Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Campari Group 2019 First Half Results Conference Call. After the presentation, there will be an opportunity to and 0 on their telephone. At this time, I would like to turn the conference over to Mr.
Bob Concewitz, CEO of the Campari Group. Please go ahead, sir.
Thank you. Good afternoon, and welcome to our first half year call. As you can see from our press releases and the rest, The first step has been pretty good with consistent solid performance across all of our key underlying indicators, driven by the strong sales momentum. If you have the presentation under your eyes, if you can move on to Page 4, I'll start commenting on the key highlights. Importantly, continued sales mix improvement drove key high margin global and regional priorities in core developed market with also a nice recovery in emerging markets.
Net sales, you'll recall that we had a strong start to the year where we were up by 9 point 6% in Q1. Actually, Q2 was also pretty good. And this is important given that it's a high seasonality quarter for Aperitifs. So net to net, we were up 6.9%. And this, yes, on the one hand, was helped by the late Easter effect But on the other hand, we had quite a challenging comp base.
Last year, we were up 8 by 8%. And as you all know, also from our other peers, as well as bluer's, the weather was pretty bad in May, so that had a negative effect. So net to net feel pretty good about the results. Looking at it by brand, we have positive growth across all of our brand clusters. The global priorities outperformed.
They were up almost double digit 9.8%. Despite the tough comp base, last year, they were up by 8.7% behind the key suspects, Aperol Campari, Ramalini, as well as the Brown spirits, while Sky, as we programmed it, continued declining, in line with our destocking exercise. The regional priorities, they were up nicely double digit, 10.8%, gaining momentum, driven by Espolon, Avianna and Liquidana, and local priorities returned to growth up by 4%. Looking at it on a geography basis, positive growth across all of our regions. We have very solid growth across our high margin developed markets, particularly in North America and Western Europe.
On the other hand, lower margin emerging markets continued their positive trend, notwithstanding the, quite impactful volatility from a macro as well economic and political standpoint in those regions. We reported a net sales change of 9% reflected a slightly negative perimeter effect, which was negative 1.4%. That was the tailwind after discontinuation of the Brown form and distribution in Italy, which was more than compensated by quite positive effects driven by the dollar of a plus 2.3 percent. Looking at EBIT on an adjusted basis, we had a very nice organic growth of 10.6% So this is ahead of the organic sales growth leading to a 50 bps margin accretion, and this is clearly driven by the strong organic gross margin expansion of 90 bps thanks to the positive sales mix by both brand and market. And this, it's important to underline, despite the dilutive effect of the market recovery, and there was an expected agave impact.
Looking at reported change, I was up 12.3% and this takes into account the negative effect of disposals, as well as the positive ForEx. Net profit on an adjusted basis was up to 11.8% on a reported basis was down by 16.6%. To close off the highlights, net debt net financial debt stood at 937,000,000, which is an increase of 90,900,000 versus the beginning of the year. And this is mostly driven by the first time adoption of the IFRS 16 leases accounting principle. Net to net, this brings us to a net debt to EBITDA pro form a ratio of two point one times at the end of June.
No, I'm not going to dwell much in page number 5 because I'm going to go into the details, but it's always nice to see, all of the regions and all of the brand clusters growing. Moving on to page number 8, just we're underlining the fact that the U. S. Now accounts for 29.3 percent of our total sales. So it's by far the most important and nicely growing region.
And on that note, I'll move on to page number 9, analyzing the Americas where you can see a nice overall growth, organic growth of 9.9%. ForEx also helped with a 5.5 and positive impact. Looking at it by, subcontinent, North America was up double digit 10.3%. Led by the US, up 10.9%, very nice half year performance, with a strong Q2, up 10.7%. Driven by the continued outperformance of Espolon, Aperol, Campari, the Wild Turkey portfolio, all grew at double digit rates, and we also had the positive contribution of Grand Marnier as well as the Jamaican rum portfolio.
Sky, as I commented earlier, The portfolio declined by 5.8% as it continues to be affected till the end of, Q3 by the destocking exercise. Jamaica, very strong, up 18.6%, continued very positive mix, driven by the, high margin rain that he over proof up almost 20% and Campari, up almost 16%. If we look at the rest of the region, it was only up by 1.9%. Canada did quite nicely, up 7.4%, largely thanks to Aperol, but also Skybulk and Campari, whereas Mexico declined slightly. And this, despite, you know, the core, I mean, the main largest brands, Cairo, to drink, doing quite nicely, but was, impacted temporarily by the weakness in the Jamaican percent with Brazil up 6.9% by positive growth in the first half, albeit, on the back of a pretty easy comp base.
You'll recall we were down 27% last year. But the good news is that, again, here, the mix is quite positive with Aperol Skayvodka and Campari, doing very nicely. Argentina, up double digit, and this after accounting for hyperinflation, up 14.2% a positive performance, but largely due to Cinzano vermouth, as well as to the growing importance of the Sky brand and again of Aperol. The rest of the region, down 17%, but this is our partnership market, so it's most Asia and phasing. Moving on to Southern Europe, Middle East and Africa on the following page, up 7.7% organically, quite impressive results in Italy, up 6.7%, very solid with continued growth in Q2, despite the very poor weather in May.
