Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Campari Group first quarter 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, Chief Executive Officer of the Campari Group. Please go ahead, sir.
Thank you very much. Good afternoon. Welcome to our Q1 conference call. If you can follow me on page four of our presentation, I'll kick off with our highlights. As you'll see throughout the presentation, we're a combination of resilient pockets of growth in a very challenging environment. Net sales, and this is sad to say, because we started the year very positively in the first two months with strong growth. Net sales organically registered a decline of 5.3% in a small quarter, also against a tough compare.
You'll recall that last year we had a very strong Q1, where we were up by 9.6%. This change in the performance throughout the quarter was largely due to the restrictive measures which were imposed on the Italian market to combat the pandemic, and that offset resilient growth in Northern Europe, the U.S., Canada, and Australia. Looking at it by brand, global priorities declined by 4%, with a flat performance of the aperitifs, Aperol and Campari, which is obviously due to the Italian market.
Wild Turkey, Grand Marnier, and SKYY Vodka declined, offsetting growth in the Jamaican rums. We'll look more into detail by geography, how these different brands have done. Regional priorities were down 7.9%, with declines across the brand cluster, apart from growth in Espolòn, as well as Forty Creek. Local priorities, on the other hand, were down 7.2% overall, due to double-digit declines, again, due to Italy, with the single-serve aperitifs particularly hit.
By geography, a resilient growth in Northern European markets and Australia, but this was offset by declines in SEMEA due to Italy, France, which is a one-off factor, and global travel retail, which was impacted by COVID-19 as well. The Americas decline mainly driven by Jamaica and South American countries, despite quite positive performance in Canada as well as in the U.S. The reported change on the main sales came in at -2.7%. It reflects also a positive perimeter effect of 1.9% and a positive ForEx effect of 0.7%.
Looking at adjusted EBIT, it declined organically by 35.3%, representing a 620 basis points margin dilution. This is due to three factors. On the one hand, a tough comp base. Again, last year, we were very strong, up 15.4%, and had 100 basis points margin accretion in the first quarter. The second impact, obviously, is the COVID-19 impact, which hit, in particular, our higher margin aperitif business in Italy. Last but not least, the lower absorption of fixed costs for our cost line, given the top-line decline, magnified in a small quarter.
It must be said also that the decline came in the last month of the quarter, so there wasn't that much time to react at that stage. The reported change is 33.9% down, reflecting a positive ForEx effect of EUR 3 million and a negative perimeter effect of EUR 2 million. Pre-tax profits on an adjusted basis reached EUR 34.7 million, down 45.7%. Group pre-tax profit on a reported basis reached EUR 30.6 million, down EUR 51.6 million. Net debt at the end of the quarter stood at EUR 887.1 million, which is an increase of EUR 109.7 million, mainly due to the acquisition of Rothschild France Distribution, as well as the share buyback.
That leads us to a net debt to EBITDA adjusted ratio at 1.9 x at the end of the quarter. Moving on to page number six, you can see graphically the impact of SEMEA on the overall group results. The Americas, overall flat. The core U.S. up 1.1%, which is quite encouraging based on quite a tough comp. SEMEA down 24.4%. Here it was compounded by the GTR decline as well as France and Spain. We've had some phasing effect in Nigeria, whereas South Africa's decline was programmed given the route to market change.
Very nice and resilient performance overall in North, Central, and Eastern Europe, driven by Russia and the U.K., while Austria also grew. Germany was flat from a shipment standpoint. Asia Pacific, good growth in Australia, offsetting declines in both China and Japan. China, as it was the first market to be hit by COVID-19, and Japan, because it's affected by the route to market change. I will skip the priorities bit and move quickly to page number eight to underline two factors. You see the decline of Italy, which now in the first quarter represented 16% of our sales.
That's an all-time low, whereas the U.S. reached an all-time high, reaching EUR 33.8 million. I think one piece of data which is probably very important and interesting to the audience is our on-premise versus off-premise split. On a group basis, that amounted to 40 versus 60 in 2019. That puts it into perspective. Obviously, markets like Italy have a higher skew to the on-premise. Moving on to the following page and the Americas. The U.S., as I said, quite positive, up 1.1%. Last year, we were up by 11.2% in this performance, despite having also the initial negative effect of COVID in the numbers.
As you know, the on-trade, to a large extent, was also completely locked down in the U.S., and that in the U.S. market, given our current portfolio, Johnnie represents roughly 30% of our net sales. Espolòn, Aperol, and Campari continued to grow, and SKYY Vodka had a very positive performance, up 8.5%. These offset declines in Grand Marnier, largely due on the one side to a tough comparison base, also because the brand is skewed 50/50 between the two channels. Wild Turkey, on the other hand, was hit by de-stocking, which we were driving ahead of new packaging, which has been now postponed.
I'm happy to say that if we look at sell-out figures, they were actually up in the double digits across both Nielsen as well as NABCA. Moving on to Jamaica. Jamaica is another market with a very heavy on-premise skew, 70% of sales are in the on-premise. It declined by 7.3%. Again, though, this effect was amplified by a very tough comp base, with Jamaica having a sterling quarter in 2019, up by 72.9%. Canada, which is largely an off-premise market, grew very nicely, up 9.3%. This is driven by Forty Creek as well as Appleton Estate, which is quite encouraging because we introduced at the beginning of the year.
T he new range of Appleton with the new packaging, and it seems to have been very well received by consumers. Grand Marnier, Aperol, and Campari also grew, and that offset some declines in SKYY Vodka, which was penalized by the delisting last year of the liter 75 size, which seems to be going for all the rage in the vodka category at the moment. Brazil is down 13.2%. This is an even smaller quarter than most markets in Brazil because of the carnival. Bear in mind that last year we had a very tough comparison base where we were up by 41.8%.
