to reinforce a sense of purpose, inherited from our values, terroir, people and time. Beyond the money, given, I must say, I have been very impressed by the spontaneous initiatives worldwide to support our communities' initiatives from our teams. But also from the Comex and from the Board. So at all levels of the group.
Again, it's a great pride for all of us, and we know how much pride can be a source of motivation again. Aside from this, the focus has been obviously on securing cash and reducing costs, while preserving our strategic investments and ability to grow even faster in the future. We even during confinement, move forward on the new organization and the strategy I'm going to share. So it's been managing short term while, of course, preparing long term.
I am now switching to next slide. Just to be a bit more precise on the outlook itself, even though we have no crystal ball, obviously. But we believe that this year will be a year of two halves, largely impacted by COVID, no surprise here. We anticipate, as you have seen, a better Q1 than what we shared in April, with a decrease of 45% of our sales in organic terms. I recall, we were at minus 50%, minus 55%. This is mainly driven by more favorable than expected consumption trend in the U.S. off-trade, obviously, over the past few weeks, particularly for VSOP 1738, Cointreau and Bruichladdich, actually a big share of our portfolio. As for H1, we anticipate the comp decline by 45% to 50% in organic terms. This is assuming a fiscal Q2 showing signs of gradual improvement, but still in moderate decline.
And lastly, we expect a stronger and a good recovery in H2, largely driven by our two major markets, greater China, mostly in the U.S. with a better resilience. That's it for the outlook. I will now move forward and share about the strategy and the road map for the coming years. I'm trying to do it in 20 minutes, which is not an easy exercise to allocate for time for Q&A.
And I am now on Slide 39. So first, I would like to confirm once and for all that our intention is to pursue the value strategy. This is a strategy I contributed to, myself, to design and implement under the Head of Valérie Chapoulaud as the CEO of the House of Rémy Martin for four years. I strongly believe in it, and this is my culture. So our ambition as a group has not changed. We want to become the world leader of exceptional spirits, and we believe we can, by exceptional spirits, you will see that we do not necessarily mean products beyond $50 even though this still applies for our cognacs and whiskies. We mean high-end spirits for which terroir and savoir faire matter.
And as a result, this product, these spirits are meant to be icons in their categories and to price in the highest tier of their categories. So my presentation will be split into three. The first part will be quick, but recalling the why. After five years, I feel it's important to recall why value strategy is right for the group. The why is the number one driver for the motivation again. Then I'd like to – in the part two, to tell you about the why and – sorry about the how. After five years, it is important to draw the lessons and to learn from our successes and difficulties. What worked and what did not, how can we do even better? We maintain the value strategy, but we will refine it and make it even more efficient, I will explain you how. And then after the why and the how, the what for, there is no strategy with no clear and inspiring vision and ambition. I would like to share with you our 10 years target, financial and nonfinancial.
And now switching to Slide 40. I'm not going to detail – sorry, Slide 40. Yes, that's it. So we have been working on our resort debt, our purpose lately. I'm not going to elaborate here and to read it, but the sentence you have on the slide, encapsulates who we are and what our purpose is. It's true to today and meant to be true for the next decade. This is why it is so powerful. And the good news is that this resonate is an advocacy for our value strategy. So the value strategy is not coming out of the blue, it's determined by who we are.
The Slide 41, I'm not going to detail all brands here. Let me just illustrate with our cognacs given their importance in our portfolio. Liqueurs is unique in the industry. It compares to non. It's a luxury brand, a true one, which resonates beyond spirit. It gives a great competitive edge to lead the exceptional spirits category. I could even say to frame it at some point. At Rémy Martin, because we value terroir, we have chosen decades ago to go for the most sought-after ODVs others from the most prestigious crew in cognac, Grande and Petite Champagne which is what Fine Champagne is made of.
Fine Champagne takes longer to age but also ages longer and nicely. This is why the value strategy is so meaningful for Rémy Martin, while use our ODV and VS, when we can value them more on the upper grades, which edge longer on top of that. Behind every product of our portfolio, there is a rationale that calls for the value strategy. I'm not going to detail them again, but this is why it fits our brands and spirits.
Slide 42. Beyond our purpose and products, the value strategy simply makes sense. Because we have a core family shareholder, we look long term, and we can age our liquid longer to value them more, value it more. Because we value terroir and time because we believe it has a positive impact on the taste and the product itself, we believe it should increase pricing power. Because we craft increasingly sustainable spirits, this should translate into superior pricing. It is more costly, and it matters to our clear clients as well. Lastly, we believe we should benefit from a global consumption trend about drinking less but better.
Now moving to Slide 43, which tells you that on top of that, it works, a value strategy makes sense, and fits us, obviously, but more importantly, the good news is that it works as shown in the chart. It has worked for the industry, and it has worked for us. And I do not believe COVID will change this. The growth potential at the high end remains very strong, and will be driven by China, where our awareness is huge. Clients might be more demanding for the price, this is for sure, but they will keep being keen on buying pricing products, provided they come with the fair added value. The challenge for us will be more to make sure we deliver the right offer at the right place, but the demand exists and will keep growing.
