Campari Group announces 2018 first half results

Solid organic growth across net sales and all profit indicators in first half 2018,
partly offsetting adverse forex effect and non-core disposals

 

Continuous sales mix improvement driven by the outperformance

of key high-margin Global and Regional brands in core developed markets

 

 

 H1 2018 Results Highlights

  • Reported sales of €778.2 million. Solid organic growth of +5.4%. On a reported basis, change of -4.7% after the exchange rate and perimeter effects.

  • Very favourable sales mix driven by Aperol, Campari, Wild Turkey, Grand Marnier as well as Espolòn. All regions contributed to organic growth, with US, Western Europe and Australian markets outperforming.

  • EBIT adjusted[1] of €160.5 million. Organic growth of +9.5%, ahead of organic sales growth, showing an organic margin accretion of +80 basis points, as higher advertising&promotion investments were more than offset by the solid gross margin expansion. On a reported basis, change of -1.7% after the exchange rate and perimeter effects.

  • Group net profit of €147.2 million, +35.5%. Group net profit adjusted[2] of €104.4 million, +11.6%.

  • Net financial debt of €946.8 million as of June 30th, 2018 (€981.5 million as of December 31st, 2017), thanks to the positive free cash flow generation and after the proceeds from the sale of the Lemonsoda business, net of the acquisition of Bisquit, the dividend payment and the purchase of own shares.

     

     

    Milan, August 1st, 2018-The Board of Directors of Davide Campari-Milano S.p.A. (Reuters CPRI.MI-Bloomberg CPR IM) approved the consolidated results for the first half year ended June 30, 2018.

    Bob Kunze-Concewitz, Chief Executive Officer: ‘In the first half 2018 we achieved a solid organic growth, reflecting an accelerated topline growth in the second quarter, broadly recovering the first quarter phasing issues, as well as a normalisation of trends across profit indicators. The favourable sales mix continued to benefit from the outperformance of the key high-margin combinations of global and regional brands, driving organic growth across profit indicators and margin expansion. Concomitantly, on a reported basis, the overall growth rates were impacted by the adverse forex effect as well as the divestments of non-core businesses. Looking into the second half of the year, our outlook remains broadly balanced in terms of risks and opportunities. We remain confident in achieving a positive performance across key underlying business indicators, driven by the continued positive development of the key high-margin combinations by brand and market.’.

     
    Guidance for 2018

    Looking at the remainder of the year, the net sales organic growth is expected to be driven by the continued outperformance of the key high-margin global and regional Priorities in core developed markets, with the exception of SKYY, which will continue to be negatively impacted by further destocking in the US. Geographically, the core developed markets are expected to drive the growth, whilst lower-margin emerging markets will continue to suffer from macroeconomic weakness and political instability.

    Gross margin organic expansion is expected to be driven by a favourable sales mix, overcoming the adverse agave price impact. In particular, the gradual increase of the average purchase price of agave is expected to accelerate in the remainder of the year, generating in the second half a greater dilutive effect than in the first half.

    With respect to the EBIT adjusted[5], a potential upside from a less adverse Forex impact (USD vs. EUR) is expected to be reinvested in accelerated investments into brand building initiatives behind key Global brands, as well as into selective strengthening of the Group’s on-premise capabilities and for brand houses development.

    With regards to the key underlying business indicators, the Group remains confident in delivering a positive performance in 2018.

     

    Review of first half 2018 results

    In the first half of 2018 the Group achieved positive organic sales growth, with profit indicators growing ahead of sales on the back of a favourable sales mix. Concomitantly, on a reported basis the robust organic performance in the business was more than offset by the combined effect of forex, driven by the strengthened Euro against US Dollar, and perimeter, driven by the sale of non-core businesses (in particular Carolans and Lemonsoda) and agency brands distribution termination, partially offset by the Bisquit acquisition.

    Group sales totalled €778.2 million, down by -4.7% in value on a reported basis. The positive organic sales performance of +5.4% was more than offset by a negative FX effect of -6.4% or €(52.1) million, and a negative perimeter of -3.7% or €(30.4) million.

    Gross profit was €471.9 million, down by -1.1% in value on a reported basis and up +220 basis points to 60.6% of net sales. It grew organically by +7.5%, ahead of sales. It generated an organic margin expansion of +110 basis points, driven by the favourable sales mix by brand and market, more than offsetting the adverse agave price, which became progressively more impactful in the second quarter of 2018.

