Good afternoon. This is the Chorus Call conference operator. Welcome, thank you for joining the Campari Group's nine months 2020 results presentation. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Bob Kunze-Concewitz, Group Chief Executive Officer of Campari. Thank you. Please go ahead, sir.
Thank you. Good afternoon and a warm welcome to all to our Q3 call. As you can see, our overall performance in Q3 improved markedly, boosted by the impact both of staycation, as well as the continued good trading in the off-premise. Moving on to page number four, I'll cover the highlights. Overall, I would like to underline the fact that our underlying brand health is confirmed in all of our core markets, and we've had a temporary on-premise recovery in a continued challenging environment. Net sales on a nine-month basis showed a marked improvement, down only 2.8%, driven by a very positive Q3, up by 12.9%.
The ongoing effect of the COVID-19 pandemic is still active and challenging, many markets with restrictive measures, we've continued to benefit from a recovery in Q3, driven by the increased consumption in consumers' home countries where they spent their holidays rather than traveling abroad, so to say, a staycation effect, which affected, in particular, our activities in, importantly, their peak summer season. The on-premise skewed Italian market was up a very strong 35.4%, boosted also by the favorable weather conditions. There was continued sustained consumption in off-premise skewed Northern European markets, Australia, and Canada. A flat performance in the U.S. was achieved after a quite positive Q3, up 8.9%, driven by Espolón and the Jamaican rums, thanks to strong category momentum, whilst de-stocking is continuing at the wholesaler level.
Looking at it by geography, we had an overall decline on nine months in EMEA, despite the very positive Q3 results, clearly driven by the temporary on-premise recovery in Italy, alongside positive shift in phrasing in France after the new route-to-market set up, and obviously what impacted negatively the area was mostly weakness in Spain, Africa, and global travel retail. We have continued positive trends in core off-premise markets, particularly our third largest market, Germany, the U.K., Russia, Canada, and Australia. The U.S. was flat overall as de-stocking continues, whilst shipments in Espolòn and the Jamaican rums grew. The on-premise skewed and tourism-reliant markets within Latin America as well as the Caribbean declined. Looking at it by brand, in the nine months, global priorities declined by 2.6%, despite both Aperol as well as the Jamaican rums registering growth.
Our regional priorities were down 1.3%, although Espolòn registered very strong growth, and our local priorities were down or basically flattish, down 0.9%. In Q3, growth was mainly driven by recovery across the high margin and on-premise skewed aperitif portfolio, so Campari, Aperol, Crodino, and Campari Soda led the advance, and as well as the acceleration of Espolòn in the U.S. market. On a reported basis, net sales were down 1.6%, reflecting the positive perimeter effect of +2.7%, which has been compensated by a negative foreign effects of -1.5%.
EBIT adjusted on an organic basis declined by 15.1% on nine months, which represents a 280 basis points margin dilution. This due to the negative sales mix as well as the lower absorption of fixed costs in connection to COVID-19, which was also partly mitigated by an improved performance in Q3, up that quarter by 11.2% with a 30 basis points dilution driven by the AMP step-up. On a reported basis, adjusted EBIT was down 13.7% with a positive foreign effects of EUR 9.3 million, or in other words, 3.2%, and a negative perimeter effect of EUR 5.4 million, -1.9%. Pre-tax profit on an adjusted basis reached EUR 220 million, down 15.1%. Group pre-tax profit on a reported basis reached EUR 198.2 million, down 22.4%.
Net financial debt stood at the end of the period at EUR 1 billion, 68 million, which is up EUR 290.8 million versus December 2019 and is mainly due to acquisitions such as that of Rothschild France Distribution, Champagne Lallier, the investment in Tannico, the tax payment related to the disposable Alvilà Llaçot, as well as a dividend payment in the share buyback. All of those put together amounted to EUR 461.6 million or up by only EUR 6.7 million versus the 30th of June 2020, which means that the positive free cash flow generated was quite good in the quarter. Net debt to EBITDA on an adjusted ratio basis reached 2.4 times at the end of the period. Moving on to chart number seven, because we will be discussing what's on number six in the following charts in more detail.
Number seven, what we'd like to underline is the very strong brand momentum in the U.S. across our portfolio as well as across our aperitifs portfolio in Europe. On the top left, you see how from the beginning of the lockdown till the end of the period, how we've outperformed the U.S. market on a Nielsen basis. On the left-hand axis, you have the volume changes. Actually, on a value basis, we've done even better than that. On the right-hand side, you see the outperformance versus the market. To the right, you see the performance by RTD brands in the U.S. market. On the bottom half, you see the outperformance of both Aperol and Campari across key European markets versus the category.
Given actually that the two brands make up quite a bit of the category in terms of share, clearly the outperformance versus the benchmark overall market is much stronger. Moving on to slide number 10 and kicking off with the Americas. The Americas overall down only 3.6% over nine months, with the U.S. flattish. The overall flattish performance in the U.S. was affected clearly by the ongoing destocking at the wholesaler level. Depletions on a cumulative basis are up by 11.3%. That's quite a contrast. The positive shipment performance in Q3, which was up by 8.9%, was largely driven by the strong performance of Espolón and the Jamaican rums, as we mentioned earlier. Coupled also with a favorable comp base. Last year, the U.S. was down 2.8% in Q3.
The very strong performances of Espolòn particularly, as well as the Jamaican rums, helped offset the shipment declines in SKYY and Wild Turkey, which will continue to be affected by the destocking, as well as Grand Marnier and Aperol, which suffered from the strong exposure to the on-premise channel. Depletions continued to grow above shipments, up strong double digits, 13.4% in Q3, and the brand momentum across the portfolio in the off-premise continues to be quite strong, with sell out on average at plus 30.8% overall and a strong double-digit growth in our core brands since lockdown. We're consistently outperforming the local market by 10.4 percentage points as shown by the earlier chart. Jamaica was down by 7.6%. This overall decline is due to on-premise restrictions as well as the highly reduced touristic flow, amplified also by quite a tough comp base.