I am now moving to Slide 44. So this is it for the why and now switching to the house. As I said, the value strategy is right. It's even a fact driven by scarcity in the long run for some of our brands. As I said, we prefer to value our ODV stocks more in the upper grades but saying the strategy is right, does not mean we are going to apply only the same recipes. We have now reached a mature phase, and we will refine our value strategy. One key success factor will be the implementation of a real portfolio approach and management. We are not as big as some of our competitors, but by assigning clear roles to each brand in our portfolio, which is tighter than our competitors, we can invest smartly.
And even in a sizable way on the right topics and being sizable in the investments we make matters as well. So the portfolio management is a filter. And by customizing financial priorities by brands between volumes, prices and mix, we will improve our group gross margin even more and increase our capacity to invest on our brands to generate desirability and pricing power. This is what portfolio management is about, but I'm going to dig a little bit more into it. I'm going to give you, in fact – this slide is key to illustrate what we have in mind. I have already spoken of Rémy Martin with sales and we can get back to it in the Q&A.
But let me try to be a bit more specific here with three brands to illustrate what we mean by portfolio management. We have a small and consistent portfolio of brands, but it does not mean that one size fits all. Some brands and products will never justify a pricing of $50, given the category of products they craft. But their gross margins are very good and accretive for the group. They are strategic as much as the products above $50 can be. It is about being more inclusive here. And some brands have a specific mission within the group that call for a dedicated role as well and target, which might not be purely the retail price. I have chosen three examples to illustrate what we've been working on over the past few months.
The Botanist first. The Botanist mission is to leverage a category with no volume constraints. That's its mission for the group. And the gross margins are accretive for the group. So our obsession is not purely retail price-driven as such. Our ambition for debutant is to grow volumes while obviously protecting the margins, knowing that they are accretive. We will invest accordingly and worldwide. So we have ambitious volume targets on the Botanist, and we are not speaking on retail prices.
St-Remy is key because it's the aspirational gateway to grave spirits, which are so important to us, given the share of our cognac business. So it has a mission in the group, obviously. It's a regional power plant, which is leading our portfolio in some markets where it supports our structure, costs and commercial costs. So we will invest selectively and not worldwide. Rather than focusing on the volumes, we will focus on the gross margin here, which is dilutive today through the mix, not only.
So as you can see between The Botanist and the St-Remy, the expression of the value strategy, at group level is very different. Domaine des Hautes Glaces, our recent acquisition, is the path finder of the group. We should not look at the P&L only. We should be prepared to overinvest on Domaine des Hautes Glaces. The impact will be limited at group level anyway, but it will give the brand the opportunity to push even further, the boundaries of sustainability. The brand will become the laboratory of the group. We will test sustainable practices before scaling them up with our bigger brands, and we will communicate more on an amazing business model, which reinforces our legitimacy and which should have a halo effect on the rest of the portfolio.
To summarize, one size does not fit all, and not everything is retail price-related. We look at margins beyond prices and portfolio management; consists in investing more on accretive brands, improving margins on dilutive ones and assigning a clear role and mission to each brand within the group. This is how we will improve our sales capabilities by setting clear priorities and missions.
And now moving to Slide 46. So there we are. So what did I mean by refining our value strategy beyond the portfolio? Refining the value strategy does not mean focusing only on portfolio management, it means much more. With this slide, I would like to highlight three topics: Topic number one, over the past two years, we focused on retail price and wheat trade. This was a great focus at that time, and is still by the way, but to ensure our commitment of all teams on the high end. The good news is that this is now the case, it works, the $50 price point, which was easy and catchy, helped tremendously to create this focus.
As I just explained, through portfolio management, we are building a tailor-made approach by brand. The $50 target remains critical for some of our brands, namely the cognacs and the whiskies. But portfolio management will also translate into aggressive volume growth targets for brands which are relative and have no volume constraints. For them, the challenge will be more on the volume on top of the price. The good value strategy can and should drive volumes, including for Rémy Martin, this product portfolio is large enough to also play a portfolio management at brand level.
Of course, we are not giving up on retail pricing, nor on retrace, but we go beyond the $50 threshold and we look at gross margins to improve the overall profitability of the group through the mix. Point number two, over the past few years, we successfully infused the real-end client culture throughout the organization. We are now implementing a client-centric business model. So it's beyond culture itself. What does this mean? Well, we will move from pure ATL, which is advertising to 360 brand building. We will keep on investing behind e-retail, but we will even go up to having our own e-boutiques, again, beyond the – we started with [indiscernible] in the U.K. and beyond the sales generated, these e-boutiques will have a positive impact on the image of our brands, they will accelerate our knowledge of e-commerce. And they will accelerate the design and the implementation of tools to support and control our e-retail partners worldwide.
And we will leverage the group capabilities to implement and roll out CRM guidelines and tools. So over the past few years, we have expressed our values, and we made – sorry, and I have a third point, which is this one. So over the past few years, we have worked on designing and expressing our values. And we made sure that they are well understood inside and outside. They are very inspiring. The next step is really to embody them even more and to leverage them, and we will turn them into an ambitious sustainability plan, which I will detail a little bit. So as you can see, it's really about continuity and refinement, much more than questioning the past five years. It's the next phase.
So you should not be surprised, and this is my Slide 49, to see four transversal priorities emerge. The first one is obviously to increase the value per case. Looking at the margin on top of the retail price, but of course, also playing on the retail price. Implement a real client-centric model with a great focus on digital and e-commerce, no surprise here. The third one is to increase the value of the Liqueurs & Spirits brands. I gave the example of The Botanist. And the last one is to achieve responsible growth. And as I said, to go beyond expressing our values, but to fully embody them like Bruichladdich just showed us and also Rémy Martin with the 100% responsible agriculture. We will, meanwhile, work on improving our management capabilities. It sounds basic – our portfolio management capabilities, sorry, it sounds basic, but in fact, it requires a great level of execution, and it will contribute to the four priorities I just listed.