The rest of the region was down 5.9%. Mexico, we penalized down 14.1% due to the SKYY RTD. Encouragingly, though, Aperol remained positive, up double digits. Argentina, again, this needs to be seen positive because they were hit both by the COVID pandemic as well as their own macroeconomic issues, down only 9.1%, with a nice and positive performance of Aperol of 20.3%. Moving on to slide number 10, in Southern Europe, Middle East and Africa. As I underlined earlier on, Italy down 24.4%. It's quite a shame because we were growing double digits in the first two months of the year.
The progressive closing down of the on-trade with the full closure in March obviously impacted significantly the numbers. There were also limitations on customer traffic in the off-trade, with off-trade retailers mostly concentrating also on the grocery at the expense of spirits. The Aperol declined clearly due to their high exposure to the on-premise outlets, where we were closed through March. As you know, in Italy, the on-premise represents 70% of our consumption. On the other hand, though, we've seen a double-digit growth in the Aperol Spritz Ready to Drink.
This is actually a format we've had on the market for a few years, which, to be honest, we never included it in the overall Aperol numbers, but it's going to become a very nice business, significant business, actually. It's only available in Italy and a few selected European markets where the brand is not developed, but it's developing very nicely right now. The rest of the region was down 18.6%. As I said earlier, France declined by 14.6%, but this was mainly impacted by a one-off sale of excessive cognacs sales we did last year.
When we bought Bisquit, we found the sellers with way too high number of VS barrels, so we sold them through the market, and that impacted the comp base. Spain declined 6.7%, where modest growth in Aperol and Franciacorta were offset by declines in Campari, BULLDOG being very heavily focused on the on-premise in that market. Within Africa, Nigeria grew mainly to shipment phasing in Campari, while Turkey in American Honey. As referred earlier, South Africa declined due to market change.
Global travel retail, on the other hand, reacted very sharply to the fall in shopper traffic, down by 18.9%, especially within the Asian market, which was the first one hit by COVID-19 in February. The channel registered some growth in Campari, while Wild Turkey was a driver in Campari Soda. This was enabled to also declines elsewhere, particularly in Glen Grant, which was a hero channel for the age range. Moving on to a more positive picture on North, Central, and Eastern Europe, up 6.6% organically.
Germany, flattish, slight decline, but actually very positive sell trends outpacing shipments. The predominantly off-premise market. In Germany, you see the opposite of Italy, 70% of the market is actually off-premise. In fact, slightly shipments in Aperol, despite strong double-digit sell-out trends, where we're trending at around 20%. This was combined with modest growth in Ouzo 12, Cinzano sparkling wine, Campari, and BULLDOG, which helped to offset the declines in agency brands, as well as those specialty brands we have with a particular on-premise skew, such as Angostura and Frangelico.
The U.K. continues very strongly, up 38.3%, very robust growth driven by Grey Goose, Voskoff Rum, Magnum Tonic Wine, Aperol Spritz, and Campari. This growth was able to offset declines in BULLDOG and Cinzano Vermouth, as well as some slight declines in Aperol, which was heavily impacted by temporary out of stocks. Actually, Aperol is doing very well in the U.K., and it was interesting to see that on amazon.com, it was the 12th highest selling grocery item and the second best-selling spirit item. It even surpassed toilet paper, so this is pretty encouraging.
Russia, also a very nice quarter, up 30.4%, despite a nice and tough comparison base last year. This is again, a largely off-premise market, so you can see it happening, developing. With Mondoro, Aperol, and Cinzano sparkling wines doing very nicely, and Espolòn, Wild Turkey, and Campari continuing to grow. The rest of the region was flattish. Austria and Switzerland grew nicely, up 7.1% in Austria, 6.1% in Switzerland, again driven by Aperol, while Belgium declined by 17.1% with growth in Bisquit & Dubouché, unable to offset the double-digit declines in Campari and BULLDOG.
To close the regions, Asia Pacific on slide number 12, up 3.5%. Australia up a very strong 18.2%. Australia had a quite contrasted quarter, with a weak start of the year due to the bushfires, which quite affected consumption. The last part of the quarter, particularly the month of March, was very strong, and Australia continues to be strong. Where we saw strong sales in the off-premise channel, which in the case of this market represents 55% of our sales. Positive performance of Wild Turkey RTD, double-digits, Wild Turkey Bourbon, American Honey, and Campari in a key quarter for the market.
The rest of the region was down 53.1%, clearly here was impacted by China, which was mostly shut down during that period. You know China is an on-premise market. Japan, which declined by a little bit more than half as we programmed the de-stocking ahead of the route to market change, which will start pushing through at the start of July this year. Moving on, net sales by brand. It's interesting to see that whilst Aperol is flat at -0.2%, most of the performance is driven by double-digit decline in core Italy, which in 2019 represented 35% of the brand's sales.
We're growing strongly in the off-premise with Aperol, double digits. It is so small that obviously it cannot compensate for the on-premise decline. On the other hand, though, if we exclude Italy, Aperol grew by 22.1%, so that it's maintaining its historical growth trend. With very positive performances in core markets, Germany, Austria, Switzerland, and particularly very encouraging in some markets like the U.S. In the U.S., if you look at the Nielsen for up to the middle of April, in those six weeks prior to that, Aperol grew somewhere around 120%.
A very nice growth trajectory. We see a similar performance on Campari. Campari was slightly up. Again, it was impacted by Italy. If we exclude Italy, it's growing by 9.3%. Maintaining its historical growth rate, or at least the growth rate for the past few years. Nice performances in the U.S. Very similar to Aperol, if you look at the last six weeks leading to middle of April, it's growing over 100%. Nice in Germany as well, Nigeria, but clearly impacted by the closure of the on-premise in Jamaica. Cinzano, on the other hand, was impacted, was down 10.8%.
This is a combination of quite a tough comp base last year, where the shipments were phased into the first half of the year, and particularly in Q1, where we were up by 15.3%. The fact that the sales in the U.S. are split 50/50 between both channels. Obviously, the brand was impacted by the GTR channel as well. Moving on to Wild Turkey. If you look at it on a shipment side, as I said, we were driving some de-stocking on 101, as we were due to launch the new packaging at the middle of the year.
