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Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Campari Group First Quarter 2021 Results Conference Call. As a reminder, all participants are in a listen only mode. At this time, I would like to turn the conference over to Mr.
Bob Kunze Concewitz, CEO of Campari. Please go ahead, sir.
Thank you. Good afternoon, and welcome everybody to our Q1 call. If you have the presentation in front of you, I'd ask you to join me on Page number 4, where I'll kick off with the general overview. As the numbers speak for themselves, we had a Pretty decent start to the year, pretty good momentum, driven by home consumption and all of this despite the 3rd wave of lockdowns. Looking at net sales on an organic basis, they were up 17.9%.
Obviously, Q1 is a small quarter. And the underlying momentum in our core off premise markets was amplified to a certain extent by an easy comparison base versus Q1 2020, where you will recall we were down by 5.3%. There was also a slight early Easter effect well as some shipment phasing in selected markets. We've seen continued sustained growth in the off premise queued markets, while clearly on premise and GTR continued to be heavily impacted by the renewed restrictions. Looking at it on a geographic basis, Very good momentum in the Americas overall, quite nicely in core off premise queued U.
S, up 15%, 28% in Canada and Almost 34% in Jamaica. And we also saw a recovery in Latin America with Brazil up 61% Argentina almost 100 percent. Off premise SKU Northern European markets continued to do very well as well as Australia, which was up 22.6%. On the other hand, the on premise queues Italy and Spain as well as GTR, as can be expected, continue to suffer the effects of the lockdowns. Looking at it on a brand basis, growth for our global aperitifs was held back by softness in the on premise market, Obviously, in a small seasonality quarter.
Strong continued momentum in Wild Turkey, up 30.9%, our Jamaican rums Growing even faster, up 44.6 percent as well as a nice recovery in Grand Marnier and SKYY Vodka. Our regional priorities were up 26.4 percent overall, driven as usual by Espolon, up 63.9%. 40 Creek, GlenGrant and Sparkling Wines also did quite nicely. Looking at local priorities, they were up 25.5%, driven by Aperol Spritz, ready to enjoy. This is the first time I think we're isolating those numbers.
Campari soda as well as wild turkey ready to drink. Our overall organic growth came in at 12.1%, Showing nice solid business underlying momentum. The reported change of 10.5% positive reflects on the one hand a flattish perimeter effect of minus 0.8 percent, but quite a negative ForEx effect of minus 6.6 percent, driven by the devaluation of the U. S. Dollar as well as some emerging market currencies.
Looking at EBIT adjusted, we have an organic growth of 63.6%, which is a nice 5 20 bps margin accretion. This is largely due to an easy comp base. You remember last year, we were down by 35.3 percent and we had a 6 20 basis points margin dilution. Gross margin overall was slightly dilutive, only minus 20 basis points and driven by an unfavorable sales mix, clearly impacted by the outperformance of lower margin Espolon still feeling the impact of very high agave costs. The overall positive FX EBIT adjusted reflected growth in A and P, slightly behind top line and an organic decrease in SG If we look at organic growth, that was up 6.7%, a 90 bps margin dilution versus Q1 2019, Clearly largely driven by the unfavorable sales mix.
The reported change came in at 43.1% positive after the negative perimeter effect of 7.6% and negative ForEx effect of minus 13%. Moving on to profit before taxation. On an adjusted basis, it came in at €64,100,000, up 84.7 percent on a reported basis, CHF 64,800,000, up 112.1 percent. To close it all off, net financial debt came in at EUR 1,67,900,000 down EUR 35,800,000 versus the end of the calendar year. And it was mostly driven by the positive free cash flow generated by the business, leading to a net debt to net financial debt to EBITDA adjusted ratio of 2.5 times, down from 2.8 times in December 2020.
Moving on to Chart number 5. Not much to say except that clearly home mixology is continuing to drive a nice growth of consumption across all of our key markets, and we're continuing to outperform our reference markets. The same would be if we included Germany, which is our 3rd market and many, many others. I mean, in the vast majority of markets, We are benefiting from the trend, but also outperforming versus the reference markets. Moving on to sales results.
I'll Page number 7 because we will analyze that in detail later on. Page number 8, just to stress the fact that now the U. S. Is by far Our largest market at 32%. It's twice as big as Italy, and it's clearly performing very, very nicely.
And looking at that into more detail, Page 9, I think what's nice to see is that All of our key clusters in the Americas grew double digit versus Q1 2020. But beyond that, most importantly, We have double digit growth across all of the clusters versus Q1 2019. So it's a very, very nice recovery here. The U. S, as mentioned earlier, was up 15%, a very, very positive performance.
We have the continued outperformance of Esperon, Wild and the Jamaican rums as well as the shipments recovering Grand Marnier and Sky Vodka. Essentially, by the end of Last fiscal year, the stocks had come down so low that we had to replenish a little bit the pipelines. But bear in mind that if we compare inventory at U. S. Wholesale level versus 2019, We're still at half that level.
