Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Campari Group's 2019 full- year 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 Campari. Please go ahead, sir.
Thank you very much. Good evening to all, and thank you very much for joining us on this call. We have quite a bit to cover today. I'll jump straight into it with our full-year results. If you can join me on page number four of our presentation, I'll kick off with the key highlights. As you can see from the numbers, we have a sustained nice positive top line, enabling us to continue fueling investments also back into the business for future growth. Looking at the net sales, on an organic side, we grew 5.9%. This despite some selective destocking in Japan as well as South Africa, ahead of changes in route to market. We've had consistent outperformance of our key high-margin brands in core developed markets. Looking at it by brand cluster, our global priorities outperformed. They grew by 7.3%, mainly driven by Aperol and Campari.
Our regional priorities are up 4.3%, thanks to Espolón, whilst local priorities are up 1.8%, thanks to the single-serve aperitifs, Crodino and Campari in Italy, as well as the Wild Turkey ready- to- drink in Australia. Looking at it by geography, we have a good performance in our high-margin markets, mostly driven by the U.S., Italy, and the rest of Europe. We also have a recovery in South America and Russia. As you know, this is quite a volatile environment. On a reported basis, our net sales grew by 7.6%, and this reflects a slight negative perimeter effect of - 0.4%, but a nice positive foreign exchange effect of 2.1% or EUR 36 million. This is mostly due to a strengthening U.S. dollar versus the euro. Moving on to EBIT and adjusted EBIT.
On an organic basis, it grew by 6.7%, this is slightly ahead of our organic sales growth, leading to 20 basis points of margin accretion. This, as you can imagine, is driven by the organic gross margin expansion of 60 basis points, thanks to the positive sales mix, and despite, I must say, the agave headwinds and following the investments back into the business. A&P and SG&A together are dilutive by 40 basis points. In Q4, organic gross margin was slightly accretive, only 10 basis points, this was largely hindered by a very tough comp base last year, where we'd grown it by 230 basis points. On a reported basis, we have a change of 7.7%, which takes into account a negative perimeter of 0.7% and a positive FX of 1.7%. Net profit on an adjusted basis reached EUR 267.4 million. It's up by 7.3%.
On a reported basis, it reached EUR 308.4 million, up 4.1%. Cash flow, free cash flows generated stood at EUR 258.5 million, of which recurring free cash flow of EUR 267.3 million. On the back of this, net debt came down to EUR 777.4 million, which is a reduction of EUR 68.9 million versus the previous year, driven by the positive cash flow, and it's obviously net of acquisitions as well as the real estate disposal and the incremental debt generated by the adoption of IFRS 16 leases. This brings us to a net debt-to-EBITDA adjusted ratio of 1.6x at the end of last year. We have a few other important resolutions to share. First of all, on the dividend, where the Board is increasing a proposed full-year dividend to EUR 0.055 per share, in other words, an increase of 10% versus last year.
With regards to share buybacks, we'll have the continuation of a share buyback program, which will be implemented up to an increased amount of EUR 350 million in the next 12 months. Moving on to chart number 5. It's an overview of the five past years and how we're delivering on strategy, and you can see the positive margin expansion, which is driven by the outperformance of the core high-margin brands and market combinations. At the top of the chart, you see the outperformance of the global priorities versus the group average. On the bottom left, you see the gross margin improvement, which on a cumulative basis over five years reached 750 basis points, of which important to say 450 basis points organic, and on the other side, the adjusted EBIT cumulative increase of 300 basis points, of which 140 basis points organic.
The strong gross margin expansion driven by our sales mix improvement continued to fuel consistent reinvestments in brand building as well as strengthening our infrastructure for future growth. Moving on to page number nine, just to say that you can see there's a healthy balance between developed and emerging markets, 80% versus 20%. The U.S. continuing to increase its share of the pie up to close to 27%, 26.9% to be exact, and Italy, our second market, at 19.9%. Moving on to our first region, the Americas, had overall a nice organic growth of 5.8%. Excuse me one second. The U.S. grew by 5.3%, which is overall quite positive. Double-digit growth on Aperol, up 33.9% in shipments, but actually, our depletions were up by 50%. That shows you the momentum of the brand. Espolòn up 34.4%. Russell's also double digits at 18.1%.
We've also had positive performances of Campari, Wild Turkey, Wray & Nephew Overproof, and Grand Marnier. Cynar and Averna also registered positive growth, quite strong growth, but off a small base. As you can expect, SKYY declined due to both the competitive pressures and flavors, but mostly due to also the destocking we've done on that sub-range of the brand. Moving on to Jamaica. Jamaica had a very strong year, up 17.6%. As you know, this is quite a sizable subsidiary for us. Very good performance, consistent, and on the right brands driving the mix, with core Wray & Nephew Overproof growing 22.2%, Appleton Estate growing by 50%, Magnum Tonic Wine 26.4%, and Campari 8.8%. Canada, up 2.6%, overall positive, thanks to very strong double-digit growth of Aperol, Espolòn, and Campari, which mitigated the slight decline on Appleton Estate as well as Forty Creek.
Brazil came back, grew by 3.3%. Given the circumstances, overall satisfactory growth. Clearly, the environment remains volatile. The rest of the region grew by 1%, with Mexico leading the pack, and that's about it, I think. Not much more to go into. Moving on to the following page, Southern Europe, Middle East, and Africa. Again, a very solid performance, growing by 5.3% organically. A very strong performance in Italy, up 5.8%, and this within a context of a market which is flattish. It really shows the great performance of our aperitif portfolio, where we're continuing to take share off-road across other beverage categories. A double-digit growth of Aperol of 16 years in a row, up 12.8%. Very nice growth of Campari, 8.3%. This year we'll be celebrating 160 years of Campari, and we'll reach an all-time high, which is pretty nice to have.
A very nice return to growth, although low single digits, on the large local aperitifs such as Crodino and Campari Soda. The rest of the region grew by 3.9%. France, which hopefully will become a wholly owned subsidiary by the end of this month, grew by 14.2%, again, thanks to the double-digit growth of Aperol and Crodino, while Spain declined overall 1.4% as positive growth in Aperol and Cinzano was offset by weakness in BULLDOG, as well as the fact that one key retailer actually decided to delist all branded spirits. Looking into the African markets, Nigeria did very nicely, growing behind Campari, American Honey. On the other hand, in South Africa, we basically de-stocked the market in certain parts of the market ahead of route to market change. Global travel retail was up 4.1%, again, with the strong growth of Aperol, Campari, and The Glen Grant.
Moving on to North, Central, Eastern Europe, up a very strong 8.8%. Germany up 3.3%. Here we have a very strong double-digit growth of Aperol. This despite it being a pretty poor summer. Aperol was up 18.2%, and we're continuing to leverage new consumption occasions as well as de-seasonalization on this key brand. We have positive trends in Ouzo, Averna, SKYY, Crodino, Frangelico, and Glen Grant. Overall, a nice picture. What is a little bit depressing is the higher- volume Cinzano brand, but that again, to a certain extent, is a reflection of the improved sales mix and what we're driving. The U.K. had another very positive year, up almost 40%, 39.6%, an accelerated trend clearly sustained by the growth of Aperol, up 23%, as well as our Jamaican brands portfolio, which grew by 42%, largely Wray & Nephew Overproof and Magnum Tonic.
