Gruppo Campari announces 2017 nine months results

Continued positive results in nine months 2017

 

Sustained organic performance driven by a continued improvement in sales mix

thanks to the consistent outperformance of global and regional priorities[1] in key markets

 

Concomitantly, the disposals effect and adverse currency impact start to come through

 

 

9M 2017 RESULTS HIGHLIGHTS

  • Sales € 1,275.8 million (+8.1%, organic growth +6.2%). Global priorities +7.4%, regional priorities +13.5%

  • Contribution after A&P € 522.3 million (+11.4%, organic growth +7.7%, 40.9% of sales)

  • EBITDA adjusted[2]299.3 million (+9.8%, organic change +6.3%, 23.5% of sales)

  • EBIT adjusted2 € 257.3 million (+9.9%, organic change +5.9%, 20.2% of sales)

  • Group pretax profit adjusted[3] € 224.6 million (+22.3%). Group pretax profit: € 238.2 million, +81.1%

  • Net financial debt € 1,079.8 million as of September 30th, 2017, down from € 1,192.4 million as of December 31st, 2016[4]. Reduction driven by the healthy cash flow generated by the business and taking into account the inflow effects from the disposals of the Chilean and French wineries and the Carolans & Irish Mist brands, net of the outflow effects of the Bulldog acquisition, the dividend payment, the liability management transactions and the purchase of own shares

     

Bob Kunze-Concewitz, Chief Executive Officer: ‘We delivered very good results in the first nine months of 2017, delivering sustained growth, both in organic and reported terms, across all performance indicators. The sustained gross margin expansion, which benefitted from the continuous improvement of our sales mix by brand and region, helped contain the progression of A&P and SG&A investments, albeit gradually normalizing during Q3, as expected. These effects led to a slight margin dilution in organic operating margin in the first nine months. Looking at the remainder of the year, our outlook remains fairly balanced and unchanged. Macroeconomic environments in some emerging markets remain uncertain whilst the political uncertainty persisting in some regions might continue fuelling the volatility of major currencies against the Euro.Nevertheless, we remainconfident in achieving a positive performance across key indicators for the year, driven by the outperformance of the high-margin global and regional priorities in key developed markets. We expect the gross margin to continue benefitting from the favourable sales mix despite being penalized by inflationary effects on material costs in emerging markets as well as rising prices in some raw materials, particularly agave, which is set to rise significantly over 2018. Meanwhile, the Group’s operating margin will benefit in Q4 from the gradual normalisation of A&P investments and structure costs, the latter also benefitting from the expected efficiencies generated by the Grand Marnier head office integration as well as the completion of the strengthening of new route-to-market capabilities. The perimeter effect will reflect our exit from some non-core low-margin businesses, with an estimated negative effect of approximately € 25 million on net sales and € 10 million on EBIT in Q4 2017 and approximately € 50 million on net sales and € 15 million on EBIT in full year 2018, when it will take into account the tail-end of the 2017 disposals and the full year effect of the sale of the Lemonsoda business.Moreover, the adverse impact of exchange rates, driven by the progressive strengthening of the Euro against the US Dollar, is expected to have a negative impact of € 30 million on net sales and € 6 million on EBIT in 4Q 2017; and a negative impact of € 30 million on net sales and € 10 million on EBIT in full year 2018[5]. Finally we expect financial indebtedness to further decline by the end of 2017, reflecting the sale of non-core business and real-estate assets alongside the continuous healthy cash-flow generated by our business.’.

 

Milan, November 7th, 2017-The Board of Directors of Davide Campari-Milano S.p.A. (Reuters CPRI.MI-Bloomberg CPR IM) approved the additional financial information for the nine months ended September 30th, 2017.

 

CONSOLIDATED P&L FOR THE FIRST NINE MONTHS ENDED 30 SEPTEMBER 2017

 

9M 2017

€ million

9M 2016

€ million

Reported

change

Organic

change

Forex

impact

Perimeter

impact

Net sales

1,275.8

1,180.4

+8.1%

+6.2%

+0.3%

+1.6%

Contribution after A&P[6]

522.3

    468.9

+11.4%

+7.7%

+0.2%

+3.5%

EBITDA adjusted2

299.3

272.7

+9.8%

+6.3%

-0.1%

+3.6%

EBIT adjusted2

257.3

234.0

+9.9%

+5.9%

-0.2%

+4.2%

EBITDA

337.5

245.0

+37.8%

     

EBIT

295.5

206.4

+43.2%

     

Group pretax profit adjusted3

224.6

183.7

+22.3%

 

 

 

Group pretax profit

238.2

131.5

+81.1%

 

 

 

 

RESULTS FOR THE FIRST NINE MONTHS 2017

In the first nine months of 2017, Group sales totalled 1,275.8 million, showing an increase of +8.1%. The organic sales growth was +6.2%, driven by the strong organic growth of high-margin global priorities (+7.4%) and regional priorities (+13.5%). The exchange rate effect was slightly positive at +0.3%, after a negative impact in the third quarter, driven by the progressive strengthening of the Euro against many of the Group’s key currencies, including the US Dollar, Brazilian Real, Jamaican Dollar, Argentinean Pesos and British Pound. The perimeter effect of +1.6% was driven by the combined effect of the Grand Marnier acquisition, consolidated as of July 1st, 2016, the termination of some distribution agreements and the sale of non-core businesses such as the Chilean and French wineries and Carolans and Irish Mist brands. The acquisition of Bulldog London Dry Gin (which closed in February 2017) did not produce any perimeter effects as the brand was already integrated into the Group’s distribution network.

Advertising and Promotion spending (A&P) increased organically by +13.5% to € 247.1 million, at 19.4% of sales, due to accelerated A&P investments, though showing a normalising trend in the third quarter 2017, a high seasonality quarter of the year for aperitifs.

CAAP (Contribution after A&P)was up organically by +7.7% to 522.3 million, at 40.9% of sales.

Structure costs, i.e. selling, general and administrative costs, were € 265.0 million, at 20.8% of sales. The organic increase was +9.5%, due to the strengthening of the Group’s commercial organisations, particularly on-premise capabilities in US and the newly established route-to-market in South Africa, Peru and GTR in the first half of the year, followed by a gradual normalisation in Q3, benefitting from the gradual release of efficiencies from the restructuring of Grand Marnier supporting functions.

EBITDA adjusted was up by +9.8% to € 299.3 million (+6.3% organic growth), at 23.5% of sales.

EBIT adjusted increased by +9.9% to 257.3 million (+5.9% organic growth), at 20.2% of sales.

Operating adjustments were positive by € 38.2 million, mainly driven by the capital gain on Carolans Irish Mist disposal of € 50.0 million, more than compensating the transactions costs as well as restructuring projects.

EBITDA reached 337.5 million, at 26.5% of sales.

EBIT reached 295.5 million, at 23.2% of sales.

Net financial costs were € 29.7 million, down by € 20.7 million.

Negative financial adjustments amounted to € (24.6) million due to the liability management transactions[7].

Group pretax profit adjusted3 was € 224.6 million (+22.3%). Group pre-tax profit was € 238.2 million, an increase of +81.1%.

Net financial debt stood at 1,079.8 million as of September 30th, 2017, down from € 1,192.4 million as of December 31st, 20164. The reduction was driven by the healthy cash flow generated by the business and taking into account the inflow effects from the disposals of the Chilean and French wineries and the Carolans & Irish Mist brands, net of the outflow effects of the Bulldog acquisition, the dividend payment, the liability management transactions and the purchase of own shares[8]. Cash inflows from the disposals of the Lemonsoda business and real estate assets (expected to close during the fourth quarter of 2017) for an overall amount of approx. € 117 million[9] were not included in the net financial debt as of September 30th, 2017.

 

ANALYSIS OF CONSOLIDATED SALES FOR THE FIRST NINE MONTHS 2017

Looking at sales by region, the Americas (44.5% of total Group sales in the nine months of 2017) posted an overall change of +15.0%, with an organic growth of +6.8%, an exchange rate impact of -0.1% and a perimeter effect of +8.2%. The US, the Group’s largest market, accounted for 27.5% of total Group sales. In that market, sales registered a positive organic performance of +4.2%, despite the slowdown in the third quarter due to hurricanes which impacted the whole portfolio. In the nine months, growth was driven by the Wild Turkey franchise (+6.9%), the Italian specialties, particularly Aperol (+57.7%) and Campari (+16.8%), as well as the Jamaican rum (+11.5%) and Grand Marnier (+14.9%). Espolòn continues its very strong double-digit growth momentum. These results were partially offset by SKYY, due to a negative performance in the third quarter, affectedby hurricanes in two key states for the brand, Florida and Texas, as well as the continued competitive environment andweakness in the flavoured vodka category. Sales in Jamaica (4.3% of total Group sales) registered an organic change of +11.5%,driven by robust results in the rum portfolio, in particular Wray&Nephew Overproof (+8.9%) and Appleton Estate (+5.8%), as well as Campari (up by double digit). Sales in Brazil (3.3% of total Group sales) registered an overall organic sales increase of +12.4%, favoured by an easy comparison base (-11.8% in 9M 2016). Whilst macroeconomic conditions remain fragile, the Brazilian brands as well as Aperol and Campari grew positively. Sales in Argentina (2.2% of total Group sales) registered an organic increase of +8.8%, thanks to a strong growth in the third quarter. Over the nine months SKYY Vodka, Cynar and Campari performed well, as well as Aperol growing double digit in both value and volume terms, albeit from a small base. Sales in Canada (3.2% of total Group sales) registered a positive organic growth of +6.8%, driven by Forty Creek, SKYY Vodka, the aperitifs (Aperol, Campari) and Wild Turkey. Sales in Mexico were up double-digit thanks to a good performance of SKYY ready-to-drink, the Jamaican rums, Frangelico, Aperol and Campari.

Sales in Southern Europe, Middle East and Africa[10] (29.8% of total Group sales in the nine months of 2017) registered an overall change of -0.3%. The organic growth of +4.3% was entirely offset by a slightly positive exchange rate impact and a perimeter effect of -4.8%. The organic performance in the Italian market (22.0% of total Group sales) was positive (+2.7%), driven by very good results of Aperol (+8.7%) and Campari (+4.9%), as well as a good progression of Crodino. The region’s other markets (7.8% of Group net sales) showed overall a very strong performance, driven by Spain (Aperol, Bulldog, Campari and Cinzano), South Africa (SKYY and Aperol) and France (Aperol, Riccadonna and Campari). These results helped compensate declines in Nigeria, which is impacted from a persisting socio-economic instability. Global Travel Retail net sales were up by +1.5%, after negative one-off’s in the second quarter were entirely offset by a very strong third quarter with very good performances of Aperol, Grand Marnier, Bulldog and GlenGrant.

Sales in North, Central and Eastern Europe (19.1% of total Group sales in the nine months of 2017) increased by +8.3% overall, driven by an organic change of +10.0%, an exchange rate effect of +0.4% and a perimeter effect of -2.1%. Germany (8.4% of total Group sales) was weak (-3.8%) on a tough comparable base (+6.3%), affected by the poor weather conditions in the third quarter, with weakness across agency brands, the low-margin Cinzano sparkling wines and Cinzano vermouth. Importantly, though, Germany continued to deliver a strong performance on the nine months across Aperol (+7.2%) as well as growth in Wild Turkey bourbon and Bulldog. Sales in Russia (2.6%of total Group sales) registered a positive organic performance (+91.6%), with double-digit growth in Mondoro and Cinzano vermouth and a triple-digit growth in Cinzano sparkling wines. The Group remains cautious in regards to both the competitive environment and the local macro environment in Russia. The region’s other markets (8.1% of Group net sales) registered an overall positive organic growth (+16.6%),mainly driven by the UK (+23.0%, driven by Aperol, Campari, the Jamaican rums, Grand Marnier, Wild Turkey, Bulldog and GlenGrant), Austria (Aperol, Campari and Campari Soda) as well as the Czech Republic, Sweden and Poland.

Sales in Asia Pacific (6.5% of total Group sales in the nine months of 2017) increased by +5.0% overall, with an organic change of +0.3%,an exchange rate effect of +3.2% and a perimeter effect of +1.5%. Australia (4.5% of total Group sales) registered a -2.5% decline on a tough comparison base (+9.3% in 9M 2016). The market is gradually recovering the slow start of the year due to poor weather conditions, and by a strong competitive pressure. Wild Turkey ready-to-drink portfolio and Wild Turkey bourbon remain weak. There were, however, very positive results from Aperol, Espolòn, SKYY and GlenGrant. The other Asia Pacific markets (2.0% of Group net sales) registered an overall positive organic change thanks to a very good performance in both China and Japan. In Japan sales were positive for Campari, SKYY,and Aperol, completely offsetting the weakness in Wild Turkey which suffered from a shipment phasing effect. In China, SKYY, Grand Marnier and GlenGrant registered a positive growth, albeit off a small base.

Global Priority sales (54.4% of total) grew organically by +7.4% in 9M 2017. Aperol continued to outperform (+19.5%), driven by the sustained growth in the brand’s core markets (Italy, Germany, Austria and Switzerland), despite poor weather conditions in Central Europe. Continued growth in high potential and seeding markets of US, Brazil, Russia, the UK, Australia, Spain, Czech Republic, France, Chile, and Global Travel Retail. Campari continued its positive momentum, up +7.4% organically, driven by the very good performance in the US, France, Austria, Brazil, Japan, Argentina and Jamaica, as well as strong growth in the brand’s core market of Italy (+4.9%). The good performance was mitigated by Germany due to the poor weather conditions and a continued weakness in Nigeria. SKYY sales registered an organic change of -5.7% in the nine months, driven by a weak third quarter in US due to hurricanes affecting shipments in key states for the brand (such as Florida, Texas) as well as the continued competitive environment within the category and weakness in flavoured vodka. This was partially compensated by good results in South Africa, Canada, Argentina and China. Wild Turkey, which includes American Honey, registered a positive organic change of +5.1%, driven by Wild Turkey bourbon in key US market, despite a slower growth rate in the third quarter due to hurricanes. High-potential markets (Canada, the UK, Russia, Germany and Italy) registered a positive growth for Wild Turkey bourbon. Russell’s Reserve continues to register double-digit gains in the core US market whilst American Honey, despite the weakness in Australia, grew in the US as well as in smaller markets. The Jamaican rums, including Appleton Estate, J.Wray and Wray&Nephew Overproof, showed a positive organic growth of +6.4% with a positive performance in Jamaica (+8.1%), UK, US as well as Mexico. Grand Marnier, which started to contribute to the Group’s organic growth as of the third quarter 2017 registered a solid double digit growth (+11.0%), driven by the core US and Canadian markets, largely due to shipment phasing and the reduced discounting.

Regional Priorities (14.6% of total)grew by +13.5% in 9M 2017. Espolòn grew by +56.2% in the nine months, continuing to benefit from solid double-digit growth in the core US market (+56.8%), as well as having good results from new markets for the brand, such as Russia, Italy, Canada and Australia. GlenGrant registered positive growth of (+5.2%), particularly driven by South Africa, China, UK, and the US. Forty Creek registered a change of -5.4%, due to the decline in the US, particularly in the third quarter, driven by hurricanes in Texas, the brand’s largest state, as well as the transition to new packaging. The Italian bitters (Averna, Braulio and Cynar) registered a slight growth of +0.7%, driven by good results from Braulio in Italy and Switzerland, strong double-digit growth of Averna in the US as well as the strong growth of Cynar in the US and Argentina. Frangelico registered a good performance on the nine months (+3.4%), thanks to the strong growth in Germany and the UK. Bulldog, entering the Regional brand portfolio during the first quarter of 2017, grew by +31.2% on the back of a good performance in Spain, US, UK, Italy and Global Travel Retail. Cinzano showed an overall good organic result (+7.1%), mainly driven by Cinzano sparkling wines and vermouth in the Russian market, more than compensating the negative performance of the Cinzano portfolio in Germany as well as Cinzano vermouth in Argentina. Other sparkling wines (Riccadonna and Mondoro) increased organically by +32.7%, thanks to the positive performance of core markets France, Russia and Australia.

Local Priorities (12.5% of total) grew by +2.4% in the nine months. Campari Soda declined slightly (-0.4%), recovering in the third quarter in the core Italian market. Crodino registered a positive growth (+3.8%), after a strong growth in core Italian market in the third quarter, driven by the positive trends over the summer thanks to product innovation, Crodino Arancia Rosso, and marketing support. The Wild Turkey ready-to-drink range declined in Australia, driven by competitive pricing pressure as well as the poor weather conditions at the start of the year. The Brazilian brands registered a recovery (+10.2%) in a market that continues to be impacted by macroeconomic challenges.



[1] Global Priority brands include Aperol, SKYY, Campari, Wild Turkey, Grand Marnier (included in organic change as of July 1st 2017) and the Jamaican rums. The Regional Priorities include Espolòn, GlenGrant, Forty Creek, Bulldog, Averna, Braulio, Cynar, Frangelico and Cinzano.

[2] EBITDA and EBIT before positive operating adjustments of € 38.2 million, mainly driven by the capital gains on Carolans and Irish Mist brand disposal of € 50.0 million.

[3] Group pretax profit before net positive operating and financial adjustments of overall € 13.6 million, of which positive operating adjustments of € 38.2 million and negative financial adjustments pretax of € (24.6) million. In 9M 2016 negative net operating and financial adjustment of € (52.2) million.

[4]After reclassifications of € 7.2 million to the opening balance sheet as a result of the final purchase price allocation of the Grand Marnier acquisition values.

[5] Based on current spot exchange rates.

[6] EBIT before SG&A.

[7] Financial adjustment mainly due to the delta value between the purchase price of the bonds bought back and their nominal value.

[8] Overall value of the Bulldog acquisition of € 82.3 million (including the estimated earn-out), liability management cash outflow of € 23.2 million, the value of the Chilean winery disposal of € 30.0 million, the French winery disposal of € 20.1 million, and Carolans & Irish Mist disposal of € 139.4 million (at the exchange rate at closing date).

[9] Including Lemonsoda business of € 80.0 million, Grand Marnier headquarters building in Paris and other real estate assets of approx. € 37.0 million (pre-tax).

[10] Including Global Travel Retail.

Publishing date: 
07 Nov 2017
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Last updated Nov 07 2017