Unfortunately, due to COVID and the technical issues that imposes on plants and suppliers, that has been pushed back. Our shipments were down 12.7%, but I'm happy to say that the Wild Turkey franchise actually grew double digits in terms of off-premise sell-out in that time period. If you look at the full quarter Q1, it was up 15.2% in Nielsen and 16.6% in IRI. Again, very solid fundamentals on the brand. SKYY Vodka down 4.7%, despite very nice growth in the U.S., up 5.3%, with consumers returning to brands they know, brands that are established, and that give them comfort.
We're seeing a nice trend in the U.S. of SKYY right now. On the other hand, it was impacted by declines in the international markets, Germany, South Africa, due to route-to-market change, China, Canada, and Brazil due to COVID. Our rum business was up 3.7%. Wray & Nephew Overproof had very strong growth, 10.1%. Very solid trends in core markets of the U.S. Again, it's one of our four brands, which, in the U.S., looking at the last six weeks leading to the middle of March, grew over 100%, or actually grew 114%. Nice performance in the U.K. as well.
These export markets were able to offset the decline in Jamaica. Appleton Estate overall was impacted by the transition to the new packaging and the new range. Overall down 1.8%, but again, positive trends in the U.S., the U.K., and Canada, which were offset by sluggish performance in core Jamaica, as well as declines in GTR, Mexico, and New Zealand. Moving on to Espolon. Espolon on a shipment basis was up 10%, driven by the core U.S. If we look at both depletions and consumption, they are running way ahead of that number.
Depletions were up 28%, and our consumption data is up 48%. A very nice underlying performance on the brand and nice trends continuing in key international markets. BULLDOG impacted by the on-premise shutdowns, down 17.5%, as well as by the lack of traffic in GTR, which is a key channel for the brand. GTR is also a key channel for Glen Grant, which was down by 53.1%, and it was impacted by our change in route to market in France and South Africa. On the other hand, I'm happy to say that in France, the underlying trends are again positive from a consumption standpoint.
Forty Creek was up by 6.5%. Very nice overall performance with core Canada compensating weakness elsewhere. Nemiroff penalized by Italy, down double digit, 14.2%. Clearly, they're skewed to the on-trade, that continued to impact them. We can say the same thing about them in key central European markets. Moving on to Cinzano, down 7.7%. Vermouth declined by double digit despite very positive growth in Russia and Australia. These were offset by strong declines in Germany, where we relaunched the whole franchise behind a vermouth formula, which meant significantly increasing pricing.
That had delisting at the end of last year at a very large retailer in Germany. We will have to go through this cycle. On the other hand, it doesn't really impact the bottom line. The rest of the sparkling wines were down 13.2%. Very good performance in Mondoro, up double digit, and that's important in Russia, which has nice margins. Whereas Riccadonna was impacted negatively, mostly to strong shipment declines in France, with the destocking ahead of the route to market change. To close it off with the local brands, obviously Campari Soda and Crodino pretty hit by the closures in Italy.
Campari Soda down almost 20%, Crodino a little bit less, 15.5%, with positive results in Switzerland and Germany, both during its trajectory. On the other hand, the RTD in Australia continues to do very nicely, up double digit, 14%. Moving on to the local Brazilian brands, Dreher is actually performing nicely in a weak market, so it's helping mitigate the overall negative tendency of discussed our brands. Ouzo 12, which is mostly an off-premise brand in Germany and Greece, also doing nicely, up 5.6%. Cabo, again, who is mostly an off-premise brand, growing strongly, 25.3% in the U.S.
This is it on the brands update and the sales update. I pass you on to Paolo.
Thank you, Bob. If you follow me to page 21, where we have the analysis of the group performance at the level of EBITDA adjusted. EBITDA adjusted on a reported basis declined by 33.9% in value from 19.6% on net sales to 13.3% in this year. In existing business, the decline in value was worse, 35.3%, showing 620 basis point margin dilution in the first quarter. We highlight three key factors of the negative performance in value and the decline in marginality. The first one is a very tough comp base in first quarter of this year, when last year group grew EBIT in value by 15.4% and margins were up by 100 basis point.
Secondly, we have a particularly negative sales mix effect as COVID-19 particularly impacted the high margin operative business in Italy. Thirdly, we have the lower absorption of fixed cost in a very tiny quarter. Throughout all the cost lines, as I will comment in a second. With the lockdown coinciding with the end of the quarter, thus limiting our ability to implement the mitigation actions that of course, we're implementing as we speak. Foreign exchange and perimeter combined effect accounted for 1.4% in value, corresponding to 10 basis point margin dilution.
The perimeter effect actually in the first quarter was by EUR -2 million, and this is due to basically two factors. On one end, the termination of tiny distribution agreements. Secondly, the effect of the first time consolidation of France, honestly, recently acquired, which was negatively impacted by both the typical restocking that you have whenever you buy a distributor, and secondly, the COVID effect, which also was negative here in France. EBIT adjusted on a reported basis was down by 24.7% in value to 18.7% of net sales, with EBIT adjusted organic decline of 27.2% in value and 760 basis point margin dilution.
If we move on to page 22, we have the analysis of the EBIT through the different level of profitability. At gross profit level on a reported basis, the gross profit was down by 6.6% in value to 58% on net sales, with 460 basis point margin dilution. The organic change of gross profit accounted for - 9.2% in value and 450 basis points in terms of margins, which was driven by a combination of unfavorable sales mix, as we said before, and secondly, the impact of fixed costs. Worth calling out the impact on a full year basis of fixed cost at the level of costs of cost of goods sold is 25%.
25% of our yearly cost of goods sold is to be seen as fixed and incompressible. A&P on a reported basis was down by 2.8% in value to 15.9% on sales and broadly flattish and margin neutral versus a year ago. Organic change of A&P accounted for a negative 5% in value. Again, neutral on margin due to revised phasing of some marketing initiatives due to COVID, particularly, the shift of certain investments in the on-trade, which was not a viable channel for us. Foreign exchange and perimeter combined effect was a positive 2.2% in value and again, neutral on margin.