So we have very healthy inventory levels. The Aperitifs, on the other Aperol and Campari on a shipment basis, They declined due to a very tough comp base. You will recall that last year when the Tariffs were introduced by the administration. We increased prices at the beginning of April, so we had quite a bit of advanced shipments ahead of the price increase in Q1 2020. Importantly though, if we look at both depletions As well as consumptions at our priorities are continuing to grow nicely double digit in the U.
S. Our brand momentum in the off premise is Quite strong despite the tough comp base versus previous year, which you will recall was also boosted by country loading at the beginning of the pandemic. The off premise sellout for our portfolio was up 14% in the Q1, growing approximately 30% faster than the overall market. Our sellout in the Aquinas showed strong double digit growth for all of our core brands and nice performance by our newly acquired We're continuing to see very solid growth in e commerce, growing by triple digits. We're outperforming most of our peers.
Canada, up 28.2%, a lot of strength from 40 Creek, but most importantly also Appleton Estate and Grand Marnier, which are more premium. Jamaica, up 33.9%, Nice growth against an easy comp base, and it's pretty broad, the growth with right now, if you Overproof, Campari, Appleton and Magnum Tonic, all of our heavy hitters doing very, very well. If we look at the rest of the region, it was up 31.4%. Obviously, we have some benefits from an easy comp base across South America. Brazil was up 60.8%.
Here, we were also benefited from a change in distribution in our local brand, Dreher. Argentina was almost up twofold, 99.1%. The only market which was down was Mexico, 5.2%, Impacted by the restrictions clearly, which also have a double impact not only on the local population but also on tourism. Moving on to Southern Europe, Middle East and Africa, a slightly different picture. Clearly, these are markets, particularly Italy, Spain, but also Global Travel Retail, which are impacted by the pandemic, the closure of the on premise And limitations on travel.
So although the figures versus 2020 are pretty good, I think the Flattish performance in Italy is actually very, very good circumstances. We're still being clearly not recovering versus previous year. In the case of Italy, we're still down roughly a quarter versus Q1 2019. Focusing on entity, slightly negative performance, where Very strong performance actually in the off premise helped to compensate the weakness coming from the ongoing restrictions Due to deferred wave of the pandemic on the on premise. Clearly, we also benefited from an easy comp base.
We were down 24% last year And a little bit from the early Easter. On the other importantly, though, we're seeing very positive performance on Campari Soda and Aperol Spritz ready to enjoy As both brands are benefiting from the very positive cocktail to go trend and increased home consumption of aperitifs. This helped offset the weak performance of Cordino, Campari and the bidders, which have a very on time Aperol, on the other hand, was broadly flat. We have very positive off premise sales trends in Italy, So nice confirmation of strong momentum. Importantly, it's really across the range with the exception of Crodino, which is still a little bit lagging bearing.
France, very strong, up 65.7%. Continued positive brand momentum as well as favorable comp base. You will recall, we changed our route to market in France in Q1 of last year. Our growth was mainly driven by Aperol, Ricardona, the newly acquired Troavia arms, Grand Barnier returning to growth as well as Campari. Global Travel Retail, not much to say, except that it's down close to 39% As everybody active in this channel is highly impacted.
The rest of the region up 11.7%. We're quite happy to see South Africa returning to growth, also helped by progressive restocking against an easy comp base in the previous year. Spain unfortunately continued to decline due to the weakness in the on premise, Which is highly impacted by restrictions. Moving on to Business Unit, North, Central and Eastern Europe, here again, a very positive picture. Strong growth versus 2020 And also very strong growth versus 2019.
So extremely strong momentum in this region. Germany, which is our 3rd largest market, grew by 8.1%. We are outperforming from a sales perspective in that market as well. We're seeing sustained home consumption, clearly an easy comp base, but not as easy in other regions as Germany was flat previous year. The UK, up a very strong 36.2%, double digit growth of our Magnum Tonic Wine, Grand Nefieu, Aperol and Campari.
We've got very good momentum in the off premise and we've seen a very strong reaction In the on premise, as soon as consumers were allowed to go back to restaurants, bars and pubs. And on e commerce in this key market, also seeing triple digit growth rates. Russia came in with a nice performance, up 25.6%. Overall, quite positive across the portfolio with Quite a bit of strength in Mondoro and Aperol. The rest of the region was up 16.2%, Again, positively impacted by the Aperitifs and so on consumption.
And in particular, we've seen double digit growth in Switzerland, Belgium and Austria. Moving to our last region, APAC. APAC II, very Strong not only versus 2020, but even more versus 2019. Australia up 43.6% versus 2019, the other countries 52%. Clearly, here in this region, we're starting to reap the dividends of our investments of the new organization, the move to Singapore, the hirings As well as the changes in route to market.
Focusing on Australia, up 22.6%, Continued strong growth in this off premise skewed market, and this is all driven by all the key brands, early Wild Turkey RTD, which is a substantial part of the business there, Wild Turkey Glass Business, Aperol as well as Espolon. The rest of the region grew at a very sustained 128.6%, clearly very positive results in our key markets, Japan, New Zealand, China and South Korea, where we've benefited from shipment recovery post our route to market changes. Moving on to net sales by brand, Not much to interpret in track number 13. Moving to Page number 14 and Aperol, I would like to Start by saying it's really heartwarming to see the consumer love for this brand and you have some free Interesting vignettes there from different areas. One is the page from BBC News, A picture taken just as the high street and pubs reopened, and you can see a big Wave of orange glasses in consumers' hands.