In Q2, we were up 6.9% Again, here is the core IP ITs business driving, driving it with double digit strong growth behind Aperol 12.2%. Followed by Salgruuf on Campari. And I'm also pleased to see our mono, those small size at elitist, Crodino and Campari returning to, robust health of Crodino up by 3.2% and Campari soda by 5.8%. The rest of the region was up double digit 10.9%, with a very strong performance in France, up 26%, again, mostly driven by Aperol and then obviously, Riccardona, which builds a tandem with Aperol and the Aperol Spritz. Spain grew low single digit Again, nice growth behind Aperol and Cinzano vermouth, some temporary phasings on promote slots on Campari.
But the brand most affected there is Bulldog due to the vinification of the gin category. Looking into the app markets, Nigeria, although the ED market is not, you know, all that healthy, we grew nicely 22.2%. Again, Campari and American Honey, and South Africa also grew thanks to Sky and Bulldog. GTR was flattish at 1%, and this is on the one hand due to the, comp base with last year, that business being up 15.3%. Continued positive trends in Aperol and Grant Grant in African Estate and then some phasings on the promo slots on the rest of the portfolio.
Moving on to the rest of Europe, North Central And Eastern Europe, up 7%, very nice performance in Germany, almost 4%. And here, clearly the weather was very impactful and slow down our 30 piece business quite a bit in May. And bear in mind that we also had quite a tough comp base in this area as we grew by 14.9% last year. Ferrill is doing nicely, and again, positive trends across most of the portfolio, Skybovka, Frangiri Kuaderna and GlenGrant Grant. This helped to offset the negative trends on the Cinzano portfolio in Ozawa 12.
And Campari also returned to growth, following the prices significant price increase we put through in January of this year. UK continuing to grow double digit, 14%, very solid results Aperol doing very nicely, up by 25.8% as well as the whole Jamaican brand portfolio, up by a cumulative 35%. Russia also up by 10.9%. Again, this is one of the markets where the comp base is quite easy. Last year, we were down by 25.2% We have nice growth behind Aperol, which is really becoming a significant brand in that market.
And, ginsano and, were moved as well as sparkling wines doing a little bit better in quite a highly volatile market, especially when looking at mainstream brands. The rest of the region was up 8.4%. We have very strong, performances across Austria, Benelux, Scandinavia, and most of it, again, was driven by Aperitifs, but not only Aperol and Campari, but also Crodino, which is becoming a meaningful brand in those areas. To close-up the regions, Asia Pac, up 1.1%, the largest market, Australia, doing nicely, up 3.5%, were actually, doing quite nicely because bear in mind that last year, we had a comp base of 10.7% We're growing twice as fast as the market across categories, so taking share. Again, Aperol is doing very nicely, growing double digit 36 percent, and we're doing also pretty well in the well turkey, bran, both on the ready to drink as well as on the bourbon.
With the premiumization helping marginality. The rest of the region was down 4.3% and this is mostly due to a double digit decline in Japan. But this, again, is something driven by, move comp basis as well as phasings. China was back up around 17.5%, and this is an area we'll pay more and more attention to looking forward. Looking on page number 13, the only thing worth underlining is that the global priorities now account for 59% of our sales.
Which is as a nice 200 basis points increase versus last year. Looking at the industry detail by a brand kicking off with our largest brand, approvals now accounts for 20% of our sales, growing in the first half on an organic basis by a very robust 22% This despite the bad weather impacting the core European markets. We're continuing to grow double digit in those markets and by a very strong double digit in our high potential and seating markets across the globe. Campari, up 5.8%, solid performance again in Italy, double digit in very profitable markets like the U. S, Jamaica, Brazil, and Austria, flattish performance in the key market in Germany where we took a big price increase in January.
So we had quite a few declines in the 1st few months of the year, and we're now recovering ground. Moving on to our bourbon portfolio, up 11.4%, this is across the core U. S, which was, which has grown by 15% as well as Australia. And both of these markets also through their premiumization in the success of loan branch helped offset the temporary decline in Japan. American Honey registered double digit growth in the U.
S. As well as in some other key markets, particularly in Nigeria. No, the one brand which is suffering on a shipment basis is SKYY vodka, which is down by 3%. This, you all know, has been piloted by us. The U.
S. Down 5.8%, whereas we're having very nice positive growth in the rest of world. Our run portfolio, up 7% and the euros range, if you, overproof, up 14.5% solid trends, not only in Jamaica, but particularly in the U. S. And in the UK, and in Canada, Appleton Estate, on the other hand, a little bit slower, 2.9% with, Canada, which is the 2nd largest market, actually slowing it down due to the price decompositioning.
Taking to our regional priorities, Espolon, very strong, up 46.5%. Clearly, this is driven by the core U. S. Market, which is up by a healthy 50%. And it saw an acceleration in Q3.
And we're also seeing very effectively other markets, particularly Australia, Italy and Canada. Bulldog, as I said earlier, is impacted by what's happening in its, core market of Spain, but also Belgium. These are two markets impacted by the craft, craft Gins, we think that the brand will weather the this out, on the other hand, we're continuing to do very nicely in all other regions. When Grant, on the other hand, it's down 11% and this again, is a choice we took. We've put all of our markets on reduced volume allocations as we're transforming the brand from a non age into a longer age premium expressions, and this is something which will continue.