Again, with regards to the weight of fixed cost within the A&P line, on a full year basis, it's about 10% of the A&P spend. The SG&A on a reported basis were up 12.2% in value to 28.9% of net sales, driving 780 basis points margin dilution. In existing business, SG&A were up 8.7% in value, driving 370 basis point margin dilution. Mainly driven by the initiatives which were already planned to strengthen our commercial and distribution capabilities in Asia, in particular, as well as the relocation of our Asian head office from Sydney to Singapore.
Secondly, this was due to a lower absorption of fixed cost in a quite a small quarter, negatively impacted by significant top line decline. Again, with regards to SG&A, worthwhile calling out that on a yearly basis, the fixed component of our SG&A line accounts for 80% of the SG&A spend. If we move on to page 23, we can see negative operating adjustments, one-offs accounting for EUR 5.6 million, including restructuring initiatives, trailing the effect of the restructuring initiatives that were implemented last year, as well as EUR 2 million of donations made to combat the COVID-19 emergency.
Net financial charges came in higher than expected at EUR 12.8 million, despite the lower average indebtedness. That was due to a negative charge of EUR 4.5 million, primarily attributable to negative exchange rate differences, as well negative effect on the current valuation of certain financial assets. Excluding those non-recurring costs, the increase of the average cost of net debt is worth 1%, from 3.7% - 4.7%, reflecting the increase in the already significant negative. Group pre-tax profit came in at EUR 30.6 million, down 51.6%.
Group pre-tax profit adjusted came in at EUR 34.7 million, down by 45.7% on a comparable basis. If you move to page 35, the analysis of net financial position. Net financial position at the back end of March came in at EUR 887 million, up EUR 109.7 million versus end of last year, due to, first and foremost, the acquisition of our French distributor, RFD, accounting for a sum of EUR 54.6 million. Secondly, the partial completion of the already announced 350 million share buyback program for a consideration of EUR 41.1 million at the end of March.
The leverage ratio, net debt to EBITDA, came in at 1.9 x at the back end of March. We want to highlight that the group at the moment relies on EUR 500 million of existing credit lines. As we've already announced, we finalized an additional terminal facility for an amount of EUR 650 million. Of course, we can also rely on existing excess cash, accounting for EUR 693 million, as you can see in the table of the net financial position. The combined amount of the available liquidity credit lines and new loans is in excess of EUR 1.9 billion.
Last but not least, we highlight the absence of any financial covenants on our outstanding debts. I think that is it on the numbers. I would hand back to Bob.
Thanks, Paolo. Before moving on to the Q&A, a brief overview of our marketing initiatives as well as conclusions and outlook. Page number 27, you see that as soon as the pandemic hit, we were pretty active on a corporate basis, making donations to the health sector in Italy and a few other markets as well, as well as to the on-premise team in the U.S. We were also quite active throughout all of our communities in either producing sanitizing gel or donating alcohol, or doing a combination of both, as well as leveraging our brands to raise money for charity.
For instance, on Aperol, we had a concert which brought 1,200 musicians to participate in a live Zoom session called Together We Can, which raised over EUR 100,000, again, for the healthcare system in Italy. We're also very happy to say that our brands are continuing to receive their well-deserved accolades. Espolòn continues to go from strength to strength. fourth year in a row, it is awarded the Impact Hot Brand of the Year award. Clearly that makes a lot of sense. This is a brand which has a lot of momentum.
As I said earlier on, if we look at its sell-out rates, that's going at around 48% right now. Very nice performance. Our Forty Creek brand in Canada also keeps on scooping all of the awards every year. Again, we can see that quality of the liquids of the brand reflected in the performance in markets. We were able to proceed with some relaunches and new expressions. These had been finalized before the lockdowns brought by COVID.
We introduced a new premium unaged on one brand, which, depending on the market, increases the pricing of the unaged offering from 30% - 50%, so quite nice going forward. We completely restaged the Appleton Estate brand, both from a packaging standpoint as well as partially a liquid standpoint, introducing an eight-year-old. At the same time, started listing in all the markets the Appleton Special and White, the mixing rums, so that Appleton Estate remains a pristine super premium brand, and we replaced that with a new brand called Kingston 62, honoring the date of independence of Jamaica.
Clearly, the pandemic had a big impact on the landscape for our marketeers and our salespeople. There have been channel shifts to online and e-commerce. Online for marketing, e-commerce from a sales standpoint accelerated quite a bit. Clearly, an occasion shift in consumption, moving from out-of-home consumption to at-home consumption, impacting also offerings in terms of bundle packs. Clearly, our marketers and our sales force had to work very quickly, be very agile, and reformulate, rework all of our marketing and sales activity, and they managed to do that within the space of a few intense weeks.
I'm pretty proud about that. I think this will have a big impact also on marketing and sales going forward. Clearly, one side benefit of this pandemic is the very rapid digitalization of our activities. We've had to reassess and adapt our media plans due to, obviously, the new consumer media diets. That meant shifting to digital experiences with digital PR support, sharpening the at-home occasion and social media campaigns from Aperol at Six in Australia, the cocktail hour in other markets, Aperol Spritz.
We reviewed the tonality as well as the messaging on the global campaign, delivered completely new digital assets, Started very intensively working on advocacy programs with local bartenders, obviously trying to contribute also to the local bartending community. At the same time, trying to increase the knowledge of our consumers at home on how to do our hero cocktails. Many edutainment do-it-yourself tutorials, some with really top-end bartenders. We also associated ourselves quite a bit with cooking classes, which seemed to be one of the biggest hits during the lockdown period.
