Campari Group announces 2018 first quarter results

 

Organic sales growth impacted by emerging market softness

and phasing effects magnified in a small quarter

 

Profitability indicators continue to benefit from positive sales mix

 

Group pre-tax profit positively impacted by capital gain from non-core asset disposal

 

 

Q1 2018 Results Highlights

  • Reported sales of €336.0 million.Organic growth of +2.2%, despite emerging market softness and phasing effects. On a reported basis, change of -8.2% after the exchange rate and perimeter effects.
  • Very favourable sales mix driven by Aperol, Campari, Grand Marnier and Wild Turkey, in the core developed markets, leading to a gross profit organic growth of +6.7%, ahead of sales, with a margin accretion of +250 basis points.
  • EBIT adjusted of €61.1 million. Organic growth of +8.9%, ahead of sales growth, showing an organic margin accretion of +110 basis points, as higher investments in advertising&promotion and distribution capabilities in a small quarter were more than offset by the solid gross margin expansion. On a reported basis, change of -5.1% after the exchange rate and perimeter effects.
  • Group pre-tax profit of €76.5 million, +42.7% benefitting from capital gain from the disposal of the Lemonsoda business. Group pre-tax profit adjusted[1] of €54.9 million (+1.0%).
  • Net financial debt of €938.7 million as of March 31st, 2018 (€981.5 million as of December 31st, 2017), after the proceeds from the sale of the Lemonsoda business, net of the acquisition of Bisquit[2] and the purchase of own shares. Net debt to EBITDA pro-forma ratio down to 1.8 times.

 

 

 

Milan, May 8th, 2018-The Board of Directors of Davide Campari-Milano S.p.A. (Reuters CPRI.MI-Bloomberg CPR IM) approved the additional financial information at March 31st, 2018.

Bob Kunze-Concewitz, Chief Executive Officer: ‘In the first quarter 2018 we achieved a positive top line organic growth, despite the impact of emerging market softness and phasing effects magnified in a small quarter. Profitability indicators showed a sustained organic growth, ahead of sales organic development, as they benefitted from a very favourable sales mix driven by the outperformance of the key high margin combinations by brands and regions, particularly Aperol, Campari, Grand Marnier and Wild Turkey in the core developed markets. Concomitantly, on a reported basis, the overall growth rates were impacted by the forex effect as well as the divestments of non-core businesses.Looking into 2018, our outlook remains fairly unchanged and balanced in a still uncertain macroeconomic scenario for some emerging markets. We remain confident in achieving a positive performance across key underlying business indicators, driven by the continued outperformance of the high-margin global and regional priorities in the core developed markets.’.

 

Summary financial information for the first quarter ended 31 March 2018

 

Q1 2018

Q1 2017[3]

Reported

Organic

Forex

Perimeter

€ million

€ million

change

change

impact

impact

Net sales

336.0

366.2

-8.2%

2.2%

-7.5%

-2.9%

Gross profit

200.0

207.4

-3.6%

6.7%

-8.6%

-1.7%

% on sales

59.5%

56.6%

 

 

 

 

EBIT adjusted

61.1

64.4

-5.1%

8.9%

-8.5%

-5.4%

% on sales

18.2%

17.6%

 

 

 

 

EBIT

82.7

63.6

30.2%

 

 

 

Group pre-tax profit adjusted1

54.9

54.4

1.0%

 

 

 

Group pre-tax profit

76.5

53.6

42.7%

 

 

 

 

 

 

 

 

 

 

EBITDA adjusted

74.7

78.6

-5.0%

8.8%

-8.7%

-5.1%

% on sales

22.2%

21.5%

 

 

 

 

EBITDA

96.3

77.8

23.8%

     

 

 

 

 

 

 

 

Net financial debt

938.7

981.5[4]

 

 

 

 

 

Guidance for 2018 unchanged[5]

Positive performance across key underlying business indicators into 2018, driven by the continued outperformance of the high-margin global and regional priorities in core developed markets.

In terms of organic growth, the gross margin is expected to continue benefitting from the favourable sales mix, despite the adverse impact of the agave price increase. A&P investments and structure costs are expected to remain stable as a percentage of sales in organic terms.