I am now moving to Slide 50. To just – I'm not going to read it in detail, but just to share, I think, inspiring and strong ambition on this particular field. We believe, again, it is meaning – very meaningful to us, and as we know how much meaningfulness is important, 100% sustainable agriculture, I mentioned about cognac by 2025, it goes beyond cognac but responsible for me in all our businesses, from the oranges of Cointreau to the viners of cognac. It's about net zero carbon emissions with, as you can see strong ambition, including on Scope 3, which is the most challenging access that we're going to work on, which – by which we target a 30% decrease of the value per case, and 100% of our eco design packaging.
I am now moving to Slide 51. Just to highlight what we believe the five growth engines will be, not that the other brands will not contribute, of course. But the champions of our portfolio we trade, of course, which given its unique positioning, can explore the direct selling opportunity more than any other. Rémy Martin, whose penetration rate can clearly be improved as a category targeting the high end whiskey drinkers, but also as a brand in the U.S. building on penetration and distribution, but also on new territories, digital as well as in China, Tier 3 and Tier 4. And as a brand still, by growing our market share on the high end, we are an absolute leader on viners, and we have room for growth on XO still, which is a great expression of Fine Champagne. Cointreau obviously, leveraging cocktails through the Margarita opportunity, I already spoke about Margaritas. I'm not going to elaborate here, but there are also distribution potential gains in the U.S. The Botanist, I think, I told a lot about The Botanist, and obviously, Bruichladdich distilleries whose positioning is great and whose potential overseas than deniable.
And now I'm switching to the what for, after the why and the how. And we chose to highlight a clear ambition for the next 10 years. On the, let's say, a non-quantitative side, what would success look like in 10 years? Well, we would have a full – we will have a full speed business model for viners, focused on direct sales and breaking the rules of the industry. Point two; we will have an increased share of the intermediates and XO at Rémy Martin. Point three; the Liqueurs & Spirits brands will prove sizable and profitable. Point four; brands will be commanding price superiority in each of their categories. And Point five; 20% of our sales will be made digital.
And I am now switching to my last slide, and then you will have the mic for the potential questions. But from a quantitative standpoint, I think it's clear here. I already spoke about the non-financial ones. For the financial ones, as you can see, we target in 10 years in 2030, 72% gross margin and 33% COP. Again, I'd like to highlight here that this is also taking into account a normative year, which is last year and not this year, which is a very special one. So last year, I remind you that the COP was 23.5%, which probably reassures you of the feasibility of this target that we strongly believe in. And also, again, it's excluding acquisitions; so at constant perimeter, and obviously, also at constant exchange rates for the next 10 years.
This concludes my short update on the strategy and the road map. And I think time has come for the questions.
[Operator Instructions] We will now take our first question. Please go ahead, caller. Your line is open.
Three questions from me, please. Firstly, can you just talk about the phasing of that long-term margin target? Should we anticipate that to be linear? Or have to get more upgrade investment and more in [indiscernible] delivery? That's first question.
And second question; a lot of focus on the high-end part of the portfolio and different number more on the role of the SOPs going forward. Is that a part of the portfolio you're anticipating to grow or maybe not focus?
And third question on the [indiscernible]. How much of the sales today is direct and ready to get that to? Thank you.
Thank you. So three questions. Sorry, I'm just making sure I had them all in mind. Okay. So the first question was on the margin – gross margin and margin improvement. Clearly, it is not going to be linear, and I'd like to make it clear here. It should not translate into a percentage divided by the number of years, for sure. It does not mean that we are not ambitious. A long-term plan does not work if it does not deliver in three years. So again, we are working also on a three and five-year plans that deliver on the margin. But again it will not be linear. This year, obviously is a very special one. And you can expect an acceleration once we have accelerated and cracked the model on the – so again, delivering in three years, but acceleration after once we have implemented the model. Sorry, there was a strange sound that's why I stopped.
On the VSOP and given the focus on the high end of the portfolio, again, I'd like to insist that it really makes sense. Fine Champagne ages nicely. It delivers a better potential of aging. And what would not make sense for sure would be to – sorry, maybe someone could put himself in mute, very noisy. Thank you. Okay. So again, I insist the – it is critical for us. Indeed, not to dispose of our volumes in VSOP and to be short of liquid on the other grades where we value much more and where Fine Champagne delivers even more than other liquids potentially. So this is again the why.
Now coming back to your question, we are proud of VSOP. VSOP is an icon of our brands. And the idea is not in itself, to decrease the volumes of VSOP. The idea is to leverage VSOP to overinvest on the high end and to grow at the higher end. So basically, what it means is that VSOP volumes in the long run, I meant – are meant to decrease at the expense of the upper grade volumes. It's because we will need the liquid for the upper grades. So the number one challenge is to grow the volumes on the upper grades, and this is what we needed to the decrease of VSOP. So in the short-term, we will keep on investing selectively on VSOP, so as to be able to leverage VSOP and to invest on the upper grades. This is portfolio management, again, but applied to Rémy Martin.