The next one is actually the cover page of the main newspaper in Italy, Our Prime Minister is hugging a Magnum bottle of Aperol. And last but not least, one of our unofficial brand ambassadors, I was a big fan of Aperol Spritz, Lady Gaga enjoying a great spritz during the shooting of the Gucci saga. Remaining on qualitative indicators, clearly, the brand is on everybody's lips. It is in the top 5 most mentioned brands and the only cocktail. With this, I mean, upper of space in the top 20 on social media worldwide In Q1, we've had overall a stable performance in the slow seasonality quarter.
The growth was driven by strong double digit growth in Germany, France, Russia, Austria, Switzerland, the U. K. And Australia, Which help compensate the shipment weakness in the U. S. I mentioned the advanced shipments last year ahead of the price increase.
Actually, if we exclude the U. S, Aperol would have grown by 14% versus 2020. Had we included we reflected the depletion and consumption figures into the total, it would be in the U. S, The figure would obviously be stronger than 14% as we're seeing strong off premise sellout data across all of our markets. Moving on to Campari.
Campari continues to benefit from strong home consumption trends. The brand is up 6.5%, driven by Jamaica, Germany, the U. K, Switzerland, France and South America. This helped offset the decline in core Italy duty on premise closures. The U.
S, as in the case of Aperol, was also penalized by tough comp base With the advanced shipments linked to the price increase. Excluding the U. S, the growth of Campari would be equal to almost 20% versus previous year. Net to net another brand in very strong health. Moving on to the remainder of our Global Priority brands on Page number You can see Wild Turkey growing very nicely both versus Q1 2019 and Q1 2020.
The core U. S. Market is doing very nicely where we have not only strong category momentum, but our premium offering is actually doing over proportionately well there. Canada, Australia and Japan also grew nicely. And clearly, now we're anniversarying the route to market changes, which impacted us negatively in Japan last Sky also here, 2 nice numbers, up 5.4% versus 'nineteen, 10.4% versus 'twenty.
We have a shipment recovery in the core U. S. As we're transitioning from the old Sky to the relaunched Sky, and this will obviously impact Q1 and Q2. Core continues to outpace flavors. We have double digit growth in international markets, particularly in Germany, Argentina and South Africa.
Grand Marnier is also giving us quite a bit of satisfaction, up 16.4%, sorry, versus 201929.7% versus 20 20. Again, we have the shipment recovery in the core U. S. Market. But I must say that the if you look at the consumption indicators, they're also stronger than the shipments.
So It's not just the slight restocking we've had to bring it to healthier levers. We're also seeing core And last but not least, our run portfolio going from strength strength growing more than 40% both versus 20 20 and versus 2019 with strong growth across all key markets. Our regional brands, again, Espolon remains a hero, up 82% versus '19 64% versus 'twenty. Again, very strong performance. The same can be said also about Australia and Canada.
Bulldog is accelerating its growth, 2% versus 2019, 24% versus 20. We're seeing continuous weakness in Spain, which is its largest market, but that's been compensated by Germany, Belgium and Argentina. The Glenn Grant, despite the weakness in GTR, has reacted very positively to the premiumized range. So it's up 32.5%. 40 Creek continuing to do very nicely in its core market, Canada.
The one negative note is the Italian bitters, Cinard, Bao, Laven and Frangirico, which Dione, 4.8% versus 20% 18% versus 2019. Clearly, they're mostly affected by the closure of restaurants, not only in Italy, but also in Central Europe or particularly Germany It's a core market for them. Cinzano has accelerated the pace going from minus 1.2% in 'nineteen '20 versus 'nineteen, 2 plus 6.9 percent in 'twenty one versus 'twenty. Here at Vermouth, which is leading the dance, whilst The sparkling wine continues to be impacted by the core Italian and the German markets. On the other hand, our more premium Sparkling ones, Montfondoro and Ricadona are growing at a very strong double digit rate, 53.6% versus 2019, 76% versus 2020.
To close it up with our local priorities, we're actually very, very pleased to see consistent and healthy growth in Campari Soda, which is able to recruit new consumers now into the franchise and also to benefit from the cocktails to go phenomenon, so growing double digit and particularly at the beginning of this year, up 43.8%. Cordino, which is undergoing a relaunch, is unfortunately not in that position, and our key aim is to really improve that track record throughout the year. After all, it's split triple digit growth 2 years in a row. This year, we expect that to accelerate as we make This SKU available for the first time in other established apparel markets such as Germany, Australia and so forth. Our Australian Wild Turkey RTDs growing double digit for AIC at a sustained pace and continuing to take market share in that market.
The same with Magnum Tonic, X rated in Asia and particularly in China are doing Very, very nicely. And to close it all off, also Cabo Wabo benefiting from the tequila trend in the U. S. This is it. In terms of sales uptake, now I can sit down to Tal.
