Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Campari Group Full Year 20 20 Results Presentation Conference Call. As a reminder, all participants are in a listen only mode. After the presentation, there will be an opportunity to ask questions.
CACARE and ZERO on their telephone. At this time, I would like to turn the conference over to Mr. Rob Kunstekonsiewicz, CEO of the Campari group. Please go ahead, sir.
Thank you very much. Good afternoon to all, and welcome to our call. Thanks for joining us. Probably been the most intense and challenging for this generation of managers. So before jumping into the numbers, I'd like to We can focus at the beginning on more qualitative measures.
And all of those, I think, can be summed up by the If we were to sum up the year is that despite the very, very challenging year, we've continued with the consistent execution of our long term growth strategy. We continued strongly focused on brand building. We've increased the focus significantly and had a huge step up the conference call. In digital marketing as well as off premise brand building and have driven on consumption occasions to really the next level, We've also been able to proceed with selected innovation rollouts. We've elevated Appleton Estate Image Super premium packaging and also price repositioning.
We've had new releases of Wild Turkey Premium current series as well as rolled out the new look and feel as well as packaging of Crudino across international markets. We strengthened Business Infrastructure and Commercial Capabilities. Particularly, we've really developed the digital capabilities across the organization Via accelerated programs in digital transformation throughout the company as well as made a big step forward in e the conference and we'll go through those details later on. We've established a direct commercial presence in the strategic French market, which is Very clearly one of our top 5 markets with a lot of potential. We've enhanced focus on Asia, which to a certain extent has been the conference.
We've relocated the APAC regional headquarters to Singapore. We set up a joint venture in Japan the conference call as well as endeavored in other route to market initiatives, which kicked in at the beginning of this year. Last and but not least, We went ahead with the restructuring of the sugar business in Jamaica, which was quite a bleeder in previous years. We've confirmed M and A as a business priority. We've acquired Portia France Distribution, Champagne Lavier as well as the minority stake in Tamico, which is the leading e commerce platform for premium wines and spirits in Italy.
And last but not least, we've completed the company's redone to the Netherlands, enabling a capital structure, which is much more supportive the of our external growth strategy in the long run as well as capable of rewarding long term oriented shareholders. We've maintained and built on our solid financial profile. We successfully issued a 7 year euro bond for 550,000,000 the the And last but not least, we continued despite the financial difficulties with our focus on people and community. The safety and well-being of Amparisas worldwide has been a top priority for us, and we're happy to say that We've operated at probably more than 100% capability throughout the pandemic. And we've really kept the cases to a minimum and have not any losses.
We've had also significant initiatives supporting our local communities and business partners, and that has been very consistent the conference. Now moving on to the numbers on Page number 5 and the review of our the Next sales, clearly, what you see is that our core brands' health remains very strong, and it is confirmed by the Very strong and resilient home consumption trends. If we start with net sales, overall on an organic basis, the conference call. We've had only a decline of 4.1%, which is probably best in class in the industry, with our Q4 unfortunately down 7%, the conference call. Thank you, operator.
Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator.
Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator.
Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator.
Thank you, the current market as well as global travel retail. On a full year basis, continued sustained growth in the operating speed markets the really sustained growth in the U. S, Canada, Australia and Urban Europe helped mitigate weakness in on premise led markets, the conference call, namely, Itzelias, we'll see throughout the presentation. On a geographic basis, resilient growth in core off premise As I said earlier, the U. S.
Was up 3.4% despite the destocking effect. Actually, if we look at our depletion numbers, they were up by 9.1%, the conference. So that's the underlying trend of our U. S. Business, and that would have led to an overall group net sales performance of minus 2.5%.
The Germany was up a strong 8.6 percent Canada, double digit, 12.5 percent Australia as well, 20.2 percent. And this is more than we're unfortunately more than offset by the weakness in on premise markets like Italy, which is our 2nd largest market and which was down the 17.4%. South America as well as GTR contributed to the decline. Q4 was weak And that was mainly driven by Southern Europe, Middle East and Africa, driven by Italy as well as North, Central and Eastern Europe, Which were impacted by the restrictions reintroduced in the on premise as well as the less pronounced staycation effect compared to the summer given that our aperitifs have a lower seasonality in Q4. Obviously, the lack of winter tourism as well as the pipeline loading effects, which we normally have, With that not happening, it's also impacted quite a few markets.
Looking at it by brand, our global priorities declined by 3.8% And this despite quite a positive performance from Wild Turkey as well as our Jamaican rum portfolio. And it was driven by the on premise skewed brands, the conference call. Mostly our IPI piece and impacted by the restrictions throughout the year across markets, which were amplified by opening and closing the renewed lockdowns, which created quite a bit of uncertainty for our customers. And obviously, the U. S.
Destocking Had quite an impact, mostly on SKYY vodka as well as European imports. After all, it was flattish. We have grown 11% if we exclude Italy and GTR and much more if we exclude Spain as well. Regional priorities for Flat Dish overall, but here clearly there's one Very, very strongly growing brand, Espolon, up 29.9%, which helped to compensate weakness across the rest of the portfolio. The conference call.
And local priorities were down 4.4%, largely due to the Italian on premise skewed single serve alternatives the conference. Meanwhile, sellout trends in the off premise continued to outperform shipments across all of our key brand market combinations. So on a reported basis, our net sales came in at minus 3.8%, and this reflects a positive perimeter effect of 3% the conference call, as well as a negative ForEx effect of 2.7%. Moving on to EBIT. On an adjusted basis, Organic EBIT declined by 20.4%, which announced a 3 80 basis points margin dilution, the call, driven by the negative sales mix by brand and market, sustained A and P investments as well as the lower absorption of fixed costs Given the top line decline.
On a reported basis, EBIT declined by 40%, and this reflects the negative operating adjustments of DKK 90,100,000, which are mostly brand impairment losses, restructuring costs the conference call. Net profit on an adjusted basis came in at EUR 200,100,000, the conference call. Down 40 4.4 percent. Group net profit reported came in at $187,900,000 down 39.1 percent the conference call after total adjustments of negative EUR 14,200,000. So clearly, there are items compensating the EUR 90,100,000 negative the operating adjustments.
Free cash flow was pretty good. It came in at EUR 168,600,000. The Recurring free cash flow was a strong EUR 261,700,000 or 65.4 percent of adjusted EBITDA, the conference call. Up from 55.7 percent in 2019. It must be said, though, that this was also helped by a temporary working capital reduction at year end the €800,000 so up by EUR326,400,000 versus year ago.
The conference call. As a good very good cash flow generation was absorbed by the M and A activities as well as financial commitments, particularly the share buyback and the dividend payment, the conference call, which amounted to an overall amount of EUR 519,200,000. This leads us to a net debt to EBITDA adjusted ratio the of 2.8x at the end of 2020. Having said all of this, We feel the company is in very solid state. Our brands are very healthy, and we are proposing Moving on to Page 7.
I'm not going to spend much time there. What you see on the left hand side is that practically, With the exception of Southern Europe, Middle East and Africa, all of our regions had a pretty decent year given the circumstances, the conference. Whereas Southern Europe, Middle East and Africa, which is mostly prevalent in the on premise markets, particularly Italy, Obviously, it was impacted. And you can see the impact of Italy on the different brand clusters given that Campari and Aperol the company. It will be impacted global priorities, the Amari, the regionals and Campari Soda as well as the But more important than that, I think it's important it is key to focus on the underlying the on the brand health across our portfolio.
On Chart number 8, what you see, the really very strong off premise sellout trends Our key brand market combination. Actually, we took market share. We grew faster than our reference markets across all of our subsidiaries the And took market share. Top left, you see in the U. S, we grew significantly faster than the market, and there's been also Quite a divergent view between the growth of our off premise sellout data, which is in dark blue versus our shipments, Which are in yellow.
And you see pretty much the same pattern in Germany, in Italy, in the UK, and We could have added many more pages, but it's practically the same. Our brands are taking share, doing very well. And clearly, there's also been destocking the Retailers have used the opportunity to drive down stocks. The other element which I would like to stress is really the big step forward we've done in e commerce. We built in all of our key markets dedicated teams already in the March of month of March and put dedicated resources against We've had significant growth.
I mean, Campari U. S. Grew its e commerce by 5 fold. We had the CEO of Grizzly at our convention, U. S.