Perimeter is estimated to negatively impact sales by €(70) million and EBIT adjusted by €(16) million in the full year 20185, reflecting portfolio streamlining and the agency brand discontinuations, with a broadly neutral effect on EBIT adjusted margin as percentage of sales.

Forex is estimated to negatively impact net sales by €(90) millionand EBIT adjusted by €(24) million in the full year 2018[6] reflecting the devaluation of US Dollar vs. Euro.

 

Review of first quarter 2018 results

In the first quarter of 2018 the Group achieved positive organic sales growth (despite the emerging markets softness and some phasing effects) with profit indicators growing ahead of sales on the back of a very favourable sale 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 strengthening of the Euro against US Dollar, and perimeter, driven by the divestments of non-core assets, such as Carolans and the Lemonsoda business, as expected.

Group sales totalled 336.0 million, down by -8.2% in value on a reported basis. The positive organic sales performance of +2.2% was more than offset by a negative FX effect of -7.5% or €(27.6) million, and a negative perimeter of -2.9% or €(10.7) million.

Gross profit was €200.0 million, down by -3.6% in value on a reported basis and up +290 basis points to 59.5% of net sales. It grew organically by +6.7%, ahead of sales, generating an organic margin expansion of +250 basis points, driven by the very favourable sales mix.

Advertising and Promotion spending (A&P) was €54.1 million, down by -3.4% in value on a reported basis, corresponding to 16.1% of net sales. It grew organically by +5.4% driven by the phasing of major investments in global brands into the first quarter 2018, as planned.

CAAP (Contribution after A&P) was 145.8 million, down by -3.7% in value on a reported basis (up organically by +7.2%), corresponding to 43.4% of net sales.

Structure costs, i.e. selling, general and administrative costs, totalled €84.7 million, down by -2.6% in value on a reported basis, to 25.2% of net sales. It grew organically by +5.9%, reflecting in the quarter the full year impact of the Group’s investments in distribution capabilities completed throughout 2017, coupled with the disproportionate incidence of fixed structure costs on sales in a small quarter impacted by shipments phasing.

EBITDA adjusted was €74.7 million, down by -5.0% in value on a reported basis (up organically +8.8%), corresponding to 22.2% of net sales.

EBIT adjusted was €61.1 million, down by -5.1% in value on a reported basis and up +60 basis points to 18.2% of net sales. It grew organically by +8.9%, ahead of sales growth, leading to a margin accretion of +110 basis points, as the solid gross margin expansion driven by favourable sales mix more than offset the higher investments in marketing and distribution capabilities. The positive organic performance of EBIT adjusted was more than offset by the negative effects of forex,
-8.5% or €(5.5) million, and perimeter, -5.4% or €(3.5) million.

Operating adjustments were positive by €21.6 million, mainly attributable to the capital gain on the Lemonsoda business disposal, net of provisions for restructuring costs[7].

EBITDA reached 96.3 million, at 28.7% of sales.

EBIT reached 82.7 million, at 24.6% of sales.

Net financial costs were €5.8 million, down by €4.3 million, thanks to the reduced average cost of debt following the liability management transactions and a reduction in the average indebtedness in the first quarter of 2018 vs. the correspondent quarter of the previous year.

Group pre-tax profit adjusted was €54.9 million (+1.0%). Group pre-tax profit was €76.5 million, an increase of +42.7%.

Net financial debt stood at €938.7million as of March 31st, 2018, down from €981.5 million as of December 31st, 2017, after the proceeds from the sale of the Lemonsoda business, net of the acquisition of Bisquit2 and the purchase of own shares.

Net debt to EBITDA pro-forma ratio was 1.8 times as of March 31st, 2018, down from 2.0 times as of December 31st, 2017.