From a small base. Again, it's important because the brand is growing across markets. Espolòn also did quite well in the U.K. Russia came back, growing almost 12%, 11.9%. This is clearly off an easy comparison base. You'll recall that in 2018, we were down 11.4%. The market is showing signs of recovery, remains volatile, with very positive trends behind Aperol, and particularly on our higher- marginality sparkling wines such as Mondoro. The rest of the region was up a healthy 6.5%, evenly spread across all of our key markets, again, driven by Aperol and Campari. Moving on to our last region, Asia-Pacific, up 0.8%. Australia up 2% on a shipment basis. Actually, if you look at consumption data and depletions data, we grew at 3x that rate. Clearly, there were changes in one of our largest retail customers, which impacted stocks across the industry.
Having said that, very satisfactory performance. You need to bear in mind also the tough comp base. We were up 10.5% the previous year. Again, the bushfires didn't really help. The rest of the region is down 1.8%. This overall decline clearly is driven by the Japanese market, where we're destocking ahead of route to market change, and I'll take you more through the details of this at the end of the presentation. China, on the back of SKYY, Cinzano, and Aperol, did quite well, as well as New Zealand. Moving on to the following page. It's good to see that our global priorities are continuing to grow their weight over the overall portfolio, up by 100 basis points versus previous year. Moving on to our largest brand on page number 15.
Aperol, 18% of our sales, up 20.5%. It's nice to see this solid double-digit growth across all of our key markets. On a five-year average, we've been growing the brand by 19.7%. As I said, a very good momentum both in established high- potential markets as well as seeding markets. Moving on to the analysis by the types of markets. On the core established, I had previously taken you through the Italian numbers, up 12.8%. It's very important to reflect that this is the 16th year in a row. Clearly, our strategies are working and bode well for the future in other markets. Germany grew also by 18.2%. We've also had very strong double-digit growth behind Austria and Switzerland. Looking at high- potential markets, core shipments in the U.S., 33.9%. As I said, depletions were up by a stronger 50%.
This, clearly also on the back of a quite tough comp base as the brand had grown by almost 74% the previous year. Canada, also solid double digits, up 54%. Russia, actually becoming the fourth largest market, growing by almost 63%. We talked about the U.K. previously. Very nice strong double-digit growth in France, up 42%, Spain 18%, travel retail by 23%, and Australia 23%. You can see that the brand is really firing on all its cylinders across all of our markets and growing much faster than those previously announced numbers in all of our seeding markets. Moving on to Campari. Campari is our second-largest brand, 10% of sales. It grew by 4.6%. If we factored, taking into account the destocking which we grew in Japan, the real underlying growth rate of the brand in the year was at 60% on an organic basis.
The year was also hindered by a soft performance in its third largest market, Germany, where we took a substantial price increase at the beginning of the year in January, and that clearly that price increase, created quite a bit of interest in the brand in Q4 2018 ahead of the price repositioning. We paid that back the following year. Looking at on a region basis, Southern Europe, Middle East, Africa, core Italy growing 8.3%. What's driving this is both the classic cocktails, particularly the Negroni, as well as our easy mixes such as the Campari Spritz and the Campari and Tonic. North, Central, and Eastern Europe, I described what happened in Germany earlier, where we've got nice traction in the rest of the region. In the Americas, the U.S. is clearly doing very well. Shipments grew by 9.6%. Actually, depletions grew double digit in this case as well.
The U.S. is our second market in terms of value terms, having that momentum obviously is great. We're also extending the range of the drinks going beyond the Negroni, as well to the Americano and the Boulevardier. Argentina recovered from an easier comp pace, Brazil also. In Brazil particularly, we registered double-digit growth there. Solid growth in Jamaica and Canada, in Asia-Pacific, clearly the overall number was impacted by the destocking in Japan. Moving on to SKYY. SKYY, 8% of our total, down 3.8%. Clearly, this is largely driven by the core U.S. by the destocking activity we conducted in this market, particularly on the SKYY Infusions range. This lasted till the end of the third quarter with some tail end effects in Q4 of the year.
International markets, which account for 27% of the value, were flattish because the destocking in South Africa impacted the overall positive growth in the other markets. Looking into the detail of the international markets, we have good growth in Argentina, which is the fifth largest. Double-digit growth in Mexico. Some weakness in Brazil, where it's only very cheap vodkas, which are performing at the moment. Within Southern Europe, Middle East, Africa, growth in GTR was unable to offset some slight declines in Italy and Spain. South Africa is the one which moved the needle in this area. North, Central, and Eastern Europe, very nice double-digit growth in Germany, which is a very profitable market for us, but some weakness in the U.K. Asia- Pac did very nicely in China as well as in Australia.
Moving on to Wild Turkey, also 8% of our sales, up 2.9% on an organic basis. This is after some declines in the fourth quarter where we had some phasing effects in the core U.S. market, where actually our depletions were double-digit. The Wild Turkey Bourbon grew by 0.4%, and this is quite a bit affected by the destocking in Japan. Russell's Reserve, which is our premium offering, grew very solidly at 16.7%. American Honey also up 6%, and that's driven by the U.S. market as well as Nigeria. If we look at it on a market basis, what we're seeing is in the U.S., we are premiumizing our offering with premium extensions such as Longbranch, Russell's Reserve, and Master's Keep continuing to grow at very strong double-digits. Overall positive performance of 1.4%, and this was affected by slowdown on Wild Turkey 101, which was hurt by price repositioning.
We have clear, very strong plans behind that expression this year, so we expect to see it to regain traction. Overall, the brand is pursuing very nicely in its quest of becoming a top choice for high-end mixologists and retailers. We're clearly leveraging, in a very positive manner, our long-running association with Matthew McConaughey. In international markets, which obviously if you exclude Japan and Australia, they're very much seeding markets, but we're doing very nicely in Germany, Italy, and Austria. Japan declined by double digits due to destocking ahead of the retail market changes. Australia was slightly down due to the impact of some decisions taken by one retailer. Moving on to Grand Marnier. On slightly down 0.9%. Overall flattish performance, where clearly there was a reversal in Q4 driven by the U.S., where we were up 8.1%.
We're continuing to do the right thing on the brand, growing it for the long term with the right strategy, premiumizing it with the cuvées, and with a very clear drinking strategy. In the U.S., the brand grew nicely, 2.2%. Unfortunately, second market, Canada, was flat because we took a significant price repositioning in its largest province, Quebec, which was long due. Clearly, this is something which we will cycle and improve upon this year. Very nicely growing behind the Grand Margarita in Mexico. Southern Europe, well, let's say Europe and Asia-Pacific. Overall a soft performance, because what we decided to do was essentially delist the 1-liter so that we could reserve it exclusively. We delisted it from the off-premise and kept it exclusive to GTR as well as the on-premise. Obviously, this has a short-term impact on the brand.
Moving on to the Jamaican rums on page number 25. Doing very nicely, up 7.5%. A very positive outperformance of Wray & Nephew Overproof, which is a specialty brand. On the other hand, Appleton Estate was impacted by temporary decline in some core North American markets in Q4 as we prepare some important changes on the brand this year. Wray & Nephew Overproof grew 15.1%. It's becoming a mixologist darling and expanding beyond its heartland of Jamaica into the U.S., Canada, and the U.K. Appleton Estate, on the other hand, declined by 1.7%. This despite a very strong performance in Jamaica. Again, we're preparing the future on this brand. Looking at by region, I think it's quite clear what happened in the Americas. Looking at the rest of the world, very nice performance in the U.K., where we're going beyond the Jamaican diaspora.