Convention last week, And he was mentioning that on a full year basis, Grizzly grew by 325% whereas Campari grew by 500%. Actually, we were the 2nd fastest growing company in e commerce in the spirits industry in the U. S. Last year. In terms of ranking, we definitely played way above our weight, coming in as a 5th player the conference call.
And interestingly enough, if you look at the top 30 brands in e commerce in the U. S, We are able to field 4 brands. So we're the 2nd supplier after the industry leader. In the UK as well, in the Currently, e commerce accounts for 10% of our sales. So that's quite significant.
We've seen the triple digit growth rates across our brands and across our e commerce customers. Again, clearly, we've been one of the winners. Moving on to Page number 16. The only two things I'd like to attract your attention Clearly, the impact the pandemic has had on GTR, which has gone from 2% of our sales to 0.5% summarized by the fact that thanks to our very rapid pivot towards the off premise, our on a group level, Our estimated share of the split between on premise versus off premise has moved from 4,060 to 3,070. So we've really the conference.
Moving on to Page number 12 in the Americas, we'll focus first on the U. S. You'll recall from previous charts that the overall positive shipment performance of 3.4% And this despite the on premise being mostly shut, as you know, for us, it represented a 30%, so a bit more than the market average. We've also had restrictions impacting, in particular, our European imports, Palmany, Campari, Apero and Italian bitters as well as an important destocking across the whole portfolio, which has now been fully completed. Our Italian portfolio of hedges and bidders were obviously also penalized by the import tariffs, which the conference call.
Let's us increasing prices to partially compensate the tariffs. Now importantly, excluding the destocking effect, the conference. The U. S. Organic growth would have been 9.1% last year, which is best in class performance and one of the strongest we've had Many, many years and the good news is that the momentum is continuing.
We've had a pretty good recovery in Q4, the conference call. Up by 13% as due to the low stock levels, shipments and depletions and consumption had to start the conference call. So we've had that started to have that realignment. Our AIPs also grew in Q4, thanks to that gradual catch up. Continued very strong performance of Espolon.
I mean Espolon sellout in the off premise was 88%, so really impactful. I'm happy to say that repositioning our Jamaican runs has been a success as well as the continued premiumization of the Wild Turkey franchise the as the higher margin long branch in Russell's reserve grew much faster than the remainder of the franchise. The Sky continued to be affected by the destocking at the wholesaler level, but clearly that was also pushed by us Because as we will present in a few charts, we are in the process of completely relaunching the whole franchise the conference. Prime momentum, as I said in the off premise, continues to be very strong across our hotel portfolio. Our sellout on a Nielsen basis grew in value by 2.3% over the full year.
This is actually 1.5x faster than the overall market. And if we look at our own reference of 10 the We've had sell offs in the off premise, actually double digit across core brands the conference call. As well as the newly acquired Mexican Jewels, Anchor Reyes and Monterreyes Logos. Earlier on, I referred to our very strong growth in conducting our eCommerce business, which now accounts for 3% of net sales. Moving on to the rest of the Americas on Page 13.
I see that Canada had a very, very strong year, up 12.5 percent resilient growth In a largely off premise market driven by 440 Creek, which we've also been premiumizing as well as the Jamaican rums and Grand Marnier, Aperol, Campari and the Actually, we could have grown faster on the IPI teams had it been for out of stocks In Ontario, where the forecast done by our key customer there, as you know, it's monopoly, We're actually in line with consumer demand. Jamaica, unfortunately, was down by 8.2%. Overall, this decline notwithstanding pretty good momentum behind Wayne and Nephew White Overproof As on premise restrictions and a sharp reduction in touristic flows impacted the rest of the portfolio. Clearly, the tough comparison base, we were up close to 18% in the previous year in Health Eider. Which on a real basis, so excluding inflationary effect, was up 4%, the conference.
Moving on to Southern Europe, Middle East and Africa on Page 14. As you can see, this is clearly where we have our largest pain point. The conference. The region was down 18.6 percent. Italy was down 17.4%.
It's been a very volatile year. The The market has quite an on premise queue. Pre COVID, 70% of consumption happened outside of home. And clearly, this opening and closing not only had an impact on consumers, but also on the trade We opened in Q3. We had a very strong quarter.
Clearly, there's a very, very strong demand by consumers for confidentiality, the The desire to go out and enjoy our brands again. Unfortunately, we had the opposite effect in Q4, new restrictions came out and we were down 32.6%. So the entire portfolio declined obviously in these circumstances over the year, particularly Aperol Campari and our single serve The only brand which grew at a very strong sustainable level the It's actually line extension, Aperol Spritz, which was up 36% or 48%, Thanks to very strong performance in the off premise. And talking about the off premise, the sellout Throughout our portfolio was quite strong in that channel, both Aperol and Campari tracked above 25%. And so the apparel scripts, as I said, were in strong double digits, even stronger.
The rest of the excuse me, one second. The conference. The rest of the geography of the business unit was down 22%, Despite the fact that France grew double digit overall and had a strong Q4, up 9.6%, the The strength is across the heroes in our portfolio there, and we're very happy to have the highly performing French team on board. The call. As I said at the beginning, this is going to be quite important for us in the years to come.
GTR, unfortunately, was down almost 70%, 68.9 the conference call. Strongly hit, down 47.7 percent due to its on premise queue. Within Africa, both Nigeria and South Africa the conference call. Obviously, South Africa, Northern Nigeria as the restrictions were more severe there. Moving on to positive territory, North Central the conference call.
Europe on Page number 15, very healthy, very strong overall growth of 6.8%. The Germany did very, very well. It was up 8.6%, clearly very solid growth in the resilient off premise market. We've had a slower growth path. I mean, Q4, obviously, as there was less of a staycation effort.
Climatically, our portfolio is not the best year in that season. However, overall, Aperol, Udo 12, Campari, the Where we'll be able to offset declines in our specialty bidders and agency brands, which are on premise skewed. If we look at the sellout trends of our portfolio in the off premise in Germany, we can see that we grew twice as fast as in the market, so we continue taking significant As I mentioned earlier, Aperol grew by 30% and Campari by 16%. The UK had another strong year, up 7.4%, and this despite a weak Q4, the We were down by 20.4%. Now this is largely due to a tough comp base.
We were up by 68% in the same period last year the Key brands is Aperol Campari, My Nephew, Overproof and Magnetomic grew by very, very strong double digit rates. If you look at our sellout trends, we were the 2nd fastest growing company in the off premise in the UK last year, growing by 38.4%, the conference call. And also, we've been a top performer in the e commerce channel, which has reached 10% of our sales the conference call. By growing by 90% versus 2019. Russia also had a good year, double digit, 10.7% up.
Overall positive performance across the portfolio with very good ones by Apero Roman Doro, Chicano Vermouth, Espolon and Campari. Obviously, that helps the mix. The remainder of the region was only up 2.1%. We've had Good growth in Switzerland and Belgium as well as Eastern European markets, again, driven by the IPTV. But clearly, Austria, Which is very dependent on tourism influx was impacted.
SaaS region, Asia Pac, Extremely well growing 20.2%, very positive performance in this off premise skewed market. And importantly, the mix was also very good with Wild Turkey ready to drink, Wild Turkey bourbon, American honey, the conference call. As well as our European imports doing extremely, extremely well. Cellout trends in the off premise remain strong. We were up 22.6%.
So and we're continuing to
see good momentum in that market. The rest of the region was actually impacted Not only by the restrictions of the pandemic, but also by destocking ahead of route to market changes. This impacted Japan during the year, the conference call. Towards the end of the year, China, we'll be changing our distribution network on the 1st March this year as well as New Zealand.
Moving on to Page 17, not much of a change.
I think it's much more interesting to start focusing on the brands. Based on what I've seen, Aperol, our largest brand, flattish, the conference call. 19% of our net sales clearly was impacted by weak results in our core on premise skewed markets, which were impacted by the lockdown measures. Core Italian market, which accounts for 31% the conference call. Our total sales, Spain and GTR had quite an impact, and they offset very, very positive performances in France and Argentina.
The conference. As I said earlier, if we exclude Italy and PCR, after all, would have grown double digits. And also what is very nice to see is that the The brand is continuing to grow double digit in key off premise markets, particularly Germany, up 31%, the U. S. 66.5% the And on the chart from the left, you can see really the big delta between There is unparalleled affection for our brand and its signature drink.