Thank you, Bob. If you follow me to Page 20, where we have the P and L glance, we can see net sales coming in at €397,900,000 in Q1 2021 And EBITDA adjusted coming in at €68,500,000 showing an increase of 10.5% 43.1 percent respectively in value. If you look at the organic performance, the increase Over prior year was even stronger both for net sales and EBITDA adjusted with net sales up 17.9% in value And EBITDA adjusted up 63.6 percent in value. Looking at the organic growth of EBITDA adjusted in value, You can see below that organically, it was worth €30,400,000 primarily coming from an increase in gross margin, which in value accounted for €36,600,000 But also thanks to SG and A containment of €2,300,000 The 2 positive factors were partly offset by an increase, a step up in A and P spend of €8,400,000 in the Q1 The Q1 group achieved 5 20 basis point EBIT margin expansion, coming primarily from SG and A, Which drove 4.90 basis point EBIT margin expansion, 40 basis points from A and P And the 2 of them were partially offset those two factors were partially offset by a gross margin dilution, which was tiny, but still there of 20 basis points in the Q1.
The combined effect of perimeter and FX in the Q1 accounted for €9,800,000 and 130 basis points as a percentage of sales. Worthwhile noting that if we look at 2021 Q1 performance in comparison to Q1 2019, 2 years ago. Top line was quite robust organically, up 12.1 percent And bottom line as well with EBIT adjusted organic growth of 6.7% over the 2 years period. Moving on to Page 21. EBITDA adjusted commentary line by line.
Gross margin on a reported was up 10.8% in value to 58.2% on sales, showing 20 basis points accretion. Organically, gross margin was up 17.5 percent in value, slightly lower than the top line growth, leading to 20 basis Point margin dilution as we saw before. And this was driven by unfavorable sales mix, which was affected by the outperformance of Espolon, Which was impacted by the high aggregate purchase price. With regards to gross margin, organic performance versus Q1 of 2019 in value, gross margin grew by 7.2%, Showing still a 260 basis point dilution due to a combination of factors. 1st and foremost, the unfavorable sales mix driven by the outperformance of Espolon, but also of the look of low margin, local priority brands, Combined with the outperformance of certain aperitifs, particularly Corodino in the domestic market that was still Not recovering entirely the level of sales of 2019.
A and P on a reported basis was up 9 point percent in value to 15.7 percent on sales with 10 basis point accretion. Organically, A and P grew in value by 14.7 lower than top line, driving 40 basis point margin accretion in a low seasonality quarter. During the quarter, NPE investments remained mostly focused on digital and off premise activations. We clearly are aiming at stepping up the NPE 2019 A and P organically was up in value by 9.3% with 40 basis point accretion. SG and A on a reported basis were down 3.3 percent in value to 25.3 percent on sales with 360 basis point attrition.
Organically, SG and A were down by 2.2% in value compared with the Q1 of last year, Which was not impacted by cost mitigation actions. Actually, in the Q1 of 2020, SG and A, as you may remember, grew in value by 8.7%. Organically, SG and A were down by 6.2% versus Q1 of 2019, mainly driven by route to market changes, Margin accretion of 130 basis points driven by strong top line growth. EBITDA adjusted on an reported basis was up, as said, 63.6 percent with 520 basis point margin accretion and versus 2019, The increase in value accounted for 6.7% and the dilution accounted for 90 basis points. If we move on to Page 22, below EBIT adjusted, we have negative operating adjustments for 2 €1,000,000 mainly attributable to tail end effects of restructuring initiatives that we've launched last year.
We then had net financial charges of €3,400,000 in the Q1 of this year, €9,400,000 lower versus Q1 of 2020, and this was mainly due to a positive variance from exchange gainlosses
Of €6,300,000
namely this year, we had €3,200,000 gain in Q1 of 2021 Versus in the Q1 of 2020, we had €3,100,000 loss. Now if we carve out the effect of exchange gain and losses, The net financial charges came in at €6,600,000 in the Q1 of this year versus €9,700,000 in the Q1 of last year. The overall selling in the Q1 of EUR 3,100,000 was achieved thanks to lower Average cost of net debt, 2.4 percent in the Q1 of this year versus 4.7% in the Q1 of last year And the reduction in net financial charges was of 3 point €1,000,000 was achieved despite the higher average level of net debt in the Q1 of this year, €1,385,000,000 versus euros 832,000,000 of last year. Profit related to associates and JV was €2,300,000 and was mainly due to A gain generated by the reassessments of the group's participation in the South Korean JV, which the group For which the group acquired a controlling stake at the beginning of 2021. Group pre Profit before taxation came in at EUR 64,800,000, up 112 percent.
On an adjusted basis, excluding one offs, the Group III profit before taxation came in at euros 4,100,000 up 84.7%. Moving on to Page 24. As you can see, we have quite a strong deleverage in the Q1 of this year, which was driven by positive cash flow generation. The net debt came down by €35,800,000 in the Q1 of this year From €103,800,000 of December last year to the current level of €1,67,900,000 And the leverage ratio and that will be the adjusted ratio is now down to 2.5 times From 2.8 times of December last year. I think this is on numbers, and I would hand back to Bob For his comments on rare.