 

Review of consolidated sales for first quarter 2018

Looking at sales by region, the Americas (44.7% of total Group sales) posted an organic growth of +2.9%. The US, the Group’s largest market (28.5% of total Group sales) registered a positive organic performance of +3.5%, despite a very tough comparison base (+7.5% in Q1 2017[8]), driven by the continued solid growth of Grand Marnier, the Wild Turkey portfolio Espolòn and Cabo Wabo tequilas, as well as the double-digit growth in Aperol and Campari. These results helped offset the negative performance of SKYY, which continued to decline due to the persistent competitive category pressures, weakness within flavoured vodka as well as category share loss to craft vodka. These effects were amplified by distribution transitions affecting the comparison base in the first quarter 2017. Nevertheless, sell-out trends show a stable mid-single digit decline. Sales in Jamaica (5.7% of total Group sales) registered an organic change of +13.9%,driven by Campari (up double-digit), as well as a good growth by Appleton Estate and local brands. Wray&Nephew Overproof decreased due to an adverse comparison base in the first quarter 2017, impacted by pre-loading activity ahead of a price increase introduced in the second quarter. Sales in Brazil (1.7% of total Group sales) registered an organic change of -32.1%, in a low seasonality quarter impacted by an adverse comparison base (+51.7% in Q1 2017) coupled with tightened credit policies. The performance was impacted by temporary declines in SKYY, Sagatiba and Dreher while Aperol, Bulldog and Cynar continue their positive trends. Sales in Argentina (1.4% of total Group sales) registered an organic change of -5.2%, due to macroeconomic weakness and tightened credit policies,impacting negatively the core Campari and Cinzano brands, whilst Aperol and SKYY Vodka continued their positive trend. The region’s other markets (7.4% of Group sales) were positive by +8.2%, driven by Mexico (+8.0%)thanks to SKYY ready-to-drink and Peru, whilst Canada was broadly flat.

Sales in Southern Europe, Middle East and Africa[9] (30.1% of total Group sales) registered an organic growth of +1.1%. The organic performance in the Italian market (23.1% of total Group sales) was strong (+3.9%), driven by the positive trend of Aperol, Campari and Crodino, the latter also benefitting from the Easter shift. The region’s other markets (7.0% of Group net sales) showed overall an organic decline (-8.1%),due to South Africa impacted by the very unfavourable comparison base in the first quarter 2017 in correspondence to the start of the new distribution set up. Very positive growth was registered by France (Riccadonna) and Spain (Aperol and Campari). Global Travel Retail started the year with a flat performance at the back of a tough comparison vs. the first quarter 2017 (+18.2%).

Sales in North, Central and Eastern Europe (17.5% of total Group sales) registered an organic change of -3.8%. Germany (8.4% of total Group sales) registered a temporary decline (-2.6%). The excellent growth of Aperol (+21.0%), the good performances from Bulldog, SKYY, Grand Marnier and Wild Turkey bourbon were unable to offset the negative changes from low-margin agency brands and sparkling wines, as well as Campari and Averna, the latter impacted by price repositioning. Sales in Russia (2.0%of total Group sales) registered an organic change of -30.5%, impacted by the very unfavourable comparison base (+86.5% in the first quarter 2017) and price increase negotiations. The market is still characterized by high volatility, impacting the sales orders of some brands, amplified in a low seasonality quarter. The region’s other markets (5.5% of Group net sales) registered an overall positive organic growth (+6.9%),mainly driven by UK up +13.1% thanks to Aperol, Bulldog, Campari and Magnum Tonic.

Sales in Asia Pacific (7.7% of total Group sales) increased organically by +17.8%. Australia (5.5% of total Group sales) grew organically by +9.4%, driven by the double-digit growth for Aperol, Campari, Wild Turkey bourbon, SKYY Vodka and Espolòn, as well as the positive performance from Wild Turkey ready-to-drink, after a difficult prior year due to competitive pressures. Asia (2.2% of total Group sales) was up by +44.8%, driven by the positive performance from Japan, thanks to the SKYY portfolio, Campari, Aperol, Cinzano vermouth and Wild Turkey bourbon. New Zealand also grew (+51.0%), driven by Campari, Espolòn and Grand Marnier.