Last year, Jamaica was up 17.3% over the nine-month period. The good news is that Wray & Nephew Overproof, which is quite a high marginality brand, is continuing to register robust growth. Canada continuing to grow double digits, up 11.1%. Very resilient growth continued in the largely off-premise markets. Key drivers are Forty Creek, Grand Marnier, and the Jamaican rum portfolio. Whilst we have also nice growth on Campari, SKYY, and Aperol in Q3.
Brazil is down by 11.4%. This is an on-premise skewed market, which remains challenged with a negative performance across the portfolio, particularly in Campari, Aperol, and SKYY, while the local Brazilian brands registered some weakness in Q3. The rest of the region, so South America, including Mexico as well, was down 23.5%. Mexico declined by 34.3%. Q3 was better. We were only down 6.8%, thanks to the positive momentum in SKYY RTD as well as Aperol.
Argentina grew by 4.6%. This is quite positive given that we're tracking the volumes here as we do hyperinflation accounting. Moving on to our second-largest region, Southern Europe, Middle East and Africa. Overall down by 14.2% on an organic basis, almost compensated by the perimeter, which was up by 10.3%. Italy is down 11.6%. Clearly the strong decline we saw in the first half of the year was mitigated by the very positive Q3, where we were up by 35.4%. It's an on-premise focused market. As you know, 70% of the market's net sales are in the on-premise. As the on-premise progressively reopened during the key summer season, we clearly benefited from it. The entire portfolio registered growth in the third quarter. Most importantly, our high margin aperitifs, both the big bottles, Aperol and Campari, as well as the single serve aperitifs, Campari Soda and Crodino.
The latter were also helped by a seasonal rebound. This outperformance was driven by the short-term reaction to the lifting of restrictive measures, as well as the so-called staycation effect, which really drove domestic consumption. This helped offset the lack of international tourism. The evolution, unfortunately, towards the end of Q3, in the on-premise, is characterized by renewed signs of uncertainty due to the resurgence of the pandemic. As you know, the government also introduced new measures last Sunday, which will negatively impact the on-premise. The rest of the region was down 21.6%. France grew double digits, as we benefited from the positive shipment phasing after having destocked in the beginning of the year ahead of the route to market setup. The key driver there is Aperol, followed by Riccadonna and Campari, and our sellout data is very positive in that market.
Unfortunately, Spain declined by 45.4%. It's a heavily on-premise skewed market, and it is severely impacted both by the pandemic, the subsequent restrictions, as well as the significant reduction in tourism, which occurred over the quarter. Within Africa, Nigeria grew by low single digits, while South Africa's decline was amplified by the route to market change. Last but not least, and this is not unexpected, global travel retail was down almost 65%, and it remains clearly a very highly challenged channel. Moving on to quite a star, North, Central, and Eastern Europe, up 11.3% organic growth. Germany, our third largest market, up 11.6%. Very solid growth overall, and this is a predominantly off-premise market. With quite an acceleration in Q3, where we grew by 25.5%. We were expecting the staycation, we tailored our plans accordingly, and we reaped the reward.
The staycation boosted our core aperitifs, Aperol up 36.8%, Campari 28.4%. Although it's coming from a low basis, Crodino is also growing very nicely at 14.8%, and we expect good things from that brand in future years. We've had positive overall growth from BULLDOG, the Glen Grant, as well as Ouzo 12, which whose sales are highly concentrated in that market. The U.K. continues to grow double digits, up 22.8%. A very resilient market, which grew mid-single digits in Q3. Bear in mind that the comp base was very tough. We grew by almost 53% in 2019, and clearly, the growth is being led by Aperol, Grey Goose, White Overproof, Magnum Tonic, and Campari. Russia, also strong double-digit growth, almost 20%, 19.8%. Continued very positive performance with a nice acceleration in Q3. Again, we maximize the season, growing by 20.6%.
This is a predominantly off-premise market, and Aperol, Cinzano, Vermouth, Mondoro, and Campari led the way. The rest of the region grew mid-single digit, up 4.5%, with the exception of Switzerland, up double digits, 12.8%. Closing our regions on page number 13, Asia-Pac, 5.5% organic growth, with Australia growing by 21%, so quite strong, compensating for the decline in the rest of the regions. In Australia, very positive growth in a predominantly off-premise market. Again, a very nice acceleration in Q3. Here, as opposed to the aperitifs, there was mostly the bourbon portfolio and the ready-to-drink leading the way. We've also seen some nice growth behind Glen Grant, Campari, Cinzano, Vermouth, Frangelico, and Esperanti.
With regard to the rest of the area, China declined after a negative shipment phase in Q3, but we have very nice growth in X-Rated Fusion Liqueur, and also very positive results so far on the micro bottles on Aperol. New Zealand also declined, although trends improved there. Japan, in line with expectation, declined double digits in connection with the route-to-market change. Importantly, though, we're starting to turn the corner in Japan as good sellout data is starting to come through. Moving on to page number 15 and the analysis by brand, starting with the global priority brand, with our largest brand, Aperol. On a nine-month basis, growing by 2.6%, very strong, plus 26.2% in Q3. Nice acceleration in the peak Q3 period. Clearly, Italy contributed quite a bit since it represents 45% of the brand's sales.
As I mentioned earlier, we benefited strongly from the staycation effect, not only in that market, but also in the core German market. Elsewhere, the brand registered quite a resilient performance with strong off-premise and online sales in other core markets, particularly France, Switzerland, as well as high potential and seeding markets, in particular Russia, Canada, and the U.K. We've had a temporary shipment decline in the U.S. due to destocking, given the on-premise feel of the brand. While both depletions, which were up by 7.5%, and sell-out trends, which were up by 40%, remain very positive in the off-premise. Campari, flattish on nine months, up by 19% in Q3. A very positive Q3 in Italy, up double digits, benefiting from the same factors as Aperol.
Resilient growth in other key markets such as Germany, Nigeria, the U.S., and France, which then was offset by decline in important markets such as Jamaica, Brazil, and global travel retail. On a shipment basis, Grand Marnier was down by 10.4% on nine months, 11.9% in Q3. Very positive performance in Canada, but this was more than offset by the destocking, which is continuing in the U.S., as well as the poor performance in the global travel retail environment. Importantly, though, if we look at its core market, the U.S., both sell-outs and depletions are quite positive. Sell-outs in Nielsen off-premise is growing double digits, around 30% week after week, and depletions are up mid-single digits on a year-to-date basis. SKYY also on a shipment basis, down 15.3% on nine months, 12.9% on the quarter. Continued overall decline in the core U.S. market, where we're down 6.9%.
