Campari announces 2014 first nine months results
Key indicators in line with expectations
despite the very adverse weather conditions in third quarter 2014
Group heightens focus on higher margin own brands
Further consolidation and strengthening of international distribution capabilities
9M 2014 results Highlights
- Sales: € 1,060.5 million (+0.8%, organic change +3.1%. Organic change +1.7% in third quarter)
- Contribution after A&P: € 391.8 million (-0.2%, organic change +2.5%, 36.9% of sales)
- EBITDA pre one-off’s: € 222.7 million (-2.8%, organic change -0.5%, 21.0% of sales)
- EBIT pre one-off’s: € 193.7 million (-2.5%, organic change +0.2%, 18.3% of sales)
- Negative one-off’s: € (33.4) million
- Group pre-tax profit: € 116.9 million (-21.8%)
- Net financial debt: € 1,035.0 million (€ 852.8 million as of 31 December 2013)
Milan, November 12, 2014 - The Board of Directors of Davide Campari-Milano S.p.A. (Reuters CPRI.MI-Bloomberg CPR IM) approved the consolidated results for the nine months ending 30 September 2014.
Bob Kunze-Concewitz, Chief Executive Officer: ‘Results in the first nine months 2014 showed key indicators in line with expectations. With regard to the third quarter, despite the very adverse weather conditions in Europe and a very tough comparison base in Italy, organic sales performance was positive and driven, in particular, by the expected recovery in the US. Looking at the year end, we believe that despite the persistent volatility in some of the Group’s markets and the unfavorable macroeconomic scenario, the good momentum behind the key combinations of brands and markets will continue, driving the Group’s outperformance of local trends in core markets. In particular, we expect that the good momentum of the aperitifs portfolio across all markets will continue, positively impacting the business in the last quarter.On the other hand, the full recovery of the gross margin dilution registered in the first nine months 2014 on a full year basis will depend upon the evolution of the sales mix. In particular, the positive effect of the good momentum of aperitifs business across all markets could be overall lessened by the relative outperformance of the lower margin markets (Latin America and Russia) and a persisting price competition in Australia and in Germany. Moreover, we expect that the start-up of the recent initiatives strengthening the Group’s distribution platforms in Canada and UK as well as the set-up of the in-market company in Spain are expected to drive a temporary spike in organic growth of structure costs in the remainder of the year. Looking forward, the positive evolution of the business is expected to continue, benefitting also from a more benign input costs environment, the positive reversal in 2015 of the temporary overlapping production costs affecting 2014, and the paybacks of the announced restructuring projects which are expected to increase focus on the owned core business as well as the new investments in strengthened distribution capabilities.’.
In the first nine months of 2014 Group sales totalled € 1,060.5 million showing a reported increase of +0.8%, driven by a sales organic change of +3.1% (+1.7% in the third quarter), a negative exchange rates effect of
-5.1% (-2.4% in the third quarter), due to a devaluation in most of the Group functional currencies, and a perimeter effect of +2.8% (+6.5% in the third quarter), mainly driven by the net effect of acquisitions and new distribution agreements.
Gross margin decreased by -0.3% to € 565.3 million (+2.3% organic change), or 53.3% of sales.
Advertising and promotion spending (A&P) was down by -0.6% to € 173.5 million, or 16.4% of sales.
CAAP (Contribution after A&P)was down by -0.2% to € 391.8million (+2.5% organic change), or 36.9% of sales.
Structure costs, i.e. selling, general and administrative costs, increased by +2.1%to € 198.1 million, or 18.7% of sales.
EBITDA pre one-offs was down by -2.8% to € 222.7million (-0.5% organic change), or 21.0% of sales.
EBIT pre one-offs declined by -2.5% to € 193.7 million (+0.2% organic change), or 18.3% of sales.
Negative one-off’s of € (33.4) million, mainly relating to provisions for restructuring initiatives in connection with recently acquired Gruppo Averna, still wine business and Jamaican non-core businesses, and goodwill write-down resulting from still wine business restructuring (non-cash).
EBITDA reached € 189.4 million, a decrease of -15.6%, or 17.9% of sales.