Actually, Aperol Spritz is the most mentioned cocktail online worldwide in 2020. And I think this is And great feat on which to build and continue growing the brand and recruit new consumers into the franchise going forward. Campari, 10% of group sales, down 4.5% impacted similarly as After all, clearly, Brazil and Jamaica also added to the mix. Again, though, very nice double digit growth Showing consumer love for the brand in the U. S, the UK, France and Australia as well as Germany and Switzerland.
Net to net, we feel very good about the momentum of Campari as well as its signature drink, the Negroni. And we'll continue with our entertainment efforts, which seem to be working very, very well as well as our support of the arts, particularly film, Moving on to Wild Turkey, 8% of sales, up 4.9%. Actually, the underlying numbers are much, much better. Clearly, in the U. S, we've had a difference between consumption, the conference call.
And last but not least, let's also not forget that Japan is the 1st largest market for this brand, so there was quite an impact from the destocking in that market. The And we will continue with the premiumization of the brand, Bolfire, dedicated SKUs as well as the the upgrading of the packaging of 101, which has tested extremely well and which will be launched in the second half of the year, and we'll continue that. Moving on to SKYY. SKYY, our 4th largest brand, 7% of sales, down 16.2%, Heavily impacted by the destocking in the U. S.
As I mentioned earlier, we're going through right now a complete the You can see it summarized in the page, a big, big improvement in premiumization of the packaging As well as fine tuning of the liquid and a significant upgrading of the product claims, which we think will really help take the brand All of these elements have tested very well and they've been very well received by the our distribution network and now step by step by the trade. So we look forward to that. Grand Marnier down 15%, part of the European imports, which was obviously penalized. We have an overall negative shipment performance, which doesn't correspond to the depletion, which were positive the Ad consumption in the off premise, which was quite positive. Going on here grew by 38% on a full year basis in the off premise in the U.
S. And as the brand was formerly very on premise skewed, the The face of Wild Turkey, we will continue with our premiumization journey. You can see below how the range is evolving. Last year, we The interesting thing is that prices go from Cordon Rouge at around $40 to above $1200 on the the conference call. So they're not going to be huge volume, but they're going to be high very high value and very profitable for us.
The The premiumization story continues with our Jamaican rums. Overall, very nice performance, up 5.2%. It was a big debt relaunching Appleton Estate behind the significantly improved range as As well as packaging behind a significant price increase across all markets, and it's nice to see that actually the brand grew. The premiumization is also further strengthened by the limited edition we launched. It's this collection the conference call.
Of single barrels unfiltered from the years 1994, 'ninety five and 'ninety nine, Selling at close to $500 range and the whole collection actually was sold out in a few days' time. To close off the focus on individual brands, we could only do it with Espolon growing by close to 30%. Again, here quite a difference between depletions as well as the conference. The consumption off premise sellout and this brand skews more off premise at this stage in the U. S.
Was up by 87.4%. And it's also doing very, very well in many other markets. So we expect this to become clearly one of our key drivers of growth For many, many, many years. Closing up with the rest of the regional brands, Bulldog was unfortunately impacted by core JTR in Spain. So despite very nice performances in Central Europe, the brand was down 11.6%.
Grant was impacted by GTR as well mostly as we've premiumized the range and dedicated the SKUs to that channel. 40 Creek, on the other hand, responded very well to innovation and premiumization as well, growing double digit. Unfortunately, the bidders went the other way as they're very much on premise focused, both in Italy as well as exology focused in the U. S. The The Cinzano brand had a decent performance, a nice performance on the Vermouth, Which only declined by 4.8 percent despite the fact that we've reformulated it and put a spirit based formula, which Required increasing pricing significantly.
So in that context, it's actually a very good result. The issue is more on the sparkling wines, which are from a pricing perspective and suffering because of that. If you look at our higher price, the conference. And you'll see that we have a positive performance, up by 5.3%. To close it up with the local priorities, As we said earlier, the Italian, one of those very few suffered.
They're very much due to the on premise. The conference call. Despite international expansion, they were down double digit. On the other hand, our RTDs in Australia, we're up by a whopping 22.5 percent, double digit growth as well on Zodora del Cara is on Cabo. And for the first time, while mentioning the brand X rated, which despite the closure of the the High energy outlets in Korea were pretty well ended up in positive territory as consumers in China and the rest of Asia seem We are taking quite a strong liking to this brand.
So that's what we may continue on par. Last but not least, some more examples of the brand global campaign rollouts, the much more premium, predino packaging. With regards to the Appleton range, We removed the Appleton special so that it's only Appleton Estate at the high end, and we've We launched that line as Kingston 62, very successful looking at consumption data, the relaunch of IANA in the in Central Europe behind the Open Society campaign. Very encouraging launch also of the unaged the conference call. Our Board of Directors, which over time will replace the majors reserve.
And last but not least, we started rolling out PISQI du Boucher in international the conference. So this is it on the branch side. Now I pass it on to Paolo.
Thank you, Bob. If you follow me to Page 32, we have the analysis the call. Starting from the biggest region, the Americas, net sales came in at €733,900,000 the Top line declined by 500% in value and EBIT by 18.5%. Now focusing on the organic performance, EBIT adjusted the organically declined in value by 21.6 percent with 4.2% dilution. But if we strip out the effect of the U.
S. The The decline in EBITDA adjusted in value would account for 10.5% and the margin dilution for 2 50 basis points. At gross profit level, we had a decline in value of 9.3%, which was stronger than top line, leading to 4 the basis points on margin dilution, primarily driven by negative brand and channel mix in the largest market of America, the U. S. Market, Driven by basically three factors.
The first one was the outperformance of the Espolon brand,
the conference.
With whose margin continued to be dampened by the elevated aggregate purchase price. The second effect was a severe destocking in high margin the U. S. Targets. Looking at JMP, JMP decreased in value by 8.3% north and top line, Leading to 150 basis point margin accretion, driven by a combined effect of cost mitigation initiatives, Some shifts of investments from offline to the less expensive online as well as a different phasing for Glee the priorities, and in this Karim Rovka, ahead of the complete brand relauncher, which will occur in 2021.
SG and A had a slight increase in value by 3.5%, but given the top line decline, drove the margin dilution of 100 basis points and it was totally attributable to lower absorption of the structure costs. Now if you move on to Page 33, under semi region, net sales came in at EUR 163.6 the conference. EUR 32,500,000. On a reported basis, the decline accounted for 7% in net sales and 63.2% in EBIT. Organically, EBIT adjusted showed a strong organic the 58.8 percent in value.
And to the right hand side, you can see 8 70 basis point margin dilution It was clearly having impacted the region by COVID in the high margin Aperitif business in the biggest market, Italy. Gross profit level and the decline in value organically accounted for 20.1%, stronger than top line, leading to 130 basis point margin dilution I said one favorable sales mix driven by the on premise closure hitting in particular the high margin aperitif business in Italy the combined with the lower absorption of fixed production cost. In the region, the A and P in value was And reflecting the sustained marketing investments behind key brands, key initiatives were the Venice Film Festival, which was sponsored by Aperol and the Via Verna new campaign launch, which occurred at the back end the conference of last year and drove an uptick in A and P spend in the 2nd part of the year. SG and A decreased in value by 10.1%, but remained significantly dilutive, 330 basis points, As a consequence of lower absorption of infrastructure cost given the strong top line decline, that effect was partly mitigated by certain cost containment actions, which we're basically aiming at reducing as much as we could variable costs, particularly the Travel expenses, the company net increase and also its bonuses had a positive impact on the SG and A trend.
With regards to Page 34, Northern and Central and Eastern Europe, on a reported basis, net sales came in at the EUR 403,700,000 EBIT, EUR 133,200,000 reported change, an increase in top line of 2.5%, an An increase in bottom line of 0.3%. Organically EBIT adjusted grew by 3.2% in value, the conference. Gross profit level in value increase accounted for 5.4%, the Generating 80 basis points dilution, which was driven by unfavorable geographic sales mix, particularly A and P increased by 10% in value leading to 40 basis point dilution with sustained marketing investments behind key brands. And those investments accelerated in the second half of the year as we have been in Italian in the CIMI region. The SG and A increased 6.1 percent in value, slightly lower than net sales and generating 10 basis points accretion.