In the off-premise, again, we looked at approaching promotion in a different way and had more theatricalization, accelerate our e-commerce agenda, as well as offer, where possible, combo packs. Aperol and Prosecco, plus glassware for the Aperol Spritz, Campari, BULLDOG and Cinzano for the Negroni. This has led to, I think, quite satisfactory engagement at the consumer level. We've had very good returns. Consumer sentiment is actually increasing significantly as well as mentions.
Just in the past week, mentions increased by 55%, and they were overwhelmingly positive. I'm also happy to say that we're seeing that in the trending of our brands in all key brand market combinations, where they're growing double digits from a Nielsen or IRI standpoint and growing much faster than their relevant markets. That's testimony both for consumers' love for our brands, as well as the impact of the action we undertook very rapidly. On page 44, you can see also that we brought that thinking to the point of sale, where again, moving to entertainment and offering combo packages as well as edutainment.
In terms of conclusion and outlook, I think it is quite clear that we're leveraging the knowns. We took very rapid action with a three key strategic focus on our strength. We have a very strong financial profile, a very solid balance sheet. The recently successfully secured additional financing further strengthened the group's traditional, very solid financial structure, as well as our flexibility. Moving into Q2, we clearly started working very fast on cost containment and cash management tasks, actively taking all necessary actions to manage costs as well as preserve liquidity, including postponing or canceling discretionary spending.
We're accelerating our programs in digital transformation and e-commerce. Some are doing very well in the likes of Drizly in the U.S. or Amazon in the U.K., and we're further strengthening our digital capabilities across the organization, and most particularly across marketing. We are driving focus on selected innovation to adapt to the fast changes across our markets. We are looking at size changes and RTD formats where applicable. We are combining flexibility with a high quality and continued execution.
From an M&A standpoint, we are continuing with our focused M&A strategy. Effectively today, we announced the signing of the acquisition of Champagne Lallier. The consideration to be paid is EUR 21.8 million. That is for 80% of the share capital of the target, and obviously is subject to customary price adjustments. The consideration will be financed through available resources and will be paid using cash. The net financial position of the target is a EUR -21.2, and with this acquisition.
We continue on enhancing the premiumness of our portfolio, as well as building critical mass in the on-premise, as well as in the strategic French market. Some quick update on the integration of RFD. Despite that nobody can travel and we're all locked down and working remote from home, the integration is proceeding very well. We're maintaining all the timing objectives we set ourselves. We will get the benefits in the mid to long term of that very important asset for us.
Looking forward, I think it's fair to say that there's uncertainty in the short term, but high confidence for the long term. In the short term, the pandemic, as you can expect, is generating high level of uncertainty, including on its progression and duration, which is varying by country, as well as the scale and the impact of the measures taken by governments, as well as the impact on consumer habits. This is quite a complex puzzle, which limits our visibility.
Talking about visibility, for those reasons, the group's financial performance for the current year really cannot be precisely assessed at this stage. However, with most of its key markets being affected by COVID-19, we expect our business performance to be more impacted, as you could expect in the second quarter and the beginning of the third quarter, which happened to be the peak season for the high margin and highly on-premise skewed VIT business.
With the gradual lifting of the restrictive measures across markets, the negative impact is expected to lessen throughout the remainder of the year based on our current visibility. Longer term though, the group remains confident of the long-term consumption trends and growth opportunities. We will continue to leverage the strength and resilience of our brands, and we can see the strength and resilience by a strong double-digit growth rate in the off-premise.
That is a testimony to our business model and our strategy, ensuring that we are strongly positioned and ready to accelerate the Group growth as soon as consumer demand returns to normal. We are committed and long-term brand builders. We will remain focused and highly engaged in the on-premise opportunity with our very distinctive brand portfolio. We are effectively firmly convinced that the out-of-home social experience and conviviality will remain essential to consumers' lifestyles.
I think, honestly, if in a few years' time we look back at this period, we will realize that 2020 was a transition year, was a year where we paused a little bit. That thanks to the strength of our brands and our agility in adapting to new situations, a nice and significant rebound in 2021. That is our current outlook at this stage, and very happy to take your questions. We assume there'll be quite a few.
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 one on their touch-tone telephone. To remove yourself from the question queue, please press star two. Please pick up the receiver when asking questions. The first question is from Mr. Trevor Stirling of Bernstein. Please go ahead, sir.
Hi, Bob and Paolo. Just a few questions from my side. The first one, I appreciate it's really impossible to predict what the shape of the easing of the lockdown will be, and hence what the Q2 trajectory or top line might be. Could you give us some indication of what the sales trends have been in April so far? Second question, I suppose linked to that, in the U.S., we've seen the Nielsen numbers very strong in the off trade. I gather some of that showed up in March.
Is that showing up in through your portfolio to go through April as well? The third question, again, I appreciate a very difficult one to answer. We saw the just over 600 basis points of negative margin in Q1. Looking into Q2, we've got the cost mitigation, which should be positive, but on the negative, we have possibly a full quarter of on-trade lockdown. Certainly a longer on-trade lockdown than we had in Q1. Any sense of whether we're likely looking at more margin pressure, net margin pressure in Q2 or less?
I'll take the first questions, Trevor. What we saw was essentially at the beginning when the lockdown came in, there was a period of consumers going crazy and loading themselves up and pantry stuffing. After that, a lull. We saw a very nice return and reaction to our marketing actions across all markets. We actually moved to buying weekly consumption data as opposed to monthly or bi-monthly, and we've been able to verify this with a very nice trend continuing in the second half of March, as well as through the month of April.
In Anglo-Saxon markets, which are mostly off-premise skewed, we've had fantastic performance. Just a case in point, in the U.S., those famous last six weeks ending 18th of April, where total spirits were up 37.9%, we were up 55.1%. In that same period, we were the second fastest growing supplier in the U.S. market after Fifth Generation, with Tito's. Very good momentum spread really across all of the brands. With the exception of BULLDOG, all of them growing double digits.