EBIT reached € 160.3 million, a decrease of -17.3%, or 15.1% of sales.
Pre-tax profit was € 116.9 million, down by -21.8%, mainly driven by negative one-off’s.
As of September 30, 2014, net financial debt stood at € 1,035.0 million (€ 852.8 million as of December 31, 2013), after a total investment of € 237.3 million in the acquisitions of Forty Creek Distillery Ltd. and Gruppo Averna closed in June 2014 and the payment of the dividend of € 46.1 million.
CONSOLIDATED SALES OF THE FIRST NINE MONTHS OF 2014
Looking at sales by region, the Americas (39.4% of total Group sales in the first nine months 2014) posted an overall change of -6.2%, with an organic change of +3.1% and an exchange rate impact of -9.3%. In the US (20.0% of total Group sales), sales registered an organic change of +0.4% in the first nine months, thanks to a strong recovery in the third quarter, as a results of SKYY and Wild Turkey franchises shipments starting to realign with the positive depletion trends. Positive results were registered by rum portfolio. Aperol, Espolòn and Carolans showed a strong organic performance. The perimeter effect was negative by -1.4%, due to the termination of distribution agreements of agency brands. The exchange rate effect was negative at -2.8%. Sales in Jamaica (7.0% of total Group sales) declined organically by -6.1% in the first nine months, showing positive organic performance in the third quarter (+2.1%). The exchange rate effect was -11.4% and the change in perimeter was -5.4%, relating to the termination of distribution agreements of select consumer products in Jamaica.Sales in Brazil (4.9% of total Group sales) registered a positive organic performance of +7.9%,mitigated by the softness registered in the third quarter mainly due to the slowdown in local Admix whiskies, in line with category trend. The premium brands Campari and SKYY continued to lead the growth, followed by imported premium spirits, particularly Aperol. The exchange rate effect was -11.0%. With regard to the other Americas, Argentina (2.3% of total Group sales) continued to register a strong organic performance (+40.1%) mainly driven by the continued positive growth of Campari and SKYY. Aperol registered a very positive progression, increasing by double digit. The overall performance in Argentina was negatively impacted by an exchange rate effect of -50.1%. Sales in Canada (2.5% of total Group sales) registered an overall negative organic growth (-5.2%), showing an improving performance in the third quarter behind the kicking-in of new marketing campaigns.
The Italian market (27.2% of total Group sales in the first nine months of 2014) recorded an increase of +7.8%, attributable to an organic growth of +4.2% and a perimeter change of +3.7%, mainly attributable to the acquisition of Gruppo Averna. The overall positive organic growth was driven by the aperitifs business, in particular the single-serve aperitifs Crodino and Campari Soda which registered a double-digit growth by +21.7% and +10.4% respectively. The third quarter registered a negative growth (-5.1%) as a result of a tough comparison base of the previous year (+24.5%) and the very adverse weather conditions in the summer period.
Sales in the rest of Europe (22.7% of total Group sales in the first nine months of 2014) grew by +3.0% overall, driven by an organic growth of +0.8%, a perimeter effect of +4.5%,thanks to the William Grant&Sons portfolio distribution rights in Germany and the acquisition of Gruppo Averna, and an exchange rate effect of -2.2%. Sales in Germany (10.4% of total Group sales) recorded an overall negative organic change of -5.2%, as a result of a soft performance of Campari and Aperol, not completely offset by the good development of SKYY. Russia (2.8%of total Group sales)showed a stable performance overall and a soft third quarter,in a tough and volatile environment, also due to a tough comparison base of the previous year (+34.1%). The positive results of the sparkling wine portfolio (Cinzano sparkling wines, Mondoro and Riccadonna) were penalized by the continuous decline of the vermouth category in Russia. The other European markets (9.6% of total Group sales)continued to register a strong organic performancewith an overall organic growth of +8.3%, driven by the growth in the Central European markets (particularly Belgium, Austria, France and Switzerland), driven by Aperol, as well as Eastern European Countries.
