Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Campari Group 2019 nine-month results conference call. 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, CEO of the Campari Group. Please go ahead, sir.
Thank you. Good afternoon, welcome to our Q3 call. If you follow me on page 4 of our presentation, I'll kick off with the highlights. As you can see, we've had another solid quarter, especially given the comp base as well as the bad weather in Northern Europe. Starting off with net sales, solid organic growth on nine months, up 6.9%, up 4.9% on Q3. By brand, global priorities continued to outperform, up 8.2% on nine months, clearly driven by Aperol as well as our brown spirits. Regional priorities were up by 5.3% in the nine months, thanks to Espolón. On the other hand, the local priorities accelerated and were up by 5.2%, largely thanks to the single-serve aperitifs in Italy. By geography, good performance in our high-margin markets, driven mainly by the U.S., Western and Central Europe.
Emerging markets continued to recover, mainly thanks to a favorable comp base. On a reported basis, we have a change of 8.6%, reflecting a slight negative parameter effect of negative 0.9% and a quite positive foreign impact of 2.6%, driven by the U.S. dollar. Moving on to EBIT, on an adjusted basis, up organically 9.9%, ahead of the organic sales growth, leading to 60 basis points margin accretion. This is driven by strong organic growth across the range, with gross margin expansion of 80%, driven by sales mix by brand and market. AMP overall was neutral from a margin contribution standpoint, whereas SG&A were slightly dilutive by 20 basis points. We have a very positive EBIT margin expansion in Q3, plus 90 basis points, enhanced by phasing effects, particularly of the Espolòn brand. On a reported basis, we're up 11.1%.
This takes into account the negative effects of disposals, slightly lower than top line at -0.7%, and slightly lower positive effects impact on the bottom line of 1.9%. Group pretax profit on an adjusted basis reached EUR 259 million, was up 10% or almost 20% of sales, 19.9% to be precise. Group pretax profit on a reported basis reached EUR 245.1 million, down by 1.7% because of the delta, whereas last year we had positive one-offs linked to sales of some assets, this year we had some restructuring charges. Net financial debt stood at EUR 874.4 million, which is up by EUR 28.1 million versus the 31st of December of last year. This is entirely driven by incremental debt generated by the adoption of the IFRS 16 on leases.
If we exclude such an effect, the net financial debt would have decreased by EUR 53.1 million, thanks to quite a positive cash flow generation, especially if we consider that this is after the dividend payment of EUR 57.3 million, as well as the purchase of own shares up to EUR 27.2 million. Net debt to EBITDA performer ratio stands still at 1.9 times. Moving on to page number five, you can see that by region, with the exception of Asia-Pacific, solid growth across all of our regions. The Americas, driven by the core U.S., up 6%, and Jamaica up 17.3%. Southern Europe, Middle East, and Africa was up 8.1% overall, with a very positive Italy up 8.4%, and good growth across most of the region. North, Central, and Eastern Europe, again, very solid growth, consistent growth driven by Germany, the U.K., and Russia.
Asia Pac, we have good traction in our Australian business, whereas our partnership markets as well as China were impacted by comp bases. Previous year, both Japan and China were up by 30%. Moving on to the types of brands, the clusters, the priorities, did quite nicely. Global priorities up 8.2%. Bear in mind that we grew by 10.3% last year. Very strong growth on Aperol, the Jamaican rums, Wild Turkey, and Campari. We have a shipments decline in Grand Marnier, which will recover to a large extent in Q4, and continued weakness in SKYY Vodka. Although again, here we're gradually improving trends and closing the gap to both our depletions as well as consumption indicators. Regional priorities, very positive performance on nine-month basis by Espolòn. On Q3, Espolòn is negative, but this is shipment phasing and will recover in Q4.
Local priorities, quite positive growth, particularly, as I said earlier on, thanks to the single-serve aperitifs in Italy. Moving on to page number nine, because there isn't much changes in the other pages. We kick off with an analysis of the Americas, which on a nine-month basis, were up overall on a reported basis by 12.4%, 6.5% organically. Focusing on organic growth on the nine months, the U.S. is up 6%. This was expected. We've had shipment normalization and de-stocking to a certain extent in Q3 on some brands. Wild Turkey is performing very nicely, Aperol very strong, up 44.6%. Campari, as well the Jamaican rums, continued a positive trend. SKYY, as I announced earlier, is having a more favorable trend, still remains negative due to the continued de-stocking on the flavors business. Jamaica, another very strong quarter overall on nine months, up 17.3%.
Very positive mix driven by the core Wray & Nephew Overproof, up double digits, 22.9%, to be specific. Nice drive behind Appleton Estate, up 50%. Magnum Tonic Wine up 23.4%, as well as Campari. Brazil, up by 6.5%. Positive growth in the nine months. Continued good growth in Q3, despite the tough comp base. Last year we were up by 36.9%. Our overall results in Brazil are mostly driven by positive performances from Aperol, growing at a very strong double digit, as well as Campari, and improved performance on the Dreher brand. Having said that, though, you all know that macroeconomic weakness, employment being difficult, as well as political instability, we think will continue to impact the market in the short to mid-term. The rest of the region was up 2.1%. Canada up 3.4%, mostly due to Aperol, Campari, and Espolòn.
We've taken pricing on the rums. It's the largest brand in the area. Mexico grew as well, accelerated in Q3, thanks mostly to SKYY Ready to Drink, as well as Aperol, which is growing from a small base, but at a very strong rate. Argentina registered a positive performance, largely due to SKYY, Old Smuggler, and again, Aperol. Again here, we'll have to see how things pan out, especially after the elections. The macro conditions remain quite challenging. The rest of South America continued to grow, thanks to Aperol and Riccadonna. Moving on to Southern Europe, Middle East, and Africa on page number 10. Very strong performance, up 8.1% organically, with Italy being the strongest driver, up 8.4%. We've had an acceleration in Q3, where we grew by 12.5%. This is largely driven by the Aperitifs portfolio.
Aperol is benefiting from the extension into other usage occasions. You can see the de-acceleration in the brand, bringing it to 15.1%. This is also having a very positive halo effect on Campari, up 8.5%, and our short aperitifs are reacting very well to our latest marketing initiatives. Crodino growing by 5.6% and Campari Soda by 6.7%. With regards to the rest of the region, which is up by 7.2%, France grew positively, up 10.3%. This despite quite a tough comp base. You'll recall that last year we almost grew by 20%, 19.9% to be exact. Very strong, consistent double-digit growth behind Aperol as well as Riccadonna. Spain was positive, driven again by Aperol, up 21.4%, which helped offset most of the weakness coming from BULLDOG, where you have a very competitive gin market where users have hundreds of new entrants into this very crowded category.
In Africa, Nigeria grew very nicely, strong double-digit, 44.4%, driven by Campari, American Honey. South Africa was also helped by SKYY and BULLDOG. Global travel retail, on the other hand, was down slightly, 0.8%. On the one hand, due to a difficult comp base, we were up 13% last year, as well as some one-offs as we've made some changes in certain regions. North, Central, and Eastern Europe on page number 11, up 8.3% organically. Very strong, consistent growth there. Outperforming in all our key markets. Germany up 5.7%. We've had an acceleration in Q3, up 8.7%. Well, strong double-digit growth of Aperol, as well as very positive trends in Averna, SKYY, Crodino, Frangelico, and Grand brands. It's quite a widespread and solid growth in the market, which is relatively stable. All of those together help to compensate the temporary decline in Campari.
You'll remember we've taken a big price increase on Campari at the beginning of the year, which meant that certain promo slots couldn't be used this year. The baseline is solid, and we think we'll recover next year. This recalls a little bit what happened to Averna in 2018, where we'd gone through the same mechanics. The U.K., very solid growth, up 27.9% on the 9 months organically. Very nice acceleration in Q3, 52.6%, behind Aperol as well as the Jamaican brands, up by 40.8%, thanks to particularly Wray & Nephew Overproof as well as Magnum Tonic. Russia, up by 11.6%. Again, a continued positive performance. Here we must also admit that the comp pace was quite easy. We were actually down by 16.5% in the first 9 months of 2018.
Having said that though, we're playing a game of moving from volume to value, this is on the one hand driven by very positive growth in Aperol, as well as more softer results on the Cinzano portfolio. The rest of the region up 5.5%, very good performance across most of the markets, again, driven by Aperol. To close off the regions, Asia Pac up only 0.9% on an organic basis. Very positive performance in Australia, 3.7%, we're growing at double the market rate and continuing to take market share. Bear in mind that in Australia we had quite a tough comp base last year where we were up by 12.9% in nine months. Overall, the growth is driven by Wild Turkey Ready to Drink, as well as Aperol, which is continuing its double-digit trend, growing by 34.2% in the period.
The rest of the region declined by 4.8%. This is, as I mentioned earlier on the one hand driven by comp bases, which were particularly challenging, as well as shipment phasing. Moving on to page 13, just to underline the fact that our global priorities are continuing to grow their share of the pie, reaching 59% of our sales or plus 100 basis points versus a year ago. Looking at the brands on a one-by-one basis, starting off with our largest brand, Aperol, on page 14. You can see we have very strong continuous momentum, up 21.8% on nine months, 21.5% in Q3. This despite the fact that we've had pretty poor weather in Germany, most of Northern Europe, and particularly in Scandinavia in the second half of August as well as September. It's good to see double-digit sustained growth in our three largest markets.
Italy up 15.1%, Germany 17.1%, and the U.S. continuing to grow at a very sustained clip of 44.6%. Clearly, we're growing very strongly in the rest of all of our markets. Campari up 5% on nine months, 3.5% on Q3. Solid growth in our core markets, Italy, double-digit growth in the U.S., Brazil, and Nigeria. The brand clearly penalized by the price increase taken in Germany. SKYY, we're down to negative low single digits. We're down 2.6% on a nine-month basis, only 1.9% on Q3. Here we've got the tale of two parts of the brand. The core SKYY Vodka in the U.S. was actually flat in Q3, so it's closing nicely the gap to more favorable sell-out trends as the de-stocking has finished on core. On the other hand, there is a slight tale of de-stocking on the flavors, which will continue for a few months.
Positive growth in international markets, which now account for 26% of total SKYY. We hope that this will sustain the brand going forward. Now moving on to Grand Marnier. Grand Marnier, on a shipments basis, is down 4.3% first nine months. This contrasts versus a very robust shipment growth in the first six months, quite positive. It's all a question of phasing in its largest market, the U.S., which accounts for roughly 85% of the sales. In Q3, we basically de-stocked. We're down by 14.7%, but we expect on a full year basis to end up in a slightly positive territory. If we move on to our American whiskey portfolio, up 6.7% on a nine-month basis, down 1.1% in Q3.
This is mostly due to the comp bases in Australia as well as in Japan, which are the second and third largest markets of the Wild Turkey brand. We're seeing again here a nice shift from volume to value with our higher-end extensions doing very nicely. Longbranch in particular, but also Russell's Reserve growing double digits. Moving on to the rums. Overall up 6.2%, 4.8% on the quarter. Very nice performance by actually what is the largest brand, which is Wray & Nephew Overproof, up 13.8%, as this brand is growing beyond Jamaica. Now it's become quite an interesting and sizable brand also in the U.S. as well as the U.K. We're starting to see it nicely in Canada. Appleton Estate, on the other hand, was flattish overall.
Some temporary weakness in the Canadian market, largely due to both a comp base as well as some pricing. In Mexico, other core markets were quite positive. Moving on to our regional brands, kicking off with Espolòn. Espolòn on 9 months basis up 24.9% on a shipment basis. This is clearly much lower than what's happening in the market where we're having depletions and consumption indicators between the +30%-+35% range. We've had a very robust shipment phasing in the first six months, like Grand Marnier. We used Q3 to de-stock the market. We expect to recover that in Q4.
BULLDOG, challenged, down 0.9% in the nine months. Up 3% on the quarter as international markets, particularly some interesting new ones such as South Africa, helping to compensate for softness in the core Spanish and Belgian markets, which are quite impacted by the gin mania and the proliferation of gins. Glen Grant, totally in line with expectations as we're moving to focus on the higher margin and longer range premium expressions, which are actually on the limited at this stage, and we're also put the markets on standby with regards to the unaged, so that we can increase the inventory going forward. Forty Creek, a flattish performance in its largest market, Canada, but we'd expect the brand to return to a nice performance on a full year basis due to an expected strong Q4.
Moving on to the Italian bitters and liqueurs, flattish on 9 months, down 0.4%, down 3.1% on the quarter. Here we've got, especially Averna registering soft performance in Italy, but on the other hand, in international markets, we're doing quite nicely. This will play out over time. Cinzano, down 3.9% on 9 months, 9.4%, and the key driver is the Vermouth, which we relaunched between a real Vermouth formula, which meant taking significant price increases, and this still has to work itself through markets. In Germany, that led to some delisting in our largest accounts, but we think we're doing the right thing for the brand, especially positioning it as the real Vermouth of choice for the on-premise. Moving on to the other sparkling wines, up 11.7% on the 9 months, 3.1%.
We have some weakness in Mondoro, which is driven by Russia, but we'd expect that to be compensated in the last quarter of the year, which is that of high seasonality. Closing on a positive note, the local priorities. Campari Soda is reacting very well to our marketing initiatives, up 6.7% on nine months, 9.6% in Q3, so we have an acceleration there. Obviously, both on Campari Soda and Crodino, we'd expect some normalization in Q4. Having said that, it's nice to see these two brands back into positive territory. Our RTD in Australia are doing very nicely, growing at twice the market rate. We're taking market share, up 3.9% on nine months, 5.8% on the quarter. Our Brazilian brands, some positive performance, but we have to wait and see. I don't think that this market will return to normal trading for quite a while.
Ouzo, up 1.6% on nine months, accelerating in Q3. We expect some further acceleration in Q4 as our promo slots kick in. Cabo, on the other hand, performing nicely, up mid-single digits, 5.6% on nine months, 5.1% on Q3. Clearly, all of this is driven by the core U.S. market. With this, I pass it on to Paolo. Thank you for the financial.
Thank you, Bob. If you follow me to page 21, where we have the key highlights on nine months P&L. The gross profit came in at EUR 808.6 million on a reported basis, up 10.5% in value to 62% on sales, showing 110 basis points accretion on sales. Looking at the existing business, organic growth of gross profit accounted in the nine months, 8.3% in value, showing 80 basis points margin expansion, driven by favorable sales mix by both the brands and markets. In particularly, we want to highlight the strong third quarter, which delivers 70 basis points organic gross profit expansion. Thanks to the sustained performance of the Aperitif business. In particular, we highlighted the single serve Aperitif performance with Campari Soda up 6.7% and Crodino up 6%, which largely offsets a lower than expected dilution from Agave due to the order phasing of Espolòn into Q4.
This is a positive when looking at third quarter. Fourth quarter, as Espolòn will bounce back, as Bob has already announced in terms of shipments, we will have a dilutive effect. Also, the shipment phasing of Crodino and Campari Soda in the last quarter of the year will be softer than in the third one, thus leading potentially to a softer margin expansion. On a reported basis, A&P came in at EUR 232 million, up 10.2% in value to 17.8% on sales, driving 30 basis point dilution. Existing business, actually, A&P was up 6.9% in value, absolutely in line with top-line growth, therefore, having a neutral impact on margin. Looking at the SG&A, SG&A came in at EUR 288 million, up on a reported basis by 10.1% in value to 22.1% on sales, with 30 basis point dilution on net sales.
In existing business, SG&A were up 7.8% in value, slightly above the top-line growth, thus leading to 20 basis point margin dilution in the nine months due to the already anticipated investments in sales capabilities, which accounted for 20 basis points dilution. EBIT adjusted came in at EUR 288 million, up in value on a reported basis by 11.1% to 22.1% on sales, with an overall 50 basis point accretion. In existing business, the performance was quite good, with an organic growth of EBIT adjusted in value of 9.9%, well above the top-line, thus generating 50 basis point margin accretion. As we said, driven by gross margin expansion of 80 basis point, partly reinvested in the build up of sales capabilities, which accounted for a 20 basis point. The EBIT adjusted came in at EUR 340 million.
On a reported basis, was up 13.5% in value to 26.1% on net sales, including EUR 11.4 million of positive effect from the IFRS 16 reclass, which drove a stronger performance at the EBIT adjusted, the level vis-a-vis the performance we've just commented on the level of EBIT adjusted. The organic performance of EBITDA was quite positive nonetheless, with an increase of 3.2% in value and 120 basis point EBITDA margin accretion. Moving on to page 22. Basically here we have visually the recap of comments I made before. In value terms, the organic growth of EBIT accounted for EUR 25.8 million or 9.9%. Forex was positive as well, with EUR 4.8 million of positive contribution corresponding to 1.9%, and the perimeter was quite tiny. Worthwhile highlighting the effect of positive and negative one-offs in the first nine months.
Actually, in 2019, we had EUR 13.9 million of negative one-offs, primarily attributable to a number of restructuring initiatives, whilst in the first nine months of last year, we had a positive impact of EUR 3.3 million that was primarily driven by the capital gain on the disposal of the LemonSoda range. If we factor in the delta impact between negative one-offs for this year and positive one-offs for last year, the impact on the EBIT was big, and EBIT came in at EUR 174.1 million, with an increase in value of just 1%.
If we move on to page 23, as you can see, financial charges came in at EUR 25.4 million, up EUR 3 million versus last year, of which EUR 2.5 million are attributable to the reclass driven by IFRS 16, which is as well the cause of the main driver of the increase in the average cost of net debt year-on-year from 3.1% to 4.1%. Group pre-tax profit came in at EUR 145.1 million, down 1.7% as stated due to the negative one-offs of this year. If we stripped out the negative one-offs of this year as well as the positive one-offs of last year, the group pre-tax profit adjusted came in at EUR 159 million with a remarkable increase of 10% in value. If you follow me to page 25, we have the analysis of the net debt.
As Bob already mentioned, overall, there is an increase of the indebtedness by EUR 28 million, which is totally attributable to the reclass driven by the IFRS 16 of EUR 18.2 million. If we strip out the impact of the new accounting rules, the net financial debt would have decreased by EUR 53.1 million in September versus the end of December last year, thanks to the positive cash flow generation after the already mentioned payment of dividends for EUR 57 million and purchase of own shares of EUR 27.2 million, with a stable net debt to pro forma ratio at 1.9 times as at the end of September. This is, I believe, it on numbers. I would hand back to Bob for his update on marketing initiatives and development.
Thanks, Paolo. Before moving on to conclusion and outlook, some pretty pictures where our marketeers are quite busy at the moment, and successfully as well. Cinema is becoming a very important platform for the Campari brand. We're sponsors of the Venice Film Festival, as well as the New York Film Festival, and a few will be added to this in the years to come. We're continuing to paint the world orange with very strong activation across, really, continents and markets. With regards to innovation, we're continuing to premiumize our ranges, both on Wild Turkey with the Cornerstone Rye, as well as the Cuvée du Centenaire on Grand Marnier. While Turkey has just announced the launch of a new approach to advertising, we call this advertainment, which is really some sort of documentaries with very interesting dialogue between Matthew McConaughey and some trailblazers from some quite influential movements.
We're also very pleased to see that from a product standpoint, we're perfectly in line with our ambitions on Glen Grant. The 2020 Whisky Bible results came out. Our 18-year-old was voted Scotch Whisky of the Year, as well as Single Malt of the Year, Multiple Casks, and we've done quite well with the rest of the range. We're definitely on the right track. On the non-organic side, on the perimeter, we've announced two small acquisitions, but four very nice gems have joined or are about to join our portfolios, helping strengthen our offering to the high-end mixology on-premise and premium offering. We announced the acquisition of Ancho Reyes & Montelobos Mezcal, which round up our Mexican offering. This deal hasn't closed yet. We expect it to close before the end of the year.
On the other hand, Trois Rivières and La Mauny, which add some nice critical mass in France as well as complete our rum offering, has closed on the 1st of October. Conclusion and outlook. Nothing all that exciting to report here, except we have continuous positive organic growth, both in sales as well as the profit indicators. Our underlying sales momentum in core developed markets is quite positive. This is driving continuous sales mix improvement, and it is also enhanced by recovery in emerging markets. For the full year 2019, our outlook remains broadly unchanged and pretty fairly balanced in terms of risks and opportunities. On the organic side, we would expect positive organic sales performance driven by a high margin combination of priority brands in core developed markets. Clearly, we wouldn't be surprised if there is some volatility in emerging markets in their key seasonality period.
With regards to organic EBIT growth, we expect it to remain quite positive with EBIT margin expansion moderated by higher than expected increase in agave purchase price, which clearly will be exacerbated by the Espolón outperformance on a full year basis and the phasing into Q4 of the shipments. The strength in the U.S. dollar against the euro will continue to offset weakness from a FX standpoint in emerging markets. We feel quite comfortable on that side, too. net in net, we remain quite confident in delivering a positive performance across all of our key underlying business indicators for this year. Having said that, we're naturally at your disposition for your in-depth questions.
Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer session. The first question is from Edward Mundy with Jefferies. Please go ahead.
Afternoon, Bob, Paolo. Three questions, please. The first is on rum. Clearly, you've made the acquisition, which does give you critical mass in France. I think your Wray & Nephew performance is also very good in Q3, and you're flagging that rum is a premiumizing category at the heart of mixology trend and growing cocktail culture. I was wondering whether you could provide a bit more color on exactly what you're seeing. Who's really getting into rum, which geographies? Just a little bit more color on what you're seeing at this early phase of rum and the potential bounce back of rum. The second is on your single serve bitters, which saw a good performance in the third quarter. I know that you flagged that there's a bit of phasing between Q3 and Q4.
I'd be interested in to what extent you're really putting a lot of money behind both Campari Soda and Crodino, or to what extent these brands are responding to the overall bitters trend that you're developing with both Campari and Aperol. The third one is probably one more for Paolo on margins. I think at H1, you had flagged that you'd be seeing about 30 basis points of margin expansion for the full year. Clearly, you're going to get a bit of a shipment catch up in both Grand Marnier and Espolòn in the fourth quarter. I was wondering whether you could perhaps provide a bit of an update relative to that 30 basis points after what you delivered in the first nine months, and what are the key moving parts to get there?
Hi, Ed. Thanks for your questions. Let me kick off with rum. Clearly, what we're seeing is tiki is being premiumized, high-end mixology, and particularly in North America, U.S., Canada, but also in the U.K. Those are the three markets moving the dial for that category and for us. With regard to our single serve bitters, I think what we're seeing is the brands reacting to our marketing initiatives. On Campari Soda, we feel more confident that we're turning a corner. The brand, younger consumers are actually reacting very positively now to the new campaign. It's still the beginning of things, but we'd expect it to help us remain in positive territory in the years to come. On Crodino, it's a little bit work in progress. We're doing quite well internationally. Italy is doing quite well this year. Let's see.
We'd like to see a few more quarters behind that trend in Italy to understand how solid it is. Net-net, this is more driven by our own marketing activities both in Italy as well as the European markets in which we're seeding the brands, particularly Crodino.
With regards to the margins, although Q4 is still to be seen, we would generally confirm the guidance that we've indicated at the beginning of the year, where the 30 basis points, more or less that you mentioned, are basically driven by still a solid gross profit expansion. The underlying 120 basis point that is then partly offset by the impact of agave, as well as the impact of the comeback of performance in the emerging markets totaling about 60 basis points. Partly, then reinvested into commercial capabilities as we've seen in the first nine months. We don't see major changes vis-a-vis the initial guidance. Worthwhile noting the fact that the outlook on agave over the course of this year deteriorated.
If we take into consideration both volumes of Espolòn and Cabo Wabo at year-end, the negative impact of agave in our P&L at EBIT level, due to the increase of agave, is about EUR 30 million. It's a big number. For 2020, apparently, the prices are not coming down. At least, we're not seeing that at the moment, and we're still buying at 20, 28 pesos per kilo versus the six pesos per kilo that was the price at the back end of 2016. In three years, quite an increase. Overall, this is for this year, the trend, and clearly in Q4, although, Q3, we do recognize it's better than originally flagged due to shipment phasing in Q4. As said, we have Espolòn coming back strongly in terms of shipments and Crodino and Campari Soda with a softer performance, both driving to margin, gross margin dilution.
That's what we're currently expecting.
Great. Thank you. The gross margins, it's partly mix that's the big driver there, but the drop-down from gross profit to EBIT, which is about 20 basis points dilution in the nine months so far, you're still confident of 30 basis points with sort of an upweight of expenditure in the fourth quarter. Is that the right message?
Yeah. Between AMP and SG&A, that's the number that we have in mind at the moment. Picture can change depending on top-line performance in Q4, Directionally, this is where we would like to position ourselves at the back end of the year.
Great. Thank you.
The next question is from Simon Hales with Citi. Please go ahead.
Thank you. Good afternoon, all. I wonder if I could just follow on firstly to Ed's question and your comments, Paolo, just to confirm a couple of things. I think I'm right in taking away from what you've just said and from what you said in the presentation as to a softer margin development in Q4, that you do expect EBIT margins organically to be negative, therefore in the fourth quarter. Also, you just mentioned the outlook for agave into 2020. I think at the half one stage, Paolo, you were thinking that perhaps half one next year would be a drag negative from agave, and then you would see some recovery in the second half. It sounds that perhaps that's not the case. Am I right to assume that perhaps 2020 is going to remain, therefore more challenging than you thought?
Thirdly, just I wonder, Bob, if I could ask you a little bit more about Italy and the drivers of the strong growth that you've seen there through Q3, particularly on Aperol and Campari. Again, at the half 1 stage, I think you were expecting low to mid-single digit sales growth for the full year. That probably looks a little bit prudent now.
With regards to margins in Q4, without being too vocal, we're expecting EBIT margin in Q4 to be marginally negative. That's correct. The magnitude of that clearly depends on top-line mix. That's what we're currently factoring in our numbers. With regards to agave, yeah, originally we hoped we could have a still negative comp in H1 and positive comp in H2. We've been saying the same for two years now, we would rather dramatically to stop forecasting a declining price of agave. If the current trajectory is confirmed in 2020, our estimate is a potential negative impact of €5 million EBIT, gross margin and EBIT level. Who knows where price will go. That's, in our point of view, our worst-case scenario.
With regards to Campari and Aperol Q2, Q3 in Italy, well, we started last year and at the end of Q3, beginning of Q4, started a new campaign, which had to do with really positioning Aperol in Italy in the informal meals occasion. The first quarters were quite positive, but it was still too early to call this very firmly. What we've seen is actually from quarter to quarter, we've been going from strength to strength, and this is what is accelerating the growth of Aperol. I mean, 15% is really a very nice number on a brand that has been growing double-digit now since 2003, since we bought it. This is also providing a positive halo effect on Campari, with a certain number of consumers switching to Campari Spritz. A very nice, very sustained trend on both brands.
Okay. Thank you.
The next question is from Laurence Whyatt with Barclays. Please go ahead.
Hi. Thanks very much for the questions. Three from me. One is a sort of follow-up on the agave pricing questions that have been coming up earlier. You sort of mentioned, going out to 2020. Do you have an idea of when you think the agave price will start to stabilize and potentially come down? I understand it's to do with when the agave plants are planted and when they're harvested, but that's only in sort of a six to eight-year period. Are we getting to the peak of that? Secondly, on SKYY. I think at the beginning of the year, we were expecting SKYY to sort of flatline throughout 2019. Now sort of getting into around a negative five for the year. What are your sort of expectations for the brand?
Can we expect SKYY to stabilize in the U.S. at any time, or is it still struggling with the rest of the vodka category from the growth of Tito's? Finally, there was a short comment on China. I know you're expanding into China in a sort of tentative way at the moment. What are your long-term expectations for the country, and what brands in particular would you think would be most likely to be taken up by the Chinese consumer? Thank you very much.
I'll take the first one, Paolo, on agave.
Yeah. With regards to the agave, there are basically two factors looking at the price of agave. One is the imbalance between demand and supply. That's a long-term trend. On the other hand, you have the quantities of plants that are waiting in the fields. That's one thing. Potentially, mid-2020, back end of 2020 should be where prices should start coming down. Just to give you an idea, over the last 6 months, the incremental increase in the agave price was 2 pesos. We're coming to the peak of it. Will that then come down? We'll see when that happens. The second one is also the weather conditions that can have a huge impact. For example, this year, we've all been quite unfortunate because it has been drought. The yield from the plants was quite poor, and that put further pressure on price.
On weather condition in 2020, nobody clearly can say. We have limited visibility. We believe we're at the peak of the cycle, and mid-2020, back end of 2020, if all goes as expected, we should see prices too coming down.
Moving on to SKYY. Where are we on SKYY? What are our expectations? I mean, on a full year basis, we'd expect the brand to be flat or slightly down on a low single-digit basis. Here you've got different moving pieces. If you focus on the U.S., we're actually doing quite nicely on core. I mean, core, if you look at its consumption indicators, they're up low single digits. On depletions, we're practically flat. On shipments, we've basically finished now the destocking on core. The flavor side is a different story. On flavors, you're seeing consumption continuing to be negative double digit. Added to that is our discontinuation of quite a few flavors and a significant destocking. Most of it is behind us, but we still have a little tail end, probably October, November. You'll see the U.S. numbers being impacted by that.
On the other hand, we have quite nice traction on the brand in international markets, so we're sort of flattening the curve on SKYY and gaining more stability going forward. On China, we have quite a nice business with SKYY Vodka. It's the second-largest imported vodka in the market and growing at a very nice pace from a consumption standpoint. Obviously, you have phasing effects, since we're using distribution partners, et cetera, and China is quite complex from distribution. That impacts shipments, but overall, we're positive. On the other thing, from a very small, it's not all that representative, but we started testing Aperol with the Aperol Spritz in certain neighborhoods, mostly in Shanghai, and we're seeing quite a positive response.
We're going to put more of a focus on that, and we'd hope our Chinese business in the mid-term to be driven by SKYY as well as Aperol, and also later down the road via our whiskeys, both American as well as Scotch.
Thank you very much.
Thank you.
The next question is from Chris Pitcher with Redburn. Please go ahead.
Thank you very much. A couple of questions. Following on from the China comment. You didn't mention Grand Marnier, and given the strong cognac market, are you limited from selling Grand Marnier because of your distribution partner in China? Secondly, following up on Grand Marnier, could you just give us a bit more color of where the destocking by the different types of Grand Marnier is taking place in the U.S., what's been going on there, and how the business now looks in terms of the mix of cuvées and what that means for your working capital and cognac purchases this year? A lot of your cognac competitors have certainly stepped up their level of investment. Thanks.
Yeah. Grand Marnier in China, I don't think it is necessarily impacted by our current distribution partnership. It certainly not helped, but it's not negatively impacted as well. What we need to do in China is really clean out the market from stock, which have been there for quite a long time, and move the emphasis to the cuvées, which I think are much more appealing to the Chinese consumers, both from a liquid standpoint as well as from a premiumness standpoint, particularly on the packaging side with regards to gifting, et cetera. In the U.S., if you look at Grand Marnier, how it's performing on consumption indicators, we're in the positive 2%, 3%, 4%, depending on whether you look at NABCA or Nielsen. That's fine. We've essentially gotten out of all of the flavors. This year we're transitioning the cuvées.
We're basically destocking on the cuvées and over time replacing them with their newer ones, which have much more premium packaging as well as revised liquids with more cognac into that. Having said that, we've also taken quite nice price increases on the cuvées, we'll be able to more than compensate for the increases in cognac prices.
In terms of cognac purchases?
We actually found the cellars quite full. With regards to what we need on the cuvées for many years, we don't need to step them up on Grand Marnier and also not on Bisquit, because Bisquit came with really full cellars.
Okay. Can I confirm one more thing? In China, does Grand Marnier and Bisquit go through your distribution partner, Camus? Or was it through a separate organization because of potential conflicts?
Well, Grand Marnier goes through Camus, and Bisquit goes through its previous distributor. I don't remember the name, but there will be a change next year.
Thank you very much.
The next question is from Andrea Pistacchi with Deutsche Bank. Please go ahead.
Yes. Hi, Bob. Hi, Paolo. Three questions, please. First one on the U.S. There are a lot of moving parts in Q2, Q3 in terms of shipment phasing. It sounds like shipment phasing on balance should be a positive in Q4. Can you confirm this, please? Then a question on the tariff situation in the U.S. Now, given the announcement of tariffs, my understanding is that Aperol, Campari, Frangelico potentially impacted. Could you possibly give a broad, at least quantification of the impact you would expect on EBIT if you were not to pass this on, and your thoughts on potential pricing to pass this on? My third question is on your top-line guidance that you give in the press release. There's a bit of a change in wording compared to what you said at H1.
My understanding is that underlying, there isn't much change in terms of how you're feeling about the year. Could you confirm that?
Yeah. Andrea, let me start with the third point. I think maybe we got bored with our words. To be honest, nothing really changed in terms of outlook or in terms of how we're trading versus expectations. We feel quite comfortable about that. If we've changed anything, it's probably more boredom than anything else. With regards to the U.S., yes, we will return to positive territory in Q4. We will improve things from a phasing standpoint. Having said that, we've always been very clear that the second half will be, from a shipment standpoint, weaker than the first half of this year. You'll be seeing a normalization, an improvement, but net in that, the second half will be softer than the first half.
With regards to tariffs, it didn't only impact Campari and Aperol and Frangelico, but also a nice little business which is growing double digits, which are amari. If the tariffs stay at the level where they are, we will not have to relocate production. Having said that, we're looking at gain some logistics efficiencies as well as taking pricing at the beginning of the year on Campari and Aperol. That should enable us to compensate for most of the tariffs, but net in that, we're forecasting at this stage a EUR 5 million hurt to the bottom line due to the tariffs next year. Paolo, do you want to add anything?
I think that's the number which incorporates factors in the price increase that we have in mind.
Thank you.
As a reminder, if you wish to register for a question, please press Star and One on your cell phone. The next question is from Alessandro Tortora with Mediobanca. Please go ahead.
Yes, hi. Good afternoon to everybody. I have just one question. If you can, let's say, help a bit to understand the trend in the U.K. market clearly ahead of any potential Brexit. I recently read an article in which you flagged, let's say, some higher level of stocks you made in the U.K. If you can help us, let's say, to understand the real underlying trend of the U.K. market for you. Thanks.
Well, the U.K. for us is a two-tier market. What happens in terms of consumption, you see it in terms of our shipments. Frankly, there's quite a bit of it which is also off-premise with very large retailers. Stocks do not impact that. The numbers we have in this presentation is basically our consumption, which is very healthy, driven, as we said, both by Aperol as well as our Jamaican portfolio. The rest of the portfolio is doing well too, but it comes from a lower base.
The comment I made was regarding our own inventories on the island. Clearly, we have our own distribution set up there. We increased, ahead of Brexit, our inventories, depending on the brand, from two, three or six months. Clearly, to enable us to compensate for any turbulence should and whenever Brexit does happen.
Okay. Thanks. Very clear. Thanks.
The next question is from Paola Carboni with Equita SIM. Please go ahead.
Yes. Hi, good afternoon, everybody. Just a quick clarification on two points we've mentioned during the call. First of all, if you can come back on what we should expect as a normalization, let's say, of the Italian market after the relaunch of the initiatives on Crodino and Campari Soda, which are expected to reverse a little bit in terms of shipment in Q4. Secondly, I was just trying to match your indication of a declining gross margin and EBIT margin in Q4 with your full year guidance. When you say dilution of gross margin or EBIT margin, I'm not sure I got it properly, in Q4, this would imply probably a bit less of 30 basis points accretion on organic EBIT for the year. Am I wrong? Just if you can clarify. Thank you very much.
Being a simple person, I'll leave the complex second question to Paolo and focus on the single serve aperitifs. Historically, on Campari Soda and Crodino, we've been down in the low single digits year after year. Now we've spent a lot of time from the marketing standpoint to really understand how can we reactivate the brand amongst younger consumers. Particularly on Campari Soda, we seem to have hit it and nailed it. We would expect on an ongoing basis, and I'm not focusing on quarters, but on longer trends, both of these franchises now to return to positive low single digits. Campari Soda will be probably trending stronger in Italy. On Crodino, we still haven't completed the whole marketing transformation. Having said that, Crodino is benefiting from international expansion. Does this answer your first question?
More or less. Just to understand how much was the shift between Q3 and Q4, and so basically, as you said, for the U.S., what you are envisaging for the year, if you can provide also an indication for Italy.
Look, both brands are representing what's happening in terms of pull from a wholesaler as well as trade perspective. We're not having any special conditions or any push initiatives behind it. Having said that, these are brands which, in some cases, in Q3, grew over 10%, but we're not used to this. I think we're rightfully being cautious going into the fourth quarter.
Okay, thanks.
Yeah. With regards to the gross margin trend, the comments were around the impact of shipments in the third quarter and phasing of shipment in the third quarter vis-a-vis shipments in the fourth quarter of the year, where basically, the third quarter has been quite positive in terms of gross profit expansion.
Yes.
The comment was do not expect an expansion in gross profit in Q4 for the reasons mentioned. On a nine-month basis, clearly, we have 60 basis points, EBIT-adjusted, which means that as we confirmed the guidance of the beginning of the year with a softer full year EBIT margin expansion, that implies a softer performance in the fourth quarter of the year.
Okay. Thank you very much.
For any further questions, please press star and one.
If there are no further questions, thank you very much for joining us. With us, it's steady as she goes. Look forward to potentially seeing some of you at next week's reopening of the Camparino in Milan, or if not, catching up throughout the year. Thanks a lot for joining us. Bye-bye.