Thank you. Thank you, Pawel. Before moving on to the conclusion and outlook, just some update on marketing initiatives. And obviously, the most one is the establishment of our new rare division, which is a new and dedicated approach to establishing our group as a key purveyor of luxury offerings globally, but in particular in the U. S.
You can see that over the years, we've built an impressive portfolio actually in high end expressions, Moving from upwards of $40 to beyond $700 actually, if you look at that Grand Marnier bottle at the top It's more around $1200 So clearly, we have a very wide and very attractive portfolio there, and We want to develop this super premium and above expressions to reconquer the high end consumers. We all know that The high end of our industry is growing faster than the mainstream. So this is an important initiative for the mid- to long term. This division will have its dedicated organization, marketing and sales organization in the U. S, it will share the same back office, obviously, in the U.
S, whereas in the rest of the world, we will have dedicated sales within our existing organizations. We'll kick off with a pilot project in the U. S. This year, we'll only extend to 3 states, California, Texas and Florida, gather those learnings and extend it further next year. Moving on.
Our brand houses are continuing to win awards. Camparino, which we opened Unfortunately, right before the lockdown in Italy was awarded really best bar by the Italian Bar Awards, We're looking forward to hopefully entering the top 50 in the world pretty soon. It's become quite a cult destination in Milan as As soon as the region turns yellow with cubes forming outside of it. We're continuing to work very, very focused on reinforcing food consumption worldwide across our brands, but in particularly for aperitifs, which have a higher SKU to the on premise historically, as you know. And judging by the off premise set out data, we're quite successful at that.
And last but not least, we're also quite proud to see that all of our distillates are winning a lot of prizes across the world, so be it Wild Turkey, Apple Really a testimony to the quality of the liquids and I think to the potential of our rare division where most of these higher end expressions will be sold. Before moving on to your questions, the conclusion, I think it's quite clearly a satisfactory start of the year. The market is benefiting from sustained home consumption. And thanks to the health of our brands and strong momentum, we're overproportionately benefiting from that. Clearly, there is some magnification from an easy comp base as well as early Easter effect on the whole quarter, but we estimate that to be about only onethree of the growth we had versus previous year.
Now looking at the remainder of 2021, our underlying performance is Quite solid. We see really positive brand momentum. We expect that to continue. We're going to fuel it also by sustained marketing investments, which we will accelerate in Q2 and Q3, which are the peak aperitif seasons and benefit from the Like we did last year from the gradual reopening of on premise channels across our key different markets, and we'll continue to build on our very strong e commerce momentum. Having said that, though, whilst we're starting to turn positive, we still wouldn't be surprised by volatility As well as uncertainty, which is driven by ongoing restrictions as well as the timing of the vaccine rollouts in the European Union, Which has been slower than in the U.
S. And in the U. K, we already see a very strong return to the on premise Global Travel Channel Travel Retail, we also think will continue to be affected. You also need to bear in mind that on a quarterly basis, we'll continue to be impacted by different comp bases throughout the rest of the year. Clearly, Q2 is an easy comp base, Q3 is a challenging one and Q4 is another easy one.
Last and but not least, when we look at ForEx and perimeter effect on our adjusted EBIT for this year, we expect negative ForEx effect to marginally worsen, particularly versus our previous guidance. But on the perimeter, we see stability so far. This is it from our part and happy to take your questions.
The first question is from Andrea Pistacchi with Bank of America. Please go ahead.
Yes. Hi. Good morning, Bob and Paolo. I have three questions, please. The first On the shipment phasing, I probably missed what you said right at the end of the prepared remarks.
Did you say that the benefit from the Easter selling and shipment phasing explained about 1 third of the strong growth in the Q1.
That is correct.
Okay, thanks. And can you say what apart from Asia where there was clearly restocking as you change the distribution, What drove the shipment phasing? Is it related to or have you started to restock the channel, The on trade channel or must that still come? The second question is actually On the import tariffs in the U. S, which have obviously been suspended.
Now assuming the suspension is made permanent, Would you expect to recover fully recover the EUR 19,000,000 EBIT which hit which you suffered last year as you told us a full year result? And how much of that would you expect again, if the suspension is permanent, how much of that would you expect this year? And my last question please is on Aperol in the U. S. Aperol, I mean, hasn't had Quite as positive trends this year as you've had in other markets, given obviously it's very exposed to the on trade, maybe the fact that it's not Why it's established as in some other countries.
What do you think it will take and how long will it take to really rebuild the momentum that You're enjoying with Afro before lockdowns in the U. S?
Hi, Andre. I'll take the first and the last question. I mean, the point on shipment phasing, Clearly, Easter was early this year, so there was some move from shipments we would have had Q2, which moved into Q1 because of that Easter effect, but I already disclosed what the overall impact Of that and the comp base was the other mention we did was obviously in the U. S. Where we have very strong momentum across the portfolio.