    Advertising and Promotion spending (A&P) was €134.9 million, up by +0.4% in value on a reported basis, corresponding to 17.3% of net sales. It grew organically by +7.9% driven by the phasing of major investments in global brands into the first half 2018.

    CAAP (Contribution after A&P) was €337.0 million, down by -1.7% in value on a reported basis (up organically by +7.3%), corresponding to 43.3% of net sales.

    Structure costs, i.e. selling, general and administrative costs, totalled €176.5 million, down by -1.6% in value on a reported basis (up organically by +5.3%), to 22.7% of net sales.

    EBITDA adjusted was €187.9 million, down by -2.0% in value on a reported basis (up organically +9.3%), corresponding to 24.2% of net sales.

    EBIT adjusted was €160.5 million, down by -1.7% in value on a reported basis and up +60 basis points to 20.6% of net sales. It grew organically by +9.5%, ahead of sales growth, leading to a margin accretion of +80 basis points, as the solid gross margin expansion more than offset higher marketing investments in the first half. The positive organic performance of EBIT adjusted was more than offset by the negative effects of forex, -5.4% or €(8.9) million, and perimeter, -5.8% or €(9.5) million.

    Operating adjustments were positive by €19.6 million, mainly attributable to the gain on the Lemonsoda business disposal, net of provisions for restructuring costs[6].

    EBITDA reached €207.5 million, at 26.7% of sales.

    EBIT reached €180.1 million, at 23.1% of sales.

    Net financial costs were €14.8 million, down by €8.2 million, thanks to a reduction in the average indebtedness in the first half of 2018 (€955.7 million in the first half 2018 down from €1,214.8 million in the first half 2017) and the positive effects of liability management transactions.

    Positive financial adjustments of €1.6 million related to some minor financial assets sale (€(24.4) million in the first half 2017 attributable to a one-off liability management transaction completed in April 2017).

    Group pre-tax profit adjusted was €144.8 million (+5.0%). Group pre-tax profit was €166.0 million, +53.0%.

    Tax charges were €(18.8) million and included a ‘patent box’ one-off tax benefit of €14.8 million in the first half of 2018.

    Group net profit adjusted1 was €104.4 million (+11.6%). Group net profit was €147.2 million, an increase of +35.5%, mainly attributable to the gain on the Lemonsoda business disposals net of provisions for restructuring costs, other financial adjustments, as well as fiscal effects on adjustments and the ‘patent box’ one-off tax benefits.

    Net financial debt stood at €946.8 million as of June 30th, 2018, down from €981.5 million as of December 31st, 2017, thanks to the positive free cash flow generation of €110.9 million and after the proceeds from the sale of the Lemonsoda business, net of the acquisition of Bisquit, the dividend payment and the purchase of own shares[7].

    Net debt to EBITDA pro-forma ratio was 1.9 times as of June 30th, 2018, down from 2.0 times as of December 31st, 2017.

     

    Review of consolidated sales for first half 2018

    Looking at sales by region, the Americas (42.8% of total Group sales) posted an overall change of -10.2%, with an organic growth of +4.6%, an exchange rate impact of -11.7% and a perimeter effect of -3.1%. The US, the Group’s largest market (26.9% of total Group sales) registered a positive organic performance of +5.9%, driven by the strong double-digit growth of Espolòn, Aperol and Campari, as well as the sustained growth of Wild Turkey and the Jamaican rums. Grand Marnier registered a strong growth with shipments more robust than underlying trends, due to a favourable comparison base. This result helped offset the decline in SKYY, whose shipment are still performing behind sell-out trends. Sales in Jamaica (4.9% of total Group sales) registered an organic change of +14.8%, mainly driven by the double-digit growth of Campari, Wray&Nephew Overproof and Appleton Estate. Sales in Brazil (2.1% of total Group sales) registered an organic change of -27.2%, impacted by political instability and macroeconomic weakness as well as a tough comparable base (+29.0% in the first half 2017[8]). The decline was mainly driven by the local brands, Campari and SKYY, in part mitigated by the double-digit growth of Aperol. Sales in Argentina (1.5% of total Group sales) registered an organic change of -5.8%, due to macroeconomic weakness and tightened company credit policies. The decline in Campari as well as local and agency brands was mitigated by the very favourable trends in SKYY, Cinzano, Cynar and Aperol. The region’s other markets (7.5% of Group sales) were positive by +10.3%, driven by Mexico (+16.1%) thanks to SKYY ready-to-drink, SKYY, Aperol and Espolòn, while Canada was broadly flat due to shipment phasing.