Moving on to the 4th and last region, APAC, Page 35. Net sales came in at €130,800,000 EBIT the EUR 5,000,000. On a reported basis, top line increased by 1.8% and bottom line by 5.8%. Organically, EBIT adjusted grew by 9.1%, faster than the top line generating 50 basis points accretion the Gross profit in palladium was up 5.1% ahead of sales, driving 20 basis points the And that was driven by favorable space mix with improved profitability on local priorities in A and P was rightly up in value, up 1.5%, generating 40 basis points margin accretion And SG and A increasing value in APAC by 5.1%, driving a dilution of 10 basis points. That is attributable to one end, the new route to market initiatives and on the other end, to the transfer of the regional the conference call.
If we move on to Page 37, we have the analysis of the EBITDA just Here we have a very interesting waterfall chart where we basically go to the root causes of the EBIT the from 2019 for EUR 108,000,000 to the 2020 EBIT of EUR 121 point the €9,000,000 The key driving factors, as you can see of the decline were 1st and foremost, agave, Which had a negative impact in value of €6,000,000 and then clearly the U. S. Tariffs, which accounted the call. For a negative €19,000,000 that negative effect was partly offset by the price increase that we took in the U. S.
Market, Which generated an EBIT uplift of EUR 12,000,000. So the net effect of the tariff was EUR 7,000,000 negative. And then the stocking, which in the U. S. Accounted for EUR 30,000,000 top line and EUR 19,000,000 in bottom line that you see here.
And then we have the proper gross profit decline excluding those external factors, which accounted for EUR 63,400,000 Driving a net 130 basis point EBIT margin decline. We then had some tailwinds in A and P and the Q and A for €6,900,000 and €5,400,000 respectively. And then an aggregate negative effect the conference call. Of FX and perimeter accounting for EUR 3,100,000 in value and 20 basis points in margins. If we move on to Page 38, EBIT adjusted, gross profit on a reported basis was down 8.5% in value the conference call.
With 300 basis point dilution, organically, the gross profit decline accounted for 8.5 the In value leading to 280 basis point margin dilution. As we saw with the effect that we've already mentioned, the 1st and foremost, the unfavorable sales mix driven by the overperformance of lower margin as Polon, the underperformance of the high margin operative portfolio in core Italian market with the in the U. S. Market and again, of course, the impacts of tariffs as well as the effects of the lower absorption of these production costs. A and P on a reported basis was down 3.1 percent in value, 10 basis point dilution.
Organically, the decline in A and P accounted for 2.2% in value with 30 basis points of dilution. The SG and A on a reported basis were up basically from 0.2% in value were flat with 90 basis point dilution. Organically, we had a decline in value of the SG and A line by 1 point 4% with 60 basis point dilution as a consequence of lower absorption of fixed structural cost Notwithstanding the cost containment measures that have been taken. EBIT adjusted on a reported basis was down 21.1 the In value with 400 basis point dilution. Organically, EBITDA adjusted was down 20.4 percent in value the conference.
Of the U. S. Destocking, it clearly is not a recurring effect. The EBIT adjusted on an organic basis would have declined by 15 point the This is all the operating adjustments previously called one offs. They totaled €90,100,000 of which €35,400,000 attributable to brand impairment losses, non cash, EUR 16,000,000 on Bordeaux, EUR 15,500,000 on Lengrand and EUR 3,900,000 on Ruma The Apricot is a consequence of the negative impact of COVID-nineteen on those brands performance and clearly those brands are particularly skewed towards the We then had EUR 15,900,000 in transaction fees connected to the the transfer of the registered office to the Netherlands, €9,900,000 as well as the transaction fees into the new route to market the as well as M and A initiatives totaling €6,000,000 We then have €21,400,000 of Restructuring costs, the biggest component is the restructuring of the Jamaican Sugar business, which accounted for EUR 13,500,000.
And then we had a multitude of other smaller reorganization activities In closing, we have EUR 17,400,000 of other costs related to donations made by the group the pandemic, some special projects, few legal disputes and also costs connected to the IT restoring operations Following the Malboro effect in November, the last VAT restoring accounted for just €2,000,000 Page 40, profit before tax. Net financial charges came in at €38,900,000, €5,900,000 higher than in 2019 Due to a negative variance from FX, we incurred in €4,100,000 losses this year, Whilst we benefited from EUR 2,800,000 gain in 2019. If we exclude the negative variance on FX, the conference. The net financial charges showed a saving of €1,000,000 despite the higher average net debt in Coming down from 4.1% to 3.5%. This was due the decrease was due to the reduced average coupon on existing gross debt, thanks to the liability management transactions, which were implemented last year the conference call.
As well as thanks to the bond issue, €500,000,000 bond issue that was completed in October last the which led to a decrease in the average cost of nominal coupon on bonds and long term loans from 2.15% to 1.4%. The reduction of earnout debt liabilities The positive effect of EUR 18,100,000. The biggest chunk of it is the write off of the earnout on
the
On JVs, euros 2,800,000 in Japan, which was negatively impacted by the lower absorption of fixed cost the conference. In a context of low sales level, bottom line profit before tax was down at 1 was down by 40.8%, Achieving €209,600,000 but the PBT adjusted came in at €278,900,000 down
twenty the
4.7%. Group net profit adjusted, the taxation totaled 20 €2,700,000 on a reported basis, but if we strip out the positive tax adjustments, which totaled 55 point €1,000,000, the recurring income taxes were equal to EUR 77,900,000 Worthwhile noting that the positive tax adjustments that I have mentioned the €55,100,000 include a one off benefit of €29,900,000 relating to this as a result of the step up of the fiscal values of certain brands and Google to their corresponding book values. This is a very interesting new law in Italy, which we're in another exploiting, which will Some significant positive cash effect. It is a positive EUR 120,000,000 the cash effect in 18 years, which would reduce the recurring cash tax rate from 23.2% that you see here in 2020 to 22.2% in coming years With deferred taxes on goodwill and trade, Mark, that you see here reported at €13,000,000 they will grow to the level of EUR 19,000,000 in coming years. So after the expiry of Patent Boss that About EUR 100,000,000 of cash savings.
We have this new law, which will drive EUR 120,000,000 in the coming Page 33, we have the cash flow, the free cash flow analysis. And As always, cash is king. Free cash flow came in at €168,600,000 down the €89,800,000 But if you look at what is important, the recurring free cash flow, It came in at EUR 261,700,000, very much in line with 2019 at EUR267,300,000. So against a lot, the EUR 57,300,000. So against a lot, the free cash flow generation on a recurring basis the conference call.
Looking at the and I will comment that the More than anything else, the key drivers of the free cash flow, recurring free cash flow performance, We have a decrease in the EBITDA adjusted that accounted for, as you can see to the right hand side, €79,900,000 From 2019 EBITDA adjusted of EUR479,800,000 to 20.20 EBITDA adjusted of EUR 399
EUR 9,000,000.
Clearly, the total EBITDA was negatively impacted by the already mentioned EUR 9 the EUR 3,000,000 operating adjustments. Then with regards to taxes, the on a recurring basis, This taxes paid came in at EUR 84,800,000, so probably unchanged versus last year, EUR 81.1 the €1,000,000 With regards to change in working capital, here we find the upside to the EBITDA reduction, In 2019, we had an increase in operating working capital that is the negative in the cash flow the conference call. For €29,600,000 in this year, we had an operating working capital compression of €43,400,000 So we have a positive variance on the change in working capital of EUR 73,000,000 that basically leaves the cash flow from operating activities in 2020 to €351,500,000 versus the €156,300,000 of 2019. So even there at the level of cash flow from operating activities, We have very stable results. With regards to financial expenses, EUR 25.3 recurring EUR 1,000,000 in 2020 versus EUR 27,900,000, so a tiny reduction.