As I said, with some highlights, with Campari growing by 117%, Aperol 122%, Espolòn 113%, and Wray & Nephew Overproof 114%. SKYY in that period grew by 33% in line with the category. Very nice trends there. We can see similar things in the off-premise across the market. Obviously, the on-premise softness continues. In those markets where there's a lockdown, there is a lockdown. There's not much we can do about that.
Having said that, in the off-premise, certain markets, our wholesalers as well as the retail trade, have been slow at reacting to the very strong growth, which probably for them was unexpected in our brands.
With regard to the third question, probably I've missed the second one. The third question is around, Trevor, the margin trends in the second quarter. As you said, it's very difficult to predict. We have a very low visibility. Just to give you a sense of things, we've moved from a monthly forecasting cycle to a weekly forecasting cycle to make sure that, first and foremost, aside of financial visibility, we keep the market in sync with our supply chain. It is the primary purpose of what we're trying to achieve in the current environment.
In a nutshell, I can't give you a precise answer. What I can tell you is that clearly Q2 is a peak season for the aperitif portfolio, and therefore, consider that aperitifs have higher than average gross margin. Directionally, I would rather say that the dilution is expected to increase in the second quarter, while again, instinctively, I would say that it's expected to decline in Q3 and Q4.
Super. Thanks very much, Paolo and Bob.
Thank you.
The next question is from Edward Mundy of Jefferies. Please go ahead, sir.
Afternoon, Bob. Afternoon, Paolo. Two questions, please. Following from Trevor's question on margins, I appreciate that at this stage, there's very limited visibility. I was wondering, were you able to provide any rule of thumb as to what 1% on top line might mean for organic EBIT growth? I.e., what would be the drop through from top line into operating leverage? Second question is, on both slides 31- 35, I think a testament to how strong you've been activating on brands such as Aperol on Amazon.
I'd be interested any sort of early indications on brand health, and the ability to keep the momentum in the approaches this occasion. The third is on Italy, understanding bars, restaurants are going to be opening up on the 1st of June, albeit with some social distancing. Not really expecting any guidance, would love to get any color from what you're hearing on the ground from customers, wholesalers, bar owners, and what they'd expect as some of these containment measures get lifted.
Yeah. I'll take the second question, which is on the Aperol brand health. We're monitoring this constantly. We're monitoring consumer sentiment, it's very, very positive actually, across all of our markets. We are seeing more and more retailers actually asking to list the brand, including in the U.K. We had one major listing confirmed today. We're running also online surveys, again, seeing consumers giving us very, very positive feedback. The most important feedback is to see how they react to it, we see a lot of posts in Instagram, etc. , virtual happy hours across countries, regions, continents, people are voting with their wallets.
If you exclude Italy, you see the brand growing double digit in the rest of the world, with actually our shipment numbers not reflecting the underlying consumption growth. With regards to Italy, yes, the on-premise is due to open in June. We're still not sure under what form it's going to be and how tough the restrictions are going to be. We don't know if it's going to be one size suits all across the different regions in Italy, which sounds a little bit crazy. In southern Italy, there are many regions where you don't have any COVID cases right now.
We don't understand why the government isn't opening those any earlier, and we don't know exactly what it's going to mean in terms of them allowing on-premise outlets to have bigger terraces. Really, there are a lot of question marks on this. We'll see how it is. Actually, I've been asked to give my input to one of the committees researching into that. You can understand that it's not exactly top of the list at this stage.
With regards to margin, thanks again, and sensitivity. It is very difficult to say exactly 1% metrics responsible, which impact can have on the bottom line. The way I would approach it's more, tomorrow would speak the P&L in fixed and variable costs. As I've tried to say during the presentation, being aware that about 25% of costs, 10% of A&P and 80% of SG&A are fixed. You will basically end up based on 2019 numbers with about 37% of costs that are not compressible at all. You end up with 63% of costs that are actually really variable.
When it comes to assessing the sensitivity, I would rather look into the brands and clearly, see the brands that are more exposed to the on-trade, which in my point of view, in the end, is a big strength, but in the short term is a point of weakness for this quite hard year. Those brands would clearly be Campari, Aperol, Campari Soda, and Crodino in Italy, Grand Marnier. These are probably the Brazilian brands, in terms of profitability, they are negligible. Those brands are the ones that can really make a difference depending on the different scenarios of lockdown and reduction of consumption in the on-trade.
Great. Thanks so much.
The next question is from Laurence Whyatt of Barclays. Please go ahead, madam.
Thanks very much for the questions. Three regarding the on-trade, actually. Folks, could you let us know what you think the current stock levels are in the on-trade, whether people took up a lot of stock ahead of lockdowns going in, or whether you think they're relatively in good health? Secondly, on the health of the on-trade, with the current situation could cause some economic problems for a number of your customers. Could you let us know what you think the current health levels are, and whether you've been helping out financially?
With that shift from on-trade to off-trade, what does that mean for the price mix of the products you've been selling? Has there been a significant shift up-trading or down-trading, and whether that's changed throughout the lockdown situations? We understand now countries like Italy have been in lockdown for a very long time. Have you seen any shift from, say, cheaper products to more expensive products or treating oneself? Thank you very much.
On-trade stock levels, I would say they're pretty normal or probably a good tending towards the light side because we've had very good sell-out across markets in the on-trade. In much more over the years, moved into a pull mode as opposed to a push mode, so not much of a big issue there. The health of the on-trade is probably potentially looking forward an issue. We would expect a number of off on-premise outlets not to reopen both in the U.S. as well as in Italy. Everybody has some sort of an estimate for that.
I wouldn't know what it would be, but I wouldn't be surprised if a sizable number of outlets do not open. In the U.S., they can then be replaced by new openings. I wouldn't expect that to happen in Italy. Having said that, we are very strict on credit policy. We work in all of our markets where the intermediary are very solid and long-term wholesale partners, be it in the U.S., Italy, or anywhere else. We're not expecting any negative surprises from there.