    Sales in Southern Europe, Middle East and Africa[9] (30.3% of total Group sales) posted an overall change of -3.0%, with an organic growth of +4.0%, an exchange rate impact of -0.1% and a perimeter effect of -6.9%. The organic performance in the Italian market (23.2% of total Group sales) showed a continued positive trend (+3.1%), driven by Aperol (+7.1%) and Campari (+12.1%), as well as the positive growth of Cynar and Braulio, which partly offset the softness in Crodino, Campari Soda and the Cinzano portfolio. The region’s other markets (7.2% of Group net sales) showed a solid growth (+7.6%), mainly driven by France (Aperol, Riccadonna, GlenGrant and Campari), Spain (Aperol and Campari) and Nigeria (Campari and SKYY). South Africa declined due to the unfavourable comparison base which was positively influenced by the start of the new distribution organisation. Global Travel Retail grew by +15.3% driven by Aperol, Wild Turkey, Bulldog, Campari, Frangelico and Ouzo 12.

    Sales in North, Central and Eastern Europe (19.8% of total Group sales) increased overall by +3.0%, with an organic change of +6.7%, an exchange rate impact of -2.5% and a perimeter effect of -1.2%. Germany (9.5% of total Group sales) registered a solid growth (+7.4%), mainly driven by Aperol (+26.1%), Cinzano, Bulldog, Campari and Ouzo 12. Sales in the United Kingdom (1.9% of total Group sales) registered an organic growth of +17.0%, driven by Aperol, the Jamaican rums (in particular Wray&Nephew Overproof), Campari, Bulldog and Cynar. Sales in Russia (1.7% of total Group sales) registered an organic change of -25.2%, impacted by the very unfavourable comparison base (+111.7% in the first half 2017), as well as the impact of price increase negotiations which occurred in the first quarter and the persisting market volatility. Aperol and Campari continue to perform very well, although unable to offset declines in the core Cinzano and Mondoro brands. The region’s other markets (6.7% of Group net sales) registered an overall positive organic growth (+16.8%), thanks to Austria (+6.9%), Belgium (+6.1%) and Eastern Europe, mainly driven by Aperol.

    Sales in Asia Pacific (7.0% of total Group sales) increased overall by +4.6%, with an organic change of +14.6%, an exchange rate impact of -9.4% and a perimeter effect of -0.6%. Australia (4.8% of total Group sales) grew organically by +10.7%, as the brands consistently outperformed the spirit market in all key categories. In particular, Wild Turkey ready-to-drink, Wild Turkey bourbon, Aperol, SKYY, Frangelico, Campari and GlenGrant showed a double-digit growth. The region’s other markets (2.2% of total Group sales) were up organically by +24.1%, driven by the positive performance of Japan, thanks to Wild Turkey bourbon, SKYY ready-to-drink, SKYY, Grand Marnier and Cinzano. New Zealand showed a double-digit growth, while China was broadly flat.

    Global Priority brands’ sales (56.7% of total) grew organically by +8.7%. Aperol, the Group’s largest brand, continued to outperform (+24.7%), driven by the continued sustained growth in the brand’s core markets (Italy, Germany, Austria and Switzerland), and the very strong growth of high potential and seeding markets such as the US (now the brand’s 3rd largest market in value), France, Brazil, Russia, the UK, Australia, Spain and GTR. Campari continued its positive momentum, up +8.0% organically, with a very favourable mix driven by the double-digit growth in the US (now the brand’s 2nd largest market in value) and the core Italian market, as well as a good performance in Jamaica, Nigeria, the UK, Russia, Spain and Germany. SKYY sales registered an organic change of -11.1%, with weakness in US market, due to the persistent competitive environment within the category as well as the weakness of the flavoured segment. Nevertheless, the shipments are still performing behind the sell-out trend, which was negative at a stable mid-single-digit rate. In the international markets, the very positive results achieved in Argentina, Japan, Mexico and Jamaica were more than offset by declines in South Africa, Brazil, Canada and China, largely due to order phasing and comparison base effects. Grand Marnier grew by +13.2%, with shipments more robust than underlying trends due to a favourable comparison base in its core US market. Wild Turkey and American Honey registered a positive organic change of +6.8%, driven by the continued growth in Wild Turkey bourbon portfolio (+9.9%) in its key US and Australian markets. Russell’s Reserve continues to grow by double-digit in the core US market whilst American Honey was flat overall. The Jamaican rums, including Appleton Estate and Wray&Nephew Overproof, showed an organic growth of +4.2%. Wray&Nephew Overproof grew by +9.7%, driven by the core markets of Jamaica, the US and the UK. Appleton Estate was slightly negative (-2.1%) as a very good performance in the core markets of the US and Jamaica was unable to offset declines in the other markets of Canada and Mexico due to shipment phasing.