Positive progression in all of our seeding markets. Moving on to the regional priorities on page number 27. You can see that Espolòn is continuing to do very nicely. It's clearly outperforming the category, growing by 32.4%. BULLDOG is being challenged in its core markets, Spain and Belgium, where the category overall has been invaded by a plethora of innovations. Net in that, the brand is down 3.2%. The Glen Grant is in line with expectations. The premiumization strategy is working. As you know, we are limiting the volumes so that we can create an inventory of really aged expressions. Having said that, those expressions we're putting into GTR are doing extremely well as the brand is growing double digits in that channel. It's proving that the strategy is on track.
Forty Creek down 4.2%, impacted mostly by Canada, where we had, on the one hand, a very tough comp base previous year, up 12.4%, and also some execution issues in its secondary provinces outside of Ontario. Our cognacs, Bisquit & Dubouché , grew 6.7% on a [inaudible ] basis. You can see that we have almost a 35% decline in Q4, and that is basically we're phasing out the previous packaging and the range as we relaunch it in Q1 of this year. Looking at the Italian bitters and liqueurs, overall flattish. What we see, some soft performance, mostly in the Frangelico brand as well as the bitters in Italy. Whereas again, we're improving the mix from a country perspective by growing very nicely in Germany and the U.S. Cinzano is down by 6.9%. The key driver here was vermouth.
What we did was we relaunched the vermouth this year, changing the formulation, going from a wine-based formulation to a spirits-based formulation, so making it a traditional vermouth again. This obviously had a big increase in pricing, and this is something we'll cycle through, but we think it's the right thing to do for the brand as we see vermouth, real vermouth, becoming an exciting category again. Moving on to our sparkling wines, Mondoro and Riccadonna, nice growth of 8.5%, and this is clearly the performance of Mondoro, which is a higher margin brand in Russia, and the Aperol Spritz fueling the growth of Riccadonna in nine international markets. To close off with our local priorities, very happy to see Campari Soda and Crodino returning to positive growth, up 1.6% on Soda, 2.4%.
The organic change in Q4 was expected. It's not meant to be seen as an inversion of the trend on the brands. We're outperforming in bourbon RTDs in Australia, up 5%. The only negative note on the local portfolio and weighing quite a bit because of their size, are our Brazilian brands, which were down 5.1%. Ouzo is doing nicely, driven by Germany, as well as some signs of vitality in the U.S. and U.K., growing overall by 3%, and Cabo Wabo growing by 3.7%. Again, this is below the depletions, which grew high single digit. I will skip all the pretty pictures and then hand over to Paolo.
Thank you, Bob. If you follow me to page 35, segment reporting, Americas region. As we can see on a reported basis, net sales were up 10.3%, and EBIT was up 6.1% in value. Most importantly, in existing business, what we call organic change, net sales were up 5.8%, and EBIT up 2.5% in value, driving 70 basis point dilution. In existing business, gross profit was up in value 5.4%, slightly behind the top-line growth, leading to 20 basis point margin dilution. Where a very positive sales mix in high-margin markets like the U.S. was more than offset by the increasingly negative impact of agave, which at group level accounted for 30 basis points of negative impact on gross profit and EBIT.
As well as the dilutive impact of the recovery in certain emerging markets in this region, Brazil and Argentina, which together with other emerging markets, accounted at group level for 30 basis points of gross profit and EBIT dilution. Advertising and Promotion growth in value was 9.6% ahead of top line, driving 70 basis points of dilution due to the increased brand-building investments, particularly behind certain brands like Aperol, Campari, Grand Marnier, and the Espolòn, which is, as we saw before, growing double digit. The SG&A increase was in value 4.7% below top line, driving 20 basis points of margin accretion, thanks to the efforts of our South American management to downsize their local structure and contain their costs. Moving on to page 36, SEMEA. On a reported basis, net sales were up 3.9%, and EBIT was up 5.5%.
In existing business, net sales were up 5.3%, and EBIT 8.4%, driving 60 basis points of EBIT margin expansion. This very strong performance was achieved despite a lower contribution in the South African market due to the destocking ahead of the already anticipated go-to-market change. In existing business, gross profit grew in value by 6.9%, driving 100 basis points of margin accretion, thanks to a very solid performance of high-margin brands like Aperol and Campari across the whole region, I would say. A&P in value was up 6.4%, ahead of top line, driving 20 basis points margin dilution. Again, also in this region, due to the stepped-up investment behind our global priority portfolio, in particular the Aperol brand. SG&A were up in value by 6.4%, ahead of the top line, leading to 30 basis points margin dilution, and this was primarily due to the strengthening of our central structures.
Page 37, we have the analysis of the Northern and Central Eastern Europe region. The reported change in net sales accounted for 9.7%. EBIT on a reported basis was up 15.5%. In existing business, the performance was quite strong, with the top line up 8.8% and EBIT up 14.3%, driving a very healthy 160 basis point margin accretion in the region. In existing business, gross profit was up in value ahead of top line by 11.4%, driving 150 basis point margin accretion due to a very strong sales mix evolution by both brand and market, with a very positive performance of high-margin brands like Aperol and more broadly, the whole aperitif portfolio in core high-margin markets such as Germany, the U.K., Switzerland, and Austria. The A&P was up in value by 7.5%, which is a remarkable increase in A&P, but below the top line, leading to 20 basis points accretion.
The SG&A were up 9% in value, due to the stepped up investments on our commercial capabilities. Overall, neutral on margins. Moving on to page 38, we have the analysis of the Asia-Pac region. The smaller region for us, was on a reported basis, top line flattish and bottom line declining by 16.5%, which basically mirrors the results of our organic performance with flattish top line, slightly up 0.8% and a decline in EBIT of 12.5%, driving 240 basis point EBIT margin dilution in the region.
Gross profit in value was up 2.4% ahead of top line, driving 70 basis point margin accretion thanks to a very positive sales mix in the biggest market for the region, which is Australia, which helped us compensate the negative impact of the destocking in the Japanese market, which negatively affected the performance, as we saw before, of the Campari and Wild Turkey brand. The A&P was flattish year-on-year, driving 10 basis point margin accretion, whilst the SG&A were up in a significant manner, 16.2% in value, well above the top line, driving 270 basis point margin dilution. The significant increase in SG&A in the region was due to, on one end, clearly a lower absorption of fixed cost due to the contained top line growth.
Most notably and importantly, the increase in cost was due to the enhancement of the region's commercial structure, and moreover, the provisions in connection with the transfer of the regional headquarter from Sydney to Singapore. Moving on to the analysis of our consolidated results as in page 40 and focus on page 41. As we can see, EBIT adjusted on a reported basis was up 7.7% in value, stable at 22.1% on sales in line with last year. With an EBIT adjusted organic growth of 6.7% in value above top line, driving 20 basis point margin accretion. This is due to a solid organic growth margin accretion, which more than compensated the stepped up investment in marketing and commercial capabilities. The adoption of the IFRS 16 accounted at EBIT level for a tiny EUR 1.4 million.
EBIT adjusted on a reported basis was up 10.9% in value to 26% on net sales. Worthwhile highlighting the fact that the disproportionate increase in EBIT adjusted in value vis-a-vis the EBIT adjusted increase is due to the impact of the IFRS 16, of which accounted for EUR 15 million in 2019. Page 42. Gross profit on a reported basis was up 9.1% in value to 60.9% on sales with 80 basis point accretion. The organic growth accounted for 7% in value, 60 basis point margin expansion, after the negative impact of agave which I said before, accounted for 30 basis points. The negative impact of the recovery of emerging markets, which accounted for further 30 basis point, topped up by the negative impact of the destocking ahead of route to market change in Japan.