In terms of shift, we're not seeing a huge shift in terms of the makeout of the brand, with the exception of an acceleration in SKYY Vodka in the U.S., with the consumers positively rediscovering that brand. I think that will be positive for us going forward. Obviously, with the growth in vodka, you see a stronger growth in the larger sizes, in the liter 75 of this world, and a little bit of that also across the rest of the portfolio. Bear in mind, it's very limited, and we're very disciplined on that.
Thank you. Just to follow up on the last one, have there been any shifts throughout this sort of four to six-week period, or has it been largely similar, or is it too early to see any changes on the customer behavior?
No, we've seen pretty steady. We've seen the growth rates actually across the portfolio accelerate once we came out of that mid-March lull.
Excellent. Thank you very much.
The next question is from Chris Pitcher of Redburn. Please go ahead.
Thanks very much. A couple of questions. On the cash flow side of the business, can you give us an update on what you're expecting in terms of capital investment in maturing stocks, and what you're doing with regard to your operating working capital in terms of payment days and receivables? On the bulk cognac sale that you disclosed, it was at about EUR 3 million, can you say what sort of margin impact that was? Finally, thank you very much for the really detailed run through of how you're changing the A&P plans for Aperol.
You sort of shift to more of an at-home consumption. What should we think of in terms of A&P over the summer? You mentioned, I think 90% of it is variable. Is it a direct transfer of the same level of expenditure, or can you save quite a bit on A&P marketing at home rather than at festivals and so forth? Thanks.
I'll take on the cash flow side, starting from CapEx, which was your first question. As we've announced, the guidance for current year was a total amount of CapEx of EUR 94 million, of which 64 were meant to be maintenance CapEx. Those were topped up by extraordinary CapEx accounting for EUR 30 million, total 94. Basically, with cut versus this 94, about EUR 10 million of CapEx. On the other end, given the recent acquisitions of the change in perimeter, we have additional EUR 6 million of CapEx attributable to perimeter, which, at this stage, we cannot confirm.
These are approved, we're not sure we'll be able to finalize those perimeter CapEx by year-end. If that happens, we will land at EUR 90 million net CapEx, including maintenance and extraordinary and perimeter. With regarding to the other one was maturing inventory. If we take last year as a reference, landing of last year, operating working capital came in at EUR 695 million, of which aging liquid was EUR 365 million. This is it all fixed and not compressible. We're not on purpose selling aging liquid because, we think that fundamentally the business is solid and that the short-term people will be recovered over the years.
We're not foreseeing any meaningful or any reduction in aging liquid. Whilst the rest is EUR 330 million based on last year, this is pure variable CapEx. At this stage, we're not considering any drift in that variable component of our operating working capital. Clearly, it's a long way to go through year-end. For sure, there's tension on the receivable front because customers are trying to extend payment terms. Of course, we're very disciplined, and we maintain our tight policy, because we don't believe that, in terms of timing, it's appropriate to extend credit lines and take unnecessary credit risk.
I think, the other one was on the A&P line. I can take that. On the A&P, only about 10% of the annual budgets are fixed. I think that's mostly royalties, et cetera, research, agency fees. The rest is variable. What we've done is we've really reworked, very much in depth, very quickly, all of the budgets across all of the brands and the markets. We've canceled offline media, on-premise activities, big events. Then moved everything into variable digital very quickly. We're monitoring it really week by week, so I can't give you much of a, I think, indication for a full year basis.
We are reacting very quickly. We're putting something on there, seeing how people react to it. If it's very positive, we invest more behind it. If it's not, we move on to the next thing, so on and so forth. It's very dynamic at the moment.
Thank you.
The next question is from Simon Hales of Citigroup. Please go ahead.
Thank you. Good afternoon, Bob. Afternoon, Paolo. Just a couple from me, please. Bob, you've talked a lot about the strength of the recent Nielsen data that we've seen across your business, particularly in the U.S., I think we've seen it across a number of other spirits businesses as well, albeit perhaps not quite as strong as some of the numbers you quoted on your brands. However, when I talk to some of the companies, they're saying that that data that you're seeing in terms of sell-out trends is not a complete representation of what you're selling in at.
That perhaps there is a little bit of a retailer de-stocking going on. Is that what you're seeing as well? Do you actually think the Nielsen growth rates that you're reporting, and perhaps seen over the last several weeks, are a real idea of the run rate that you're seeing from your shipment standpoint? Secondly, just back on costs. You flagged in the presentation, Paolo, around the SG&A being increased in the first quarter due to the shift of the HQ from Sydney to Singapore. What's the full year cost implication of that already felt in the first quarter?
Let me talk about our depletion versus Nielsen numbers. Our Nielsen are, if you take the full Q1 from January to end of March, are on a company basis, we were up 13% on Nielsen, 12.9% on NABCA, pretty consistent between the two, and our depletions were up 5.5%. Clearly you're seeing, I think there are some supply chain inefficiencies there, and probably some customers are taking the opportunity to de-stock and to generate more cash for themselves. That's a fair view, and that's pretty much what we're seeing in many markets.
For us, the most important thing is to see really the underlying consumption growth trends, as well as the very positive consumer sentiment.
With regards to the SG&A trend, the transfer of the corporate Asian headquarters from Sydney to Singapore has occurred. Most of the costs have already been incurred. In Q2, there might be a tiny tail end, not big one, but overall, that tiny tail end of those costs will be more than offset by the cost cutting initiatives. Starting from Q2, SG&A will start moving into negative territory.
Got it. Perfect. Thanks very much.
As a reminder, if you wish to register for a question, please press star and one on your touch tone telephone. For any further questions, please press star and one on your telephone. The next question comes from Paola Carboni of Equita. Please go ahead, madam.
No surprises here.
Yes. Hi, good afternoon, everybody. I have three questions, actually. The first one is on your fixed cost. You quantified the portion of fixed cost on your different cost lines, already indicating that in Q2, for example, SG&A may turn to a negative trend. Can you share with us how much degree of flexibility do you think to be able to achieve in this particular year, also on fixed cost? How much are you ready to reduce also what is usually your fixed cost base on the different lines? The second point is on the off-trade channel.