This is clearly being driven by the destocking, which we expect to continue into Q4 on some selected SKUs. If we look at sell-out, the brand is doing much better. Both depletions as well as our sell-out trends are in the mid-single digits, particularly the core is doing well. Internationally, we were impacted by the shipment phasing in China, by real in-market performance in Canada and Italy. Moving on to the bourbons. Overall, down 4.3%, up 2.5% on the quarter. Positive growth overall for the Wild Turkey Bourbon in Q3, clearly driven by the core markets, the U.S., and Australia. The brand is continuing to catch up to a more positive depletion and sell-out trends, which are actually double digits in the core U.S. market.
This growth was partly mitigated by the double digits in core Japan, and this, again, is due to destocking, but in this case, in connection with the route-to-market change. Positively, though, the high end of our bourbon portfolio is doing very nicely in accelerating. Q3, we've seen Russell's Reserve and Wild Turkey Longbranch growing by 9.4% with a nice acceleration in that quarter. American Honey declined overall, but registered growth in the Q3 period, up 17%. We actually had some out-of-stock issues which impacted Australia in Q2, so we're cycling these and returning to a healthier pattern. Moving on to the rums. To close our global priority brands, up 6.2% on nine months, 8.5% on Q3. This growth is mostly driven by Wray & Nephew White Overproof, which grew almost by 25%.
Continued positive trends in Jamaica as it is consumed mostly by locals, and very nice pickup in international markets in the U.S. and the U.K., which are large markets, as well as in Canada, where they're starting off with small base. Appleton Estate registered an overall negative performance, or let's say basically flattish, despite the acceleration in Q3. This was largely driven by Canada, the U.S., and New Zealand, which are helping compensate South American markets as the relaunch behind new packaging and a new brand visual identity is proving to be quite successful in the Northern markets. Moving on to our regional priorities. Espolòn going from strength to strength, up almost 30% on nine months, more than doubling, plus 107% in Q3. Clearly an outperformance driven by the core U.S. market, where on shipment basis, we were up 34.3%. On a nine-month basis, almost 132% in Q3.
We have very strong category momentum, but within the category, the brand is also outperforming very strongly, as highlighted by very solid depletion and sell-out trends. Importantly, the brand is also becoming meaningful in markets such as Canada and Australia, which are growing healthily. Unfortunately, BULLDOG is down double digits, 20.2%. It's continuing to be impacted by global travel retail and, of course, Spain, which are really impacted by the COVID-19 pandemic. If we move on to the whiskey. The Glen Grant also impacted by global travel retail, down double digits, 27%. Here, it's not only global travel retail, but also the route to change in South Africa, which is impacting it. Forty Creek, on the other hand, is in positive territory, up 7.5% on a nine-month basis, slightly down on a Q3 basis. Nice double-digit performance in Canada, but the U.S. remains weak.
Moving on to the Italian bitters and liqueurs, down double digits, although improving in Q3. This overall negative performance is clearly impacted by the on-premise queue of these bitters and liqueurs, and largely due to declines in core Italy and the U.S. over the nine-month period. Q3 improved, particularly for Averna, which responded very positively to the new packaging as well as the new campaign. We expect to improve these trends in the quarters to come. Sparkling wine and vermouth, the Cinzano brand down 8.1% year to date, but a nice catch-up in Q3, up 7.5%. This is mostly due to the vermouth, which had a very solid double-digit growth in Q3, up 18.6%, thanks to the recovery in its two core markets, Russia and Argentina. Sparkling wines were down 10.5%.
Improving trend in Q3 at 4.8%, and this thanks to Eastern European markets as well as the recovery in Germany. Last but not least, our local priorities. You see there was a very strong recovery in core Italy for Campari Soda and Crodino in Q3. Soda was up 46.3%, Crodino 24.2%, so significantly reducing the declines we saw in the first six months of the year. Moving on, the Wild Turkey RTDs in Australia growing very strongly and also accelerating in Q3. This is led by our overall outperformance in the Australian market. The Brazilian local brands are up on a nine-month basis, but down almost 10% in Q3, as that market continues to be impacted both by the pandemic as well as the very, let's say, weak economic environment. Ouzo 12 growing double digit, mostly sales concentrated in Germany. A brand reacting very well.
Last but not least, Cabo Wabo benefiting from category momentum, growing double digits as well. These sales are mostly concentrated in the U.S. This was it from a sales perspective. Now Paolo will take you through the financials.
Thank you, Bob. If you follow me to page 22, we can see that gross profit on a reported basis was down in nine months by 5.2% in value to 59.4% on sales, showing 260 basis points dilution. Looking at the existing business, the gross profit organically was down by 7.1% in value, leading to 270 basis point margin dilution in the first nine months of this year. The dilution was driven by two factors: unfavorable sales mix and lower absorption of fixed production cost. Looking at the unfavorable sales mix, we have three factors there. First and foremost, the outperformance of the lower margin Espolòn due to the high agave price. Secondly, shipment declines in higher margin Grand Marnier, Campari, and Aperol brands in the U.S. This is all due to the stocking effect.
Thirdly, weak results in the aperitif portfolio in Italy, which was strongly hit by the on-premise closure in the second quarter of this year. If you look at the third quarter in isolation, on the contrary, we have quite solid results and improving trends. Gross profit organically was up 10% in value, showing a more contained dilution at 160 basis points versus 270 basis points on a year-to-date basis. The reduction of the margin dilution was driven by positive sales mix. On the other hand, the margins continued to be affected by negative sales mix, mainly driven by combined effect of strong growth in the lower margin Espolòn and shipment declines in high margin Grand Marnier and aperitif business in the U.S. While on the contrary, in Italy, we had quite encouraging results in the third quarter in isolation.
A&P on a reported basis was down 7.3% in value to 16.8% on sales, showing 100 basis points margin accretion. In existing business, A&P was down in value by 6.9%, driving 80 basis points margin accretion, thanks to cost containment measures, the postponement of certain initiatives in the on-premise channel, particularly in the second quarter of this year. On the contrary, in the third quarter of this year, A&P increased in value by 17.9% organically, leading to 80 basis points margin dilution, driven by accelerated investments behind the high margin Aperitif business, which hit its peak season, together with continuous investment in both digital brand building and online brand activation, as well as the new e-commerce initiatives. The SG&A on a reported basis were up 3.2% in value to 23.2% on net sales, showing 110 basis points dilution.
In existing business, we had a quite contained increase of SG&A with a value increase of 0.7%, driving just 80 basis points margin dilution, mainly due to the lower absorption of fixed cost that in SG&A account for about 85% of the total bill, with cost containment measure mainly related to variable and discretionary costs. Again, if we look at the third quarter in isolation, SG&A grew at a very contained pace with an increase in value of 1.8%, significantly behind the top-line growth of 12.9% in the third quarter, leading to 200 basis point organic accretion of margin. If you follow me to page 23, EBIT adjusted on a reported basis was down 13.7% in value at 19.4% on sales, down from 32.1% from 2019.
In existing business, EBIT adjusted organically declined by 15.1% in value, leading to 280 basis points margin dilution in the first nine months of this year. That was largely due to negative sales mix, lower absorption of fixed structural costs, given the top-line decline, coupled with somehow a tough comp base as the first nine months of last year, EBIT grew by 9.9% in value. In the third quarter on a standalone basis, the EBIT adjusted performance was quite robust in value, up 11.2% or EUR 12.1 million with a very contained EBIT dilution in terms of margins by just 30 basis points. That was due to a positive top-line result, while margin continued to be affected by negative sales mix, acceleration of A&P investment, which grew by 80 basis points in the third quarter, and that effects were partly mitigated by SG&A efficiencies, as we saw before.
EBIT adjusted on a reported basis was down by 9.7% in value to 23.9% on net sales. In existing business, EBIT adjusted declined by 11.7% in value, generating 240 basis points margin dilution. Moving on to page 24. Group recorded operating adjustments for an amount of EUR 48.3 million, of which EUR 27.3 million have been registered in the first half of this year, primarily due to the recognition of impairment loss of EUR 16.3 million on the BULLDOG trademark. That is, as you can see below, totally offset by the write-off of the BULLDOG earn-out for a corresponding amount. On top of that, Group made some donations to support the sanitary emergency. Following the completion of three deals, we registered some M&A transaction fees.
In the third quarter, we've recorded further operating adjustment for an amount of EUR 20.9 million due to the restructuring program in Jamaica, where we're exiting the agribusiness, and that is a one-off cost of EUR 11.2 million, topped up by some costs relating to re-domiciliation and some other initiatives, again, M&A transaction fees primarily. Net financial charges came in at EUR 27.4 million, EUR 2 million higher versus the first nine months of last year. We incurred in EUR 2.3 million of negative variances due to exchange rate differences.
Although the average indebtedness in the first nine months is higher versus last year, EUR 948 million versus EUR 888 million of last year, such effect has been compensated by lower average cost of net debt, 3.8% this year versus 4.1% in the first nine months of last year, with both period highly impacted by negative carry effect due to the large amount of cash sitting on our current accounts.
The decreased cost of net debt is largely attributable to the reduced average gross debt coupon. On the put option and earn-out, we have a positive impact of EUR 15.4 million. The bulk of it sits with the write-off of the earn-out on the BULLDOG acquisition. Group pre-tax profit came in at EUR 190.2 million, down 32.4%. Group pre-tax profit adjusted came in at EUR 220 million, down 15.1%. If you move on to page 25, we have the net financial position.
The net financial position came in at EUR 1,068 million, up EUR 290.8 million from EUR 777 million, primarily driven by the acquisitions, whose cost totaled EUR 126.6 million. The tax payment related to the disposal of Villa d'Este for EUR 60.1 million, the dividend payment for EUR 62.9 million, and the share buyback, which in the first nine months totaled EUR 212 million, for an overall amount of EUR 161 million.
Overall, the net financial debt was up by EUR 6.7 million versus the back end of June, with a very solid recurring free cash flow, which has been generated in the third quarter, which was totally broadly offsetting the accelerated buyback program, which accounted for EUR 160 million in the third quarter of this year. With regards to the buyback program, I worthwhile noting that the total program accounts for EUR 350 million. As said, we bought shares for EUR 212 million.
We're expecting to buy further EUR 82 million in the fourth quarter of this year, so that we'll be in a position of having bought back EUR 300 million by December end 2020. Then we will complete the buyback program in the first quarter of 2021 with further EUR 50 million share buyback. Net debt to EBITDA ratio adjusted came in at 2.4 times at the end of September, broadly unchanged versus the back end of June. After the nine-month period closing, 6th of October, the Group completed the issuing of a new 7-year euro bond for a consideration of EUR 550 million with a very interesting coupon of 1.25%, which will enable us to extend the overall debt maturity profile as well as to improve the average nominal coupon for bonds and term loan, which will decline from 2.15% to 1.42%. I think this is it on numbers.
I would hand back to Bob for an update on marketing initiatives and corporate developments as well as conclusion and outlook.
Thank you, Paolo. Just a quick recap on the very intense marketing initiatives before moving on to the outlook. On the Campari brand, we've been able to benefit from the temporary opening. We were proud to sponsor both the Venice Film Festival as well as the New York Film Festival and received very strong and positive coverage for that. At the same time, in September, we kicked off a slightly different Negroni Week, where we asked consumers to actually donate money to their favorite bars, and that was also very well received by the on-premise. Lastly, at the end of the quarter, we launched the new fully digital Campari campaign on a global basis. Aperol has also moved basically all digital with edutainment and digital competitions and digital animations, and that seems to be working quite well as we saw very strong results over the quarter.
A very strong digital push on the Wild Turkey Longbranch, as well as on Espolòn, and these are again, very strongly growing brands, so we feel good about that. In terms of new initiatives, we've managed finally to roll out the new pack size and a much more premium brand visual identity on Crodino in international markets, and that has been quite nicely received by the on-premise, and we're starting to see nice numbers behind the brand. Last but not least, we've also had a very positive reaction to the relaunch of the Averna brand behind the Proudly Sicilian new platform. Moving in conclusion. Looking forward, I think it's fair to say that we see persistent uncertainty in the short- term, but good confidence for the long-term business momentum.
Now, with the progressive uplift of the restrictive measures toward the end of the second quarter, our performance in the third quarter largely benefited from the staycation effect. This temporary effect impacted, in particular, our Aperitifs business in their peak summer season in core on-premise markets, notably Italy, and were also boosted by favorable weather conditions. It must also be said that we really, from a marketing and sales execution standpoint, have done a very good job in that period. We've had also strong brand momentum across the portfolio in the off-premise across all of our markets.
However, unfortunately, towards the end of the quarter, the evolution of the on-premise has been characterized by some renewed signs of uncertainty due to the inevitable resurgence of the pandemic in many areas of the world, and that has led to a series of different forms of measures across different markets, which clearly will impact the on-premise in the months to come. Now, looking at the remainder of 2020, we believe that it will be marked by uncertainty due to the evolution of the pandemic. The restrictive measures which are being reintroduced by the government of many affected markets are expected to potentially generate an adverse effect on consumption in the on-premise channel, the trend of which remains obviously highly unpredictable, particularly during the key holiday season at year-end. For all we know, we might have a staycation effect there too, but impossible to predict at this stage.
Shipments in the U.S. are continuing to be affected by the ongoing destocking activity, particularly the SKYY brand and only some SKUs of that brand. We'll see a progressive catching up with the positive sell-out trends across the rest of the portfolio. Long- term, there's no question that we will continue to undertake all of the necessary non-structural actions to contain the effects of the pandemic on the business in the short- term. We will remain highly focused on pursuing our long-term strategy because we know that this really pays off. We remain highly confident about our long-term consumption trends and growth opportunities. We will continue to leverage the strength and resilience of our brand, our business model, as well as strategy, ensuring that it is strongly positioned and ready to accelerate the growth as soon as consumers can resume their habits in the on-premise.
As a very committed and long-term brand builder, we will remain focused and highly engaged in the off-premise opportunity with our distinctive brand portfolio. We're firmly convinced that the out-of-home social experience as well as the convivial reality will remain absolutely essential to consumers' lifestyles, as demonstrated very clearly by consumers' consumption behaviors in the third quarter. This is it on our end, and happy to take your questions.
Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove your question, please press star and two. Please pick up the receiver when asking questions. The first question comes from Simon Hales of Citi. Please go ahead, sir.
Thank you. Good afternoon, Bob. Hi, Paolo. Just a couple of questions, please. Firstly, Bob, obviously, you're talking in a line more cautiously about the outlook as we head into Q4. Could you maybe talk a little bit about maybe the exit rate that you saw across some of your businesses from a sales point of view through the end of Q3? That's particularly perhaps what you've seen in September, maybe in some of your European markets. If there's anything you can say as to how that trend has perhaps evolved through the early part of October, given those on-premise restrictions that we're seeing increasingly come through. Secondly, I wanted to ask you around stock levels in a couple of your markets. From a French standpoint, you called out the benefit of shipment phasing in Q3.
Was that all completed in the third quarter, or should we expect shipments to run ahead of depletions in Q4 in France as well? On the U.S. business, you referenced some ongoing destocking, particularly around some of the SKYY SKUs into the fourth quarter. When should we expect the shipments to really start matching depletions in totality in the U.S. market? How much more destocking or how many more months worth of destocking do you think we've got to go?
Yes. Thank you, Simon. With regards to the Q3, the end of September, we say it was more a question of feeling, we started seeing a slowdown in the on-premise, particularly in Italy in October, and most towards the end of the month. Last week, we started seeing the signs where from being double-digit ahead versus same period a year ago, we're down mid-single digits on a day-by-day basis. Who knows where it's going to go. It's important to say that whilst the measures taken, the government will undoubtedly have an adverse effect on the on-premise in Italy in Q4. It's worth mentioning that Q4 is very different from Q2. It's very different from a brand focus standpoint. Clearly, it's not high seasonality for our aperitif business. If we look at the measures taken currently, they're not as totalitarian as in Q2.
There are parts of the day where the on-premise remains open. There are certain areas of the country where it remains open. Last but not least, though, we've also learned quite a bit in Q2 in Italy on how to do our brand building in the off-premise. We were prepared for things to happen, and we'll do our best possible. Net that, yes, it will affect us, but most probably not as badly as in Q2.
With regards, Simon, to the destocking effect based on our current visibility and analysis, we have estimated the nine months impact of destocking in the area of EUR 35 million-EUR 40 million. It's a big number. We believe in the third quarter in isolation, the destocking accounted for about EUR 5 million. When looking at the fourth quarter of the year, what's wise, calling out a potential further destocking effect, which will be south of the EUR 5 million. We don't know exactly, provisional three, but within the EUR 5 million. That's how we see it. Clearly, the destocking has impacted the imports brands primarily. The heavy cases where distributors have implemented a more effective way of managing inventory levels.
This is clearly driving most of the margin dilution that we've seen in the nine months of the year, topped up by what we said on Espolòn, as well as lower absorption of fixed cost. With regards to fourth quarter, the last point that I wanted to call out is the FX. That is moving opposite direction with regards to dollar. We will recognize EBIT level at further EUR 5 million negatively big impact on the FX. Destocking and FX are the two major movers in the Q4 of this year.
It is also worth underlining that without the destocking in the U.S., our net sales on a nine-month basis would have been actually flat versus year ago, which is quite a good performance within this environment.
That's great. Can I just clarify, Paolo, your comments and the numbers you gave on the destocking impact? Is that the impact on the U.S. business destocking alone, or is that total across group destocking?
Yeah, it's total, but it's primarily coming from the U.S.
Got it. Then just in terms of my question on France for the fourth quarter, is there any further lingering benefit on shipment phasing, or is that done in Q3?
Most is done. We believe we will not see major impact in Q4.
We're pretty much operating on a pool model across all of our markets. Clearly, the one exception this year is the U.S. because of the destocking happening at the wholesale level.
Got it. Just one final point of clarification for Bob. In terms of Italy and seasonality of your business to the on-premise, how do we think about the 70% exposure, again, to the on-premise that you typically see through the year? What is that in Q4? It is still around 70%, or is it a lot lower?
It should be lower. I don't have the exact figure in mind, clearly, Q4 starts moving more into the brown spirits and sparkling wines.
Got it. Very clear. Thank you ever so much.
The next question is from Olivier Nicolaï of Goldman Sachs. Please go ahead.
Hi, good morning. Bob Paolo. Just a couple of questions. Just a follow-up on the shipments versus depletion question. If you wouldn't mind, you gave us some comments on U.S. and France, which is very useful. Just, you had very strong growth, obviously, in Italy and Germany. The strong double-digit growth you've seen in the quarter, is that completely matching the underlying demand, or is there still a bit of a mismatch here as well between shipments and underlying depletion? Then just on Aperol. In previous years, you've done a lot of work to try to de-seasonalize the brand, which obviously was very difficult towards the summer, but you've been pushing it in ski resorts and so on. How big is Q4 for the brand? Could you comment perhaps on the initiative you're taking to stay relevant in the off trade for the winter months?
Thank you.
Yeah, with regards to U.S. and France, we had very robust both depletions as well as sell-out data or double digits across both in the U.S. and in France, we're outperforming the market. We feel very strongly and very positively about the business in both markets. In Italy and Germany as well over the quarter, frankly, our shipments mirror the sell-out. We were planning on a strong quarter because we thought there would be a staycation effect, so we really did plan that. Having said that, though our supply chain had really to react to a very, very strong demand coming from consumers. Now, in Aperol, yes, we have de-seasonalized it. Bear in mind that a lot of, let's say, the activations would habitually happen in Q1 and skiing resorts and stuff like that, which obviously will not happen.
With regards to the brand and its opportunities in the off-premise, we're really focusing on visibility in store, in-store theaters, and activating it very strongly via digital.
Thank you very much.
The next question is from Laurence Whyatt of Barclays. Please go ahead, sir.
Thanks very much for the questions. Could I just have a follow-up on the U.S. business and just if you could give us an idea of your normal level of stock in terms of number of days of stock in the channel and what it currently is? Secondly, your advertising went up in Q3, and now it seems you've got to advertise in both the on-trade and the off-trade in slightly different quantities than normal. Finally, just on M&A, we've seen lots of activity in the spirits world, especially in premium gins.
How do you see your current gin offering, and do you think there's any opportunity for premium gins in that space? Thank you very much.
Thanks, Laurence. I'll take the last two questions, starting with the last one. Premium gin, we think that category has almost turned into wine. The shelves are so full of so many different labels that we really don't see the benefit of making any acquisition in that area. We're happy with the three gins we have, and we will nurture them and grow them. There's no point spending money adding franchises in that category from our point of view. With regard to A&P, we expect it on a full -year basis this year as well as next year to be on a like-by-like level to be in line as a % of sales on an organic basis versus last year. Not much of a big change on A&P. It's much more a question of the mix, which is changing. We've moved significantly from offline to online.
With regards to the normal level of stocks in the U.S. business, as Bob has just mentioned, we've strongly moved towards a pull model whereby consumption drives depletion which drive shipments. You cannot give a number for the whole portfolio because it very much depends on whether brands are import or are locally produced brands. Typically, on locally produced brands, you have lower inventory days. On imports, you have higher inventory days, given the fact that the lag time to supply the market is longer. Basically, the wholesalers are reviewing their numbers to make sure that they are as effective as possible in managing their inventory levels. On average, we can say that 60 days, a couple of months is a sensible number, which can vary with lower inventory days on locally produced brands and higher inventory days on imports.
Understood. Thank you. Just on the 60 days as normal, where would you say you currently are? Are we at half that level or?
Yeah, we're about there.
Thank you very much.
You're welcome.
Excuse me, sir. The next question is from Trevor Stirling of Bernstein. Please go ahead.
Morning, Bob and Paolo. Just one question from me, if it was to be answered. With the phenomenal growth on net growth of Espolòn, is there any risk of supply problems?
Yeah. Thank you. Our supply chain has really been dancing on thin ice this year trying to ensure we supply the market. No, we don't think we have any supply issues, but clearly the strong demand across the category is not helping reduce the price of agave, which remains flat.
Okay, Bob. That's it for Bob. Thank you very much.
Thank you.
The next question is from Edward Mundy of Jefferies. Please go ahead, sir.
Afternoon, Bob. Afternoon, Paolo. Two from me. The first is, you've been very successful at capturing the shift to the off-trade during the pandemic. I wonder if you could share with us what your on versus off-trade split was pre-pandemic, and where you think it might be today. The second question is, again, similar question to the first, is around the off-trade.
As restrictions are lifted in the third quarter, is there any evidence that the consumption dynamics in the off-trade stayed firm, and then you get the added benefit of the on-trade coming back, i.e., people still drink as much at home, and then you're getting a bit of an uplift as people go out? The final one is around de-seasonalization of Aperol. I think some celebrities are out there potentially mixing Aperol with things like apple cider, some of more autumnal Aperol Spritz.
Do you think there's an opportunity medium-term to do more with Aperol from a recipe standpoint, similar to what you've done with Campari, or are you going to keep it to the core Aperol Spritz and water and the core serve?
Hi, Ed. Thanks for your question. Starting with the last one, I think in most markets, we're really still in the building phase of the brand. We'd like to stick on just one brand call and one signature drink, which is the Aperol Spritz. Consumers and celebrities feel free to pimp up their Aperol Spritzes, adding different things. Good for them. We're highly focused also in our edutainment initiatives on the perfect serve of the Aperol Spritz. Now, with what happens to the off-trade and the on-trade when markets reopen, I think clearly the habits which are being instilled now with consumers in Western countries, getting to the habits of making themselves and offering their guests as well as cocktails, I think that is here to stay, I think, for the years to come.
That's a real positive of the pandemic. We're even starting to see some of that in Italy. As the on reopens, as seen by Q3, we see a very big growth from that channel. Overall, we expect that once the pandemic's over, that the new normal will be overall quite positive, with a strong on-premise returning, as well as the at-home spirits and spirits cocktails taking market share from other alcohol categories. With regards to the split on the on/off per market and how it's varied, we haven't really calculated it. I would expect that in all of our markets, the off-premise will have increased by probably 10% its share of the total, or even more in markets like Italy where the on-premise was shut in Q2.
These are just guesstimates from my side, and we need to calculate them and come back to you with more precise numbers.
Great. Thank you.
The next question is from Andrea Pistacchi of Bank of America. Please go ahead.
Hi, Bob. Hi, Paolo. Three from me, please. The first one on Aperol in the U.S. Are you doing anything maybe a bit different in the U.S. compared to other markets to maintain the brand's momentum, given the very significant on-trade exposure it has in the U.S., and the slightly earlier maturity in the U.S. compared to other markets? A slightly broader question on the competitive environment across your markets. If you've seen any change, maybe with some of the smaller players, the craft players being weakened in the current environment, or is it too early to tell? Just an update, if you can, please, on Jamaica. Do you have an update on the potential cost savings for the business there?
Hi, Andrea. Let me take the first two questions. On Aperol in the U.S., clearly in those markets where the on-premise is open, we're trying as much as possible to continue with our normal activation method. Whereas in all the rest, and in general, where we've strengthened our visibility in the off-premise, as well as all of our digital activation initiatives. If you look at the Nielsen, we're growing very nicely around 50%, which in this environment, I think is quite good for the brand and will continue to do so. We don't see the need to do anything really different in the U.S. What's working in the rest of the world is working in the U.S. It's just that we need to dose our activations by channel, depending on the situation of the individual state.
With regards to the competitive environment, during the full lockdown, obviously, discounting came down significantly across markets. It's picking up a little bit, but nothing really major. In the U.S., there is weakness on the part of craft brands.
In Jamaica, the bleeding that we tend to stop on our sugar and agricultural business is currently EUR 12 million per year, per annum. The restructuring, which will be finalized by the end of this year, will put us in a position of achieving efficiencies for about EUR 8 million year one, 2021, and thereafter we'll capture the remainder. The cost of the reorganization for this year, as I've highlighted, is EUR 11 million.
Great. Thank you.
You're welcome.
The next question is from Fintan Ryan of JP Morgan. Please go ahead.
Hi, good afternoon, Bob. Good afternoon, Paolo. Fintan Ryan here from JP Morgan. Just two questions from me, please. Just in terms of the margin drivers as we look through into Q4 and into 2021. Just on SG&A, you talked about A&P earlier, but SG&A was, you said, around 200 basis points year-on-year in Q3. Given the strong momentum, sales momentum coming during Q3, and I guess throughout most of Q4, would you be expecting a number of employee bonuses or any sort of overhead or other allocation costs to come through in either Q4 or into 2021 that we should be thinking about? Secondly, just a more broad question. Your RTD portfolio in Q3 did quite well, including Campari Soda, Crodino, and Wild Turkey RTDs.
What are you thinking about the RTD space more broadly, and in particular, would you consider either going ahead launching any type of range into the hard seltzer category, or even bring the Aperol brand into a more widely available RTD? Thank you.
Yeah. With regard to the margin trends in Q4 and in coming year, starting from the gross margin, it very much depends on the sales mix and how the high margin brands will be affected given the current restrictions. With regards to the SG&A trend, we expect SG&A to grow very little in the fourth quarter as they did in third and second quarter of this year. With regards to the A&P, we intend to step up the A&P in the first quarter. Clearly, we'll be sensible and we will manage the A&P spend also given the business conditions and given our ability to activate the brands. It will very much depend on the market conditions in Q4. Going forward, we believe the trends in gross margin will highly depend on our ability to execute the strategy.
Fundamentally, as it has been proven by the strong performance in the third quarter of this year, in normal conditions where the on-trade is open and missing the stocking, the ability of the group to deliver gross margin expansion is, in our view, unchanged. SG&A and AMP, as I said, we don't see SG&A and AMP as two significant levers to achieve EBIT margin expansion. There could be opportunities, of course, but the EBIT margin expansion going forward and in normal condition will be primarily driven by gross margin expansion.
With regards to your question on RTDs, frankly, being long-term brand builders, we're not great fans of line extensions. We haven't been that in the past. We're not going to be it in the future. We try to maximize and do high quality brand building work on our existing portfolio of RTDs, which is mostly concentrated in Australia and Mexico, which are two big RTD markets. We're looking at the opportunity in China, we'll see how that goes. With regards to Aperol, we've only extended the Aperol Ready to Enjoy to very few markets. Actually, most of the business is in Italy, which is the most mature market for the brand. By the way, our Aperol numbers do not include the Aperol Ready to Enjoy numbers, which are significant on their own.
Given the overall situation, we'll consider to potentially test and extend in those markets where Aperol is the most mature, but it's not going to be anything massive. We'd rather build things the right way for the long- term.
Great, thank you. Just back to the first question. In terms of some of the SG&A and overhead costs into next year, is there anything that we should be thinking about now in terms of employee bonuses coming back, rehiring costs, consultancy fees? As you said, should we just expect SG&A to sort of broadly increase in line with sales?
I expect that for this year, bonuses will not be paid in their totality. That's a fair assumption. There would be some further savings that we can achieve in Q4. In 2021, it will very much depend on the ability of the group to deliver on targets. Yes, that's a variable part. As said, our SG&A line contains 85% of costs that are fixed and are uncompressible, and 15% of the costs that are variable, including commissions, bonuses, and so forth. This is the part of the SG&A that is destined to float according to the top line and the overall results of the group.
Great. Thank you very much.
The next question comes from Niko von Stackelberg, a private investor. Please go ahead, sir.
Hi, gentlemen. Thank you so much for the call. I just wanted to ask you a quick one on e-commerce initiatives and your thoughts around the viability of direct-to-consumer. For example, I'd be happy to buy your new 24-pack of 17.5% Abita Turbino, a bottle of Aperol, two Campari Sodas, maybe an orange, and a small soda. Have you considered doing that as a sort of package for a consumer? Why can't I buy directly from your site?
Yeah, thanks for the question. Clearly, we see e-commerce as a great opportunity going forward. We've been working on this for the past year or so. Markets like the U.K. are the most advanced. It's about 5% of sales. The rest, the U.S., Germany, are more around 2%. Importantly, they're all growing triple digits. We're managing that via third-party providers who are specialized in that, the likes of Amazon, Drizly, Minibar, and so on. The direct-to-consumer model is something which we're trying to evaluate. Clearly, the Tannico acquisition is more for us to learn and decide what we want to do in that area. It's not our core competence. Before making a big impact there, we would like to learn about it.
Having said that, though, I think there's ample opportunity for you to go shopping on any of those providers and find our range, our total portfolio.
Absolutely. Thank you. Two quick questions. Do you have a number for recurring free cash flow for the nine months? Also, can you tell me more about your appetite for M&A in this environment? Thank you.
The recurring free cash flow in the first nine months accounted for EUR 190 million, of which EUR 65 had been generated in the first half and EUR 125 in the third quarter on a standalone basis. Very robust free cash flow generation in the third quarter of the year.
The appetite for M&A remains. Our wallet is a little bit thicker, as you know. Now we've got to find the chefs.
Perfect. Thank you, guys.
The next question is from Robert Rampton of UBS. Please go ahead.
Hi. Thank you very much for taking my question. You commented earlier on October trends for Italy. Any broader comments about how other markets are doing over the last month? My second question is, any chance you can quantify the impact of the Espolòn growth on margin? Alternatively, can you help us understand the regional gross margin movements this quarter? Finally, leading on from one of the earlier questions, can you tell us how the Aperol pipeline is kind of going or evolving? For example, do you think you can continue the momentum in places like Germany, Russia, and the U.K. next year when obviously the bar context will be very different? Thank you very much.
Yeah. Let me take the latter two questions. We feel very good about the prospects of the Aperol brand. It's performing very well also in off-premise markets. Bear in mind that the penetration or the consumption per capita outside of Italy is very low. Even in Italy, where we are at 30 centiliters per person, it's only 1% of total beer. The opportunity is there for us to seize, and the brand health is very good. The model is working, so we'll continue doing that.
Yeah. With regards to the Espolòn margin, of course, we don't disclose profitability by brand, so I cannot be too specific on this one. Clearly, currently, given the significant increase in the agaveros price, the gross margin as a percentage of sales on the Espolòn brand is well below the group average. We pointed to a potential opportunity based on the current brand size of about €30 million of EBIT uplift if the agaveros price moved from the current level of roughly 29-30 pesos per kilo to the original price of six pesos per kilo. Now, if you ask me, "Do you believe that the agaveros price would go back to six pesos per kilo?" Probably not, and probably not in the short run. That said, there is a big opportunity there.
To recover the brand profitability and have another cylinder that is firing to the right direction of EBIT margin expansion on top of the aperitif portfolio. The Espolòn brand has achieved a size that now is quite meaningful in the overall context of the overall gross margin trend. The sooner the agave price starts declining, the better it is with regards to our ability to deliver gross margin expansion.
The next question comes from Paola Carboni of EQUITA SIM. Please go ahead, ma'am.
Yes. Hi, good afternoon, everybody. I had a similar question on the impact of Espolòn. Let's say, looking at least to the indication you gave at the beginning of the year in terms of potential impact from rising agave prices, you said about EUR 8 million on a full- year basis. I just wanted you to comment on this now. Is this indication still valid, or are we going to see a larger impact on a full- year basis? Maybe if you can quantify the impact from agave price in Q3 on gross margin. Second point is about your comments that clearly seasonality of aperitif is very different in Q4 from Q3 overall, but you were commenting in particular in Italy.
I was wondering how we should think about your digital brand building, when this has to be addressed more to brown spirits, for example, instead of aperitifs. Do you think it's going to be as effective as with aperitifs? Do you see anything different probably in the approach you are going to apply? I was curious on that. Third point, sorry, when you commented about September, October, you said we went from being double-digit up to down mid-single-digit. Just to be sure, you intended for Italy overall or just for the on-premise business? Thank you.
Yeah. Hi, Paola. On that last point, I was just commenting on the on-premise in Italy on a daily sales basis.
Okay.
Just to clarify. With regards to our brand building, we've really come a long way and have had a very steep learning curve globally, but also especially in Italy, how to do marketing and sales in this new environment. We've been expecting the pandemic to have negative impact on the on-premise, so we're prepared for the Q4. We'll see how it goes. I mean, clearly whatever tools we're using are working, so we'll try to make the most out of it. Having said that, although it's not a high seasonality for the aperitifs, there's still some business to be had. It's not like we're going to take our feet off the gas pedal from continuing to build the brands such as Aperol, Campari, Crodino, Campari Soda.
With regards to the impact of the agave inflation, guidance was a negative EUR 8 million for the full year. It could be marginally higher, but nothing meaningful. The impact is almost evenly split among the different quarters. Clearly, we are implementing a number of actions to mitigate the pressure given the surge of the tequila consumption in the U.S. and worldwide, like entering into long-term agreements with agaveros as well as co-sourcing agreements, which put us in a more comfortable position while looking at the coming years. Still, the unanswered question is when the price of agave will start falling. We wait and see. We do not have an answer at this stage. Probably beginning of next year, we'll have better visibility at this point.
Okay. Thank you.
The next question comes from Isacco Brambilla of Mediobanca. Please go ahead.
Hi. Good afternoon, everybody. Just a very brief follow-up on France. You recorded a very strong growth, more than 100% year-over-year in the third quarter. Can you help us understand how much of this outstanding performance may be seen as sustainable also in the coming quarter?
Yeah. I'll give you an idea on what our off-take is. I mean, Aperol is growing double-digit. Campari and Glen Grant are somewhere around mid-single-digit in the market. The rest is just ship and trade.
Okay, thanks.
That's it for questions at this time. There are no questions registered, sir.
Thank you all very much for joining us, and if at home, make yourself a Negroni or an Aperol Spritz, everything will look brighter. Thank you. Bye-bye.
Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.