With regards to CapEx, in recurring, you see the maintenance CapEx that have remained almost unchanged, EUR 64,400,000 versus the And this is why we achieved a free cash flow on a recurring basis of EUR 261.7 million. The The current free cash flow on EBITDA adjusted clearly jumps up from 55.7 percent in 2019 to 65 Before operating working capital decreased in value by €64,900,000 but if you look at the organic performance, the decline accounted for the EUR 43,400,000 that we saw before in the cash flow. The increase in inventory accounted for EUR 47,700,000 With aging liquid step up of EUR 20,100,000 mostly linked to GlenGrant and Visqui Koneaca maturing inventory uplift. And then the other inventory increased as a The slowdown in Q4 and drove a decrease in receivable of €42,000,000 We then have an increase in payable of €49,000,000 that is the conference. 34.8 percent clearly down from 2019 by 200 basis points.
Going forward, we're expecting that The level of 2019 that was 37.7 percent operating working capital will not be the level for 2021, but we believe more a 1% reduction at 36.7% is what we are Currently envisaging for next year on working capital as a percentage of sales. If you follow me to Page 45, we have the analysis of CapEx. The conference. They totaled €79,800,000 in 2020, of which €64,600,000 maintenance CapEx Basically in line with the guidance that you see to the left hand side. Whilst we had EUR 15,100,000 the extraordinary CapEx versus guidance of EUR 30,000,000 due to shift of certain projects into 2020 this call.
The new guidance for 2021 on CapEx is an overall amount of €100,000,000 with maintenance CapEx broadly unchanged at the EUR 40,000,000 and uplift in extraordinary CapEx at EUR 40,000,000 due on one end to the carry forward effect the CapEx from 2020. On top of that, we had new investments on extra projects, including Brent houses If you move on to Page 46, we have the analysis of net debt. Net That means I mean €103,800,000 up €326,400,000 over 2019, We have positive cash flow, free cash flow, 261,000,000 on a recurring basis, 168,600,000 on a reported basis. We call out substantial payment commitments for an overall amount of €459,100,000 Of which EUR 125,000,000 attributable to acquisition, we then have EUR 62.4 the €2,900,000 of dividends and €271,200,000
of purchase of shares.
This is a portion of the overall share buyback program that you may remember It accounts for EUR 350,000,000. So we still have EUR 80,000,000 to buy in 2021. Worthwhile highlighting the fact that the amount of EUR 271,200,000 does include the The investments on the share buyback of withdrawn shares in the context of the remissiliation the conference. That accounted for €64,700,000 And I would like to call out I would note number 4, we're saying that considering the spot price per share at the back end of this year, I. E.
9.34 We have a theoretical gain on the share buyback program at year end of €45,300,000 that we recognize in equity Page 47, the debt maturity profile is We have long term euro bond and term loan that accounts for the whole amount of the debt, the conference. EUR150 1,000,000 with a very compelling nominal coupon, 1.42 percent And a very good interest rate hedging with fixed interest rate accounting for 78% of the overall gross debt. The conference. This is it on numbers. I would hand
back to you. Yes. Thanks, Talwal. Although I know most of the listeners are dying to ask their questions, the conference. I'd like to take some time to reemphasize some key corporate initiatives, which will be continuing this year and then close-up with the outlook.
As we said at the beginning the conference call. This presentation digital transformation has really become fundamental for us. We've made a big, big step forward next strengthen our security as well in a significant manner. Moving on to Business Development. We are focused continuing to focus on Asia.
Quick update on the Aperol micro battles. The conference. Micro battles unfortunately started half a year later due to the lockdown of China in the first half of last year, But they've given us quite a bit of satisfaction. We've had very good consumer and trade feedback from Western style restaurants and bars, which could really end up being a meaningful volume on itself. And currently, we're also the We're learning a lot on how best to position the brand and the drink in that channel.
So on The basis of that, we're going to have a scale up of those tests in the first half of this year and then really go out into the market the conference call in the second half of next year. Encouraged by these very nice results and Chinese consumer and trade appeal for the brand. We've also decided to make a big change in our route to market. We've had a fantastic relationship with our previous distributor who are a Class Act company, But we felt we needed much more feet on the ground and expertise in the on premise the distribution and the trade marketing of our brands, we'll move on to a company called Salford, which has been very successful We've a few Western brands in recent years in the on premise. So that gets us quite excited.
With regards to South Korea, we've anticipated the controlling interest in the joint venture. The team is a great team that will remain with us, We've extended our controlling interest of 51%, and that geography starts becoming more important for us. Last but not least, we'll be also moving part of our portfolio to a new distribution setup in New Zealand. In terms of major initiatives, we're really formalizing and becoming much more communicative With regards to our sustainability road map, historically, Campari has always done the right thing the From a safe city and with a DP perspective, but probably we weren't very good at communicating what we do and certainly not doing it in a the organized fashion. So we're starting to do that both internally and externally.
And the blocks are which we identified It starts with people, which are our most important assets. You'll see we run a regular the internal surveys with a great place to work and you can see how we've been really improving our trust index over the years the conference call. As well as the overall rating, and we've been gaining great place to work accolades in many, many markets. And this the Fuel is obviously a virtuous cycle as we keep on improving things going forward. Our commitment with a big focus and rollout this year is on our inclusion, equity and diversity program, Which will make quite a difference, not that much from an operational standpoint, but I think it will really clarify the true culture within the company from a performance standpoint.
We're driving forward our learning project, the learning distillery. This will become almost an in house university for Alconparistas. And we're also rolling out an employee share ownership plan, the which will impact all comparistas irrespective of the level and where they work. So clearly, beyond those which were already heavily Close to our LTI programs. Now everybody else will be aligned and that will reinforce even more, I think, our performance the current and meritocracy based culture.
In terms of responsible practices, this is probably one area where we've communicated on a regular basis the conference. With regards to the environment, we're formally committing the conference call. We are committed to significant reductions in greenhouses, water and waste management between now 2025. We aim to reduce greenhouse the emissions by 20%, water use by 25% and move on to a 0 waste to landfill the transition by the end of 2025. And on community, this again is something which has been in the DNA of the company since the in 18/60.
We'll continue for culture and education program as well as our Czech charitable activities, the conference call. So this brings us to our outlook. I think it can be summed up very simply by saying that looking forward, We have cautious confidence in the short term and are quite optimistic about the buoyant long term business momentum, the conference call. 2020 performance showed, we believe, the And these trends are really sustained and continuing into this year. Looking into this year and beyond on an organic basis, as I said earlier, our brands are quite healthy and have a strong consumer pool.
So we feel good about that. On comments then, Frito, it is normal that we remain cautious, We have no doubt that home consumption will remain very sustained, and we will view this by continuous marketing investments as well the Our entertainment efforts and digital activities are really paying off. With regards to destocking the We're happy to say that we've completed them in the U. S. So our shipments are expected to progressively align with consumption trends.
And we will continue to leverage, if not take to the next level, all digital and online investments, which are again being very, very rewarding for us. And we will strengthen our omni channel approach to sales. The conference. We're adapting very well and very quickly to the new normal, particularly e commerce, and we'll the Lastly, we remain quite confident about the long term consumption trends and growth opportunities As well as the strength and resilience of our brands, especially in an environment where we believe that confidentiality will be We'll make a big return once the large majority of populations have been vaccinated. The one call out though is With regards to perimeter and ForEx, we expect to be negatively impacted this year.
So the group's EBIT adjusted in 2021 will be impacted by a EUR 9,000,000 hit on perimeter, mostly due to the termination of agency the company's brands, particularly one large agency in Germany, which will also enable us to concentrate much, much more on our own portfolio and brands. The conference. And lastly, a $13,000,000 hit in ForEx mostly deriving from the weak U. S. Dollar as well as some emerging market currencies.
So this is it on our side. I see there are a lot of questions. So let's open the session to your questions. The conference.
Thank you. This is the Cosco conference. Operator, we will now begin the question and answer session. The conference. The conference.
The first question is from Simon Haire with Citi. Please go ahead.
Thank you. Good afternoon, everybody. Thanks, Bob. Thanks, Nolan. The I've got three questions, please.
Bob, could I just start and just pick up on your very final comments there around the perimeter impacts the conference. In 2021, I guess, to share a little bit more detail there, what's the top line impact perhaps of those changes as well as the the €9,000,000 EBIT impact. And are there other agency brands that you perhaps would be looking to exit relationships with in future, Perhaps beyond 2021. That's the first question. Secondly, you obviously talked about the strong growth you're seeing in the e commerce the business.