The underlying 120 basis point gross margin expansion was basically offset by 60 basis point of combined effect of agave and emerging market recovery. A&P on a reported basis was up 10.6% in value, with 50 basis point dilution in existing business. A&P increase accounted for 7.7% in value, leading to 30 basis point margin dilution. Again, as said before, this is the stepped up investments behind key brands like Aperol, Campari, the overall Jamaica rum portfolio, as well as selected regional priority brands such as Espolòn. The SG&A on a reported basis were up 9.2% in value with a 30 basis point dilution to 21.3% on net sales. In existing business, SG&A were up 6.8% in value, leading to 20 basis point margin dilution. Page 43. The negative operating adjustments, which we've already highlighted in prior calls, accounted for EUR 21.7 million in 2019.
Net financial charges came in at EUR 33 million, in line with the prior year, benefiting from, on one end, a lower average indebtedness due to the very healthy cash flow generation, which was partly compensated by the effect of the reclass for IFRS 16 of EUR 3.4 million of additional interest charges. The average cost of net banks grew from 3.3% to 4.1%, again, due to the reclass of the interest charges relating to the IFRS 16. Pre-tax profit came in at EUR 354.6 million, up 1.1%, but most importantly, before one-offs, before adjustments, group pre-tax profit came in at EUR 370.4 million, up 6.7% in value in 2019. Page 44.
Group net profit adjusted came in at EUR 267.4 million, up 7.3% year-on-year, excluding all the one-offs, with a recurring effective tax rate of 27.8%, down from 28.2% of prior year, with a cash tax rate, which came in at 23.5%, in line with the prior year. Reported tax rate came in at 13%, reflecting the total net adjustments of EUR 41 million that you can see above, with the relative breakdown into operating adjustment, financial adjustment, and all the tax adjustments, including the patent box, which accounted for EUR 25.4 million. For total benefit across the period 2014 to 2019 of EUR 96.2 million. Recurring effective tax rate over the period 2016 to 2019 came down from 32.6% to 27.8%, so 4.8%. Page 46. Analysis of free cash flow.
On a reported basis, free cash flow came in at EUR 258.5 million, up EUR 22.9 million versus 2018, with a recurring free cash flow at EUR 267 million, unchanged versus prior year. In terms of key changes on the recurring free cash flow, we highlight an increase in EBITDA year on year of EUR 47.2 million. That is partly compensated by higher taxes on a recurring basis of EUR 8.6 million, with recurring taxes at EUR 81.1 million. Change in working capital on a recurring basis, EUR 29.6 million, higher by EUR 4.1 million versus prior year. Financial expenses at EUR 27.9 million, higher by EUR 5.1 million versus prior year on a recurring basis. Maintenance CapEx came in at EUR 61.1 million, up EUR 11.4 million versus prior year. We have a delta of EUR 15.4 million on other non-cash items.
As a consequence of the increase of EBITDA adjusted and a free cash flow that is basically unchanged at EUR 267.3 million, free cash flow on EBITDA, which is still very healthy, came in at 55.7%, below prior year, when it accounted for 61.9%. Page 47. Analysis of operating working capital. As you can see, we have an increase of EUR 58.8 million year-on-year, of which EUR 29.6 million are coming from organic increase of working capital and EUR 10.5 million from forex and EUR 18.8 million from perimeter. Operating working capital as a percentage of net sales came in at 37.7%. If we carve out the impact of acquisitions on a pro forma basis, operating working capital as a percentage of net sales came in at 36.7%, well below the 37.2% of prior year. 60 basis points operating working capital on sales compression.
Page 48, CapEx. The lending amount of CapEx for fiscal year 2019 is overall EUR 82.4 million, of which EUR 61 million in maintenance CapEx and EUR 21 million in extraordinary CapEx on projects, brand houses, and increase of production capacity. For 2020, we're envisaging a total amount of CapEx in the area of EUR 94 million, with basically unchanged maintenance CapEx at EUR 64 million and further EUR 30 million of extraordinary CapEx reflecting investments on extra projects, including, again, brand houses and other projects. Page 49, we have the analysis of the free cash flow and net debt, initial and lending, EUR 258 million of reported free cash flow, EUR 28.9 million of the net value from disposal and acquisitions, which were partly offset by dividends for EUR 57 million, purchase of own shares for EUR 47 million.
Impact of the IFRS 16 application that accounted for EUR 90 million and some other movements accounting for EUR 23.5 million. Lending indebtedness at EUR 777 million. With regards to the debt maturities, still a very healthy picture with long-term gross debt, which stood at EUR 600 million, following the reclass of the euro bond that is expiring in September 2020 into short-term debt. We're talking of EUR 581 million. Cost of debt, the coupon on the long-term debt accounts for 1.6%. Fairly safe and hedged position with the fixed interest rates accounting for 58% of the overall long-term gross debt. Bob, I think this is it on numbers.
Yeah.
I will hand back to you on new initiatives and outlook.
Okay. Before the outlook, I'd like to take you through two very important new initiatives, starting with the first one regarding business development in Asia. As you know, Asia-Pac is our smallest region. Looking forward, with the change in consumer tastes and habits, we see very good opportunity to accelerate our growth there. Today, most of our business is actually in Australia and in New Zealand. We see very good opportunity brought about by the growth of classic cocktails in all key cities, as well as Asian consumers' acceptance and appreciation of the Aperol Spritz, which we see when they're traveling abroad. On the basis of that, we're kicking off three very important initiatives. The first one regards the relocation of our regional headquarters from Australia to Singapore, and that will occur within Q1 of this year.
Clearly, our team will be much closer to the markets, and we'll be able to move faster and much more effectively in all of those core markets. The second one regards China. Obviously, this is a little bit of a difficult period due to the coronavirus in China. We strongly believe in the opportunity for Aperol and Aperol Spritz in the huge Chinese market. We designed up a series of what we call micro battles to actually help us determine on the on-premise, the answer to two key questions, where to play and how to win. In other words, how to best adapt the Aperol model to win the hearts and the palates of the Chinese consumers. There were all these micro battles set to kick off in February.
We haven't activated them, we hope we'll be able to do that at the latest at the beginning of the second half of the year. Again, this is going to be quite an area of focus, both in terms of management attention as well as financial resources. Lastly, in Japan, which historically has been an important market for us, where we've been with third-party distributors. We've actually decided to make a move forward and to move to a newly established equity partnership with a key local premium spirits operator. The aim here is to develop our brands, our whole portfolio, and particularly the premium end in this key market. We will have an initial stake of 40% of the JV, we have the right to purchase up to 100% of the JV starting 2023.
Japan currently generates only 1% of our sales. Clearly, it's another market where we see a very good opportunity, both for our aperitifs as well as our whiskeys going forward. The second big initiative regards France. I mentioned that in our kickoff. France is a very important market for us. We announced the signing of the acquisition for 100% of our French distributor, Baron Philippe de Rothschild France Distribution. They've been our exclusive distributors since 2009. The team there is a very strong team. They've done very well for our whole portfolio of brands, as well as some distribution brands which they have. We expect this deal to close by the end of the first quarter. Clearly, it's subject to customary antitrust approvals.