And the last point was on sales direct, what's the share of direct sales. I guess the question applies to [indiscernible]. It's developing quickly. If you take China, it's now a sizable share of our business. What's interesting here, it's the fact that it showed a great resilience during COVID, much more than the non-direct channels and it accounts for one-third of our business in China. The growth potential there is huge. I remind you, it's a model we implemented only five years ago. It takes time to build. But there is still a lot of room for growth, whether it's through our private client directors, which are the kind of personal shoppers of the jewelry industry. Why does it make sense for [indiscernible], by the way, I remind you which is €3,000 [indiscernible], which is the price of the high-end watch. And our average price is that of the high-end watches. So with [indiscernible], we can do things, we don't do with others. So the potential is through private client directors, through e-boutiques. You saw we launched our first e-boutique in the U.K. And so through digital – sorry, and through our own boutiques, the resilience also of the boutique and its quick start in April – restart in April in China is very encouraging. I hope addressed your question.
Thank you. We will now take our next question. Please go ahead, caller.
Thank you. Good morning, Marc. Good morning, Éric. Good morning, Luca. I've got a couple of questions as well. Éric, I wonder if you could just sort of follow-up on the last question a little bit around how we think about the delivery of those long-term targets in the nearer term? If we put, obviously, the COVID situation to one side and the impact that's going to have on the business over the next sort of 12 months ago, how do we think about how big a change that you're making in terms of this move to portfolio management? Is it really about evolving the culture and execution internally? Or are there going to be, do you think more substantial upfront costs are associated with that? How do we think about the level of marketing, perhaps over the next two to three years in aggregate, or the need to perhaps reinvest more into certain areas of OpEx? That was the first question.
And then secondly, obviously, you've talked in the short term about improving trends as we move through Q1 of the new fiscal year, driven by the U.S., can you give us a bit more flavor as to what you're really seeing in the U.S. market? Because we're all tracking very strong Nielsen and other data or the scanner data. Is that representative of the sell-through you're seeing at your end? Or should we expect that lower than those scanner data would suggest?
So question one. Well, it’s difficult. 10 years is obviously makes sense for us because we are who we are and because we wanted to show the magnitude of the ambition. Now short-term, more short-term, we are not even able to tell you the lending of this year. So don't expect me to be – to precise here. What I can tell you, referring to your question, about indeed, whether it's more about execution or about upfront investment. First, on the short-term, we are obviously managing our P&L with COVID. If you exclude COVID, it is, of course, about investing, but it is not change versus what happened in the previous years.
I strongly believe in the level of execution. I think portfolio management capabilities is a real game changer for us. Notably in some of our countries and I think that if we highlight, clarify our priorities by brands, by clusters, and we come up with selling techniques, I come from a retail culture, but we shall not underestimate how much it can improve our performance. So the biggest focus will be there on training, on the message and so on. It does not mean we are going to stop on investing. We are going to keep on investing, taking into account the environment. So no specific upfront overinvestment and we will see once the COVID crisis is over, how we catch up. I think this answers your question.
For the more short-term outlook in the U.S. We are expecting – we were expecting minus – so we are – the figures indeed are very good. The figures you get and we get as well. By the way, we are outperforming. We are doing much more than what we expected. Our portfolio is growing 68%, and if you take [indiscernible] statement. And it's even a three-digit growth for Cointreau. So this is very encouraging. We expect Q1 to be at minus 20% in sales, which in a country where you know off-trade accounts usually for 80%. So it shows a good resilience of the off trade, definitely. This is encouraging. But I'm not comfortable in detailing more also because of the recent events that have happened lately. Last week was still very good when you look at sellout. But is this going to last, given the context? I think nobody knows today, we are being cautious. We are managing it day-by-day with a strong focus on the safety of our teams, and on inclusiveness and diversity as a group. We don't want to communicate necessarily on it because it's a political matter, but of course, it's internally a very important matter at group level for us. So this is monitored carefully and I think gives us a bit less visibility on the coming weeks.
Got it. Thanks. Can I just sort of follow-up on the last point on the U.S. just around pricing? I mean I think Luca had indicated that the Q4 sales call that you hadn't actually taken pricing in the U.S. at the beginning of this fiscal year. I assume that's still the case. But are you more confident about taking some pricing now given the resilience that you've seen in the upgrade?
We never intended not to increase, to make it clear. We just felt that from an ethical point of view, discussing price increases with our partners, while everybody was going to lock down, was not really the right approach. But it does not question no challenge, our ambition to increase our pricing later on in the year. I don't know, Luca, you want to add something.
It is something that this year, we made it is also not only U.S., it's more worldwide. So in our estimation, the gross margin evolution for this year, we take into account more mix than price because price is – will be automatically negative compared to the previous year, which need to be taken later on in the coming months, not only in the U.S. The global pandemic situation was not calling in our opinion for increase of facial prices, which do not mean that we will give up on general strategy, as Éric said, and it does not mean that we are increasing promotional pressure as well.
So we do not like the valorization, per se, out of the no price increase. So we will increase price overall, not only the U.S. later in the year. And in the short-term compared to the long-term, to be back to your question in terms of a little bit more granularity, it is not a straight-line journey. So the objectives of operating profits, same scopes and exchange rate at 32%. We did not linear. It would be not straight, will be a little bit lower base for the first year at least because the starting point, mathematically speaking, is a situation right now, even if it's not a normal [indiscernible] year, then gross margin would be as usual. The first lever is so important. We highlighted that. We are taking into account the 6 points. And in that case, this normative year is not 2018/2019, it is 2019/2020 because 2019/2020, taking into account the exit of the long group brands, at least we have only 3% to the percent the tract. So at that point, the starting point is right now 66% to 72%.