And in the case of certain brands, the sellout was such that our stocks really came to very unhealthy levels at the end of last year. So our distributor partners out of tried to not tried, I mean, they basically Cover themselves better to avoid out of stock situations. But as I said earlier on, compared to 2019, If we look at our end of Q1 stocklet inventories in the U. S. Across the vast majority of our franchises, they're Half of where they were in 2019, so it's quite a healthy situation.
Now apparel in the U. S. Actually has good momentum. Obviously, we weren't able to build the momentum last year with the closures in the on premise. Just with the off premise, we're seeing 20% to 30% growth rates, which are quite positive.
That means that the existing Consumers are actually increasing the amount they're consuming on a regular basis, and that points to consumer loyalty and love for the brand. Now that the on premise has reopened and if we look at the stats we received from our distribution partner, We're back to 97% on a numeric basis and weighted basis of the on premise outlets reopening. We expect the brand to go back into recruitment mode. So we feel pretty good about it.
With regards to the tariff suspension, if that is confirmed and the suspension becomes permanent. We're expecting to pocket 50% of the €19,000,000 potential profit uplift this year and remainder in 2022. This is clearly the story that is sitting in the U. S. Ahead of the tariff suspension
sales. Great. Thank you.
That's the goal for this year.
The next question is from Trevor Stirling with Bernstein. Please go ahead.
Good morning, Bob and Paolo. So 3 from my side, 2. First one, Bob, if you look at the U. S, and in particular, the states that have been leading the reopening process, so Texas and Florida, Any learnings from those states about what the net impact of the reopening is? Second question, I appreciate this is really difficult to Start to project forward based on 1 quarter.
If I take the 12.1% up versus 2019, I take out the 6% easy comp. That leaves me at 6% up on a 2 year stack even though Europe on trade still closed and GTR still launched Closed. Yes, as it turns to be, actually, underlying growth is faster coming out of COVID than it was going into COVID. Is that something that's too early to start making the projections on? And the final one, a relatively trivial one, Bob.
Magnum tonic keeps popping up time and time again. Is that growth just coming inside the Jamaican community or Jamaican heritage community in the UK or is it starting to spread outside that community?
I'll take the last one and I recommend the consumption. It's quite an exceptional drink. Now what we're seeing is that growth in the U. K. Is coming outside of the Jamaican community.
I mean, it's reached the size where it's built into the friends of the Jamaican community. So this is becoming a little bit of an oil spill approach, and it's growing month to month, so quite exciting, which leads us to start thinking about what the potential of the brand could be maybe in other geographies, thinking about what the potential of the brand could be maybe in other geographies as well. Now with regards to your first question on the U. S. And those states which have opened, I mean, we've seen actually very, very good momentum in the on premise.
So we're very positive about that. And the benefit we're seeing from the lockdown periods and how it impacted Overall consumers' habits is that the penetration of cocktail culture has grown significantly in home And the preparation of cocktails or buying ready to drink cocktails. So having A lot of brands, which are key ingredients in the top 10, top 20 cocktails in the world, We're benefiting from that momentum as well as a return to the on premise. So I think overall, our underlying growth is probably Stronger than it was in 2019 due to that factor.
Super. Thank you very much, Paul.
Thank you.
The next question is from Simon Hales with Citi. Please go ahead.
Thank you. Actually, Bob, afternoon, Paolo. 3 also, sort of, please.
Seems to be the magic number.
Always a magic number. Can I just ask you a little bit more about the Rare division? I just want to make sure I understand the plans here. It sounds like you're in a few states this year with a hope to maybe roll it out more broadly in 2022. How do we think about the incremental investment that may be required into that division.
Is it too early to talk about that? Or will it simply be a transfer of existing resource within the organization? That's the first one. Secondly, just coming back to the stock levels in the U. S, 50% of 2019 levels.
Mean, how do you expect that to sort of move by the end of this year? Do you think we'll see stock levels sort of back where they were pre COVID? Or do you think we'll have seen wholesaler inventory Permanently reduced. And then the final one was just wondering if you could talk a little bit more about the performance of Sky. Clearly, good shipment trends, but what are you seeing in terms of underlying Consumer depletions, consumer reactions to the brand now, please.
Yes. Simon, thank you for your questions. Now with regards To rare in the U. S, you're right about the overall scheme. And it's not just reemploying existing employees.
We're looking at the new route to market and new marketing model and trying to target more premium Consumer, so that requires also hiring people with a good feel for that market. So there is incremental investment, But we're able to absorb that from within this year. And then obviously, judging by the success of it and learning on how best to structure and organize it, We'll see further next year. So no impacts this year. On the stock levels, we wouldn't Our distribution partners to actually increase their stocks in the remainder of the year.
We think we're in a very healthy position. They're happy. We're happy. So we'll try and make sure that our shipments mirror our depletion and consumption trends. With regards to SKYY, it's a little bit too early to tell.
I mean, we've got a few anecdotes here and there of very positive reaction. But frankly, The product hit the distributor shelves at the end of Q1, and now they're starting to hit retail shelves. So The big boost is going to come towards the end of Q2 and then in Q3.
Got it. Really helpful. Thank you.
The next question is from Edward Monte with Jefferies. Please go ahead.