Forti Creek slowed a little bit down 1% and this is some temporary weakness in the core market of Canada, but we expect it to return to nice sustained growth in the second half of the year. Moving on to the bidders, the Amari, up 1%. This is mostly driven by a which, where we, again, took a robust price increase in Italy, and it slowed us down a little bit. There's some weakness in Chinal in Court Italy, in seeding U. S, but, we were able to compensate by Switzerland, Brazil and France.
Averna, on the other hand, positive results, not only in Italy, but particularly in the more profitable German and U. S. Markets. Less and but not least, Patrick's performance in Frangelico, where good growth in Germany was offset by weakness in the U. S.
Spain and Australia. Ginzano was down 1.1% with the remove being relatively flattish, positive growth in core markets such as Russia, Argentina, and the Czech Republic, but offset by weakness
due to the rebound in
the last time that we the rest of Europe. Our sparkling wines were down 1.9% due to the weakness in the core markets of German Italy, whereas Russia turned positive. Moving on to Mondoro and Arcadona, our other sparkling lines, up double digit, where we gather on our more than compensated some weakness in Montreal. Last but not least, our local priorities Very pleased to see Campari Soda growing by 5.8%. Again, this is, all driven by Italy.
Cordino has a balance of a nice return to positive performance in Italy, but also strong growth in our seeding markets. Particularly in Benelux, Germany and the Czech Republic. On the bourbon ready to drink in Australia, Wild Turkey, we're taking market share and accelerating. The Brazilian brands are up to modest growth, but slowed down in Q2. So this will remain a challenged area of the business, not the case on Ouzo 12, which is more impacted by the scheduling promo slots.
Slightly up 0.7%. But if you look at it by the end of July, it reverts to trend. In Cabo, to close it all up, up by a nice 5.9% accelerating in Q2. This is it on the commercial overview and now I pass on to Paolo for detailed financials.
Thank you, Balmer. If you follow me to page 20, the narrative of next and EBITDA by region. There we can see that the Americas remain the group's largest region in terms of both net sales and profitability. With the regional net sales at 45 percent of group net sales and regional EBIT at 42% of the group's EBIT. And as we can see in the following slide, page 21, the performance in the largest region in Americas, has been in H1 quite robust with, an organic top line growth of 9.9% and EBIT organic growth of 8.5 percent in value, with 20 basis points dilution, as you can see to the right hand side of the slide, driven by both gross margin and P dilution partly offset by SG And A.
Well, in particular, looking at the gross profit, the gross profit expanded in value by 9.5%. Showing a 20 basis point margin dilution, which was, driven by, you know, 2 factors. 1st and foremost, the increase in the agave price that, you know, create a massive dilution impact in the region as well as in group's result as we will discuss later. And second factor was, you know, the recovery in emerging markets most notably Brazil and Argentina. With regards to the A and P, A and P in the region grew by in value by 15.8% driving 100% 100 basis point margin dilution.
Dilution, totally driven by different phasing of A And P Investments in the region behind key global brands. With regards to the SG and A on the contrary, the increase in value in existing business accounted for 4.5%. Well below the top line growth, driving 100 basis point margin accretion as a consequence of really down sizing of the local structures in South America. On a reported basis, EBIT grew by 15.6% year on year, achieving 19.8 percent of sales at 1,000,000. Moving on to Page 22.
We have the analysis of the performance of the Semia region. Again, also here, a very solid performance with organic net sales growth of 7.7 percent and an organic EBIT increase of 14.9 percent in value. That, you know, this proportion increase of EBIT, drove 130 basis point accretion at the EBIT level. Driven by gross margin expansion, A and P containment as a percentage of sales, partially offset by SG And A dilution effect. Looking at the gross profit, the very robust strong robust gross margin expansion, which accounted for 110 basis points, was clearly driven by a solid performance of high margin Aperitif's portfolio, particularly after all, and Campari in high margin markets.
A and P, grew in, in the first half by 1.5% in value, driving 90 basis points accretion, and this, you know, contrary to, to, to the Americas region was driven by, you know, phasing effect, which had, you know, lighter impact of A and P and H1 vis a BH2. With regards to the SG and A, the increase in the region in value accounted for 10.4% leading to 70 basis points dilution and was primarily attributable to the strengthening of Central capture at group level. On a reported basis, EBITDA grew by 11.7% year on year, achieving 20.2 percent of sales was 150 basis point EBIT margin expansion. Moving on to Page 23, We have the analysis on the center in Eastern Europe. Again, also for this region, a very solid, organic top line performance and save up 7% in value and, you know, and, you know, in a robust bottom line, increase of the, of the EBIT at 6.9 percent in value with basically neutral impact on margin.
Driven by a very strong gross margin expansion to a totally offset by the relative effect which is visible at both A and P and SG and A level. With regards to the gross profit, gross profit, grew ahead of a net sales, a 10.1% in value, driving, 190 basis point expansion. On the back of a very solid sales mix improvement led by the positive performance of high margin Apergy for 40 particular Aperol. Which grew by double digit in core high margin markets, such as Germany and the UK. The E and P increase, which was 11.7% in value, drove 80 basis points dilution on the back of stronger support on on the Aperity portfolio in the key seasonality period.
SG And A, again, you know, they grew, quite strongly in H1 at 14.20% driving 110 basis points dilution reflecting the enhancement of sales organization in selective, high potential markets. So this is, you know, start the markets where we open up our own, distribution company. On a reported basis, EBIT growing value by 6.9% and, and also doing a 29.7% of net sales at 49,000,000 you. Moving on to the last region, APAC, page 24, the region delivered in business and moderate top line growth of 1.1 percent, but a very solid, bottom line performance with an increase of EBIT in value of 35%. Driving also 3% EBIT margin expansion to underwriting basis points precisely with gross margin and A and P, driving accretion accretive effect on, on, on the EBIT level, partly offset by, the, the the dilutive effect due to the increase of SG And A ahead of the top line.
Gross profit expansion, 280 basis points, was driven by the positive sales mix in Parigali, the biggest market, Australia, performed, nicely in the in the in the first half. With regards to the to the MP, we, in in that region, we had any e e e decline. Of A and P due to phasing, in different phasing of our marketing initiatives which drove 190 basis points, accretion. On the contrary, SG and A SG and A grew by 9.1%. Below top line growth, driving 180 basis points margin dilution to be driven by lower absorption of fixed costs.
Given the contained top line growth, and that was, you know, due also to the combined effect of the enhancing of our sales organization in our largest market, Australia. Looking at the overall performance on a reported basis, the regional EBIT expanded by 26 percent in value, achieving 11% of net sales. Moving on to the full year results, as Bob has just highlighted, page 26, we have, you know, the P and L in one page, you know, most notably top, top line organic growth of 8 same, coupled with, you know, an EBIT adjusted organic growth of 10.6% is to be seen as a as a very robust performance. Taking into consideration at H1 of last year's EBITDA adjusted increase in value accounted for 9.5%. So, you know, 10.6 over 9.65% is a remarkable performance.
More in detail, as we can see, you know, on page 27, We have, something from gross profit on a reported basis. Gross profit grew in value by 11.4% 62% on sales, driving, you know, on an overall basis, 140 basis points accretion. Looking at the, organic performance, the increase in gross profit in value accounted for 9.5% showing an early basis point gross profit expansion. The organic growth of gross profit, while I had top line, was, due to the particularly favorable sales mix by both brands and markets, and that, you know, was achieved despite the dilutive effect of EMs Emerging Markets, particularly South America, which, you know, performed nicely. As well as the, due to the increasingly more adverse effect of the average purchase price in the first in the first half, the dilutive impact of, sterilizing, agave prices accounted for roughly 30 basis points.
Which is a lot considering that we've delivered in the 1st 6 months, 90 basis point organic expansion of gross margin, which would have been 120 basis points. On the AMP front, on a reported basis, AMP grew value by 5.3%, achieving 17.9% on sales with 50 basis points dilution. In existing business, the increase, of AMP accounted for 9.4% in value. Above the top line growth, thus leading to 30 basis points, a margin gap dilution at the level of A and P. Which, you know, reflected the higher marketing investments, particularly high in global brands, such as Apero Campari, Skye and Grandani, as well as, you know, certain selected, regional priority brands for yearly, Espolon, which, you know, is positively reacting to the A and P stimulus.
With regards to the SG and A, on a reported basis,
SG and
A grew in value by 9.9 percent, achieving 22.9% on sales and leading to 20 basis point dilution. But, you know, in Mori Barigiri, look at the existing business, SG and A organic growth, in the first months of the year accounted for 8.6 percent in value, slightly above top line growth, leading to 10 basis points margin dilution. With regards to the EBIT adjusted on a reported basis, first half delivered an increase of the of EBIT on a reported basis of 4.3% in value, with the EBIT on sales at 21.3% and, driving 70 basis point, EBIT margin expansion. As we were looking at the, at the existing business, the performance, the organic performance was quite solid with an EBIT adjusted increasing value of 10.6% above top line that's still, you know, 50 basis points margin accretion notwithstanding, you know, the 30 basis points negative impact in the first half. And notwithstanding the reinvestments in the JMP line, which I said before, accounted for an existing business, 30 basis.
With regards to EBITDA adjusted, the performance was even more robust with an increasing value of 13.4 percent to 25.5 25.4 percent on net sales But in mind that, you know, that this proportional increase in EBITDA adjusted versus EBITDA is, attributable to the incremental depreciation that we have in, in 2019 due to the first time adoption of a IFRS 16 on all leases. The organic performance of of EBIT adjusted was quite stronger with an increase of 12.7% in value and with a very solid one point margin expansion. Page 2028, we have the, breakdown of, you know, the waterfall for, for EBIT adjusted from 160,000,000 to 180,000,000 coming from, you know, organic and a little bit of ForEx. Organic, you know, 7 in €1,000,000 uplift corresponding to 10.6% of increase as a percentage. With 50 basis points, the perimeter, sorry, the ForEx is positive as well with 4,300,000 uplift at EBIT level, 10 basis points accretion.
This is driven clearly by dollar and euro in the second half of the year. You know, purely dollar, will be still positive, although, you know, with less, you know, meaningful impact and then we will suffer from you know, this, you know, the atthears, you know, comp on emerging market currencies in peak season. So you know, the 1,000,000 uplift contribution from Forex at EBIT level in H1 has to be seen as the overall contribution that we are currently expecting for the full year. Again, perimeter is quite tiny, so that are attributable to the termination of certain attribution agreement in Italy, which, on one end, drove EUR 1,500,000 EBITDA erosion. But on the other hand, was accretive to the EBIT line.
Moving on to Page 29, we have the analysis of financial charges, which to that 15,100,000 versus 14.8 of last year. So more or less unchanged. Despite the lower average indebtedness, 892 this year versus 955 for last year, average indebtedness. With an average cost of net debt of 3.7 percent, which is reflecting the negative carry on its excess cash. On top of that, we have, you know, the negative effect of the first time application of the IFRS 16, which accounted for 1,700,000.
A worthwhile note in the 1,000,000 charge the line, put option, earn out and hyperinflation effect as primarily driven by hyperinflation effects in Argentina, which accounted for to buy €1,000,000. If you look at page 30, we have, you know, the analysis of the group net profit with, you know, the, you know, the year on year performance, the level of pretax profit, 162,000,000 versus 145,000,000 for last year. Still is a double digit performance at the level of pretax profit, up 12.1% in value. And the net, the group net profit adjusted is still up 11.8% at 116 €700,000. If you look at, you know, the the comp in terms of, you know, total adjustments, this year.
We have a $6,100,000 positive effect, which clearly takes into consideration the positive impact of Patent Box were 1,000,000, which more than offset the negative impact of operating adjustments and the relating fiscal effects. Respectively 1,000,000 and 1,000,000. Last year, clearly, we had in the first half, 1,000,000 of positive, but one offs primarily driven by, you know, again, paid in box, but also the disposal of Lemons, so And so, you know, we have a delta of, you know, a meaningful delta, which, you know, create, you know, shortfall as a level of group net profit once we factor in the adjustments of 16.6% in If you move on to Page 32, we have the analysis of, create free cash flow in the first half free cash flow reported came in at 1,000,000, down 1,000,000 versus last year on a reported basis. With a recurring free cash flow that is, you know, what we see as sustainable, cash flow at 1,000,000 meaningfully down versus last year, 1,000,000. The key drivers were the increase in in EBITDA.
The underlying EBITDA was, you know, a positive factor with an uplift of a bill in first half of twenty seven point one million euros. Which was totally offset, more than offset by a temporary, a bigger variation in operating working capital of 1,000,000. Driven primarily driven by lower change in receivable, which accounted for $66,400,000, due to the shift in sales orders from May to the back end of Q2. And that was clearly, as already highlighted, linked to the adverse weather conditions in in May beginning of the quarter. On the other hand, we see that as a negative impact, a higher increase in inventory.
Which, you know, generated a, you know, a negative impact of 1,000,000, And that was part of sale by an increase in Delta Payables of EUR 15,200,000 versus last year, which is a positive, but still in total, data change in operating working capital accounted in the first half for 1,000,000, but this is a temporary effect that will be, you know, absorbed by year end. Page 33. We have, you know, the operating working capital. Operating working capital at June end came in at, 718 versus 636 of la of December. So, you know, an organic expansion of 77.2 with, you know, changes in inventory payables and receivables that are, totally attributable to the to the, to the peak and the seasonal factor, you know, worthwhile, you know, highlighting, you know, the the change in receivable, you know, on a like for like basis versus June of last year that I have just, you know, explained before, which accounted for 1,000,000 of the 77 that we that we see here.
So for the year end, we confirm basically the target of achieving a working capital on sales in line with prior year, which stood at 37.2 percent. Moving on to Page 34, we have the net financial debt, which stood at 1,000,000 by, I think, 90,900,000 versus last year due to the, impact of first time adoption of IFRS 16. Which clearly also lifted the net debt to EBITDA pro form a ratio from 1.9% of last year to 2.1 sorry, 1.9 times of last year to to the level of 2.1 times of June end this year. Page 35, we have the debt maturity profile. Quite solid, long term gross debt of $1,200,000,000 exceeding well exceeding the the overall indebtedness of 1,000,000.
And, you know, at the short end of the maturity curve, you see that net of the Euro bond that is to expire in October of this year, accounting for 200,000,000, almost 1,000,000 we still have in excess of 1,000,000 of cash available to fund potential acquisitions. I think this is it on numbers, Baba Wooda, and, hand it back to to you for, you know, the comments on marketing initiatives and development
Yes.
Thanks, Paolo. A quick marketing recap before moving on to conclusions, but most importantly, your questions This year is an important year for us. We have 2 major celebrations, 100 years of Aperol, which we kicked off of a big bash in Venice who had a live concert in Saint Mark's place. Lots of influencers, journalists, customers that went, on TV afterwards and we duplicated to a certain extent that in many other markets. Campari on the other hand benefited from the 100 years of the Negroni cocktail, the Negroni, as you know, is our proprietary cocktail.
And it's the 2nd cocktail in terms of sales and premium bars. The Negroni Week this year was very successful. We reached almost 13 thousand venues and it's becoming much, much more international. So this will have a nice impact on Campari when we move into the second half. On Sky, we're continuing on the diversity agenda as well as innovating on the flavors side.
Doing the right things on the gin and relaunching a land on the behind the facility entity. To round it up, but some very nice awards collected recently and our brown spirits. And clearly, the one we're most proud of is GlenGrant year old, which was voted by Jim Murray as the best whiskey in the world for the 2nd year in a row. And this clearly vindicates our aging and premiumization strategy on the brand. With regard to conclusion and outlook, I think it's quite clear.
This is a very strong first half driven by combination of both positive underlying sales momentum in core developed markets. And thanks to really the high margin global and regional priority brands, but as well enhanced by a recovery in emerging markets. Now for the full year, our outlook remains actually fairly balanced in terms of risks and opportunities. Looking at it from an organic perspective, we the positive business momentum to continue. Clearly, we wouldn't be surprised if there's volatility in emerging markets in their key seasonality periods.
As you know, Argentina, Russia, as well as Brazil are pretty skewed to Q4. On the EBIT front, we see sustained value growth in EBIT, driven by the positive business momentum. However, our EBIT margin expansion will be moderated by the higher than expected increase in agave purchase price. Which at the same time is exacerbated by the outperformance of the Espolon brand. The strengthening of the U.
S. Dollar against the euro as follow at earlier is expected to lessen in the rest of the year. On the other hand, emerging markets currencies are expected to remain volatile during the second half peak season. So tailwinds and perimeter effects will phase out during the second half of the year. The reported net profit is to benefit both from the net positive adjustments of approximately 1,000,000, driven by the patent box tax relief.
In the year 2019, which will be its 5th and final year net of restructuring provisions as well as related fiscal effects. So net to net, we remain confident in delivering a positive performance across all of our key underlying indicators. On a full
The first question is from Edward Mundy with Jefferies. Please go ahead.
Afternoon, Bob, afternoon, Paolo, 3, please. First of all, aperol, still growing at a very good clip but slightly slower in Q2 versus Q1. I appreciate that we shouldn't take 1 quarter out of context and I appreciate that, comps also tougher but was it really just weather that was an interagunable within Q2? The second question is on rum. I appreciate that the potential Martinique based to run both and it's pretty small and it's more about getting critical mass in France.
But I was interested in what you're seeing at the grassroots level. In rum and how the brand may complement Appleton? And then third is on Palo on margins. I think in the outlook there, you're flagging that EBIT margin expansion be moderated by higher than expected increase in agave, such as price which you flagged at sort of 30 bps in the first half. I was wondering whether you could flush out how you see margins for the full year I'm in light of this outlook, please.
Hi, Ed. Yes, I'll take the first 2. I mean, on that very quick answer, yes, it is clearly wetter because we saw the brand, do very well till the end of April, slow down significantly in May and then take back up. Returning to normal growth rates in June and seeing very nice progression in July. So it's very healthy, very sustained growth on the upper road brand.
With regard to rum, I mean, we, we're believers in rum. We think that rum high quality, dark aged drums, as well as, you know, craft drums like, you know, melkines, we'll do well and they're growing and taking share and mixologists are behind it. There is the return of premium Tiki. So we're starting to see some action there, and it was a nice complement to our Ram portfolio. But as you said, in the, let's say, foreseeable future, it's going to impact more our critical mass in France.
Yes. Ed, with regards to the margin, you're right. We wanted to call out the agave affected. It was unexpected at the beginning of this year. So we were expecting to have, you know, neutral impact of agave this year.
As you know, last year, we had a major increase in agave price. Which overall costs at 1,000,000 at EBIT level. On the contrary, we believe the 30 basis points margin dilution, gross margin dilution coming from agave is expected to continue, to be there in the second half of the year. So for the full year, we're expecting adverse aggregate of 30 basis points corresponding to 5 point 5, 6,000,000 negative impact at both gross margin and EBIT levels. So, you know, in order to to recap where we are on management's overall, we've said that the underlying EBIT margin expansion trajectory is 120 basis points, 120 basis points that has been confirmed both in 201720202018.
From there, you know, a number of aircrafts, you know, the first one is, you know, the, the comeback of EMs of emerging markets that, you know, as we said, are costing gas about 30 basis points, with a more visible impact in H2, clearly where the EMs have their peak season. Then, you know, we have further 30 basis points that are coming from agave. So, you know, we end up with, you know, a potential net gross margin uplift of about 60 basis points. And then probably we may have a little bit of drift in AFP and SG and A that on a cumulated basis, I do not have the crystal ball, but I would assess in the regional 30 basis points. So EBIT margin expansion this year, unfortunately, is not big.
But I would like to underline with regards to agave that if we applied the 26 in agave prices to the 2019 volumes in our business, both Espolon for sure, but also a couple of hours in total. We're, we're talking of a €30,000,000 negative impact at EBIT level that, you know, potentially, we see that as an it is going forward. Clearly, in the short run, agave is not favoring us at all. But, you know, in the long run, clearly, as our tequila business, expands further. You know, the, the opportunity becomes bigger and bigger if, you know, environment the agave price will eventually come back.
Thanks very clear. And I appreciate you don't have a crystal ball, but do you have a sense as to when or if the agave price may come back?
Yes. We believe that 2020, you know, at least that should be should be neutral, you know, and hopefully imagine a positive So, you know, our, you know, seeing the further lift in agave. So basically, we're shifting everything by 6 to 12 months. So for the time being, assumption is neutral, full year 2020 with, clearly, H1 negative impact and too positive. As you know, the price will start coming down, you know, neutral for the full year.
And thereafter, 2021, you know, accretive impact, Then from 2021 onwards, we believe, if the analysts forecast are made, that the, you know, the agave price will fall quite dramatically. So it won't take much to to go back to normality, but the inflection point is not yet achieved. That's the point, not in 2019.
Great, clear. Thanks so much.
The next question is from Trevor Sterling with Bernstein. Please go ahead.
Morning, Bob and Paulo. Two questions from my side, please. One is, I want to, Bob, can you just give us a little bit more color on Aperol in the United States? Has there been a weather impact there as well as the beer companies have been talking about that. And secondly, Paolo, just looking at the phasing of the margins, it looks as if there was maybe flat margins in H sorry, in Q2, maybe slightly down, but also looks a lot of that, that was the ramp up in A and P the sales enhancements, is that the right way to look at it?
Yes, I'll take the first one. Hi, Trevor. I mean, there was slight slowdown in May, but I mean, after all is growing at a very strong rate in the U. S. And we were especially very pleased to see.
I mean, you might have noticed that there was quite a negative, press, I mean, press clipping an article, which came out in a major national newspaper. And then within 48 hours, really thousands of our consumers, celebrity normal people are retaliated very, very fiercely defending the brand and underlining their love for the brands. And that really encourage us to think that we've got a bright future in the U. S. We're growing in on the 45, 50% clips which is quite nice because every year, the base is getting bigger.
Yes. With regards to the margin progression, the second quarter of this year, we clearly had an acceleration of growth in existing business of gross profit expansion. In Q1, you know, group achieved 20 basis points in Q2, the gross profit expansion accounted for under 30 basis points, so quite a change. And that was clearly driven by the Aperity portfolio in high margin geographies. And on the other hand, as we had guided, in March, the A and P phasing is quite adverse in Q2 and Q3.
So the step up of A and P in in the second quarter was, was strong. So that, you know, drove to a lower EBITDA margin expansion in the in the second quarter of this year.
Great. Thank you very much.
The next question is from Marianne Boucheron with Demet First. Please go ahead.
Hi, good morning. 3 questions for me, please. The first one, just following up on A and Ps. So I think there is a phase in Q2, Q3, but in full year, are we still looking for a flattish level, give or take, 20 bps. And then the other question is on a ramp.
So you mentioned that you reached critical mass in France. Does this imply that you could open your own routes to market there, wants to deal, is finalized? And then just on April, when you were saying that, June, you were back to normal growth level. What's your really called normal growth level? There is more than 25%.
So we're getting somehow used to see that last year and the beginning of the year?
Yes, let me start with the last question you had. I mean, Aperol in, if you look at markets like Germany, on a half year basis, it ended up growing by 10%. If you look at it now at the end of July, we're back to about 18% growth. So on a market by market basis, there's clearly a nice boost to it. Yes.
I mean, I'm not going to comment on the overall number because it's going to be a strong sustained double digit growth going forward, exactly difficult to pinpoint. I mean, the good thing on the brand is that if you look at its core markets, 15 years down the road, Italy is continuing to grow double digit And that's thanks to, it's benefiting from the meal occasion that the strategy is working. And this more and more is being picked up across other markets in Europe. So we feel pretty good about the market. With regard to France, I didn't actually say that, the rum helps us reach critical mass.
I said that helps add to our fulness in France. I mean, at the end of the day, France is clearly a large and strategic market for us. When we reach critical mass, we'll end up having our own route to market. The question is not if, it's more, when and how? With regards to A and P, yes, we'll we pretty much we confirmed the in line with last year give or take, 20, 25 bps either way.
The next question is from Nico Von Stackelberg with Liberum. Please go ahead.
Hi guys, some really strong results out of Italy and the USA for the first half. If you look at the first half growth versus, you know, the last 3, 4 years worth of, organics, it's it's broadly double for both of these two market. So I was just wondering how much of this is shipment phasing and as we think about the full year growth for these 2 big important markets, should we expect some deceleration?
Yes, we'd expect, I mean, both markets to normalize, looking at Italy, we'd expect Italy on a full year basis to be low to mid single digit growth, which is excellent in this market and the U. S. To normalize around mid single digit.
Okay. Thanks. And I guess just one more question on the free cash flow, so a little bit softer than maybe it was at least last year for the first half. Could you just comment again? So what you're guiding for is really just the operating working capital as a percentage of sales to be in line with the previous years.
Is that right? And anything else you can provide to help us model that free cash flow for the full year? Thanks.
Yes, thank you for the question. Yes, we confirm the guidance you know, targeting for full year, you know, the 39.2% on sales that was, you know, last year. And you know, what we've seen in H1 is due to, you know, different weather conditions in a peak water, you know, Q2 has to be seen as a temporary effect. Is not structural. It will not impact the full year performance of the cash.
Okay, thank you.
The next question is from Paula Carboni with Equitacim. Please go ahead.
We're expecting the question.
Yeah, in fact. Here I am. How are you? Okay. Now just a very, very quick one, on the margin indication you gave for, you've given for the year?