Gross margin, first level. Then in the short-term, it could be a bit more difficult because of what's happening, but it will be still be the first driver. And then A&P and operating costs will be a little bit stable, maybe increasing in the short-term, in the very short term because of the top line volatility, but then stronger balance sheet, so we will not. Portfolio management is not investing on a lot of different stuff, little brands, because we want to have a lot of dishes on the same kitchen. It's not that. So there will be no dilution in terms of intellectual effort and not increase of the spend per brand for the sake of the portfolio management, per se, in terms of a quantity point so we'll be very selectively, as Éric said. Every brand is the DNA, and we will spend what is important strategy and what we can because we are also concerned by you by increasing our profitability in the most steady way we can. We are targeting a profitable, sustainable and resilient model to grow for the next 10 years. Why 10? Because its magnitude and the way we are thinking, five which is not enough.
So I hope this help you and have you all to try to cope with the short-term volatility and turbulence with a long-term journey.
Got it. Many thanks, Luca. Thanks, Éric.
Thank you. We will now take our next question. Please go ahead, caller.
Hi, good morning, Éric, Luca and Marc. Got two questions, please. Actually three, if I may. Could you just elaborate a bit more on the transition from e-retail to e-boutique? Just explaining the difference between the two and by e-boutique, are you talking about direct-to-consumer e-commerce business essentially?
Second question is on XO. You're under index in this – in the XO category, what do you think has been the issue in the past and over the next few years, maybe even 10 years? What is your strategy to get your fair share in these price points?
And just lastly, going back to the U.S., on the very strong demand in the off-trade that you've seen, do you think – do you expect this trend towards making cocktails at home to stay once the on-trade reopens? Thank you very much.
Okay. Thank you. E-retail, e-boutiques, so indeed we consider e-commerce as a whole ecosystem. So e-boutique is not meant to replace e-retail. E-retail is when we sell to some of our clients who sell digital or when we sell-through a specific e-retailers. You also have marketplaces. So it's a whole ecosystem. We are already doing great in China with e-commerce, and it is mostly D2C indeed.
Now why did I speak about e-boutique? E-boutique is probably going to be anecdotical for a while in the sales, but it is a fantastic image lever. It is going to increase our visibility – digital visibility while we invest less than our competitors because we know that the first motivation for people who look for names on digital, it's because they want to buy. And we prefer them to follow at least on our website where the image is good and so on. So it is going to increase the visibility of the brand. But again, we are also going to learn a lot from this e-boutique, and we are going to acquire a database of clients, which is critical.
So I don't see it at all as a competition to the rest of e-retail or other ecosystems, which are also worth it and which we're working on. I see it as a complementary approach and same for our wholesalers, by the way, this has become now – I consider it one more service we offer to our clients. This reminds me when we had Vito, when we first launched e-boutique. Our store manager were afraid of the competition. But in fact, no, it's a complementary tool. That's how I see the e-boutique. It does not fit all our brands, but for viners, it's perfect. And XO – XO, indeed, we are under – we are underrepresented, while we have a great product. So the first reason why I believe we have potential for growth is we have a fantastic product.
If you don't have the product, there's not much you can do. If you have a product that tastes well, there's a lot you can do. And I think it will help – XO will benefit first from us speaking even more of our terroir of Fine Champagne, which is making us so specific. XO is the best expression of Fine Champagne. I think XO will also benefit from a greater focus from our teams worldwide, focus was on we trade, and we are going to keep focusing on viners. But we're also making XO the focus. It's a very important topic for us. And we do have a fantastic opportunity there. It is going to be through better spend, also more spend on XO. Again, the beauty of portfolio management is not necessarily that you're spending more, but you're meant to spend better because you know where your priorities are. I think this is where we can progress, and XO will benefit from this portfolio management approach.
Now I'm not going to detail more for obvious reasons, but I hope you appreciate the level of confidence on XO. It's going to take time, for sure, but it's a no-brainer in the long run. XO is a brand in itself on top of that. Beyond I mean, Rémy Martin and as we have a brand. I mean XO in itself is a very strong brand.
Lastly, about the U.S., is consumption at home going to continue after lockdown and the reopening of on trade? I don't know. I believe, yes. To what extent? I don't know, difficult to appreciate. But I believe indeed that some long-lasting habits have taken place. This is what we hear from our clients. We ourselves have been animating this a lot, as you can imagine, our teams have been very proactive in animating consumption at home with our ambassadors, live sessions and so on. This proves to be to work incredibly well and to increase our reach. So ourselves, we are going to continue invest on it.
And for sure, there is some kind of habit that has accelerated. I would say two things have accelerated and we'll keep going. At what pace? I don't know. Is it going to reduce or keep the same pace? I don't know, but one is consumption at home. And the other one, particularly in the U.S., is the sensitivity to digital. I think now our distributors, the whole chain, everyone, has realized that digital is also part of our future. And this is going to help us in our strategy.
Thank you very much, Éric.
Welcome.
Thank you. We will now take our next question. Please go ahead. The line is open.
Hello? Can you hear me?