Good morning, Bob. Good morning. Afternoon, Bob Pollo. A couple for me as well, please. Hi.
3 from me then. Yes. That's about Rhea, just to follow-up on Simon's question. How big as a percentage of the portfolio is your rare portfolio Today, if you will. And I think in the ambition, you talked about unlocking, accelerating growth in existing and future Super premium and above portfolio.
So perhaps you could talk about where the gaps are from an inorganic perspective? The second question is really around some of the nontraditional formats. Can you talk about Aperol ready to enjoy Campari Spritz and Campari Tonic, I mean, could you perhaps talk about what the opportunity is for these nontraditional formats Obviously, a very strong brand. And then the
third question, a bit of
a housekeeping question. Just this very, very strong growth In APAC ex Australia, 129 percent in the Q1. Can you just talk about the sustainability of that growth?
Yes. Thanks, Ed. Now with regards to rare, I mean, if you take all of those expressions which we put into that pyramid, they account for slightly less than 5% of our total sales, yes? With of our total sales. Yes.
With regard to the future, I mean, it's clear that if you look at all our acquisitions and our innovation, They're all aimed at further premiumizing our portfolios. It's not like we see any particular gaps or hunting for something. But having the choice, we'd rather go premium. And this is a part of the business which we look very forward to growing in the years to come. Moving on to the ready to go, I mean, the opportunity.
If you take all of our ready to drink expressions together, so if you take The RTDs in Australia, you take Sky Blue in Mexico and Asia, you take the Aperol Spritz, the Negroni ready to go, they amount Quite a bit. I mean, it's 10% of our sales on a global basis, and they're really spot on in terms of the consumer need right now. So We're looking at driving them forward. With regards to the Aperol Spritz, we've been very cautious in the past, and we're only introducing it this year In those markets, large markets such as Germany or Australia, where Aperol and the Aperol Spritz are already very well established, but we see very good run rates there As well as for the SKY RTD potentially in a wider geographic Footprint in the years to come. Clearly, consumers are reacting very positively to this.
I mean, we're not looking Going crazy online extensions across our brands. It's very selective and we'll keep to the ones we are and we will not have a plethora Of line extensions or let's say RTD versions. But what we have currently, we think has a lot of legs And we will leverage them in a way that we also build brand equity. With regards to APAC, obviously, I mean, this quarter It's a special quarter because Q1 'twenty was really impacted by a lot of route to market changes. So the comp pace was quite easy.
Having said that, we would expect our rest of Asia to grow nicely At a double digit level in the near to midterm.
Thanks, Bob. And just coming back to rare, I mean tequila is not part of this. Is that because the price laddering of your portfolio is not necessarily there? Or is doesn't need much help given that I'm on fire.
No. The price laddering within our portfolio is currently Not there, but wait and see. We might surprise you. Good. Look forward to that.
The next question is from Laurence Wyatt with Barclays. Please go ahead.
Hi, Bob and Pallek. Thanks very much. 3 from me as well. It seems to be the trend of the day. Firstly, on the various returns, the entrade that we've seen, sort of mentioned a few in America and a few states, but now parts of Europe, particularly the UK, It's recovering and we're starting to go back to the entree.
Have you seen any changes in consumer behaviors as they do go back to the entree, Spirits versus beer or within your particular portfolio, any consumer changes going towards or away From certain brands and certain products. Secondly, your travel retail results were Potentially quite a bit better than some of your peer group, sort of only down around 50% versus pre COVID levels and only 40% on the quarter. Do you think you're doing anything differently in travel retail that your peer group are not? Or why do you think you're slightly ahead of the rest? And then finally, perhaps following on from Ed's question on tequila.
Are you seeing any early stages of prices potentially Coming down at all. I think there were a few mentions of
You mean tequila prices or agave prices?
Agave prices. Okay. Not tequila.
I hope nobody is taking prices down on tequila that we've recited. Let me take First two, I mean, with regards to the on trade, I mean, in consumer behavior, we're seeing consumers returning to the on trade with a vengeance. I mean, they're there to recover lost time. They really missed conviviality, and we're seeing them return to their favorite cocktails. So we aren't seeing Much of a change, quite on the contrary, probably spirits and aperitifs doing slightly better over proportionally.
And we're seeing it across all of the markets. And we'd hope that if through vaccinations, We're able to open up further and have consistency throughout the year. That could be quite interesting. Now with regards to GTR, bear in mind, I mean, GTR for us has always been a small business. I mean pre COVID, it was 2% of our sales.
So I wouldn't read too much I mean, the way we treat GTR for us to focus is, it is really a brand building channel. So we're continuing to invest in the channel irrespective of the fact that there isn't much action there, but it's the right thing to do because sooner or later, Consumers and travelers will start going through those shops.
With regards to the agave prices, although Prices are still stable vis a vis last quarter of last year. Qualitatively, we can say that there is an increased sense of confidence that we're probably at the end of the tunnel. And also, the incumbent Mexican player gave some commentary Around more benign prospects on aggregate prices. So that bodes well, I believe. So We are positive with future trends.
