Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Campari Group 2019 9 months results conference call. As a reminder all participants are in listen only mode. At this time, I would like to turn the conference over to Mr.
Bob Consecutes, CEO of the Campari Group. Please go ahead, sir.
Thank you. Good afternoon, and welcome to our, Q3 call. If you follow me on page number 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 from 9 months up 6.9%, up 4.9% on Q3.
By brand, global priorities continued to outperform, up 8.2% on 9 months, clearly driven by Aperol as well as our brown spirits. Regional priorities were up by 5.3% in the 9 months, thanks to Espolon. On the other hand, the local priorities accelerated and were up by percent, 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 many thanks with favorable comp base. On a reported basis, we have a change of 8.6%, reflecting a slight negative perimeter effect of negative 0.9% and a quite positive foreign effects, 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 bps 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 and A were slightly dilutive by 20 bps. We have a very positive EBIT margin expansion in Q3 plus 90 bps enhanced by phasing effects, particularly of the Espolon 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 FX impact on the bottom line of 1.9%. Group pretax profit on an adjusted basis reached $259,000,000 was up 10% or almost 20% of sales, 19.9% to be precise. Bufry tax profit on a reported basis reached $245,100,000, down by 1.7% because of the delta whereas last year, we had a positive one offs linked to sales of some assets this year, with some restructuring charges. Net debt, net financial debt stood at 874,400,000, which is up by 28,100,000 versus the 31st December of last year. And this is entirely driven by incremental debt generated by the adoption of the of debt would have decreased by 53,100,000, thanks to quite a positive cash flow generation, especially if we consider that this is after the dividend payment 57,300,000 as well as the purchase of owned shares up to 27,200,000.
Hence net debt to EBITDA pro form a ratio stands still at 1.9 times. Moving on to Page 5. 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% 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 UK, and Russia. Asia Pac, we have good traction in our trading business, whereas our partnership markets as well as China were impacted by comp basis, in 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 Aperolodu Jamaican rums, Wild Turkey and Campari.
We have a shipments driven decline in Grand Marnier, which will recover to a large extent in Q4 and continued weakness in Skyboc, although again here, we're gradually improving trends and closing the gap to both our depletions as well as consumption indicators. Regional Priorities, a very positive performance online non spaces by Espolon, on Q3 as spot on is negative, but there's a shipment phasing and will recover in Q4. Local priorities, quite positive growth, particularly, as I said earlier on, thanks to the single serve update each community. Moving on to page number 9, because there isn't much changes in the other pages. You pick up with an analysis of the Americas, which on a 9 months basis, were up overall on a reported basis by 12.4%, 6.5% organically.
Focusing on organic growth on the 9 months, the U. S. Is up percent. And this is, this was expected. We've had shipment normalization and destocking to certain extent in Q3 on some brands.
Wild Turkey performing very nicely, Aperol is very strong, up 44.6%, Campari as well as Jamaican runs continued a positive trend. Skye, as I announced earlier, is having a more favorable trend, but still remains negative. Due to the continued destocking on the Flavors business. Jamaica, another very strong quarter overall on 9 months, up 17.3%, very positive mix, driven by the core Rain few overproof, up double digits, 22.9 percent, to be specific, nice drive behind Appleton Estate, up 50% Magnatonic Wine, up 23.4% as well as Campari. Brazil, up by 6.5%, positive growth in the 9 months, continued good growth in Q3, despite the tough comp base.
Last year, we were up by 36.9%. And 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 Drea 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 midterm. The rest of the region was up 2.1%.
Canada, up 3.4%, mostly due to Aperol Campari in Espolon, We've taken pricing on the ramps and that impacted the large it's the largest brand in the area. Mexico grew as well, accelerated in Q3. Thanks mostly to Sky ready to drink. As well as Aperol, which is growing from a small base, but at a very, very strong rate. Argentina registered a positive performance, let's see due to Sky, old smuggler and again Aperol.
Again, here, we'll have to see how things pan out, especially after the and the macro conditions remain quite challenging. And the rest of South America continued to grow, thanks to Aperol and Riccadona. Moving on to Southern Europe, Middle East and Africa on page number 10, very, 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%.
And this is largely driven by the Aperitifs portfolio. Aperol is benefiting from the extension into other usage occasions. And you can see the acceleration in the brand, bringing it to 15.1%. This is also having a very positive Hago effect on fatty up 8.5%. And our short affiliates 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 17 7, sorry, 7.2%. France grew positively, up 10.3%. This is quite 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 Vicadona.
Spain was positive, driven again by Aperol, up 21.4%, which helped, most of the weakness coming from Bulldog where you have a very competitive gin market where you use it for that hundreds of new entrants, into this very crowded category. In Africa, Nigeria grew very nicely, strong double digit for the 4.4% driven by Campari, American Honey, and South Africa was also helped by Sky And Bulldog. Global Travel Retail, on the other hand, was down slightly 0.8% due 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 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%. This clearly, we have strong double digit growth of Aperol, as well as very positive trends in Averna sky, Crodino from J. D. GlenGrant brand.
So it's quite a widespread and solid growth in the market, which is relatively stable. All of those together, helped 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 Avianna in 2018, where we've gone through the same mechanics. The UK, 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 Wayne Nephew Overproof as well as Magnum Metonic. Russia, up by 11.6% Again, a continued positive performance, but here, we must also admit that the comp base was quite easy. We were actually down by 16.5% in the 1st 9 months of 2018.
Having said that though, we're playing a game of moving from volume to value, and 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. So 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. And bear in mind that in Australia, we had quite a tough comp base last year where we were up by 12.9% in 9 months.
Overall, the growth is ruined 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% and this is, as I mentioned earlier on, on the one hand, driven by, comp bases, which were particularly challenging as well as, shipment phasing. Moving on to Page Number 14, just underline the fact that our global priorities are continuing to grow their share of the pie. Reaching 59% of our sales or plus 100 bps versus a year ago. Looking at the brands on a 1 by 1 basis, starting off with our largest brand Aperol on page number 14, you can see we have very strong continuous momentum up 28 21.8% on 9 months, 21.5% in Q3.
And this despite the fact that we've had a pretty poor weather in Germany, most of Northern Europe and particularly in Scandinavia in August, the second half of August, as well as September. It's good to see double digit sustained growth in our 3 largest markets. Italy, up 15.1% Germany, 17.1% in 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 9 months, 3.5% on Q3, solid growth in our core markets, Italy, double digit growth in the U. S. Brazil and Nigeria. But the brand clearly penalized by the price increase taken in Germany.
Sky, we're down to, negative, low single digits. We're down 2.6% on a 9 months basis, only 1.9% on Q3. And here, we've got the tale of 2 parts of the brand. The core SKYY Bakken, the U. S.
Was actually flat in Q3. So it's closing nicely the gap to more favorable sellout trends as the destocking has finished on core. On the other hand, there is a slight tail of destocking on the flavors, which will continue for a few months. Positive growth in international markets, which knocked on for 26% of total SKY, and we hope that this will sustain the brand going forward. Now moving on to Grand Marnier.
Grand Marnier on a shipment basis is down 4.3% 1st 9 months, in this contrast versus a very robust shipment growth in the 1st 6 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. And, in Q3, we basically destocked, and we're down by 14.7%. But we expect on a full year basis to end up in that slightly positive territory.
If we move on to our American Whiskey portfolio up 6.7% on a 9 months basis down 1.1% in Q3. And this is mostly due to, the, comp basis in Australia. As well as in Japan, which are the 2nd and third largest brand of the well, markets of the Wild Turkey brand. And we're seeing again here a nice shift from a volume to value with our higher end extensions doing very nicely, a long branch in particular, but also Russell's reserves growing double digit. Moving on to the runs, overall, up 6.2%, 4.8% on the quarter, very nice performance by actually what is the largest brand, which is Rain, if you overproof, up 13.8%, as this brand is growing beyond Jamaican.
Now it's become quite a interesting and sizable brand also in the U. S. As well as the UK. And we're starting to see it in an ice cream Canada. Appleton Estate on the other hand was flattish overall, some temporary weakness in the Canadian market, largely due to both account base as well as some pricing and in Mexico.
Other core markets were quite positive. Moving on to our regional brands, kicking off with Espolon Espolon 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 plus 40 plus 45 percent range. We've had a very robust shipment phasing in the 1st 6 months. Like Grand Marnier, and we use Q3 to destock the market.
So we expect to recover that in Q4. Bulldog challenged down 0.9% in 9 months, but up 3% on the quarter. As international markets, particularly some interesting nuance such as South Africa, helping to compensate for softness in the core Spanish and Belgian markets. Which are quite impacted by the germania and the proliferation of gins. Glenn Grant, totally in line with expectations as we're moving to a focus on the higher margin and longer range premium expressions, which are actually on the limit at this stage.
And we're also put to markets on, standby with regards to the unaged so that we can increase the inventory going forward. 40 Creek 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 bidders and occurs, flattish on 9 months, down 0.4%. Down 3.1% on the quarter. Here, we've got, especially, Havana registering soft performance in Italy, But this, on the other hand, in international markets, we're doing quite nicely.
So this will play out over time. Cinzano down 3.9% on 9 months 9.4%. And the key driver is the removed which we relaunched between a real vermouth formula, which meant taking a 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 0.7% 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 9 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 2 brands back into a positive territory. Our RTD in Australia doing very nicely, growing twice the market rate. We're taking market share, up 3.9% on 9 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.
Uzo, up 1.6% on 9 months, accelerating in Q3, and we expect some further acceleration in Q4 as our promo slots kick in. Cabo, on the other hand, are performing nicely, up mid single digits, 5.6 percent on 9 months, 5.1% on Q3. Clearly, all of this is driven by the core U. S. Market.
At stake, I'll pass it up. Paolo will take you for the financials.
Thank you, Bob. If you follow me to page 21 where we have the key highlights on 9 months P and L. The gross profit came in at 1,000,000 on a reported basis, up 10.5% in value, typically 2% on sales showing 110 basis points accretion on sales. Looking at the existing business, organic growth of gross profit accounted in the 9 months, 8.3% in value. Showing 80 basis points margin expansion, driven by favorable sales mix by both brands and markets.
In particularly, we want to highlight a strong 3rd quarter, which, delivered 70 basis points, organic gross profit expansion. Thanks to the sustained performance of the Aperitif business in particular. In particular, we highlighted a single server performance with Campari Soda up 6.7% and cradino up 6% which largely offset lower than expected dilution from agave due to the order phasing of Espolon into Q4. You know, clearly, this is a positive when looking at Third Quarter. In fourth quarter as Espolon will bounce back as Bob has already announced in terms of shipments, we will have, you know, a dilutive effect And also, you know, the shipment phasing of Crodino and Campari Soda in the last quarter of the year would be softer than in the third one.
That's leading potentially to a softer, margin expansion. On a reported basis, AFP came in at 1,000,000, up 10.2% in value to 17.8% on sales line 30 basis point dilution. In existing business, actually A and P was up to 6.9% in value, up in line with the top line growth, and therefore, having a neutral impact on margin. Looking at the SG and A, SG and A came in at 2 88, €1. Up on a reported basis by 10.1 percent in value to 22.1% on sales with a 30 basis point dilution on net sales.
In existing business, SG And A were up 7.20% in value. Slightly above the top line growth that's leading to 20 basis point margin dilution in the 9 months due to, you know, the already anticipated, investments in sales capabilities, which accounted for 20 basis points dilution. EBIT adjusted, I mean, at 1,000,000, up, in value on a reported basis by 10.1 by 11.1 percent to 22.1 percent on sales with an overall 50 basis point accretion. In existing business, the performance was, was quite good with, an organic growth of EBITDA the in value of 9.9 percent. What above the top line is that generating 50 basis point margin accretion.
As we said, driven by gross margin expansion of 80 basis points, partly reinvested in the buildup of sales capabilities, which accounted for 20, 20 basis points. The the EBITDA adjusted came in at €340,000,000. On a reported basis, it was up was up 13.5% in value to 26.1 percent on, on net sales, including, 11,400,000 of positive effect from the IFRS 16 reclass, which drove a faster, stronger performance at EBIT adjusted, the level vis a vis the performance we've just commented on the level of EBIT adjusted. The organic performance of EBIT of EBITDA was quite positive and, nonetheless, with an increase of 12.2% in value and 120 basis point, EBITDA margin accretion. Moving on to Page 22.
So, basically, here we have visually the recap of comments, you know, I made before, in value terms, the organic growth of EBIT accounted for 1,000,000 or 9.9 percent ForEx was positive as well with 1,000,000 of positive contribution, corresponding to 1.9%, and the perimeter was, was quite tiny. Worthwhile highlighting the effect of positive and negative one offs, in the 1st 9 months, actually, you know, in, in 2019, We had 1,000,000 of negative 1 offs, primarily attributable to number of restructuring initiatives, whilst in the 1st 9 months of last year, we had a positive impact of 3.3 1,000,000, as was primarily driven by the capital gain, on the sale on the disposal of the Lemonsada range. If we factored in the delta impact between negative one offs for this year and positive one offs for last year, the, the impact on, on, on the EBITDA, was was Becker, and the EBIT came in at 117 or 1,000,000 with an increase of in value of just 1%. If we move on to Page 23, as you can see, financial charges came in at 1,000,000, up 1,000,000 versus last year. Of which, €2,500,000 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 percent to 4.1 percent. A group pretax profit came in at 100 and 45.1 down 1,700,001.7 percent, as stated due to the, one off, of this negative one offs of this year. But, you know, if we stripped out the negative one offs of this year, as well as the positive one offs of last year. The group pretax profit adjusted came in at €159,000,000 with a remarkable increase 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 €28,000,000 which is totally attributable to the reclass, driven by the IFRS 16 of €18,200,000.
Again, if we stripped out the impact of the new accounting rules, the net financial debt would have increased by 53,100,000, in September versus, back end of December last year. Thanks to the positive cash flow generation after the already mentioned payment of dividends for 1,000,000 and purchase of own shares of 1,000,000 with a stable net debt to pro form a ratio at 1.9 times, at the end of September. The feasibility on numbers, I would then try to talk for his update on marketing initiatives and development.
Thanks, Pablo. 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, the sponsors of the Venice Film Festival as well as the New York Film Festival, and if you 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 at a wild turkey with the cornerstone rye as well as the Cuted you something on on Mount Annie.
While Turkey is just announced the the launch of a new approach to, advertising. We call it advertainment, which is really some sort of documentaries, with a very interesting dialogue between Matthew McConaughey and some trailblazers from some quite influential movements. Now we're also very pleased to see that from a product standpoint, we're perfectly in line with our ambitions on Grand Grant, The 2020 Whiskey Bible results came out. Our eighteen year old was voted the Scotch whiskey of the year, as well as single month of the year, multiple casks, and we've done quite well with the rest of the range. So we're definitely on the right track.
On the non organic side, on the perimeter, we've announced 2 small acquisitions, but 4 very nice gems have joined or are about to join our portfolios, helping strengthen, our offering to the high end Exology on premise and premium offering. We announced the acquisition of Antrolese Escole, which round up our Mexican offering but this deal hasn't closed yet. We expect it to close before the end of the year. On the other hand, for Riviera and Lamonie, which add some nice critical mass in France as well as complete. Our rum offering has closed on the 1st October.
Now conclusion and outlook, nothing of 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's also enhanced by recovery in emerging markets. So 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's 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 but higher than expected increase in agave purchase price, which clearly will be exacerbated by the Espolon outperformance on a full year basis, and the phasing into Q4 of the shipments. The strength in U. S. Dollar can see euro will continue to offset weakness from a fair standpoint in emerging markets.
So, we feel quite comfortable on that side too. So net to 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.
The first question is from Edward Mundy with Jefferies. Please go ahead.
Good afternoon, Bob Paolo. And three questions, please. But the first is on rum. Clearly, you've made the acquisition, which does give you critical mass in France, but I think you're in a few performance is also very good in Q3 and you're flagging and that rum is a premiumising category, at the heart of mixology trend and growing cultural culture. I was wondering whether you could provide a bit more color on exactly what you're seeing, who's really getting into, which geographies And just a little bit more color on what you're seeing at this sort of early phase of rum and the potential bounce back of rum.
The second is on your single serve bidders, 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. But I'd be interested in, to what extent you're really putting a lot of money behind both Campari Soda and Cuadino or to what extent these brands are responding to the overall bidders trend, that you're developing with both Campari and Aperol? And then the third one it's 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 Espolon. In the fourth quarter, but I was wondering whether you could perhaps provide a bit of an update relative to that 30 bps after what you delivered in the 1st 9 months. And what are the key moving parts to get there?
Hi, Ed. Thanks for your questions. Let me kick off with Ram 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 UK.
So those are the free markets moving the dial for that category. And for us, Now with regard to our single serve bidders, I think what we're seeing is the brands reacting to our marketing initiatives, We're 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 help us remain in positive territory, in the years to come.
And Crodino, it's a little bit of work in progress, we're doing quite well Internationally. Italy is doing quite well this year. Let's see. I mean, we'd like to see a little bit a few more quarters behind that trend in Italy to understand how solid it is. But net in that, this is more driven by our own marketing activities both in Italy as well as the European markets in which we're seeing the brands, particularly Crodino.
With, Ed, with regards to the margin, so we have, as you know, Q4 is still you know, to be to be seen, you know, we're would, you know, directly confirm the guidance so that we've, you know, indicated at the beginning of the year where, you know, the 30 basis points, you know, more or less that you mentioned are, you know, basically driven by it's still a solid gross profit expansion. You know, at the underlying 120 basis point, that is then partly offset by the impact of agave as well as the impact of the comeback from performance in the emerging markets, totaling about 60 basis points, partly then reinvested into commercial capabilities as we've seen in the 1st 9 months. So we don't see major changes vis a vis, you know, the initial guidance, you know, worthwhile noting that, you know, the the outlook on agave as you know, over the course of the of this year deteriorated. Now under, you know, we if we take into consideration, both volumes of Espolon and Cabo Wabo at year end, the negative impact of agave in our P and L at EBIT level, due to the increase of, of agave is about 1,000,000.
So it's a big number. For 2020, you know, apparently, you know, the the the prices are not coming down. At least, you know, we're not seeing that at the moment. And we're still buying at 20, 28 basis per kilo versus the 6 basis per kilo that was the price at the back end of 2016. So in 3 years, quite an increase.
But overall, you know, the TCs for, for this year, the trend, and clearly, in Q4, although, you know, qq, q3, We do recognize this better than, than on originally flagged due to, shipment phasing in Q4. Has said that we have, you know, as Poland coming back, strongly in terms of shipments, and, and the Crodine and Campari Soda with a softer performance both driving to, to margin, gross margin, dilution. So that's what we're currently expecting.
Great.
Thank you. So the gross margins, it's partly mix, the big driver there, but the drop down from some gross profit to EBIT, which is about 20 bps dilution in the 9 months so far. You're still confident of 30 bps with sort of an up weight of expenditure in the fourth quarter. Is that the right message?
Yes, yes. Between A and P and SG and A, that's the number that we have in mind at the moment. Yeah. You know, picture can change depending on top line performance in Q4, but you know, 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, your comments partly just to confirm a couple of things. So 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. And then also you just mentioned the outlook regarding 2020. I think at the half one stage, Paolo, you were thinking that perhaps half one next year would be a drag negative for Magawi and then you would 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? And then 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 again, at the half one 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.
Yes, with regards to margins in Q4, without being too to Vocal. It's, we're expecting the EBIT margin in Q4 to be, to be marginally negative. That's correct. You know, the magnitude of that clearly depends on top line mix. So you know, that's what we're currently factoring in our numbers.
With regards to agave, yes, originally, we hoped we could have, a seasonal negative comp in H1, a positive comp in too. But, you know, we've we've been saying the same for 2 years now. So, you know, we would rather, you know, scalatically to, to stop, you know, forecasting a decline in price of agave. If the current trajectory is confirmed in in 2020, our estimate is a potential negative impact of 1,000,000, a EBIT, a gross margin and EBIT level. But then who knows where price will go.
So that's, in our point of view, our worst case scenario.
Now with regard to Campari and Aperol, Q2, Q3 in Italy, but I think, we started last year and at the end of Q3, beginning of Q4, started the new campaign, which had to do with, really positioning Aperol in Italy into 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 to from strength to strength. And this is what is accelerating the growth of Aperol. I mean, 15% is really a very, very nice number.
On the brand that has been growing double digit now since 2003 since 2003 since we bought it. And this is also providing a positive halo effect on Campari with a certain number of consumers switching to Campari Spritz. So a very nice, very sustained trend number of
The next question is from Lawrence Wyatt with Barclays. Please go ahead.
Hi, thanks very much for the questions, 3 from me. 1 of the 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 a, to do with when when the agave plant are planted and when the harvest is, but that's only sort of to a year period?
Are we getting to the peak of that? Secondly, on Sky, I think at the beginning of the year, we were expecting Sky to sort of flat line throughout 2019 now sort of getting into around a negative 5% for the year. What are your sort of expectations for the brand? Can we expect guide 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 Titoes?
And then 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?
Do you want to take the first one?
Yes. With regards to the agave, yes, I mean, there are basically, you know, 2 factors, you know, looking at the price of either one is the, you know, the imbalance between demand and supply. That's, you know, a, you know, a long term trend. And on the other hand, you have, you know, the quantities of appliances are waiting in the fields. So you know, And that's one thing.
And, you know, potentially, you know, mid-twenty 20, 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. So, you know, we're we're coming to the peak of it, you know, will that then come down? We'll see when when that happens. And the second one is also, you know, the weather conditions that can have, you know, a huge impact.
For example, this year, we'll all be we've all been quite unfortunate because there's there's been draw. So, you know, the the yield from the plant was, quite poor. And that, you know, put further pressure on, on price. So, you know, on weather condition in 2020, you know, nobody clearly, can, can say. So we're, we have limited visibility.
We believe we're at the peak of the cycle And, you know, mid-twenty 20, back end of 2020, if it forego as expected, we should see prices to coming down.
Yes, moving on to Sky. Where are we on Sky? What are our expectations? I mean, on a full year basis, we'd expect the brand to be flat or slightly down on low single digit basis. And here, you've got different moving pieces.
And 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.
And on shipments, we've basically finished now the destocking on core. The flavor side is a different story. I mean, on flavors, you're seeing consumption continuing to be negative double digit. And added to that is our discontinuation of quite a few flavors and a significant destocking. Now most of it is behind us, but we still have a little Thailand probably October, November.
So 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 Sky and gaining more, stability going forward.
Now, on China, I mean, on China, we, we're quite a nice business with Sky vodka. It's the 2nd largest imported vodka in the market and growing at a very nice pace from a consumption standpoint. Obviously, phasing effects since we're using distribution partners, etcetera, and China is quite complex from distribution. So that impacts shipments, but overall, we're positive. And on the other thing, I mean, from a very, very small, 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.
So we're going to put more of the focus on that and we'd hope our Chinese business, in the midterm to be driven by Sky as well as Aperol. And Also, later down the way via our whiskies, both American, as well as Scotch.
Thanks 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? And then secondly, following up on Grand Marnier, could you just give us a bit more color of where the destocking by the different types of grant money is taking place in the US, what's been going on there, and how the business now looks in terms of the the mix of Quevas and what that means for your working capital and cognac purchases this year because a lot of your Pontiac competitors have certainly stepped up the level of investment? Thanks.
Yes, I mean, Harmony in China, I don't think it does necessarily impact by our current distribution partnership. It certainly not helped, but it's not negatively impacted as well. I mean, 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 cuvettes, which I think are much more appealing to the Chinese consumers, both from a liquid standpoint as well as from a premium net standpoint, particularly on the packaging. Side with regards to gifting, etcetera. And in the U.
S, if you look at the Grand Marnier, how it's performing on consumption indicators, We're in a positive 2%, 3%, 4% depending on whether you look at NACA or Nielsen. So that's fine. We've essentially gotten out of all of the flavors. And this year, we're transitioning the cuvees. So we're basically destocking on the cuvettes 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 under Qve. So we'll be able to more than compensate for the increases in cognac prices.
And in terms of cognac purchases?
Well, I mean, we're we actually found the sellers quite full. So with regard to what we need on the cuvettes for many years. We don't need to step them up on Grand Marnier. And also not on Bisky because Bisky came with really, really full sellers.
Thank you. And just can I confirm one more thing in China, do your does Grand Marnier and Biscuit go through your distribution partner, Camu, was it through a separate organization because of potential conflict?
Well, Grand Marni goes through Camu, and this key go through its previous distributor. I don't remember the name, but I mean, there will be a change next year.
The next question is from Andrea Pistacchi with Deutsche Bank. Please go ahead.
Three questions, please. First one on the, on the U. S, there are a lot of moving parts in Q2, Q3 in terms of shipment phasing. And it sounds that it sounds that shipment phasing on balance should be a positive in Q4. Can you can you confirm this?
Please. And then a question on the tariff situation in the U. S. Now given the announcements of tariffs, understanding is that Aperol Campari, Frangelico, potentially impacted. Could you possibly give a broad, at least quantification of the impact that you would expect on EBIT, if you were not to pass this on and your thoughts on potential pricing to to pass this on.
And my third question is on your sort of the 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, much changing in terms of how you're feeling about the year. Could you confirm that?
Yeah. And, let me start with the 3rd point. I think maybe we got bored with our words. I mean, to be honest, there's nothing really change in terms of outlook or in terms of how we're trading versus expectations. So we feel quite comfortable about that.
I mean, if we've changed anything, it's probably more important than anything else. With regards to the U. S, I mean, yes, we will return to positive the territory in Q4. But 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.
So you'll be seeing a normalization and improvement, but net to net, the 2nd half will be, softer than the 1st half. Now with regards to tariffs, it didn't only impact comparing Aperol and Sanjay Rico, but also a nice civil business, which is growing double digits, which are Amari. Now if the tariffs stay at the level where they are, we will not have to relocate Having said that, we're looking at, again, some logistics efficiencies as well as taking pricing at the beginning of the year on Campari and Aperol. So that should enable us to compensate for most of the tariffs. But net net, we would we're forecasting at this stage a million hurt to the bottom line due to the tariffs next year.
Carlos, anything?
I think that's the number, which incorporates factors in the price increase that we have in mind.
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 UK market, clearly ahead of, let's say, any potential Brexit have recently read an article in which you flagged, let's say, some higher level of stocks you made in the UK. So if you can help us, let's say, to understand the real underlying trend of the UK market for you.
Well, I mean, the UK for us is the 2 tier market. So 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. We're very large retailers. So stocks do not impact that. The numbers we have in this presentation is basically our consumption, which is very healthy, driven as we've said, both by Aperol as well as our Jamaican portfolio.
I mean, the rest of the portfolio is doing well too, but I mean, it comes from a lower base. The comments I made was regarding our own inventories on the island clearly, we have our own distribution set up there. And we increased ahead of Brexit our inventories, depending on the brands from to 3 or 6 months, clearly, this to enable us to compensate for any turbulence should and whenever Brexit does happen.
Okay, okay. Thanks very clear. Thanks.
The next question is from Paula Carboni with Equita SIM. Please go ahead. Yes.
Hi. Good afternoon, everybody. Just a quick clarification on, the points we've mentioned during the call, what if you can come back on, what we should expect as a normalization, let's say, of the Italian market after the, say, the relaunch of the initiatives on Crodino and Campari Soda, which are expected to, to have to reverse a little bit in terms of shipment. Thank you for. And secondly, I was just trying to match your indication of a declining gross margin and EBIT margin in Q4, with your full year guidance.
So, if you, I mean, when you say, dilution of gross margin or EBIT margin, I'm not sure I got this properly. Thank you. 4. This would imply, probably a bit less of 30 bps accretion on organic EBIT for the year. Am I wrong?
So 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. I mean, you know, that 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, younger consumers. And particularly on Campari Soda, we seem to have hit it and nailed it So we would expect on a going 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 have completed the whole marketing transformation.
Having said that, Crodino is benefiting from international expansion. Does this answer your first question?
More or less, let's say no, just to understand how much was let's say, the shift between Q3 and Q4. And so, basically, as you said, for the US, you know, as you said, for the US, both to our envisaging for the year, if you can provide indication for you that include?
Look, I mean, what the book brands are representing, what's happening in terms of, pull from a wholesaler as well as pay perspective. So 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%. We're not used to this. So I think we're rightfully being cautious going into the fourth quarter.
Okay. Thanks.
Yes. With regards to the gross margin trend, the comments were, you know, around the, you know, the impact of the shipments in, in the third quarter. And, phasing of shipments in the third quarter vis a vis, you know, shipments in the fourth quarter of the year. Were basically, you know, the, the 3rd quarter has been, you know, quite positive in terms of gross profit expansion. So, you know, the comment was, you know, do not expect, you know, an expansion in gross profit in in Q4, for, for the reasons, you know, have a, you know, a pension So on a 9 month basis, clearly, we have, 60 basis points, EBIT adjusted, which means that, as we've confirmed the guidance over the beginning of the year with a softer full year EBIT margin expansion, that implies a softer performance in the fourth quarter of the
I guess there are no further questions. Thank you very much for joining us. With us at steady as she goes. So look forward to potentially seeing some of you at next week's opening of the Camparino in Milan. Or if not catching up throughout the year.
Thanks a lot for joining us. Bye bye.