If you can comment a bit on the current, the perception you have clearly, on how resilient this channel is proving, in particular. Probably you give here and there some indications. To focus in particular on the off-trade channel in the last few weeks, if you have any sense in this respect, what do you imagine how this can evolve? Last point, in a recent interview, Bob, you mentioned, if I got it right, that you were fast in anticipating some stock. I was wondering what were you referring to with that, and what was that about? Thank you.
Okay, let me take the last question. What I was referring to in the interview is that when the first cases hit Italy, we reacted very quickly. We focused clearly first on the safety of our people, made sure that everybody went on smart working two weeks before the government made that a law. At the same time, we introduced new safety protocols in our plants. To be on the safe side, we had our plants build inventory behind all of our key brands and made sure that we actually shipped them out to all of our key markets because we didn't want to run.
Not having any visibility on the intensity of the lockdown and whether it would impact our plants or not. We built inventory, which I think was very good that we did, because obviously in some markets, we're seeing very nice trends in the off-premise. At the same time, any inventory we built there is not anything we cannot manage over a full year period. Referring to our performance in the off-premise, as I said earlier, what is really reassuring is that we actually have double-digit growth rates consistently across our brands, across our markets.
Some are even stronger. For instance, those U.S. numbers. What we're seeing is a pattern where in those markets where you have established consumer tradition of consuming at home, so it's mostly the Anglo-Saxon markets, U.S., Canada, Australia, the U.K., Northern Europe, as well as Eastern Europe. We're seeing very sustained growth in the off-premise in those channels. In certain cases, like you saw in Canada, was able to more than compensate in Canada as well as in Australia, more than able to compensate for weakness in the on-premise.
Having said that, even in Italy, we're seeing strong growth rates in the off-premise, obviously, we'll never be able to compensate what we're losing in the on.
With regards to the fixed cost component and what we intend to do. Yeah, basically, nothing is the answer, because we believe 2020 is a transition year. Fundamentally, we don't need to structurally downsize the business because of what's happening, as we believe in 2021 will be back up. The measures that we're taking are primarily those very typical ones that are the hiring freeze, where you go on a pause mode for a while. You contain the T&E. The clear impact coming from reduction of STI and LTI payouts.
We've started prioritizing and streamlining all the development projects that were scheduled for this year. Typical things that you can do without hurting the strength of the company per se, which is not what we intend to do, not in structural cost and not in the A&P. We believe it's a way to bridge a couple of quarters, and then we'll be back up.
Okay, sorry, I forgot just one. Can you give us any kind of update on the withdrawal right, and your path to move to Belgium?
We're still counting the withdrawal, so we're not in a position of giving any update. I believe within possibly a week or so, we should be in a position of confirming the precise number. Thereafter, there is the whole process that we've already highlighted, starting from the offering option and pre-emption that is required by law, and that lasts for one month. Then we'll have a further update. You need to have a little bit of patience, but not depending on us. We rely on a very poor level of service from couriers, so we're still receiving letters after three weeks from the expiry date.
We need to take everything into consideration to give a clear and correct picture of the amount of withdrawn shares prior to making the announcement.
Okay, thank you.
The next question is from Ryan Fintan of JP Morgan. Please go ahead.
Hi, good afternoon. Fintan Ryan here from JP Morgan. Just two questions, please, in terms of your gross margin. Just in terms of your global priority brands, I know that you said historically you'd make over 70% gross margin on those products. Even within, I appreciate the mix in terms of the weakness in the priority portfolio. Even within some of your brands like Campari and Aperol, is there much of a differential in the gross margin achieved between the on-trade and the off-trade, typically?
How does that feed through to the EBIT margins for those global priority brands? Secondly, just in terms of the raw material outlook, has there been any change in terms of what you've seen before in terms of inflation for agave or another input cost in the year?
No. With regards to gross margin, the global priority brands have higher than average gross margin within those brands. Campari, Aperol, and Grand Marnier do have higher than the average gross margin within the global difference bucket. With regards to on and off, the difference in marginality is not meaningful. What can really make the difference is the brand mix and the geographic mix as opposed to channel mix. There might be tiny differences with the on-trade marginally more profitable than the off, not a very big effect.
With regards to raw materials, no change in guidance. Over time, I would expect it on certain materials, we will see less pressure over time. For example, glass, that is a key component of our bill of materials, is indexed to cost of energy. That's potentially an opportunity. The other one is agave, where at the moment, spot price is still where it used to be. We cannot exclude that the current negative environment might accelerate the decline in the agave price. So far, we cannot confirm that because we've not seen it.
In a nutshell, no major changes in guidance on input costs for current year. We need to see how long the current situation will last, which on one end will potentially negatively impact the net revenues and the company profitability, but on the other end will be more benign on cost expectations.
Thank you. Just following on, specifically around the agave point on the Mexican market. Mexican sales declined mid-teens in Q1. How would you expect those to trend for the rest of the year? Is this just a de-stock effect, or are you seeing fundamental market weakness there?
Well, currently, the Mexican market is in full lockdown. We don't have much visibility on how long it's going to last. Clearly, it's a large tequila market. It's the second largest in the world, so that potentially could have an impact.
Great. Thank you.
The next question is from Sanjeet Aujla of Credit Suisse. Please go ahead.
Oh, hi there. Your balance sheet's quite strong going into this downturn. Do you anticipate a material step-up in industry consolidation through the downturn? How ready are you to participate in that? Is the immediate focus just on really shoring up the balance sheet?
Well, I think we're ready to participate. The question is, nobody has a crystal ball. Probably mid to smaller size players will be more impacted by the crisis than the larger players. There might be opportunities at that end of the range.
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Well, thanks for joining us, and my recommendation of the day is the Boulevardier with Wild Turkey 101, Campari, and Cinzano 1757. Enjoy it. Talk to you soon. Thank you. Bye-bye.
Bye-bye.
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