I wonder if you could just comment
a little bit about the margin structure of your different businesses in different markets the You're seeing there and how does that how does it really compare to the margins you enjoy in the more traditional trade channels? And then thirdly, maybe one for maybe Juan Pablo around just the moving parts of the margin in 2021. I know A lot of it will be dependent on
the speed of recovery in
the top line. But if you think about some of the things that you can control, obviously, the absence of USD stock this year. How do we think about the right level of A and P spend? And any comments perhaps around agave and raw material cost there? The
Thank you, Simon. It's always good to have them. Let me start with the first two. The very major impact From the discontinuation of the agency brands is EUR 33,000,000 at the top line, EUR 9,000,000 from the bottom line. And most of it is due to a very large agency, which we've had for the past 5, 6 years in Germany.
The conference. It has been a very good partnership, but both sides decided it would be better to park ways because We want to really focus on the great opportunities we have across our extended portfolio. And I think the other party wanted more focus. So net in net, I think this is going to really improve both our relationship with customers and for the We give to our complete portfolio, not just the ability in Germany. Now with regarding to e commerce, It's become very quite important for us and we'll be driving it forward nicely going forward.
Frankly, on a marginality and trading terms standpoint, there isn't much of a difference versus our the existing off premise customers. The only difference, though, I would say, is that the mix is actually richer because We tend to sell more premium brands there. So because of that, it tends to be slightly more profitable than our regular off premise.
Yes. With regards to the margin trends in 2021, clearly, Simon, as you Correctly pointed out that there is a lot of volatility and many moving parts around. So it's very difficult to give at this stage a clear guidance. But If we go back for a second on Slide 37, where we have the waterfall showing the big effects. So the first one on agave.
Agave was a negative EUR 6,000,000 last year. For 2021, we're not expecting any the Which means that if there will be any increase in aggregate, we will offset it by a price increase and potentially there might be Some opportunities, but it's still very neutral at this stage. With regards to the second building block of the waterfall, the The U. S. Tariff, that's a big, big opportunity.
It's €19,000,000 opportunity if the The U. S. Administration decided to discontinue tariff. Clearly, the price increase that accounted the EUR 12,000,000 is best in today. So this is an opportunity of EUR 19,000,000 if and when.
Sorry, going back to AVE, we're expecting to be neutral, but we always remind investors The overall effect, negative effect of agave at year end, if we look at agave price, what it should be In a normal market condition, the overall opportunity is €30,000,000 So It's the 2nd big bucket of opportunity. With regards to destocking, clearly, we said market has been fully destocked. We're not expecting any restock at all. So no positive. If anything, Marginally positive, but for sure no negative effects.
With regards to gross margin then organically, we believe There are very good chances of achieving gross margin expansion next year. So we will start recovering the The loss of gross margin that we saw last year. And with regards to E and P and SG and A, we're not expecting Any meaningful impact, so broadly in line with top line. So that's The current stance will be clearly more precise as the time goes by. Presumably, H1 will be in a position of once we have at least a Q2 under our belts to give the guidance for the full year.
That's really helpful. And can I just check, Paolo, that you're still expecting about a CHF 6,000,000 benefit In terms of the restructuring of the Jamaican Sugar business this year?
Yes. Thank you for reminding me that. Yes, confirm.
The conference.
That's great guys. Thank you. The next
question is from Mitch Kallak with Deutsche Bank. Please go ahead.
Good afternoon. I guess the first question I'd like to ask is on A and P, the Where you held the ratio will be flat despite the on trade clearly being very challenged. I guess that means you pivoted your investment towards off trade pretty quickly, for lots of other Alcor players have I'd love it if you could comment on how you're able to pivot that Quickly. And then secondly, on the Sky brand relaunch, I guess, you show in the slide how you've changed the bottle. I'd love to know broadly what are you doing differently?
How will the relaunch affect your pricing strategy, if at all? And what would you see as a successful outcome of the relaunch of that brand?
Thanks for your questions. Yes. I mean, effectively, we've been very, very agile last year. I mean, when the first lockdown occurred, we pivoted within 2 weeks Across the globe, across all of our brands, and we've put a big focus on the off trade, on e commerce And move from offline marketing to digital marketing. This was centrally driven, We very quickly developed new assets for all of the markets, and we've really benefited from that.
At 17.5%, we've moved a lot of money from offline to online, into edutainment efforts, Great thing. Almost on premise opportunities In the consumer's home, United goes through all sorts of activities as well as events. So the additional benefit though is that whereas we've maintained spending overall, The ROI we've got on the spending has been far, far superior. I mean, the efficiency, the targeting, and you see that in the acceleration and the big beat Moving on to Sky. I mean, Sky is a complete relaunch.
I mean, you have a fine tuned liquids. You have a completely new positioning, Packaging, we're not going to touch pricing. I mean pricing is not really the area to go in U. S. Vodka.
Potentially, we'll be able to reduce, I think, promotionality. We'll have to see how it goes. And we would look at improving size mix as well and sell more of the smaller sizes, which are more profitable. I mean success for us means starting to take market share in U. S.
Vodka. The tests were very, very positive across all the blocks, but obviously, the proof will be in the pudding.
Understood. Thank you, Bob.
The next question is from Laurence Wyatt with Barclays. Please go ahead.
Afternoon. Thanks very much. Two questions from me. Firstly, on the slides, you focused A lot about how you've gained share and improved your performance in the off trade. Given Campari has traditionally been quite an on trade business, How much of that would you expect to maintain as we start to return to the entree hopefully with the benefit of the vaccine?
Or do you see Campari in the future being more skewed towards the off trade than it was pre pandemic? And then secondly, it's great to see that you're going to be disclosing more of your environmental credentials. Can I just ask a small one about your water usage? A lot of your competitors have got targets around where they use and return water in water stressed areas. I was wondering as well as the targets you have around water use, do you have any internal targets
Not having any plants in any water stressed area, so that's why we haven't put any targets against that. I mean, we're all of our plants and distillies are in areas where there's plenty of water. But obviously, also there, clearly, We're releasing clean waters back in the system. So we feel very good about that. Now with regards to the offers On the base, we estimate that throughout 2020, we had a 10% shift On a group level of our sales from the on premise to the off premise, we would expect that At least in the next 2 to 3 years, consumers will continue to consume Quite a bit of spirit at home.
I mean, having gone through overcoming, let's say, their hang ups with regards to Producing high quality cocktails at home, we think that, that trend is here to At least for the short to mid term, and we would expect to continue taking market share and growing proportionally there. Because as we said, the conference. The offerless, which is a combination of bricks and mortar as well as e commerce has really revealed itself as a very the channel to do brand building, and it's been very rewarding for us, and we'll continue doing that. So we would expect that momentum to continue, and We look forward to when we'll be able to continue to start again to spoil cocktail lovers in the on premise Because we see that every time that the on premise opens, respective of the country, we've got a very, very big return to confidentiality, Which is on top of what is happening in the off premise. The methane that I think is a good position to be in.
The next question is from Edward Mundy with Jefferies.
Bob, after parting. Three brand questions, the conference. The first one on Aperol. You talked about unparalleled affection with incredibly strong off trade growth in certain markets, Germany, Yes, Russia, Switzerland and UK. And you also talked about creating this on premise opportunity in consumers' homes.
Do Do you have any sense as
to whether the growth is from increased frequency of existing consumers? Or have you been able to recruit new consumers into the brand franchise? The second one is on Espolon as a brand. It's now 5% of net sales, just below Grand Marnier. I think you talked about Some better performance in Canada, Russia, Australia.
At what stage are you ready to move this from a regional priority to a global priority? Or put another way, do you think you can leverage your distribution platform to grow tequila meaningfully outside of the U. S. Into the rest of the world? And then the third is on Grand Marnier.
As you've seen, cognac had incredibly strong growth in the U. S. In 2020. I appreciate It's been quite tricky getting momentum given the destock in the U. S.
As well as the brand is more exposed to the on trade. But to what extent do you think you can get consumers into the brand
the conference. Thanks, Ed. With regards to Opera, I'm pleased to say that we've been able to attract new consumers into the franchise. I mean, the data is showing that because what we've done is both in the regular off premise the made it as easy as possible for them and very entertaining by our entertainment efforts, and they have paid off. We've received many compliments, particularly in the e commerce arena from our customers on that.