Sales in the rest of the world (including Global Travel Retail), which accounted for 10.7% of total Group sales, increased by +7.3% overall, with an organic change of +5.7%, an exchange rate effect of -6.6% and a perimeter growth of +8.2%, the latter attributable to the third party bottling activities run by the acquired Copack company in Australia. Australia (4.9% of Group sales) registered a positive organic performance overall (+0.8%), despite the weak consumer confidence and the high competitive promotional activity. The other markets in the area (5.7% of Group sales) registered an organic growth of +9.9%, mainly attributable to the good developments of South Africa, Nigeria and Global Travel Retail.
Looking at the sales by key brands in the first nine months 2014, with regard to the Top Six International Franchises, Campari registered positive results overall (+7.2%), driven by the positive trend of classic cocktails. Brazil, Argentina, Nigeria and Global Travel Retail led the strong growth. Aperol showed a positive overall trend (+6.8%). However, the third quarter (-6.2%) was negatively impacted by the very adverse weather conditions in Europe, mitigated by the strong double digit growth achieved in the other markets. SKYY sales achieved an overall organic change of +1.5%, thanks to the strong recovery in core US market in the third quarter (+12.9%) where shipments started to realign with the positive depletion trends. The franchise continued to register positive growth in the other key brand market combinations. The Wild Turkey franchise registered an organic change of -3.1%. The improved performance behind core Wild Turkey bourbon and the continued growth in Wild Turkey ready-to-drink was mitigated by the weak performance in American Honey core and ready-to-drink in Australia. The rum portfolio, including Appleton, W&N White Overproof and Coruba, showed an overall negative change of -1.5%, with a continued positive performances registered in the third quarter (+5.4%), after a positive second quarter (+5.5%), partially offsetting the negative results in the first quarter. With regards to the key markets for the brand portfolio, Canada and Jamaica turned positive in the third quarter and the US market showed a continued positive performance.
The Cinzano franchise registered an organic change of -5.6%. Cinzano sparkling wines showed overall negative results (-1.7%), partially offset by improved results in the third quarter in Germany. The performance of Cinzano vermouth was down by -9.6%, mainly due to the category weakness in core Russian market, more than offsetting the good results registered in Argentina.
Frangelico and Carolans were up by +3.9% organically, driven by the positive performance of Carolans in the core US and Canadian market. The tequila portfolio (Espolòn and Cabo Wabo) registered an organic growth of +10.8%, thanks to good results achieved in the US market, and positive trends in the other key markets. GlenGrant and Old Smuggler registered an organic change of +10.4%, driven by the continued positive performance in France and South Africa, and the positive growth registered in Italy in the third quarter.
Other sparkling wines (Riccadonna andMondoro) increased organically by +15.5%, mainly driven by the positive results across all key brand markets, in particular in Russia and New Zealand where it experienced a double digit growth. Still wines (mainly Sella&Mosca, Enrico Serafino and Teruzzi&Puthod) increased by +2.2%, thanks to a positive growth registered in the core Italian and German markets.
With regards to the key local brands, the Italian single-serve aperitifs registered a positive performance. Campari Soda continued its positive momentum in core Italian market, increasing by +10.5% overall,and Crodino grew by +20.7%, partially offset by a stabilizing trend in the third quarter as expected. Lastly, the Brazilian brands posted a positive result (+4.9%), driven by Dreher, while local Admix whiskies continued to decline, in line with the category weakness in Brazil.
Integration of Averna and Braulio brands into Gruppo Campari’s organisations
Following the completion of the acquisition of Gruppo Averna, closed on June 3, 2014, a restructuring process has been initiated in order to better align the business to Gruppo Campari's strategies. In particular, Averna and Braulio brands are being transferred into the Gruppo Campari organisations. The distribution of the two brands will be moved to Group's sales network in Italy as of January 1, 2015. Regarding the international markets, the distribution rights in Germany and Austria will be bought back as of January 1, 2015 while transition of distribution in other international markets is in progress.
Restructuring of the still wine business
The Group has started a reorganisation of the still wine business via exiting from the lower-profitability third-party business and an increased focus on high-margin own brands.