Global Priority brands’ sales (54.7% of total) grew organically by +3.8%. Aperol, the Group’s largest brand, continued to outperform(+22.8%), 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, Brazil, Russia, the UK, Australia, Spain and Global Travel Retail. Campari continued its positive momentum, up +6.6% organically, driven by US, Jamaica, Spain and UK, as well as the brand’s core Italian market (+7.3%). The good performance was dampened by Germany, Brazil and Argentina. SKYY sales registered an organic change of -15.3%, due to US market negative performance, driven by the continued competitive environment within the category as well as the weakness of the flavoured segment. The international markets were also negative as the very positive trend in Argentina, Japan and Jamaica was unable to offset a temporary decline in Brazil, South Africa and China. Grand Marnier grew by +4.2%, driven by the core US market, reaping the initial benefits from the activations implemented ahead of the brand’s new campaign kicked-off in Q1 2018. Wild Turkey,which includes American Honey, registered a positive organic change of +6.2%, driven by continued growth in Wild Turkey bourbon 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, with a growth in the US. The Jamaican rums, including Appleton Estate and Wray&Nephew Overproof, showed an organic change of -4.5%. Appleton Estate registered a slightly negative performance (-1.0%) whilst Wray&Nephew Overproof declined (-4.2%) against a very difficult comparison base from last year (+36.8%), due to preloading activity in Jamaica ahead of a price increase in the second quarter of 2017, while underlying trends in core markets as well as seeding markets remain positive.

Regional Priorities (15.7% of total)decrease by -1.3% organically. Espolòn grew by +28.8%, benefitting from the continued double-digit growth in the core US market (+35.1%). GlenGrant registered an organic decline (-21.0%), largely due to shipments phasing in France and South Africa, whilst the US, Ukraine and Spain registered positive results driven by more premium and higher-margin propositions. Forty Creek registered a change of -6.8%, with positive growth in Canada hampered by the decline in the US.The Italian bitters registered a flat performance, with very positive results of Braulio driven by the core markets of Italy and the US. Averna was penalized by price repositioning in Germany while Cynar declined largely due to phasing. Frangelico registered a decline (-8.5%), due to temporary weakness and phasing in the US and German markets. Bulldog was up by +14.1% on the back of a good performance in UK, Germany, Portugal, Italy, Spain and Global Travel Retail. Cinzano showed an overall weakness (-22.4%) impacted by price increase negotiations in Russia as well as shipment phasing in Argentina. Other sparkling wines (Riccadonna and Mondoro) increased organically by +28.1%, thanks to the positive performance of core France while Russia was negatively impacted by the price increase negotiations.

Local Priorities (12.5% of total) were broadly flat (-0.3%) in organic terms. Campari Soda was up by +1.9%. Crodino registered a positive growth (+3.8%), thanks to continued success from the product innovation of last year and the Easter shift. The Wild Turkey ready-to-drink, up by +7.7%, driven by the core Australian market. The Brazilian brands were negative (-40.5%), impacted by phasing as well as a difficult comparison base.



[1] Group pre-tax profit before operating adjustments of €21.6 million in Q1 2018 and €(0.8) million in Q1 2017.

[2] Lemonsoda business disposal of €81.5 million, inclusive of price adjustments (closed on 2 January 2018). Bisquit Cognac acquisition for €59.4 million, inclusive of price adjustments (closed on 31 January 2018).

[3] Q1 2017 results restated according to IFRS15 implementation as of January 1st, 2018. Under IFRS15 certain A&P expenses are reclassified in deduction of sales. The reclassification is neutral on EBIT value but has an impact on margin ratios on sales post reclassification. In first quarter 2017 restated, the reclassification under IFRS 15 implies a reduction of €10.5 million in sales (-2.8%) and, by the same amount, in A&P expenses.

[4] As of December 31st, 2017.

[5] Unchanged vs. guidance provided to the market on FY2017 results announcement on 27 February 2018.

[6] Unchanged vs. guidance provided to the market on FY2017 results announcement on 27 February 2018 and based on EUR/US Dollar exchange rate at 1.25 projected for the full year 2018.

[7] In Q1 2017 negative adjustments of €(0.8) 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 Q1 2017 vs. Q1 2016 were calculated on a
non-reclassified basis, they are assumed to be consistent to the organic percentage changes in Q1 2018 vs. Q1 2017.

[9] Including Global Travel Retail.

Publishing date: 
08 May 2018
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Last updated May 08 2018