That's great. Thank you very much.
Thank you.
The next question is from Robert Ransom with UBS. Please go ahead.
Thank you very much for taking my questions. 3 from me as well. Just in terms of the first question, can you update us on what Underlying growth rates you think can be achieved by your global priority brands and whether or not that's changed in light of your comments Today? The second question is just in terms of competition. I get the sense that you've basically had There's been less competition in terms of advertising in the off trade, but everyone's keen to take advantage and compete in the on trade as that reopens.
Can you give us any color there? And then finally, if you'd be able to share how big the Aperol spritz RTD in terms of contribution to sales is related to Aperol. That would be great. Thank you very much.
Yes. I mean, the current Aperol spritz RTD Versus Aperol is about 3% to 4% of the total, yes, because bear in mind, it's in very, very little markets, Particularly at this moment in time, we're starting to roll it out across some key markets throughout the end of Q2 and With regards to underlying growth rates for Priority Brands, as you know, we do not provide any guidance on these. But as I mentioned earlier in the call, I do think that we will have a long lasting benefit of consumers' reaction to the lockdowns With them really learning how to appreciate our cocktails, more importantly, how to make them. So to having our cocktails take more share of fruit at home and at the same time, really benefit from the return of consumers to the on premise. So We'll probably look back into this, and I'm crossing my fingers as I speak that consumers' Reaction to the lockdowns will be positive for us for the mid- to long term.
With regards to competition, I mean, we're not seeing competition Actually decreasing the pressure in the off premise, whether it's in Northern Europe, North America or Australia, quite on the contrary. And we're not seeing them in those markets that have opened reduced their pressures there either. Everybody is trying to maximize their slice of the pie.
Okay. Thank you very much.
The next question is from Sinton Ryan with JPMorgan.
I just actually got 2 questions, please say different. Firstly, just on your RTD portfolio, I appreciate putting more investment behind some of the areas like the after all I would like to enjoy. But just more broadly, how should we think about the gross margin profile of the RTDs? Pretty much the nuances between markets, but How would they sort of compare versus sort of the core mother brands or just gross margin of the group as a whole? And then secondly, my line did cut for a while, so you might have answered this already.
But in regards to raw material inflation, excluding agave, Do you have any concerns around what we're seeing in the sort of headline commodity marks or any increases in sugar, glass and other sort Transport and Energy Commodities is something that we should be concerned about or something to think about going into sort of 2022 or the second half of this year? Thank you.
I'll take the first question. Now as you said earlier, obviously, there are differences between geographies. Obviously, gross margins in South America And Mexico are lower versus what we have in Australia and other parts of the world. Having said that, I mean, if you look at the brown spirit based RTDs as well as the Aperitif based RTDs, they have very strong growth margins, Which are in line or if not above group average. So the only ones which are below are the vodka based Sky Blue, Mostly in Mexico.
Very clear.
With regards to the inflation of on raw We expect that probably in 2022, we'll see Some increase in raw materials as consumption pickups, but we do not see that as a major factor, Nothing that we cannot offset via the ordinary price increase. We have a portfolio composition of brands that Most of them are have lower price sensitivity. And so we can grow prices to offset inflation without losing momentum. As you know, the brands are quite in a healthy position at this stage.
And just in the short term, are you would you be looking to take some additional price increases to sort of get ahead of the raw material inflation?
We constantly take price on all. We've been more aggressive on Tequila in prior years. We've taken price on operating income parity to offset the tariff impact, and we'll keep on taking price in coming Yes.
Appreciate the
Excuse me, there is a follow-up question from Robert Ransom with UBS. Please go ahead.
Hello. I'm so sorry for the follow-up. Just to your earlier answer, you mentioned you weren't seeing any change in competitive intensity In the off premise, and if anything, you were seeing an increase. I'm just curious, in the on premise, I guess it's hard to judge given it's been closed, but how would you characterize the competitive intensity there maybe compared to 2019. Sorry, thank you for taking my follow-up.
Yes, thanks for the question. I view it pretty much in line with 2019. I mean, Everybody tried to prepare where they could the reopening of the on premise. But at the end of the day, it's much more, I think, consumers, respective of that preparation going for their habitual brands and in most cases actually having more Than in the past. Great.
Very clear. Thank you.
The next question is a follow-up from Andrea Pistacchi with Bank of America. Please go ahead.
Thanks. Yes, I had a follow-up please on marketing You said that you're thinking of stepping up further marketing spend to Obviously benefit as the with the peak accretive season. At the full year, I think you said you expected the impact on of A and P on margins to be broadly neutral
This is a percentage of sales we see A and P remaining very stable versus last year around 17.5%.
Perfect. Well, that was my question.
Yes, my comments was more around the phasing of the A and P spend. Actually, we're expecting gross margin to start growing in Q2, Q3 and Q4 To recover the at least part of the shortfall. Clearly, the A and P will be highly on Q2 and Q3. And on the other hand, with regards to SG and A, we're expecting To start growing again as of Q2 onwards.
Okay. Thank you.
You're welcome.
We were expecting actually, Paolo was expecting the usual last question, but not materializing.