Actually, if I got it right, you said the 60 basis point, gross marginal uplift could become something more and the tune of plus 30 bps at EBIT level, which would imply a 30 bps dilution from AMP and SG and A then, we we assume that AMP could be, practitioner for your basis. And also if I think back to the latest call in May. You seem to allow for, possibly a fetish incidence of both of these two lines, in the light of the, I mean, quite robust top line growth, which, is being confirmed at the end of the day. So I was wondering whether we can still, hope for a flattish, AMP and SG and A, incidents on revenues given, the healthy top line. Thank you.
Yes, you know, with regards to the gross margin, you know, I confirmed that, you know, 60 basis points is, you know, net gross margin uplift is at the moment, you know, the best case scenario, you know, clearly there are, you know, upside upside and side risks, but these are fairly measured and balanced. Clearly, there is an opportunity sitting on after all, but we do realize that there are also certain risks to manage. So I think the 60, including the dilutive effect of emerging markets accounted for 30 basis and the unexpected, the agal impact of the 30 basis is for estimate and gas at this stage of 2019. With regards to E and P and SG and A, clearly, we're, we're exploiting the very solid, you know, top line momentum to take the opportunities that we see on our operative, as you know, group of priority brands. So clearly the guideline is, you know, flattish on sales, but, you know, we believe that between A and P and, you know, investment in, you know, on premise capabilities that route to market, there could be a chance of seeing a cumulated 30 basis points dilution on a full year basis.
You've seen the trajectory in H1 has been quite indicative of that the deposit clearly, when we look at AMP and SG and A as a percentage of sales, this is a function of the top line development. So it all depends on you know, how quickly our, you know, top line will will develop in in second half. So that's, you know, still, you know, the question mark quite we plan A and P and S and A in value terms. And so that's still too early to call, but we flagged that risks.
Okay. And sorry, just to follow-up, I said on Grand Marnier. You commented to weakness with the material phasing, but I would be more interested in understanding, I mean, what the state of the art, for your business in Europe, where, I mean, clearly, the relaunch is a bit delayed compared to the US, which instead is growing nicely. And so, I was wondering, what is going on in Europe at the moment and what the next steps will be?
No, actually, Paolo, the Europe is going according plan in some markets slightly better than plan. We've always said that it's going to take a lot longer to, you know, go from the plate dessert playback into the cocktail glass in Europe. So we're taking our time. We're doing the right things, and we feel very good about the brand.
Okay. Thanks.
The next question is from Andrea Pistacchi with Deutsche Bank.
Yes. Hi, Bob. Hi, Paolo. A couple of questions, please. The first one, if you could give a bit more color on the U S.
On some of the phasing aspects of the U S. In Q2, I think, for the rest of the year, I mean Espolon was very, very strong in Q2. There's good underlying momentum. What do you think is the underlying momentum of this pull on. And if there was a phasing, effect in Q2, what drove this Second question, please, if you could give a little bit more color on the opportunity that you see for bolt on, particularly outside of the U.
S. I think in the presentation, you mentioned seeding markets like Italy, Australia, Canada, can give a bit of color on the progress that's making you're making there and the opportunity. And the final question, again, probably phasing things, but Latin America, you had a strong Q1, Q2 seemed to be down double digit in some markets, particularly particularly Brazil. Is this mainly phasing or are you seeing a bit of a sort of underlying deterioration in the business in the markets there? You had seen a bit of improvement, but now is it getting a bit worse again, maybe?
Well, Andre, I mean, on that time, where we see volatility, I mean, frankly, we're going to have ups and downs throughout the year. Having said that, on a full year basis, we'd expect the whole region to come in mid single digit. So nothing to worry about, but we can't also expect miracles from the region. With regards to Espolon in the U. S, I mean, Polon is if you look at Natgas and Nielsen is running anywhere between 30five-forty, sometimes a little bit higher than that percent.
There is a little bit of a shipment phasing in Q2 as we have a major marketing campaign, which kicked off last week actually. Behind the brand. So we wanted to ensure where the stocks in place throughout the free, free tier channel. The brand is developing very, very nicely outside of the U. S.
I mean, if you look at the likes of Italy, it's the largest tequila brand in Italy. But having said that, the tequila category is still small. So The brand is doing a very nice job, but, you know, the tequila has concentrated in the U. S. And Mexico.
It'll probably take a few years. For the international numbers of Espolon to impact the overall brand.
The next question is a follow-up from Nico Von Sackerdorf with Liberum. Please go ahead.
Hi guys, can you just give me a quick breakdown in the U. S, the rough portfolio. Can you just tell us how big is Sky now? How how big is Escalon? How big is Aperol?
Maybe some of the big trademarks roughly by sales, please.
So this is not anything on top of the mind, Nikko. I mean, we'll have to look at some of the data. I mean, now the Grand Marnier is roughly about, on a value basis, around 21%. Skye is about 18%. While Turkey is around 13% as spot on 13% American Honey 7, up arrow 6, Campari 5.
So we can go on and on, but
And that's as of the half year?
Yes.
Okay. No, thanks guys. Really appreciate that.
We have a pretty balanced portfolio now in the U. S. We've come really a long, long way. Absolutely. Thank you.
Mr. Kunze Concewitz, there are no more questions registered at this time.
Thank you all for joining us. We wish you a wonderful with lots of opportunities and Negroni's and, looking forward to catching up, after we've been back on vacation. Thanks. Bye.
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