In terms of size, just to give you an idea, in 2018, if we look at the numbers from a local GAAP standpoint, RFD had reported sales of EUR 145.1 million. Clearly, this includes the net sales of our brands as well as third-party brands. As a market, France, via the distributor, so at the lower net sales, accounted for 2.2% of the group's net sales. We see it as really a core and very high potential market for the group. The track record on some of our key brands, such as Aperol, Campari, Riccadonna, and The Glen Grant, has been very strong. We've added to our critical mass with Trois Rivières and Maison La Mauny. We really look forward to developing this business going forward. In terms of corporate actions, I took you through the dividend increase.
With regards to the share buyback program, we implemented for an increased amount up to EUR 350 million in the next 12 months. Really the increase of this buyback serves the purpose of implementing a new policy which we have with regards to our portfolio of treasury shares. In the past, we always bought back the shares in a manner that they were sufficient to serve those plans which are about to vest. With this new policy, we're looking at having a portfolio of treasury shares sufficient to serve all outstanding stock option plans. This is obviously a way of hedging the risk and also reducing the cost of the plan going forward.
Lastly, I'll take you through this more in detail once we've gone through the conclusion and outlook, when the board of directors took the decision today to announce a transfer of the registered office of Davide Campari-Milano SpA to the Netherlands, with, in conjunction, an enhancement of the current increased voting mechanism. In terms of conclusion and outlook, you can see that 2019 was pretty solid. We delivered sustained performance across sales as well as our profit indicators, this despite selective destocking as well as the pretty significant negative agave price effect. We've been able to do this thanks to continued sales mix improvement, driven by the outperformance of our key high-margin brands in core developed markets. Looking forward into 2020, our outlook remains pretty fairly balanced, both in terms of risks as well as opportunities. We believe that the positive underlying business momentum will continue.
It will be driven, again, by the combinations of key high-margin brands in core developed markets. We will see some tail-end effect of destocking activities and those which are linked to route to market changes, which are expected to impact the first half of the year, also on top of a tough comp base. Clearly, the phasing this year will be different from last year's. We expect a positive evolution of EBIT organic performance on a value basis. On the other hand, the margin development is expected to reflect both the agave's increasingly elevated purchase price, the import tariffs imposed by the U.S., as well as investments in brand building and route- to- market initiatives for our long-term and healthy business building opportunities.
On the perimeter, we expect the effect to reflect the recent acquisitions, as well as the agreement related to the acquisition of the French distributor, subject obviously to antitrust approval. On the other hand, FX is to be impacted by a volatile macro environment. Having said all of this, though, we remain quite confident in delivering a positive performance across all of our key business indicators also this year, 2020. Before we move on to your questions, if you can take hold of the second smaller presentation we have for tonight, the one entitled Transfer of the Registered Office to the Netherlands and Enhancement of the Current Increased Voting Right Mechanism. I would like to take you through this and then move on to your questions, both on the full year as well as this key milestone agreement.
In our eyes, it's clearly a new milestone, but it is also in continuity with the past. We aim to transfer the registered office of the company to the Netherlands, and we also aim to enhance the current double voting rights mechanism through the progressive introduction of additional voting rights. This transaction is clearly aimed at encouraging a capital structure which is more supportive of our external growth strategy in the long run and rewarding a shareholder base with a long-term investment horizon, and this has always been our group strategic guidance. The controlling shareholder, Lagfin SCA, confirms its long-term commitment to the group strategy and prospects and its support to the transaction. With regards to the company aspects, we will have full continuity upon the transaction completion, which means that there will be no impact on the organization, management, business operations, and employees.
The tax residence of the company will be maintained in Italy. Our legal status will be preserved without any impact on our legal relationships. There will be no accounting impact on financial reporting. Clearly, IFRS are confirmed. There will be a sole listing of our ordinary shares on the Italian Stock Exchange, and the identity as well as historic presence of the group in Italy will be preserved. Moving on to page number three and the compelling rationale for the transaction. It's clearly about us continuing to focus on our long-term growth pillars.
Through the transfer of the registered office and the simultaneous enhancement of the current double voting rights mechanism, we aim to, on the one hand, adopt a flexible share capital structure to allow the company to maintain and further strengthen a loyal and committed shareholding structure while combining this essential goal with the objective of further supporting the group's growth strategy by external opportunities. We want to reward a shareholder base with a long-term investment horizon capable of underpinning our long-term growth objectives and ambitions in line with our guidance, and to benefit, lastly, from a corporate law framework which is highly recognized and appreciated by international investors and our market operators, so that we continue to promote the global profile of our group, while in the meantime, also maintaining culturally the identity and historic presence of the company in Italy.
Firstly, we'll transfer the registered office to the Netherlands and adopt a company form known, and I hope my Dutch friends will not get upset with me when I pronounce the name, Naamloze Vennootschap, NV, under Dutch law. There will be an enhancement of the double voting rights mechanism which is currently in force, and we will adopt a mechanism based on the assignment of special voting shares. We will have an assignment of two, five, and 10 voting rights for each ordinary share, which is held for respectively two, five, or 10 years.
These additional voting rights are subject to the uninterrupted, and that's important to underline, the uninterrupted holding of ordinary shares. The transfer of the ordinary shares to which the special voting shares are associated, and the occurrence of change of control will cause the loss of the benefit of the increased voting rights. Shareholders who are entitled to the current double voting benefit, called voto maggiorato in Italian, as of the effective date of the transaction, will be entitled to the same benefit immediately thereafter. Loyal shareholders who are not yet entitled, will be allowed to carry over their registration period in a special register for the purpose of the assignment of two voting rights. Shareholders who do not support the adoption of the resolution on the transaction will be entitled to exercise their withdrawal right, diritto di recesso in Italian.
The transaction is subject to the satisfaction of a limited number of conditions precedent, including the amount of cash to be paid to shareholders exercising their withdrawal right, not exceeding in aggregate the amount of EUR 150 million. This is calculated after taking into account the amounts payable by the shareholders exercising their option and pre-emption rights pursuant to applicable laws by other third parties. Moving on to our controlling shareholder, Lagfin, and the support to the transaction. Page number seven. Our controlling shareholder, Lagfin, which today holds 51% of the issued share capital and 65.3% of the voting rights, has confirmed its long-term commitment to the group strategy and prospects and its support to the transaction.
For the purpose of strengthening the certainty of the transaction and mitigating the potential cash outflows resulting from the withdrawal process, Lagfin have committed to acquire withdrawn shares in the context of the offer and sales process provided for under Italian law, up to an aggregate amount of EUR 76.5 million, which is basically proportional to their 51% holding. If we look at the special voting mechanism and the detailed description on page number eight, you see three columns, ordinary shares, special voting shares, aggregated voting rights, and then the time horizon. Two years of uninterrupted ownership, five years of uninterrupted ownership, 10 years of uninterrupted ownership. Now, currently, one ordinary share remains one with one aggregate voting right. In two years' time, that will, after registration, obviously, equate to one ordinary share, one vote, plus one Special Voting Share A, which is equal to one vote.
In aggregate, two voting rights. Moving on to five years, again, it will be a combination of one ordinary share vote, so one vote, plus one Special Voting Share B, which will amount to four votes, bringing the total to five votes. Moving on to 10 years of uninterrupted ownership, there will be one ordinary share of one vote, plus one Special Voting Share C of nine votes, amounting to 10 voting rights. The ordinary shares will continue to be tradable and listed on the Italian Stock Exchange. They are transferable, but clearly ordinary shares associated with the special voting shares are transferable subject to removals from the special register, and the ordinary shares will be the only ones receiving the dividend. The dividend will be only paid on ordinary shares. The special voting shares will be non-tradable.