And we've done the same, to be honest, also on the Campari franchise, obviously, at another rate. So Aperol is responding very well to our digital efforts and our efforts to recreate as much as With regards to Espolon, I think we're very, very close upgrading the brand into another cluster. It's a great brand. It's resonating across all the consumer segments in whichever country we go into. At this moment in time, we're trying to reserve as much volume the conference call.
Possible for the U. S, which is our number one priority that might slow down some international rollouts, But there is no question that this is going to become quite a meaningful brand for us and that we believe there's an opportunity What we're really pushing internationally is the Paloma, which is Espolon Blanco with grapefruit juice, And that's resonating very, very strongly. With regards to Grand Amier, Actually, if you consider the economy in the U. S. Was overly skewed to the on premise.
The fact that we were able to grow by 38% in the off premise shows that we've been attracting new consumers into the franchise, And that is also validated by the data we get. So new consumers stuck at home, Margaritas and we've done a big Margarita portion again here. We were able to create virtual kits Our brands and offering ready made solutions to the consumers have really brought younger consumers the Into the franchise. So we look very forward to that. At the same time, what's going to be very important is also the premiumization We're growing through and that is a different, if you like, type of consumption of the brand.
It's much more closer to cognac And that seems to be resonating also very nicely.
Great. Thanks very much.
The conference.
Your next question is from Andrea Pistacchi with Bank of America. Please go ahead.
The conference.
Hi, Bob. Hi, Paolo.
I have three questions, please. The first one on Italy to understand a bit the situation there. Q4 was clearly impacted by the lockdowns. So what is the situation with wholesaler stock levels in Italy? You referred, I think, to the fact that this year, there wasn't a normal pipeline still there.
And I know it's very early days now, but the restrictions have been eased in Italy a few weeks ago. Have you seen a clear improvement there? And what do you think about Italy this year. I appreciate visibility is low. Then more broadly on the on trade, if you sort of think of your main markets, I mean, a lot of accounts have obviously been hit hard by the situation.
What percentage of on trade do you think And my last question, please, is on China. If I could just get a little bit more detail on some of the things you are saying on your plans for China. So based on what you've learned with your test the The micro battles will the positioning do you think the positioning of Aperol there in terms of price, in terms of where you serve it, will it be different the And also could you give a sense of the breadth and the distribution reach that you'll be able to achieve We've tested in terms of cities or feet on the ground or something like that.
All right. Hi, Andrea. Thank you. Now with regards to Italy, I mean, the situation in Italy is pretty simple. It's a little bit our stop and go situation.
The moment The regions turn into yellow and the on premise is allowed to open during daytime, there's a huge boom. I mean, we see we have phone the conference. And we see people queuing up to get in there. So there's a very, very strong demand for conviviality and the ability to sit around the conference call. So the pent up demand is there.
Currently, we're in a positive phase. Frankly, we really don't have any visibility as to what's going to happen in the next 6 months. As you know, in Continental Europe, we're behind the UK with regards to the rollout of the vaccines. So we'll have to wait and see when the opening of the markets become permanent. But if they do, we know that we're going to have a very nice boost.
Let's keep our fingers crossed. With regards to wholesalers and as well as the on premise outlets, With this stop and go situation, they've been very, very careful to not build any stocks. So it really is, at the So we've come in into very, very low stocks in the wholesale segment Globally, but particularly also in Western Europe. If the markets open, Let's see what happens. It certainly will have an impact on our supply chain, but we're ready for that.
I don't have any precise data on the percentage of Entre, which will not reopen or hasn't reopened. But I would estimate, Depending on the market, it's going to be anywhere between 10% 25%. And this is also what I'm hearing from our key distributors The good thing is that we found out that actually the global Aperol model works 8020 in the The drink doesn't have to be changed. It is the Aperol Spritz with our proportions. In Western style restaurants And in bars, it is the signature serve in the wine glass.
And With training, we see that the staff is able to deliver the right drink. The pricing is slightly more premium the versus beer than what we would have in other markets. If you look at just that opportunity, I mean, Somewhere in 3 to 5 years, we believe we can have a business as big as the ones we have in France, and this is only in that limited channel. The big difference is going to be cracking the Chinese on premise outlets, particularly the informal restaurants, the so called Asian socials, the karaoke places. There it seems as if the ready to drink proposition is more meaningful, works a lot easier, And we can deliver a much better drink.
So we're still going through that, but it shows us the potential in that area. It takes a lot more explanation to do to the end consumer. But then again, with our new partner, which is I would say close to 10 times as many feet on the ground as our previous partner in the on premise And particularly very targeted into both this the Western the part of the market as well as the modern Chinese. I think that will do us a lot of good. We've kicked off of the training already a month before, so they're ready in the starting blocks as of the month of March.
The conference call. And as I said, we'll use the first half of the year to scale up the tests we've done last year and then roll out in key cities
The next question is from Trevor Stirling with Bernstein. Please go ahead.
Hi, Bob and Bartlett. I guess most of the questions have been answered. But one question, Bob, coming back to the U. S. Reopening.
The spirits category has been a big beneficiary of COVID in terms of the The increased penetration at home. When you're seeing states like, let's say, Florida or Texas, which just started to reopen earlier than others, Are you seeing people bringing those habits, proven, back to the on trade?
That's a very good question, Trevor. What we're saying is that Currently, this in home consumption seems to be building momentum, Also in states which are opening because I think to a large extent, climatically in quite a few states, I mean, if you take This is probably not the best time to go outdoors. And at the same time, consumers have grown confidence. They've seen the There is they get more out of their dollar in the home consumption, and we're seeing the penetration grow. And with the arrival of e commerce, there is much more of an exploratory mode.
It is much easier to the virtual aisle, which is also richer in terms of experience because there's a lot of storytelling And entertainment happening there, which then gives them the incentive to be a little bit more courageous and try new things. We would expect that trend to continue for a while.
And I guess a follow-up combined with something you said earlier. It sounds as if you're definitely reexamining the model about how to build after all for the off trade to have a much bigger role in that.
Yes, definitely. I mean, the Aperol model has been built on the on premise. We've been very, very successful on that. But now that we're seeing that we're also successful with the off premise, clearly, This brings us to modify our approach in many markets.
Great. Thank you very much, Paul.
The conference call.
The next question is from Jason Ryan with JPMorgan.
Please go ahead. The conference. Good afternoon, Bob. Good afternoon, Carlo. Just two questions for me, please, and then just one clarification.
Firstly, Can you give us
some update on the impact of the IT systems due to the malware attack? The call back in Northern seemed to be quite dramatic the current situation. So not to have quite a small charge in P and L from that, but are you sort of rethinking approach towards your digital infrastructure and IT investments, albeit with how you're talking about the gains in e commerce. The Secondly, just could you clarify the impact on the tax rates? I appreciate the new commission goodwill.
You said it's going to have a little lower impact in terms of the cash tax rate going forward. But just in terms of the adjusted tax rate in the P and L, That's still going to be around 27%, 28%. And then finally, I think just Going back to your point around the Perona occasion for the Esterholm brand, do you have any particular Partners for that. I think we're taking some U. K.-listed mixers company who made a big push on that grapefruit So the glomerangulation side, you think you can push that yourself?
Or you're looking to partner with further sort of soft drinks going to help that expansion?
I'll take that last question. I mean with regards to the Paloma, we work with different partners in different markets, including the UK listed company. So we're pretty agnostic there. So we're pretty agnostic there. We believe that the focus needs to be more on the tequila And on the type of soft drink you're using.
With regards to your first question, On the impact on IP from the malware attack, both systems have been fully restored. We're back to normality Since the beginning of January, so basically we were to suffer a little bit for a couple of months. Yes, costs are, I would say, contained a couple of €1,000,000 not more than that. With regards to envisaged We have a plan of further lifting our cybersecurity measures. And the cost of that plan is as well as the investments that will be made to support the digital transformation are fully Reflected in our CapEx guidance as well as clearly the OpEx where we do not have a guidance, but still There is nothing that would be seen as a better surprise going forward from a CapEx and OpEx perspective.
So I think it was quite a tough period of time for us, but I think we're potentially touching work out of it. With regards to the second question, it is the tax rate impact. So basically, just to give you a little bit of color, basically, In Italy, the government allowed Italian corporates to realign to their book value, the fiscal values of Both trademarks and goodwill. So basically, we took the of being the Key tax contributor in Italy, we have strong interest in exploiting that opportunity. So basically what happens, we will pay a 3% tax to uplift the fiscal value of the tax the conference.