Yes.
Yes, hello. Couple of questions, please. Firstly, on the 10-year plan in terms of the development of margin. Within that, in terms of your sales and distribution network that you have, which sort of markets are you making big incremental bets in? You talk about targeting the premium whiskey drinker for your sort of intermediate XO and above portfolio, which market should we expect you to up-weight investment? And then secondly, you set these ambitious 2030 margin targets. How are you linking management remuneration into the achievement of those targets? Thanks.
Okay. I'm not sure I am going to answer your second question. Sorry about that. But obviously, we have long-term incentives at Rémy Cointreau like many of groups similar to us that will play on this. But your first question, indeed, I spoke a lot about the brand and not so much about the market. It won't be a surprise for you that our two key markets will be two strong drivers of the growth, for sure. I don't like to answer globally because this is not exactly the way it works. But for instance, if we speak about XO, China, is make it our market for sure. If you speak of The Botanist, there is a growth potential worldwide. But coming back to the markets, U.S. and Asia and China will be the stronger growth engines. And then we have some markets where we have room for growth, for sure. If you take Russia, Africa. But there will be – their contribution will be less in the total, of course, given their size today.
Thank you.
Thank you. We will now take our next participant. If you will please state your name before posing your questions. Your line is now open. Thank you.
Good morning, Éric and Luca. It's Trevor Stirling from Bernstein. Three questions from my side, please. First one, Éric, you're coming back to the question of markets and particularly the House of Rémy Martin. Clearly, it looks that everything is in pretty good shape in Mainland China with double-digit growth, but it also looks like the U.S. has a lot more work to be done. Could you perhaps just expand a little bit on where you think the opportunities and the priorities are in the United States for Rémy Martin, both VSOP and XO?
Second question for Luca. Luca, you have said that we should probably expect tax rates this year to be broadly in line with F 2020. But in the longer term, how quickly do you think tax rates can come back towards where we were in F 2019 towards that 28.5%?
And the third question, probably the most difficult to answer. If we're thinking about F 2021 operating profit, would it be crazy to dream that we might end up similar to F 2020? I appreciate there's very many, many moving parts. But is that a realistic possibility?
Okay. I'm going to take the first question, and then I'll give the mic to Luca. On the markets and more specifically, the House of Rémy Martin. So as you said, Mainland China is expected to grow and to grow rather steadily. It's mostly China itself, by the way. And one driver of the growth beyond XO, which I mentioned, is, I believe, also the fact that consumption would be more and more made in China by the Chinese. I think it's something other luxury groups might share as a view. But we believe that the China market itself will grow more than Chinese tourism, which is totally impacted now, but even in the more longer run.
So our business in China should benefit from this, a brand like Brexit, for instance, can clearly benefit from that. If you speak about the U.S., again, I think we should not underestimate portfolio management capabilities, U.S. market is our number one market. It's a market where most – our brands are present and are sizable. So it's where the challenge of portfolio management is the highest, and it's where if we come up with clear priorities, great training, right tools, there's a lot we can leverage for sure. And this applies to the portfolio of Rémy Martin itself.
Then as I said, we believe in VSOP, we are proud of VSOP, and our intention is certainly not to keep VSOP. So we will have some targeted spend on VSOP, whose volumes are key for us to invest on the higher end. But again, this is short term. If you ask me in the next 10 years, the growth will be driven mostly by the upper grades. We have very encouraging results on 1738, which is sizable now. We've just launched Tercet and we have XO, which will be a focus. So growth will come from these layers. And then obviously, there are a lot of tactical opportunities, whether it's geographies, some states where we can gain more presence as well as some communities.
And Luca, if you can answer.
No. Ask to answer the second and third one in the tax rate. Tax rate in the short-term guidance is flat. In more medium term, it's very complicated and it's crystal ball question. But trying to imagine what will be, knowing that a lot of variables linked to the needs for the countries so to finance also what's happening right now is the pandemic before. We should have, in the next coming years, a decrease progressive decrease of the tax rate only and if only – one of the biggest countries, which is important for us, our main country in terms of localization, France will reduce its corporate taxation. It is planned right now, 34 this year, 2019, 2020, 32 in 2021, 2021, and then 28 in 2026.
I'm rounding that because it's not the way that I'm rounding year after year. But we don't need to be – to remain to be actual. Otherwise, knowing the impact of the French corporate tax on our operation because corporate tax are based not on consolidated count but on local account. Clearly, it will be impossible. The switch we are witnessing right now in China home, it's very positive on a business level, operating profit is not so positive net result. China taxation rate is 25%, but is a fashion transition rate because then with other permanent differences, it's comparable to French tax rate.
So the switch between the rest of Asia and China is dilutive in terms of net result compared to the previous mix. So French tax rate is very important. And business in the U.S. as well because it has lower concession and the average of the group. So we target to decrease that, but it's not 100% in our end.
And for the other – for the other question, which is the consensus 2021. We are okay. I think that the consensus makes sense. They are to consensus, which is a very modest decline then when you say, we can dream. I dream a lot every night, but then I don't know if I agree more so to have a huge deal and other things I cannot detail right now. But as dreams that maybe sometimes are realized, sometimes not, maybe we realize that. But at this stage, I think that the consensus makes sense. We are okay with it. But once again, we can't bet on the short-term situation is very volatile, can change one week or the other for many factors, which do not depend on our action decision and execution.
Thank you very much, Luca and Éric, very clear.
Thank you. We will now take our next question. Please state your name before posing your questions. Your line is now open. Thank you.
It's Laurence Whyatt here from Barclays. A couple from me. Firstly, you've made it very clear that the growth expectation should be coming from the higher end of your products. I was wondering what effect that will have on your A&P spend going forward. Usually, we see that the higher-end products require an increase in marketing spend as a percentage of sales. And I'm wondering if that's your expectation as well as we look forward for the next 10 years. And then secondly, a couple of key markets, notably, travel retail and Hong Kong are facing some quite seismic changes at the moment. And I was wondering what your expectations for those two markets, in particular, are as they relate to your long-term plans? Thank you very much.
Thank you. So to your first question on the high end of our products, I'd just like to make it clear that it's not the only focus. And part of the portfolio management strategy is precisely also to focus and grow on brands where the price is not necessarily the highest, but the price well versus their category, and they deliver good margins. And this is what I call looking beyond purely pricing. So we are going to invest on the accretive brands at group level, not necessarily on the high end. Of course, it includes the high-end brands. But it's a bit more, let's say, settle than just this to make it clear.
Then your – there will be – that will not be, as was said already, but specific, huge increase in spend. The portfolio management is giving us a filter to invest more – on more targeted topics and in more specific markets. I think probably one thing that we are going to improve is rather than assigning the same target to every brand in every market. We are going to select markets for the brands. We are going to be a bit more selective in our investments. So we will invest more in some topic, which includes the growth engines that we shared in the presentation. But overall, we will invest according to sales as well. Probably have some years of investment. But again, we want to deliver – to start delivering not in 10 years.
Otherwise, it doesn't work. For travel retail in Hong Kong, travel retail, it's very difficult to say. I think it's – it can change quickly first. I think we should all be very humble in our assumptions. I have no crystal ball either. The discussions I have make me think that we can expect a recovery from, let's say, between summer 2021 and 2022. Will this recovery will completely full speed? I don't know. But we will need to monitor. We expect a partial recovery from September, but partial, very partial.
We already see some lines that are reopening in Asia. One interesting discussion I had was that we might be moving in the long run from less corridor business, so intercontinental flights, which call for long shopping sessions in airports because the flights are long themselves to probably more regional flights, bubbles, which might lead to a bit less spending because the flights are shorter. But it's very difficult to say. Timing-wise, again, next summer 2021 or beginning 2022 back to, let's say, hopefully, the new normal. And for Hong Kong here, I don't know.
The latest developments make us very cautious. I think that these are not good news in the long run for Hong Kong. In the past decades, we like to say that Hong Kong was dropping very quickly and sharply and recovering very quickly. I don't think we can expect this time, but I cannot say much more. We've taken the hit already mostly this year, but it is not going to improve.
Understood. Thank you. And maybe just as a follow-up. I wonder if you could just give a quick characterization of the current state of the Chinese or Asian markets as we further come out of lockdown, sort of what's the – what are you seeing in the restaurants and the on-trade and the KTV bars?
Yes. Sure. Well...
Sorry. And then – that's Luca. And then when Éric asked to do that, I will precise one point on your first question because I think you are making – there is a misjudgment in the mathematical logic of your question. So I will try to clarify that.
Okay. So I'm not the expert in mathematics. So I’ll let…
Not you.
I know.
That is a mistake in my opinion.
No. So to your question, honestly, we see good news in China and earlier than what we would have expected. We can now say that 100% of the bars and restaurants and even clubs have reopened in Guangdong, which is a key region for us. People are not even wearing masks anymore. And the last weekend, they were very busy. So this is encouraging for sure. And this applies to Shanghai. So it's not all across the board in China, some regions are still 70%, 80% reopened, but Guangdong has fully recovered. Now business-wise, how does it translate? It's a bit too early to say. And as you know, we have a number of tiers. But clearly, this recovery is a bit earlier than expected. It's coming a bit earlier than expected. Maybe, Luca, if you want to elaborate on your...
Yes. Your question, if I'm not mistaken, was the fact that you're highlighting that is the high end of your project or your high end of the range of products will need on the medium to long-term and increase in A&P that will impact your profit and loss also in the mid to long-term, increasing the rigidity, the A&P spend and the impact on bottom line, if I'm not mistaken.
Yes, fair enough.
Is fair enough?
Yes.
Yes. So my question – my answer is the same as Éric with some point of citation, mathematically speaking. These kind of products had a big potential of development in terms of net value per product, per case and globally in terms of return on investment. So even if in the short term, you might have an increase in absolute value and dilution bottom line in a theoretical segment, profit and loss for the high end, in the very short term, much before the 10-year span, you'll have a return because you have a leverage it's a little bit more complex for mature products like for instance, Cointreau, in which big awareness increasing consumption, which to put additional spend and the top line in terms of net average per bottle is not moving the same faster.
So the return on investment makes that in a very quick time if our spend is strategically well executed, send back repayment because the margin profit will be higher than before on this specific segment, profit and loss, meaning that the A&P was spending on this flexible with the positive elasticity product will send back a positive hallow effect on the global profit arose. So if our A&P investment are worth doing it right, well done, the payback will be much quicker on the high end than the mainstream using an uncorrect word range. It is short, very short-term impact, not a medium. The opposite in medium is accretive to the bottom line.
Thank you very much for the clarification.
Thank you. We will now take our next question. Please state your name before posing your question. Your line is now open. Thank you.
Yes, good morning. This is Richard Withagen from Kepler Cheuvreux. I would like to ask two questions, please. First of all, you talked about digital. What changes to the organization are you implementing to accelerate in this area? And could you talk about the investments required? And then the second question is on the Liqueurs & Spirits brands. How do you plan to differentiate the liquors and spirits brands to be able to command price superiority? And what are more fragmented spirit market segments with a much wider choice of alternatives for consumers?
So digital, digital is going to report to – we changed the organization with a new International Markets Director with Laurent Venot, who will take his position in April 1st. I believe that e-commerce – so there are two things in digital. One is communication, which is brand-driven mostly, and one is e-commerce.
Today e-commerce was reporting to the brand side. I believe that if we wanted to work and be sizable, it works better if it's reporting to the head of the markets. Because it's managed by the markets and because it's a commercial topic. So in terms of organization, we are going to hire someone who will join as a manager of e-commerce worldwide. And who will drive initiatives worldwide and who will report to this Head of Markets from April 1, once appointed and I believe this can really help us change things.
The challenge in e-commerce then is managing prices and managing the – who we sell to and so on. But that's where I believe that it's something that could not exist before because we have no Head of Markets. But with the Head of Markets, we can ensure the level of consistency of pricing worldwide, which is very important. And I believe that and that's why I created this position, but it's a position we needed in the organization. That's fit for digital – for liquors and spirits.
So again, to make sure it's fully understood, my portfolio management view leads to potentially maybe easing the price pressure on brand like The Botanist funds. It's already well priced. If you look at it, it's in the – already in the high end of its category. So the challenge for me is more on volume than pricing. And – but we're already priced there. We already have a good pricing. We already have the great margin.
So I strongly believe that if we manage to control margin and prices while activating the brand, given its very strong positioning, strong sense of place in nature, which is a growing concern, we can really leverage it. And for each brand, I could give you a specific answer, which I'm not going to do here. It's not the purpose. But if you take e have some issues in some, we have some issues in some markets, but its price positioning is good, too. And the challenge is more how do we increase the awareness? Or do we increase the occasion or make it clear what the occasion is for Cointreau? This is the main challenge, for instance.
And the latest campaigns are proving incredibly efficient. Our growth in the U.S., and we are gaining market share for Cointreau, is stunning. It just shows that it doesn't work overnight. You need to steadily invest and it ends up paying for sure. Again, I am not going to detail by brand. I don't think there is an overall answer to that. But obviously, in the portfolio management strategy, we have a plan per brand, which is maybe the biggest difference compared to before. We are prioritizing markets by brand so that we can be sizable in the markets we invest on. We don't want every brand to be everywhere.
Thank you.
Thank you. We will now take our next question. Please state your name caller, before posing your questions. Thank you.
Good morning, gentlemen. Fintan Ryan here from JPMorgan. Two questions for me, please. Just following on from the last question on Liqueurs & Spirits. How would you see the 33% group margin by 2030 coming out between the cognac business and the Liqueurs & Spirits? And in the midterm, I guess, would your ambition be to accelerate Liqueurs & Spirits from the low single-digit growth that we've seen historically up more towards Comex mid- to high single-digit growth ranges?
And secondly, just in terms of your overall portfolio, do you see scope for either further acquisitions to fill some gaps? Or conversely, maybe would you consider some noncore disposals?
Okay. On Liqueurs & Spirits, I'll start with cognac, but I don't think you'd be surprised here, but our ambition and vision on cognac is to grow volumes by 2% and EBITDA value by 6% or 7% with an impact of the mix. So basically, as you can imagine, it means that contribution in 10 years will be above the 33%. For the liquors and spirits, our ambition is to grow quicker than cognac, starting from a lower base. And again, with a new and renewed focus on some key brands, not all of them everywhere, again, with a selective approach. So this is what I can tell you about your first question. I think you had a second question, but I forget it, I'm sorry. No.
The M&A.
M&A, yes. Thank you.
Scope M&A. So acquisition or disposal.
Yes. So the only thing I can say here is that I'm happy with the acquisitions that have been made. I think they are very meaningful for the group, but we shall not underestimate as well what it takes to develop them. And I want to make sure that we make them all success, and this is our number one priority. What it says is that acquisitions are not our number one priority in the short term. Even though we are not crazy and given the context we shall look at opportunities, obviously.
And what opportunities, well, obviously, a champagne brand would make sense in our portfolio and everything that calls for terroir, people and time and which embodies our values would really make sense as well. It is not a top priority. It does not prevent us from being tactical. And there might be opportunities in the months to come. For disposals, I believe, as I said, I've been – we've been working with the team in making sure that every brand has a mission for the group. Again, I'm not talking of their mission statement for the clients, but the mission for the group. And honesty, I believe everyone has a role to play. So let's make it successful. That's our number priority.
Great. Thank you very much.
We will now take our next question. Please state your name caller, before posing your questions. Please go ahead. Please go ahead caller, your line is open. They seem to have stepped away. There are no further questions in the queue at this time. I will turn the call back to your host.
Okay. Well, thank you very much, everyone, for having listened. Very happy to have spent these two hours with you, looking forward to meeting face-to-face, one day, hopefully, and wishing you a good day. Thank you very much, everyone.