They're related to voting rights, which are lost upon transfer of the underlying ordinary share and upon occurrence of a change of control over such shareholders. I think we'll skip page number nine because it's just clarifying the situation as is and to be immediately after our transformation. Moving on to chart number 10. It's important that we underline the fact that with full continuity with the past, our identity and our historic presence in Italy are preserved. The ordinary shares will continue to be solely listed on the Italian Stock Exchange of Borsa Italiana. There will be absolutely no reorganization of the group's operational managerial activities, which will continue to be led by the company on a continuous and uninterrupted basis.
The company will maintain its own legal status without any impact on its legal relationships, including the relationship with its employees, and these will continue to be governed by Italian law. Our tax residence will be maintained in Italy. No impact on the financial reporting. Our statements will continue to be prepared in accordance with IAS and IFRS. Our company share buyback program will continue up to an increased amount of EUR 350 million in the next 12 months. In terms of governance and the governance framework following the transaction, we will move to a one-tier board system, as provided under Dutch law. There will be no changes in the current composition of the Board of Directors.
We will adopt, as I said earlier, the one-tier board system, under which the non-executive directors will supervise the executive directors. In accordance with Dutch corporate governance code, internal committees of the Board of Directors will be established in line with those currently in place. There will be an Audit Committee, and there will be a Remuneration and Appointments Committee. The supervisory body, Organismo di Vigilanza, pursuant to Legislative Decree 231/2001, will be maintained. In accordance with the one-tier board system, the Board of Statutory Auditors will cease to exist. Closing up with the indicative transaction timetable as well as the key procedures. Today, the 18th of February, announcement of the proposed transaction and the EGM call. On the 27th of March, we'll have the EGM to deliberate and approve the transaction.
In the first half of April, we'll have the period for the exercise of the withdrawal right. On the 22nd of April, the dividend payment will continue as usual. At the beginning of May until the end of July, there will be the offer of withdrawn shares and option and pre-emption to other shareholders, pre-transaction closing procedures to follow. By the end of July, by July 31st, we expect to bring the transaction to completion. In terms of withdrawal procedure, the redemption price payable to shareholders exercising the withdrawal right is equal to EUR 8.376 per share. Following the period for the exercise of the withdrawal right, withdrawn shares will be offered an option and pre-emption to other shareholders, and subsequently, the unsold shares may be offered to third parties.
The payment of the redemption price of the withdrawn shares is subject to, and will occur after the completion of the transaction. Withdrawing shareholders may not sell or otherwise dispose of any of the shares in respect to which the withdrawal right has been exercised only, and only until the completion of the transaction. This is it in detail. I'll grab a glass of water, and if you're nice enough with your first question, pass it to Paolo. I'll be right with you. Please go ahead.
Okay. Sir, are you ready for your questions?
Yes.
Thank you. 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 [inaudible] on the touch-tone telephone. To remove your question, please press star and one. Please pick up the receiver when asking questions. The first question comes from Trevor Stirling of Bernstein. Please go ahead, sir.
Well, hello, Bob. Sorry I couldn't give you a chance to have some Glen Grant 18 Ahead of the Water. The first question's coming down to you. I suppose two questions related to the corporate transaction, Bob. One is, you say there's no change in the tax residency, but it does look like the big impact here is on the voting rights of the long-term shareholders. Is an implication of that is that new shares could be issued with less dilution to voting rights? The second question related to the transaction is that you mentioned the improved or the favorable corporate tax governance. I think I probably used the wrong word there, but I wonder if you could talk a little bit about the tax implications of this, and what the advantage of the transaction is.
Well, Trevor, there are basically no changes from a fiscal perspective. Our fiscal residence remains in Italy. No changes there. What happens is that over time, loyal and long-term consumers will receive proportionally over time, additional special voting shares, which will also increase over time. Special Voting Share A is one additional vote. Special Voting Share B after five years is four votes, and Special Voting Share C is nine votes over time. This clearly rewards long-term shareholders and also introduces flexibility into our capital structure, looking to potential external parameter development of a much larger scale looking forward.
Okay. Could I just check, Bob, those incremental voting rights, they don't occur on day one, so it's not retrospective. For instance, Lagfin who have owned their shares for a long time, do they get the 10 years of extra voting rights on day one?
No.
Do they have to wait another 10 years?
All shareholders are treated the same way. Those that have registered their shares currently and have two, double voting rights, they will continue to have those double voting rights.
Okay.
For the two voting rights to be clear, there is the initial assignment and the subsequent assignment. The initial assignment is the one where I'm registered. I already have had the shares for two years and immediately receive SVS A, Special Voting shares A. If I'm a shareholder who's been registered on the register for a year, I don't need to wait two further years. In 12 months, I can apply for a Special Voting Share A, adding an extra vote. The point of the issuance of those special voting shares is that the two corporate law frameworks, the Italian one and the Dutch one, are different. In the Italian legal system, the law allows you to grant increased voting rights while in the maximum amount of two votes each share that has belonged to the same shareholder.
You can add votes to the very same ordinary shares, whilst in the Dutch legal system, you have to physically issue shares with special voting shares to grant more voting rights. It's enhanced, but basically, the increased voting mechanism is basically the same, achieved in a different manner, and it is enhanced as from two voting rights over time, you can get to five and 10 voting rights.
Great. Thank you very much. Bob, if I could just ask a follow-up question on the day-to-day business. Clearly, significant acceleration in Espolòn despite a lot of entrants into 100% agave. I am just wondering what you put that down to, Bob, but also a little bit of a deceleration on Aperol, so from 28% last year to 20.5% this year. Maybe a little bit of color on those two key critical brands would be great.
Yes. Espolòn is being propelled by a very strong proposition, which is very unique and distinctive, both from the concept, the imagery, the packaging, very high-quality liquids. We've actually moved into brand-building mode. Actively working the on-premise and running events to recruit new consumers into the franchise. Now, with regards to Aperol, we don't see any really deceleration on the brands. All of our markets are growing at a very solid double-digit rate. Clearly, the base is different. Last year, we started off a higher base. At the same time, there's one big delta between the two is that the summer of 2018 in Europe had actually lasted almost till the end of October, where this year we had a very poor and damp summer in most of Europe. Lastly, with the tariffs also arriving, we decided to move some shipments of Aperol into the new year.
Great. Thank you very much, Bob and Paolo.
The next question comes from Javier Gonzalez Lastra of Berenberg. Please go ahead, sir.
Yeah. Good evening. Thanks for the questions. I had a couple on Asia-Pac. I just wonder if you could share with us the size of the costs, if I can call them one-off costs that you've incurred in the fourth quarter to move your headquarters from Sydney to Singapore, and whether there's any kind of guidance you can give us in terms of how much should we expect that high cost base to continue into Q1, Q2, or maybe fiscal 2020. Also, together with that, anything you can share in terms of the investment that you're looking at putting into the Chinese market to, as you said, develop the presence of Aperol. On the second question, I'd like to ask on the U.S.
Could you share with us whether there's been already an impact from the tariffs in the fourth quarter and remind us of the overall impact that you're expecting to get on your gross profit, on your gross margin? Thank you.
Okay. I'll just take the second question, which was on Aperol in China. What we're planning this year in China is really to run a full battery of mini battles across different cities, different target consumers, different on-premise outlets, with also different modes of serving the brand so that we can really fine-tune the Aperol success model and adapt it to the Chinese market. This year there will be, yes, quite a big investment, but it's more on research. On the basis of this, we will really decide for next year onwards how much more to step up the real A&P behind the brand.
Yes. Let's talk to the margin overall, what has happened last year and what we're envisaging for this year. I said before, in 2019, we had an underlying gross margin expansion of 120 basis points, which was offset at gross margin level by the recovery of emerging markets, which accounted for 30 basis points in the agave for a further 30 basis points. Looking into 2020, what we're expecting is basically that the underlying gross margin expansion still is confirmed at 120 basis points, but then that gross margin expansion will be offset by the tariffs which you've mentioned, accounting for about 50 basis points, roughly EUR 7 million- EUR 8 million. This is the net impact of our price increase that we're putting on our imports.
The agave effect, which is costing us further 50 basis points or another EUR 8 million, and the tail- end effect of sugar that is in a further 20 basis points, a negative effect of EUR 4 million. For 2020, we're not envisaging, we're not relying on gross margin expansion to deliver a solid EBIT growth in value terms that we seek. For 2020, margin expansion will pause for one year, and we'll be relying on our very solid momentum of our key brands in key geographies. This is how we see 2020. We're definitely positive on EBIT development on a full- year basis. The one that you've mentioned, APAC, the transfer of the regional headquarter from Sydney to Singapore, it came with a cost, probably EUR 2 million-EUR 3 million in 2019, and a further couple of million euros this year.
Overall, nothing that we cannot absorb in terms of in the overall big scheme of things. This is the guidance on numbers for 2020.
Okay. Can I ask in terms of the, one last question on the agave inflation, because you've guided us very well in previous occasions in terms of what analysts looking at that market expect potentially in terms of the prices normalizing eventually. I think last time you mentioned that is clearly deferred until at least late 2020, if not 2021. I just wonder if you could share any potential changes in those views.
We confirm the guidance. We're fairly optimistic vis-à-vis getting some significant tailwind in 2021. As you know, the agave price clearly achieved its peak. We're not seeing an increase in the agave price. Clearly, over the last few months, clearly, if you look at the average cost of agave across 2019 and the spot price that has been stable for a couple of months, still we have a tail- end effect of the 50 basis point I've mentioned. Going forward, just to frame it, we're talking of an overall negative impact on our P&L if we compare the current spot price of MXN 28, 29 versus the MXN 6 that it used to be a few years ago. We're talking of north of EUR 30 million. Looking at the number of plants that we see in the fields, it's a ticking bomb.
It's difficult to predict exactly when it will happen, and our best guess is 2021, but for sure it will happen. The price will start coming down in a meaningful manner and with a quite steep curve when all those plants will hit the market.
Clearly, the brand has grown to a substantial size, Espolòn, continuing to grow at a 30% clip. It's obvious that it impacts us more this year.
To be totally transparent, Espolòn has a dilutive impact on our margins due to the increase on agave price. As soon as things go the opposite direction, clearly this would become a further driver of the underlying gross margin accretion.
Thank you.
The next question is from Marion Boucheron of MainFirst. Please go ahead, madam.
Hi. Good evening, everyone. Three questions for me, please. The first one would be on the U.S. and the fourth quarter, if you could share with us some of the moving parts that you have in the region for the brands. Espolòn seems very strong, Grand Marnier likely better, but what was the drag? The second question would be on the distribution risk in France. Could you give us more details to help us modeling for the year forward, and on what was the part of your brands that were the same of the total distribution, and what's the impact on margin we should expect?
I'm not sure, Marion, we understood your second question.
When you go direct in France as of the second quarter, so you have given us what France was in your sales in 2019. Now that's the sale you recorded without direct distribution. How could you help us modulate for the next year? The third question would be on the change in the structure. How does that help you with the external growth strategy?
Talking to France, the RFD potential acquisition, first and foremost, there is a big condition present, that is the antitrust approval that is not yet there. This is not a deal done until antitrust confirms that, as we believe, that it works for them. It's basically, the impact will primarily be on perimeter, where we envisage an impact of about EUR 60 million in net sales and about EUR 1 million in EBIT. Clearly, there will be a higher contribution in terms of contribution after A&P, which offset the incremental SG&A coming from the consolidation of Target will be in the region of EUR 9 million- EUR 10 million in perimeter, clearly, not in existing business. This is how we model the acquisition, if and when it occurs.
This is on a full-year basis, so clearly it has to be take into consideration that it really depends when antitrust gives the green light for closing.
All right. Understood.
On the U.S., I think you need to differentiate between what are depletions and what are shipments. Clearly, you see things evening out throughout the year. Net in net, if you look at our U.S. business, if you take out SKYY Vodka, we're growing high single, if not low double digits across the rest of the portfolio. We have a pretty healthy business. Even if you look at SKYY Vodka, actually, our depletions were better than our shipments, and our consumption's better than our depletions. Compare it to some of our peers, we've actually performed much, much, much better. The brand is starting to stabilize. Remember that we also drove through a destocking, particularly on the infusions side of the business. Moving on to the deferred structure. Currently, our loyal shareholders benefit from a double voting right.
Potentially over time, moving on 10 years onwards, that can increase to tenfold. That obviously, over time, opens up other scenarios where we could actually emit equity for transformational deals or other strategic partnerships, which we couldn't do at this stage because it would have too much of a dilutive effect.
Okay, thanks. Just following up on the U.S., should we look for some replenishment next year on some, notably for Aperol, where you had depletions, where you had the shipments this year?
Sorry, I'm not sure. When the tariffs were announced, we looked at it, and we decided to do two things. One, which is to actually reduce shipments on Campari and Aperol and move them to the new year, and then also take a 2-point price increase on both brands at the beginning of February, which is what we did.
All right, thank you.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your touch-tone telephone. The next question comes from Alessandro Tortora from Mediobanca. Please go ahead, sir.
Yes. Good evening to everybody. I have, let's say, one question, if I may, a clarification, a follow-up of the previous question about Baron de Rothschild, the recent acquisition in France. If you can confirm to us, it is, sorry, EUR 50 million change perimeter at the top-line level, and at the EBIT level, here we are talking about change perimeter. You mentioned before EUR 1 million plus G&A, EUR 9 million-EUR 10 million. Is this right?
Yeah, after the G&A. Actually, contribution after MP of about EUR 10 million, EUR 9 million of SG&A, and a positive EUR 1 million of contribution.
Okay.
It's a tiny EBIT impact. It's irrelevant.
Okay. Thanks.
What is much more important is the clear focus now that organization will have on growing our portfolio of brands and go beyond, let's say, the four or five brands which they have grown very successfully in the past.
Okay. Just if you may, a quick follow-up also on Grand Marnier. You mentioned in the presentation some softness in Europe. Can you give us, let's say, any update on the strategy in Europe after, let's say, the success you had in the U.S.? Thanks.
In Europe, the way forward is quite clear. We need to transform the brand from being a gastronomy brand into a cocktail brand, with a clear drinking strategy. We're focusing on the on-premise, and we're driving it. Within the context of that strategy, we also decided to consecrate the 1-liter size, so the traditional size for the on-premise, to actually the on-premise and global travel retail, which meant shifting the 1-liter bottle in most markets in the off-premise to a 0.7- liter. Clearly, as you make that change, you have volume losses in the short term.
Okay, thanks.
Once again, if you'd like to ask a question, please press star and one on your telephone. The next question comes from Paola Carboni of Equita SIM. Please go ahead, madam.
Yes, hi. Good evening, everybody. Two very quick questions for me. First of all, if you can come back on Australia, you mentioned there has been a mismatch between consumption and depletion. If you can come back on that, sorry, probably I've lost you. What's the reason behind that, and how long could this still impact? Secondly, you have referred in your presentation to extraordinary CapEx also in 2024, some extra project. I would also appreciate if you can elaborate a bit on that.
Let me take the Australian one. It is relatively simple. We grew 2.3% in Australia, whereas overall, we grew a little bit more than 6%, if you look at consumption data as well as depletions from wholesalers to the on-premise. The reason for the delta between the reported number and shipments and our depletion consumption numbers is that a very large, if not the largest retail customer of ours, decided to change its whole policy with regards to spirits inventories. That ended up in destocking across the industry, and it also impacted us.
Okay. Do you believe this is over now, or?
That is over. On the other hand, though, we had a very weak January in Australia because of the fires.
Yeah.
Nobody was in the mood for celebrating, and you actually see that in the offtake data of all spirits as well as beer. Having said that, we're happy to see that actually we returned to solid growth in the month of February.
With regards to the extraordinary CapEx, basically, there are two buckets. One is the ramp-up of production capacity. This is happening basically in Arandas, in Mexico, where due to the huge growth of the brand, we are planning to step up in a meaningful manner our distilling capacity and warehousing capacity to make sure that we can supply in the coming five, seven years, the growth of the brand. Secondly, we are insourcing the bottling of Crodino. You may remember that the product was produced and bottled in the plant that has been sold in conjunction with the disposal of the Oransoda, Lemonsoda, and Pelmosoda brands.
Thirdly, we are again improving our distilling capabilities in Jamaica. These are the three major projects in supply chain. Then the second cluster of investment is more relating to brand houses and visitor centers. In particular, Espolòn, Grand Marnier, and Aperol are the three big ones.
Okay. Thank you very much.
The next question is from Andrea Pistacchi of Deutsche Bank. Please go ahead.
Yes. Hi, Paolo. Hi, Bob. I have—
Good evening, Andrea.
Hi. Three questions, please. The first one for Paolo on what you said about the margin. I think you mentioned a tariff impact of EUR 7 million, EUR 8 million and an agave impact for 2020 also of around EUR 8 million. If I remember correctly, at the nine months stage, you were suggesting EUR 5 million for each. I wanted to know what may have changed there. The second question, how do you think about the balance of developed emerging markets on top line in 2020 for the main markets there? The third question on the distribution business that you're acquiring in France, obviously subject to the antitrust, but there'll be a [audio distortion] distribution business. Would everything [audio distortion] each of these ?
I think for the foreseeable, that distribution business will remain. We need to understand how the RFD works in France, once we've done that, I think obviously we'll start making some priorities. For the foreseeable future, it will remain with us.
With regards to marginal change in guidance on the negative impact of agave for 2020, there is, as said, two factors here. A little bit higher average cost for 2019 that will impact the carrying amount of liquid sitting in vats and tanks. You will have the delayed impact in 2020. Secondly, we're starting reducing the quantities of liquid held, as we're anticipating the change in price in the agave. Basically, we believe it would be nice to reduce stocks to make sure that as soon as the price starts falling, we can reap the benefits of the lower prices immediately, as opposed to having huge amount of distilled liquid that we bought at higher prices that would impact coming years. That's the logic.
Okay. On the tariffs?
Yeah, on the tariffs, as said, it's an equation where you have three components. You have the increase of tariffs. That is clearly higher than the amount highlighted. There is the price increase that is aimed at offsetting a part of it. There is the change in import procedures as we're reducing the direct imports to minimize the impact, and of course, tied to this price increase, there is a potential volume effect that we're putting into the equation on a conservative basis. We feel that the EUR 7 million-EUR 8 million on tariffs is a fair assessment of the impact of the other three factors.
Thank you. My last one, please, on sort of top-line trends, main markets in sort of qualitative terms, what you'd expect for 2020 in quantitative terms? Thank you.
We would expect the Americas to grow mid-single digit with that pretty much across the board, with obviously less of a growth in the Southern Cone and slightly higher in some of the other markets. The U.S., the largest market, we would expect it to grow mid-single digits, including any impact on SKYY from competition. Looking to North and Central and Eastern Europe, we'll see the same track record, an improvement in Germany to mid-single digit in most of the markets trending there. Pretty much the same in SEMEA, where we would expect though to have Italy continue its current momentum and have the ability to absorb the tail end of the destocking in South Africa. Asia should improve its performance, having gone through the destocking in Australia.
We need to understand, though, when we kick off with the JV in terms of trading terms from a timing standpoint, because there are the Olympics coming, and it is not necessarily proving easy to find logistics providers till after the Olympics. We'll have to see how that goes. On China, there's incognita on the coronavirus.
Very clear. Thank you.
The next question is from Sanjeet Aujla of Credit Suisse. Please go ahead.
Hi there. Just three questions for me as well. Firstly, a clarification on the margin, Paolo, I think you—
Hold on one second. We've had the automatic shutters coming down here, and they're making a lot of noise, and we can't hear you.
Okay, sure.
Bear with us another minute.
Sure.
Okay, now it looks like we're in a prison, but we hear you better.
Great. Okay. Just a clarification on the margin. I think Paolo walked through the building blocks as to a flattish gross margin outlook for 2020. Was the implication also flattish on EBIT margin expansion? Just wondering how you're thinking about A&P and structural cost development on an organic basis in 2020. My second question is on South Africa. I think a few years ago, you also went through a change in distribution. What are you doing differently now? Why the destocking? My third question is just on the U.S. depletion outlook. I think you suggested you factored in a slower depletion outlook on Aperol and Campari following the price increases, and just wanted to get a bit more color on what sort of level of growth you're expecting out of those brands in the U.S. Thank you.
Well, in terms of South Africa, what we're doing is we're really trying to focus on what's called the main market, which are the townships, and we're changing our distribution partner there. There's clearly stocks changing hands, which are impacting shipments. On the other hand, with regards to the U.S. depletion outlook, I think what we're taking is a little bit of a cautious view on the price increases, but actually, if you look at the fundamentals of the brand, both Aperol and Campari are continuing to trend very well. I think we'll give a much better view on that once we have our Q1 behind us.
Yeah. With regards to full EBIT margin guidance, what we're seeing at the gross margin level, so flattish gross margin on sale. On sales, we expect will be fully translated at EBIT level with flattish EBIT with A&P and SG&A , on sales, broadly flattish. Give and take directionally, we would like to potentially reduce weight of SG&A in favor A&P, but it would be anyhow minimal. At EBIT level, we believe we'll end up with flattish EBIT on sales. Still, in value, we're positive. The brand's momentum is good, and we believe that would translate into healthy EBIT growth in value.
Got it. Just a follow-up on SKYY. Are you seeing any impact on the brand from the growth in the hard seltzer category through the course of 2019?
No, not really. We haven't seen it impacting us.
Would you look to participate in that category with some sort of SKYY variant?
Something which we might look into, but frankly, we've seen a lot of these things come and go in the U.S. over the years. More tepid than excited at this stage.
Okay, thank you.
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Well, thank you very much for joining us, particularly at this hour. Have a nice evening, and have a few Negronis. Thank you. Bye-bye.
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