    Regional Priorities (14.6% of total) increased by +4.7% organically. Espolòn grew by +34.3%, benefitting from the strong double-digit growth in the core US market (+38.2%). Bulldog was up by +6.4%, driven by UK, Germany, Brazil, Italy and GTR. GlenGrant was broadly flat (-0.8%) with solid growth in the core market of France compensating weaker results in Italy, GTR and Germany, due to the continued shift of focus to higher-margin and longer-aged propositions. Forty Creek registered a change of -1.6%, with positive growth in the core market of Canada hampered by the decline in the US. The Italian bitters and liqueurs showed an organic change of -1.6%, with very positive results of Braulio and Cynar in core market of Italy. The overall performance was offset by Averna, penalized by a significant price repositioning in Germany, and Frangelico, due to temporary weakness and phasing effects in Spain and Germany. Cinzano showed an overall weakness (-5.8%), penalized by decrease of Cinzano sparkling wine due to phasing in the core market of Russia linked to price increase negotiations during the first quarter 2018. Other sparkling wines (Riccadonna and Mondoro) increased organically by +6.0%, driven by the core market of France.

    Local Priorities (12.6% of total) showed an organic change of -4.2%. Campari Soda decreased by -1.9%, due to the weakness in the core Italian market. Crodino registered a soft performance (-1.5%). Particularly, the comparison base was impacted by the previous year’s innovation pipeline in core market of Italy. The Wild Turkey ready-to-drink, up by +11.3%, driven by the core Australian market. The Brazilian brands were negative (-33.0%), impacted by weakness in Brazil

     


    [1] Before positive operating adjustments of €19.6 million in H1 2018, mainly attributable to the gain on the Lemonsoda business disposal, net of provisions for restructuring costs, and negative operating adjustment of €(5.0) in H1 2017.

    [2] Group net profit before overall positive adjustments of €42.8 million in H1 2018, of which: operating and financial adjustments of €21.2 million pre-tax, fiscal effects and tax benefits of overall €21.6 million (of which fiscal effects on operating and financial adjustments and other tax adjustments of €6.8 million and ‘patent box’ tax benefit of €14.8 million). In H1 2017 overall positive adjustments of €15.1 million.

    [3] H1 2017 results restated according to IFRS15 implementation as of January 1st, 2018. Under IFRS15 certain A&P expenses are reclassified in deduction of sales. In first half 2017 restated, the reclassification under IFRS 15 implies a reduction of €28.3 million in sales (-3.4%) and, by the same amount, in A&P expenses.

    [4] As of December 31st, 2017.

    [5] Guidance provided to the market on Q1 2018 results announcement on 8 May 2018:

    -  Forex: negative impact on net sales by € (90) million and EBIT adjusted by €(24) million on a full year basis, based on EUR/US Dollar exchange rate at 1.25 projected for the full year 2018

    -  Perimeter: negative impact on net sales by €(70) million and EBIT adjusted by €(16) million on a full year basis.

    [6]In H1 2017 negative operating adjustments of €(5.0) million.

    [7] Lemonsoda business disposal of €80.2 million, inclusive of price adjustments (closed on 2 January 2018). Bisquit Cognac acquisition for €52.7 million, inclusive of price adjustments (closed on 31 January 2018). Dividend payment of €57.5 million. Purchase of own shares of €17.9 million.

    [8] Regarding the financial years prior to 2017, values were not reclassified according to the new accounting principle IFRS15 implemented as of January 1st, 2018. Therefore, when referring to the comparison bases, although the sales organic percentage changes in H1 2017 vs. H1 2016 were calculated on a non-reclassified basis, they are assumed to be consistent to the organic percentage changes in H1 2018 vs. H1 2017. This assumption applies throughout the document.

    [9] Including Global Travel Retail.

     

 

 

Publishing date: 
01 Aug 2018
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Last updated Aug 01 2018