Restructuring of non-core business in Jamaica
Gruppo Campari will exit from the consumer agency brand business within the merchandise business in Jamaica during the first quarter 2015. This will allow Gruppo Campari to strengthen its focus on its core spirits portfolio, with streamlining of the local organisation.
The total provisions for the three restructuring projects is € 11.7 million. The expected positive effect in 2015 of the three restructuring projects on a combined basis is in excess of 1% of the Group EBIT pre one-off’s expected in 2014, corresponding to a payback period of approximately 3 years.
Consolidation of distribution and strengthening of existing in-market capabilities in United Kingdom
Gruppo Campari will transfer the distribution of the Campari, Aperol and Wild Turkey brands to its fully owned subsidiary J. Wray & Nephew (UK) Ltd. (‘JWN UK’) from Matthew Clark Wholesale Ltd. (‘Matthew Clark’) as of March 1, 2015.
JWN UK has been Gruppo Campari’s distributor in the UK for the Jamaican rums portfolio, including Appleton Estate and Wray & Nephew Overproof since end of 2012, when it became Gruppo Campari’s subsidiary as part of the acquisition of Lascelles deMercado. As of March 1, 2015 JWN UK will be responsible for the marketing and distribution of the full brand portfolio of Gruppo Campari in the UK.
Gruppo Campari entered into a distribution agreement with Matthew Clark in 2012, with the aim to create a growth platform for its leading spirits portfolio, including Campari, Aperol and Wild Turkey, in the UK market. Matthew Clark, via its trading division Catalyst Brands, will continue to distribute Gruppo Campari's brands until end of February 2015. It should be noted that, in order to continue to leverage its strong on-premise platform in the UK, Matthew Clark will remain partner of Gruppo Campari as sub-distributor for the national on-trade accounts in this key market.
The strong growth potential for Campari, Aperol and Wild Turkey as well as for Appleton, combined with the opportunity to leverage the JWN UK platform have facilitated Gruppo Campari’s strategic objective to build its own in-market business, in-line with its global strategy for all key markets.
Today the whole portfolio of Gruppo Campari, also thanks to the successful partnership with Matthew Clark over the past years, has experienced very positive growth in the UK market, reaching scalable mass to allow Gruppo Campari to build its direct route-to-market in the UK.
Gruppo Campari wishes to extend its appreciation and thank the Matthew Clark team for the professional and successful work that has been delivered on the Gruppo Campari brands in the UK since the beginning of their collaboration in 2012 and that has since then grown into a strong partnership.
Consolidation of distribution and strengthening of existing in-market capabilities in Canada
As of 1 January 2015, Gruppo Campari will transfer the distribution of its own brands (including Appleton, Carolans e SKYY Vodka) to its fully owned subsidiary Forty Creek Distillery Ltd. in Canada. The existing Forty Creek business combined with the additional focus on the Group’s own brands enables us to reach the critical mass required to strengthen the Group’s existing distribution capabilities in this attractive market.
The Executive responsible for preparing Davide Campari-Milano S.p.A.’s financial reports, Paolo Marchesini, certifies - pursuant to article 154 bis, paragraph 2 of the Legislative Decree 58/1998 - that the accounting disclosures in this statement correspond to the accounting documents, ledgers and entries.
This document contains forward-looking statements, that relate to future events and future operating, economic and financial results of Campari Group. By their nature, forward-looking statements involve risk and uncertainty because they depend on the occurrence of future events and circumstances. Actual results may differ materially from those reflected in forward-looking statements due to a variety of factors, most of which are outside of the Group’s control.
Analyst conference call
At 1:00 pm (CET) today, November 12, 2014, Campari’s management will hold a conference call to present the Group’s nine months 2014 results. To participate, please dial one of the following numbers:
- from Italy: 02 8058 811
- from abroad: +44 1212 818003
The presentation slides can be downloaded before the conference call from the main investor relations page on Gruppo Campari’s website, at
A recording of the conference call will be available from today, November 12 until Wednesday, November 19, 2014.
To listen to it, please call the following numbers:
- from Italy: 02 72495
- from abroad: +44 1212 818005
(Access code: 729#).