The cost of net tax is about €15,000,000 And in doing so, we would achieve the Tax savings over the 2018 year horizon of €135,000,000 which means that We have a net positive effect of about EUR 120,000,000. How does that reflect into our P and L and cash flow? So basically, you have Cash flow compression of about EUR 60,000,000 from 2021 onwards. And that cash flow sorry, cash flow compression, I said cash flow increase of EUR 6,000,000 the from 2021 onwards corresponding to the total amount of EUR 120,000,000. So basically, this is to say that in the P and L, on the contrary, the tax saving is then offset by the accrual the Deferred taxes on goodwill and trademark amortization, the EUR 6,000,000 that I'm mentioning.
So basically, in that sense, the recurring effective tax rate will stay unchanged at the current level of 27.9%. What really matters is the recurring cash tax rate will drop from 22.2 percent to the conference call from 23.2 percent to 22.2%, 1% below the current level with positive effect on cash flow of EUR 6,000,000.
Perfect. Thanks for the explanation.
You're welcome.
The conference. The next question is from Robert Frankel with UBS. Please go ahead.
Thank you very much for taking my questions. My first question is on the U. S. Could you tell us what your depletions were in Q4? I'm trying to understand how much of that 13% is related to inventories.
And I'll ask my next question, Zafar.
Yes. Basically, our depletions in Q4 more or less reflected the the shipments. They were depending on the brand, either slightly up or slightly below, but no big change.
Super. Thank you very much. And then on China, just a point a couple of points of clarification. You mentioned you'll go national in the market in the second half of next year, do you mean 2H22? And when you say the size of France, do
you mean Aperol in France or the whole of France? I mentioned, 1st of all, the Aperol brand in France, but I talk about 3 to 5 years' time. The second fact is when we're going national, national means going to a half a dozen large cities. I mean, China is absolutely huge, and We want to focus on Tier 1 cities first. That will start happening in the second half of twenty twenty one.
Great. Thank you. And sorry, final question for me. Just on the inventory destocking, you said you flagged in Western Europe, and I presume Mostly Southern Europe. Can you help us could
you give us anything to help us get a sense
of the scale? How do
I have the inventory days these the Wholesalers normally run at, but if you can give us a sense of what they're currently running
at. Just to help quantify that, it would be great. Thank you. Well, unfortunately, Southern Europe is not as data driven as the U. S, so we don't have that punctual data.
But clearly, we see it from The moment the markets reopen and we go into a yellow zone, for instance, there are big orders coming in. So there's that means that they're not sitting the And at the same time, we're seeing also a very divergent, let's say, performance between the Sellout in the off premise and sell in in the off premise. Again, there, key customers are lagging behind That's the true trend of our brands and this is about Continental Europe. Great. Thank you very much.
Thank you.
What I would like to defend is there is any specific assumption behind because Considering, let's say, including the product online versus the offline, I would have, let's say, thought some It's very considering the previous step up from the distribution made last year. It's very, again, some specific the
Yes, I'll take the A and P question. Yes, clearly, it is much more efficient and efficacious to go the digital route versus so online versus offline. But looking forward, we would see our A and P unchanged as a percentage of sales is around 17.5%, Which means that all the efficiency is reinvested to accelerate the momentum of our brands.
Yes. With regards to the SG and A as a percentage of sales, again, at this stage, we believe that As G and A, I'll say, we remain broadly flat in 2021. With regards to new route to market initiatives, We do not envisage any meaningful difference in SG and A as a percentage of sales. Clearly, what can make a difference is a potential M and A deal, but that would be in any case recognized as a separate the current component in perimeter. So the organic performance of SG and A would stay Its growth trajectory would stay in line with top line.
Okay. And I'm sorry, I forgot, let's say, the question on, The gross margin level of this 10% shift at group level you experienced in terms of gross margin dilution?
We would expect it to be roughly neutral. Okay. Thanks.
Equita Fins. Please go ahead.
Yes, hi. Good afternoon, everybody. Hi. A follow-up from just the previous question, which were a bit similar, but I I wanted to have a bit more of color on the route to market initiatives that we have mentioned are going to kick in at the beginning of 2021. Then regarding the channel mix, I was wondering if you I can elaborate on the channel mix, which would probably have been needed to reabsorb the 130 basis points in gross margin we had this conference call in 2020 to the extent that it is possible to have this kind of connection, let's say.
This. And very last question is about nonrecurring items. If you have already any projection for 2021 of any the one off element which could be reported below the EBIT line.
Thank you, Paolo. I'll take the first question. I mean, the Crude to market changes, obviously, with our emphasis on Asia, quite a bit is changing there. Last year, you know that we kicked off our joint venture, which really started trading in September. So we restocked the previous distributor and are gradually resuming normal trading there.
So there was an impact of that And in anticipation of the move in China, we also did the same thing there. And we will start Trading with the new distributor as of I mean, when I'm saying trading, they will start trading because obviously, we've been shipping
Have you heard my question by chance? No, I'm sorry. I had a problem with my headphone. No, I was wondering, so it's when you talk about new route to market initiatives you were referring about, these external distributors here and there.
As well as one part of the Our portfolio will be changing distribution in New Zealand, but I mean it's not going to be material on the group. Okay.
So nothing regarding your direct distribution? No. Okay. Thanks.
So with regards, Paola, to your second question that is around the gross margin trend and the mix, You said channel mix, for us, we're more exposed to sales mix in brands and geographies than channel. And as I said before, as you know, the on off trade percent is not moving the needle. The key driving factors, if we the performance of Espolon that is diluted due to the current level of the agave price. This is destined to stay in SBR because we We're very positive with the brand. It has a very strong momentum.
Also, the category is growing. So we think This is a trend that is destined to stay in 2021. And potentially, there is an opportunity, as I said before, going forward, €30,000,000 recovery in profitability on the Espolon brand as the other price will decline. We have 2 factors that are potentially a positive in terms of mix that is, in fact, last year, we had very Strong underperformance of the aperitif business, particularly in Italy, where we had huge contract consumption. This is potentially a positive for next We all know that our aperitif portfolio is driving gross margin accretion.
The second factor is the The destocking in the U. S. Accounted for EUR 19,000,000. And as said, next year, we're not expecting that to repeat again. Then we have tariffs, it's a question mark and lower absorption of fixed cost.
I believe next year, we will see some positive operational leverage In fixed cost versus 2020 because volumes will grow definitely versus last year and this is a positive. So in essence, the 3 drivers of mix improvement next year is the nonrecurring effect of destocking, the better performance on a With regards to your 3rd question, recurring expenses, not as we know at the moment. So These are one offs. And for the time being, we do not see anything meaningful.
Okay. Perfect. Thank you very much.
There is a follow-up question from Robert Ransom with UBS. Please go ahead.
Hello. I'm really sorry
for some follow ups. Two ones for me. Obviously, most of your peers have cut marketing while you've increased over the last second half of the year. Any views on what happens when they come back to the market? And then secondly, you mentioned cost containment.
How much of that should we think comes back in 2021? How much is temporary now to
Yes. I'm not sure I got your first question. I think it's fair to say that In Q4, when we actually maintained or actually increased the A and P across brands and markets, Most of our peers focus much more on promotions in the off premise and focusing really on short term the company. So we'll have to wait and see what they're up to this year. But having said that, We always manage this business for the mid- to long term and we're not going to be impacted by what our peers do in the short term.
With regards to your second question, the cost containment measures, some of them will In place in 2021, at least in the 1st part of the year, if you think at G and E, for example, if you think at Hiring discipline is destined to say probably not hiring freeze, but very prudent approach to new hiring and selectively on certain strategic direction like digital marketing transformation or Asia. This We may want to invest a little bit more. And there are other one off factors that are not Positive one off factoring costs that are not recurring in 2021. If we think that, for example, bonus compressions We all hope that we'll be in a position of paying higher bonuses, which means that the business is improving. So it will be it will not be as last year, the saving as the business gets to its normality, we will start managing the
I confirm there are no more questions at this time.
Well, Maris,
thank you very much for joining us. Appreciate that, and stay well.
The conference. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone.