Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining Campari Group's first quarter 2019 financial results presentation. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Bob Kunze-Concewitz, Chief Executive Officer of the Campari Group. Please go ahead, sir.
Thank you very much. Good afternoon, everyone, and thanks for joining us on our Q1 2019 call. This is my custom. I'll ask you to follow me on page number four of our presentation so I can kick off with the key highlights. As you know, Q1 is a small quarter for us, on average, 20% of our sales, but it's always nice to start the year well, and the figures certainly are testimony to this. Starting off with the net sales, we've had a very positive organic performance in the quarter, up 9.6%, and this is driven by the solid growth of our global priorities in our core developed markets, and this despite the late Easter. On the other hand, the results were also enhanced by a recovery in emerging markets, which were helped by a favorable comparable base last year.
Looking at it by brand, the global priorities are continuing to outperform, growing double digit up 12.6%, with the usual suspects, Aperol, Campari, Wild Turkey, Grand Marnier, and the Jamaican rums. Though, I'm pleased to report that SKYY Vodka was slightly up this quarter, up 0.7%, driven by the international markets, and we're continuing to reduce the gap between shipments as well as our depletions in the core U.S. market. Our regional priorities were up 7.8%, driven by Espolòn, Cinzano, which made a comeback, Frangelico, Forty Creek, and Glen Grant. Looking at it on a geographical basis, we've had solid growth in high margin developed markets driven by North America and Western Europe, with a strong recovery in lower margin emerging markets, particularly Brazil and Russia, as well as Argentina, which all had an easy comp base.
It's important to underline that this organic growth excludes actually the positive price effect in Argentina of 90 basis points in the quarter. On a reported basis, we're up double digit, 10.1%, with a positive Forex effect of 2.6%, more than compensating for the negative perimeter effect of negative 2%. Looking at adjusted EBIT, we have an organic growth of 15.4%, well ahead of the organic sales growth, generating so 100 basis points in margin. This is driven both by the combined effect of a more contained gross margin expansion, mainly due to the dilutive effect of the strong growth in the lower margin emerging markets, as well as the tough comparison base. Last year, we were up by 250 basis points in the first quarter.
On the other hand, on the positive side, there is a slower growth in A&P investments, although they have grown quite significantly, but less than sales, as well as a higher absorption of fixed costs due to the strong sales growth. On a reported basis, we are up 18.5%, again, thanks to the positive effects here, which had a 5.1% impact, which more than offset the negative perimeter impact of 2%. Looking at pre-tax profit on an adjusted basis, up 16.5%, and on a reported basis, down 17.4%. You will recall that last year in Q1, we had the one-off related to the sale of our soda business. Net debt, on the other hand, came in at EUR 893.9 million, so a little bit higher than at the end of 2018, up EUR 47.7 million.
This is due to a change in accounting treatment with an increase of EUR 83.3 million attributable to the first time application of the IFRS 16 pertinent to leases. This brings us to a net debt to EBITDA pro forma ratio of two times. Moving on to chart number nine in the Americas, because we will be covering all the other info anyhow in more detail. The Americas, our largest region, 48.3% of the total, growing on a reported basis by 19.2%, and on an organic basis by 14.1%. The largest market here, North America, up double-digit organically, 11.9%, driven by the U.S. growing by 11.2%. In the U.S., we had a solid start to the year, thanks to the double-digit growth in Grand Marnier, albeit with shipments here phasing ahead of depletions.
Solid performance behind Wild Turkey, the whole portfolio, very strong Aperol, Campari, Espolòn, and the Jamaican rums. The SKYY portfolio declined by a mid-single-digit on a shipment basis, and it continues as expected to be affected by the destocking exercise, but it is closing the gap, as I said earlier. SKYY core, both in terms of depletions and consumption, is actually positive as we speak. Jamaica had a very strong quarter, up 22.9%. Very positive mix driven by the double-digit growth in the core Wray & Nephew Overproof, Campari and Appleton Estate. Local brands such as Magnum Tonic Wine also did quite well. The rest of the region was up 5.8%. Canada did extremely well, up 15.9%, thanks to Aperol, Forty Creek, Appleton Estate, and Grand Marnier. Whilst Mexico declined 4.9%, largely driven by the phasing of the Jamaican rum brands, which are tied to the late Easter.
On the other hand, SKYY Ready to Drink and SKYY Vodka were positive. Moving on to South America, up 25.6%. This region is clearly impacted by a very weak negative comp base last year. Brazil up 41.8%. You will recall we were down 42.1% last year. But overall, we have a nice double-digit growth both on the local brands, but most importantly on Campari, Aperol, very strong growth, and SKYY Vodka. Moving on to Argentina, where we were down by 5.2% last year. This year we are up 19.6%. Clearly, the comp base helps a little bit, but very good underlying performance with Cinzano Vermouth making a comeback. Aperol, very strong. The rest of the region was down 7.2%, as it is mostly partnership markets where the distributors align the shipments to arrive in Q2 in time for Easter. Moving on to Southern Europe, Middle East and Africa.
Very strong results for this region, seen from their perspective, up 6.4%, with Italy doing very well. Italy growing by 6.4%, very solid start to the year. Very nice to see continued sustained double-digit growth of Aperol, up 14.5%. Solid growth of Campari, 5.6%. A return to growth of Campari Soda. On the other hand, Crodino was soft, but we expect to improve this as the year progresses. The rest of the region was up 6.5%, doing very nicely in France, thanks to Aperol and Glen Grant. Again, here our shipments were actually lower than our local in-market depletions. Nigeria was quite strong, thanks to Campari, Wild Turkey. South Africa as well, but that's to a large extent due to a very soft comp last year. Global travel retail continuing its strong progression up 55.8%, behind Aperol mostly, Glen Grant, as well as Appleton Estate.
Moving on to North, Central, and Eastern Europe, very strong organic growth of 11.6%. The largest market, Germany, up 9.7%. On the one hand, yes, it had an easy comp base, but clearly it didn't have the Easter in Q1, so I would say those two balance each other out. A very nice double-digit growth of Aperol, up 24%, and continued positive performance on Ouzo 12, Frangelico, the Cinzano sparkling wines, which more than offset some softness in Averna, although Averna is coming back. Campari, which was impacted by a price increase, which we took in the month of January. As you know, Germany is not really an easy market when it comes to price increases. Having said that, we're pretty happy with how the brand is performing. Moving on to the U.K., up 10.4%. Positive start to the year.
Continued outperformance of Aperol, Campari, and Cinzano Vermouth, as well as the Magnum Tonic Wine. These are altogether offsetting the temporary declines on BULLDOG and the Jamaican rums. Russia, up 18.5%. Clearly this is a combination of both an easy comp base, as well as very strong growth in our higher margin brands, particularly Aperol, Espolòn, and Wild Turkey. Whilst the Cinzano portfolio, we did quite well on the Vermouth. Mondoro, the premium sparkling wine, continues to do very well. The rest of the region was up double digit, 12.4%, doing very nicely across markets, with Austria driven by the aperitifs. Very strong growth in seeding markets for Aperol, such as Scandinavia and the rest of Eastern Europe. Last but not least, Asia Pacific. This is actually a region which was impacted by the late Easter, as most of our retailers decided to de-stock in the month of March.
We had a very strong actually start of Q2, the month of April, related to that. Overall, Asia Pac down 3.1%, with Australia down 2.3%. This clearly impacted the most the Wild Turkey bourbon portfolio. On the other hand, Aperol, despite the Easter effect, SKYY Vodka and Espolòn are continuing to do quite well. The rest of the region down 5.3%, but here the biggest impact came from Japan, which was down double digit due to a very tough comp base last year where we were up by 140%. Moving on to page number 13, the only thing I'd like to underline is the share of the pie, which keeps on increasing for our global priorities, higher margin brands. Now they're up to 58%, this is 300 basis points versus last year.
Looking a little bit more in detail, the performance by brand, Aperol, very sustainable growth across the different clusters of markets. Our established markets are growing very nicely, double-digit. Italy, Germany, Austria, and Switzerland. We've had a very strong start across the rest of the markets, particularly in the U.S., Russia, U.K., Australia, Spain, GTR, Scandinavia, and Eastern Europe. Net to net, the brand is progressing nicely, up 26.8%. Campari was up 9.2%, despite the negative impact of the price increase in Germany. The core market, Italy, is doing nicely, up 5.6%, and we have double-digit growth across the rest of its core markets. Clearly, this year is an important year. It's 100 years of the Negroni, so we'll start benefiting from that from June onwards.
Grand Marnier had a very strong quarter, up 10%, but as I said earlier, this growth is particularly driven by shipments phasing in the U.S., where we were up 15.3%, and this is ahead of depletion, so we'll have this evening up during the rest of the year. Canada, giving us satisfaction, up 10.1%, and the rest of the markets are a little bit mixed, as you know, we're relaunching the brand there. Moving on to the following page, the American whiskey portfolio overall up 10%. A nice start for the Wild Turkey, up 4.6%, but very positive contributions from the premium variant Longbranch. All this helped offset the declines in Australia, where we were down 4.5% due to the late Easter. The higher margin Russell's Reserve continued to register double-digit gains, as well as American Honey. Moving on to SKYY Vodka.
It's nice to see a positive figure here, up 0.7%. As I said earlier, the U.S. is improving its trend, but on the other hand, positive growth in international markets compensated for the weakness we have there in terms of shipments. Moving on to the rums, up 10%. Wray & Nephew Overproof up 15.3%. Very solid trends in international markets, but also a very strong Q1 in Jamaica, which benefited from positive shipments ahead of a price increase, which came on at the beginning of April. Appleton Estate also did nicely, up 8.4% with a broad-based growth across Jamaica, the U.S., GTR, and Canada. Moving on to our regional priorities. Espolòn continues its strong double-digit growth, up 22.7%. Nice, mostly driven by the U.S. because of the size of the U.S. market on the total brand. BULLDOG, on the other hand, slowed down.
It came in at 1.6%, where nice positive growth in Belgium, GTR, Germany, and Brazil, which helped offset weakness in its core market of Spain, where the gin category is impacted by a lot of craft launches, and particularly the so-called zero kilometer gins, where every Spanish city now has 10 different craft gins on the market. Moving on to the whiskeys. Glen Grant benefiting from premiumization and the focus on the age portfolio, up 6.4%. Forty Creek was up 9.8%, thanks to a sturdy performance in Canada, 11.5%. Moving on to the Amari. Starting up to pick up speed, up 3.7%. We could have done a lot better, but we had severe restrictions on product availability for the Braulio brand. That's the only one which is aged, and this situation should improve in the quarters to come.
The Cinzano brand, as I said earlier, up 11.1%, with Vermouth up 14.6%. Both Argentina and Russia came back. We also have a positive performance in the Czech Republic. Sparkling wines grew a little bit less, up 8.3%, mostly thanks to Germany, whereas Russia was slightly up and Italy was soft. The remainder of the sparkling wines were down 2.6%, but here what's more important is that the higher margin Mondoro brand was up at a nice pace, whereas Riccadonna was impacted more by the Easter promotions. To close it all up with the local priorities, Campari Soda starting to give us satisfaction, up 2.3%, whereas Crodino still down mid-single digit. As we will relaunch the brand, we expect this trend to change in the second half of the year.
Our Australian bourbon ready to drink business was flattish. This was mostly impacted by the late Easter this year, and April was a good catch-up. The Brazilian brands benefited from the very easy comp base, up 55.7%, whereas the nicely growing and profitable Ouzo 12 brand continued to grow by 5.6%. Cabo, on the other hand, was negatively impacted by shipment phasing. It was down 10.2%, but we're relatively confident about the good performance of the brand from a depletions and consumption standpoint. This will revert in the remainder of the year. This is the review from a sales perspective. Now passing on to Paolo to take you through the numbers.
Thank you, Bob. If you follow me to page 21, we have the key highlights on EBIT adjusted. Gross profit, on a reported basis, was up in the first quarter by 11.9% in value to 60.5% on sales, with 100 basis points overall accretion. In existing business, gross profit was up 9.9% in value, with 20 basis point margin expansion, notwithstanding the tough comp of last year, when in first quarter group delivered 250 basis points accretion. Organic growth of gross profit was ahead of top line, thanks to a very favorable sales mix, overcoming the adverse agave purchase price, which accounted in the first quarter for about 30 basis points, as well as due to the dilutive effect generated by the very positive performance of the lower margin emerging markets.
Forex and perimeter combined effect in the first quarter was 2% in value, positive, with 80 basis point margin accretion driven by the tailwind effect of the previous year's transactions, mainly the termination of lower margins agency brand distribution. AMP on a reported basis was up 8.6% in value to 15.9% on sales, with 20 basis points accretion. In existing business, AMP growth accounted for 6.3% in value, lower than the strong top-line growth, thus generating 50 basis point margin accretion. The combined effect of Forex and perimeter in the first quarter accounted for 2.3% in value, with a 30 basis point margin dilution driven by the tail end effect of termination of low AMP intensity brand distributions. SG&A expenses on a reported basis were up 9.4% in value to 25% on net sales, with 20 basis points accretion.
In existing business, SG&A expenses grew by 8.2% in value, with a 30 basis points margin accretion driven by the higher absorption of fixed structural costs due to the strong top-line growth, which in existing business accounted for, as we saw, 9.6%. The combined effect of Forex and perimeter in value was 1.2% with 10 basis points margin dilution. EBIT adjusted came in at EUR 72.4 million, with a reported basis increase of 18.5% in value to 19.6% on net sales with 140 basis points EBIT adjusted accretion. In existing business, EBIT adjusted grew by 15.4% in value with 100 basis points margin accretion, with a negligible impact of IFRS 16 first time adoption, which accounted for EUR 0.5 million in value and just 10 basis points in terms of margin accretion. The combined effect of Forex and perimeter accounted for 3.1% in value, with a 40 basis points margin accretion.
EBITDA adjusted on a reported basis was up 19.9% in value to 24.2% margin on sales, showing 200 basis points accretion. The EBITDA adjusted does factor in EUR 3.1 million incremental depreciation due to the first time application of IFRS 16. In existing business, EBITDA adjusted grew 17% in value with 150 basis points margin accretion, whilst the combined effect of Forex and perimeter accounted for 2.9% in value and 50 basis points margin accretion. If you move on to the following page 22, we can see that EBIT adjusted of EUR 72.4 million was up overall by 18.5% on a reported basis to 19.6% margin on sales, showing 140 basis points accretion.
If you look at the existing business, EBIT adjusted was up by 15.4% in value, well ahead of top line, driving an overall 100 basis points accretion, driven by 20 basis points coming from gross margin, 50 basis points coming from AMP, and 30 basis points coming from the SG&A. The effects accounted in isolation for 5.1% in value or EUR 3.1 million, driving 40 basis points accretion, and perimeter had a negative impact of 2% in value and was neutral on margin. If we factor in the negative effect of the comp base on operating adjustments, where last year we recognized EUR 21.6 million of gain on the disposal of the Campari Soda business, net of last year provisions. The EBIT following the tax comp base on the one-off slide was down on a reported basis by 13.3% in value to EUR 71.7 million.
If we move on to page 23, we can see net financial charges at EUR 8.3 million in the first quarter of this year, up by EUR 2.6 million versus last year, despite a lower average in net debt in the first quarter, down from EUR 960 million to EUR 870 million this year. The increase in the net financial charges was due primarily to an increase in the average cost of net debt to 3.7%, up from 2.7% of last year, reflecting the negative carry effect on excess liquidity. Secondly, the effect of the first time application of IFRS 16, which accounted in the first quarter for almost a million euro, EUR 0.9 million. Group pre-tax profit adjusted of the one-off effect was up 16.5% in value, whilst if we factor in the one-off effect, the group pre-tax profit clean was down 17.4% to EUR 63.2 million.
If we move on to page 25, we can see the net financial debt, which stood at EUR 893.9 million as at March end versus EUR 846 million of March last year, with an increase of EUR 47.7 million, which clearly as already anticipated, totally due to the step up due to the first time consolidation application of the IFRS 16 amounting to EUR 83.3 million. On a pro forma ratio, net debt to EBITDA at two times at March 10. I think this is it on numbers, Bob.
Yeah. Thanks, Paolo. I'll close up with just a quick review of marketing initiatives and the conclusion. This year on Campari is an important year because we're celebrating the first 100 years of the Negroni. As you know, Negroni is our star cocktail, and the number 2 cocktail in premium bars. It was the hero subject of our Red Diaries 2019 film, "Entering Red", as we're going to follow up with a big emphasis on the Negroni Week next month, then with the reopening of the Camparino in September in Milan. On Aperol, the orange wave continues. Some of the statistics are impressive. As you know, we're sponsors of the Australian Open, during that month, we actually sold 180,000 Aperol spritzes, and it was by far the number 1 most sold beverage at the tournament.
We're doing some interesting fun things such as door by door delivery of Aperol spritzes in the U.K., de-seasonalizing the brand during ski season. Continuing to execute, hopefully, even better than previous years, our 3-stage success model. In terms of other brands, we've been getting quite a few awards, whether it be in the world of gin, single malt, or Canadian whisky. On BULLDOG, we have a new global campaign hitting the waves, we expect that to impact us. As we speak, we're rolling out the relaunch of the Cinzano Vermouth range, going back to the original vermouth formula. That makes us the only large vermouth brand going back to the original vermouth formula, and we think this will do the brand a lot of good, and at the same time, we're premiumizing it with the 1757 range.
Continuing to premiumize the Grand Marnier Cuvée range, rolling out the new Louis Alexandre with new packaging and new liquid, which seems to have had quite a positive response in the U.S. To conclude, strong start to the year, despite the latest Easter. It is driven by a combination of both positive underlying momentum in core developed markets, also enhanced by recovery in emerging markets, as well as by a favorable comparable base in a small quarter. For the full year, looking ahead, our outlook remains fairly balanced, both in terms of risks as well as opportunities, and unchanged to the previous announcement. The underlying performance will see continued positive business momentum and sales growth. This despite the uncertain geopolitical and macroeconomic environments. From quarter to quarter, it will reflect different comparison bases.
The previous year's EBIT organic margin expansion is expected to continue, supported by gross margin accretion after reinvestments into the business, particularly our on-premise capabilities, as well as our development of brand houses. Looking at Forex and perimeter effects, clearly, there's continued volatility of some currencies as well as the tail end effect of the previous year's transactions, but we expect them all together to be less adverse than last year. Net profit reported is expected to benefit from the net positive adjustments of approximately EUR 14 million, which are driven by the Patent Box tax relief in Italy, in what will be its fifth, and unfortunately its final year. Net in net, we remain pretty confident in delivering a positive performance across all of our key underlying business indicators in 2019 as well. Having said that, more than happy to take your questions.
Thank you, sir. Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star 1 on a touch-tone telephone. To remove yourself from the question queue, please press star 2. Please pick up the receiver when asking questions. Our first question comes from Edward Mundy of Jefferies. Please go ahead.
Afternoon, Bob. Afternoon, Paolo. Three questions, please. You've flagged the timing of Easter as a negative for the first quarter. I was wondering whether you were able to quantify how much that impacted your Q1 sales. The second is on fading of A&P. Is this business mix, or are you just keeping your powder dry for the summer with Aperol and Negroni activation through the year? The third question is on Aperol. Appreciate it's still a very early part of the year, but you got off to a pretty good start. Does it feel like a 20%-30% type of year, or does it feel like this is something you could do a little bit stronger than that range? If you could provide any color on that.
Thanks, Ed. I'll take all three of them. The timing of Easter clearly had a negative impact on Q1, but I must say, on the other hand, we also had an easy comp base. I would, without getting too scientific, say that the two of those effects, easy comp bases in emerging markets and the delayed Easter, to offset each other. With regards to A&P, yes, you're absolutely right. Q2 and Q3 are going to be the key seasons for a lot of our brands, but most particularly the aperitifs, Campari, and Aperol. You'll see a hike in A&P in those two key quarters. With regards to Aperol, what to say? You know the business model as well as us.
The three-stage model is working, the testimony for that is that the existing, the established markets are continuing to grow double-digit as we enter new usage occasions, food pairing. We only have four markets in that stage. We have about five to six markets in the de-seasonalization phase, and they're doing very nicely as well, whereas the rest of the world, sort of the bulk of markets, are actually growing at a very strong double-digit rate. We'll see what happens. Clearly, we're not shy. We try to execute better every year, but at the same time, we have two important quarters in front of us. I think we'll add a lot more color when we talk next at the end of July.
Understood. Thanks. Just on Aperol within the U.S., clearly there's an element of de-seasonalization that's probably going on, but you've also got some of the warmer states contributing to Aperol growth. Are you able to quantify what Aperol growth was in the U.S. in Q1?
Well, Aperol grew around 60% in the U.S. if we look at our consumption indicators. In those markets where you have a warmer climate than where we had our activations, it was growing in the 90%-100% range.
Okay. Thank you.
The next question is from Trevor Stirling of Bernstein. Please go ahead.
Hi, Bob and Paolo. Going back to the question of A&P and SG&A and gross margin and the interlinking between the three, we've got used to the idea that gross margins across the year, most of that will get reinvested into A&P and SG&A. This quarter, clearly the top line was so strong that that wasn't the case. Would you expect across the balance of the full year that we'll see both A&P and SG&A catch up a little bit?
Hi, Trevor. I'll try and answer your question. With regards to the gross margin, we'd confirm the guidance that we've given for the beginning of the year, the back end of last year, sorry, which is the group is having a sustainable gross margin expansion, all being equal, of about 120 basis points. You have to take into consideration that last year, due to the very poor performance of emerging markets, We had a positive impact last year on gross margin due to a poor performance of emerging markets, which we quantified in about 30 basis points. Looking into 2019, the 30 basis points accretion driven by poor emerging markets performance is destined to bounce back. That will be a negative to gross margin expansion for this year.
In terms of phasing of this emerging market effect, this is very much front-loaded because the performance of emerging markets last year was particularly poor in Q1, Q2, and we're seeing the effect now. The second effect that we have in the first quarter is the phasing of the agave effect, the agave price hike, where basically, we're still currently buying at higher pesos per kilo versus Q1 of last year, and this is destined to normalize over the course of the full year, with potentially declining prices at the back end of the year. Again, the negative effect is very much front-loaded on agave. For the time being, we're expecting agave to have no effect on a full year basis on our gross margin.
Looking into the phasing of gross margin expansion, we're expecting Q2 and Q3 gross margin to expand stronger than in Q1, where basically, the effect of the very strong momentum on our global priority brands is to more than offset the two negatives of emerging markets and agave effect. Looking into the A&P line, we confirm our guidance of last year, A&P on sales with a 20, 25 basis points flex up and down. Again, as Bob has just mentioned, clearly to support the strong development of our aperitif portfolio, Q2 and Q3 are particularly heavy in terms of A&P on sales. Worthwhile noting the fact that even if you look at Q1, A&P in value terms was not held back because it grew by 6.4% in value. It's just accretive because the top line in existing business is way faster than the increase of A&P.
Looking at SG&A, for the full year, we're not envisaging a major drift. Clearly, accretion and dilution quarter-on-quarter would very much depend on top-line performance. The stronger is the top line, the higher is the accretion that you see in the P&L as it happened in the first quarter of this year. Hope I've answered your question.
Happy as ever, Paolo. Thank you very much.
Welcome.
The next question is from Ferdinando Scianna of Bank of America. Please go ahead.
Thank you. Good afternoon, Bob and Paolo. I have three, please. First one on Aperol, maybe for Bob. Can you remind us how relevant are the seeding markets relative to the established markets in terms of sales today? If you can broadly compare how those two groups of countries are growing, please. Second one on Grand Marnier, just to check if you think the underlying growth of the brand is still between low-to-mid-single digits despite this stronger start to the year. Maybe the last one for Paolo, just another one on AMP and SG&A. In the last couple of years, we've seen the ratios of AMP to SG&A, and SG&A growing way ahead of sales, which we didn't see continuing now in Q1. As you mentioned, we are going to see some pickup in those lines throughout the year.
I just wanted to understand from a medium-term basis, are we reaching a point where the ratios there are reaching closer to a normal plateau in your view? We're not going to see both AMP and SG&A growing way ahead of sales. Thank you.
I can start with the third question so that we follow up on Trevor's question. It's confirmed. We're not seeing AMP or SG&A meaningfully moving as a percentage of sales on top line, which would mean that if the top line moves faster than expected, we have a little bit of room to accommodate further AMP step up to fuel further growth on our global priorities, and particularly, the Aperol and the aperitifs. With regards to the SG&A, we don't see any major drift in terms of SG&A on sales. Clearly, the momentum on top line is very strong, and that clearly simplifies the management of the two lines, AMP and SG&A.
Let me take the other question. On Grand Marnier, yes, you're right. I confirm the fact that the underlying growth of the brand is somewhere between low-to-mid-single digits. That's what I would take into consideration, and there might be some disruption due to the introduction or the renovation of the Cuvée line this year. We'll see how that goes. Now, moving on to Aperol. Our seeding market, so-called seeding market, so basically, it's most of the markets in the world, represent about 20%-25% of the total. If we take our top 10 markets, they represent about 75%-80%. If you look at the different growth rates, our established markets, let's say the top four, are growing anywhere between 12%-15%, 16%, 17%. Although Germany is growing faster than that.
If we look at the des seasonalizing markets, they're growing much higher than that, I would say at least twice. Whereas the seeding markets are growing four to five times as fast as our established markets. That gives you a little bit of a perspective.
Thank you.
The next question is from Simon Hales of Citi. Please go ahead, sir.
Thank you. Hi, Bob. Hi, Paolo. Just going back to the shipment phasing, particularly around Grand Marnier, but also across the wider business. Are you able to quantify, Bob, just how much of the strong sales growth in Q1 just came as a function of that stock build, particularly in the U.S., but also in Jamaica? Second, maybe a quick one for Paolo. Obviously, you flagged the average cost of debt has creeped up in the first quarter. Can you remind us what the guidance is for the full year in terms of how you're thinking about interest cost coupons?
In terms of shipment phasing, if you look at it, we'd expect a balanced approach, because, yes, in the U.S. and in Jamaica, there are some sales, which were phased into Q1. On the other hand, all the other partnership markets, we actually have a phasing more into Q2 because of Easter, and the same in some established markets, such as in Australia. I would say it's pretty balanced. Looking at Grand Marnier, more particularly, I think Grand Marnier is growing somewhere between 3%-5% from a consumption standpoint and depletion standpoint. That gives you an idea of how much phasing we've had. In Jamaica, that's a market which goes up and down. We're still growing consumption, which is incredible on White Overproof in the high single, low double-digit numbers. The brand is in pretty good health.
Clearly, there's some speculation due to the price increase, which happened at the beginning of April.
With regards to the financial charges for 2019, we're expecting financial charges to come in at about EUR 35 million-EUR 36 million, including the impact of IFRS 16, which accounts for about EUR 3.6 million. Would be excluding the IFRS, about EUR 32 million interest on outstanding debt. If you take a look more into the long run, our long-term cost of debt on the gross debt, excluding liquidity, has been reduced from 2.35%-1.97%, and this is clearly attributable to the fact that the new issuance was finalized at 1.65%. Actually, we're reducing the cost of debt. As the liquidity piles up, we have a negative carrier effect, which is lifting the coupon as a percentage of net debt.
That's clear, Paolo. Bob, just coming back on your comments. If I pull it all together and look at all the technical moving parts in the first quarter, you flagged that the timing of Easter was clearly a negative, but that probably was offset by the emerging market bounce you got against an easy comp. You've then got some shipment phasing, which there's some puts and takes on. Overall, is the 9.6% organic growth you delivered in the first quarter, do you think that's a real guide for what the true underlying organic growth rate is of the business, ex all of those technical moving parts?
At the current moment, yes. I would say that's the underlying rate. We're only at the beginning of the year, how important Q2 and Q3 is for us, so I'm not making any prognosis at this stage.
Very helpful. Thank you.
The next question is from Ms. Marion Boucheron of MainFirst. Please go ahead, madam.
Hi, everyone. Two questions for me. Just on Germany and Italy and Aperol in these two markets. We saw it accelerating strongly last year, Q1 was again in pace with last year. Do you think that's a new run rate for these two countries, and what do you attribute this acceleration to there? The second question is following up on the SG&A lines. Where do you stand now in terms of profitability in the markets where you opened routes to market not so long ago? I mean by here, the U.K., Spain, Peru and South Africa. Thank you.
Yeah. With regards to Germany and Italy and Aperol, as I said, we've got about four to five markets which are entering the stage 3 of the brand development. Italy is further ahead. Germany is following now, where the consumption occasion of Aperol is going beyond just the aperitif, and people are starting to substitute other drinks, alcoholic drinks, over brunch, lunch or even dinner at times. This is opening a whole new chapter for the brand. We're at the beginning of it. Clearly, we're doing everything to support this from ad hoc advertising campaigns to activations and so on and so forth. We'll see how it goes. Far, so good.
Yeah. With regards to SG&A in new route to market, I would say, in developed markets, the U.K. and Spain, we're absolutely in line with our internal plans, potentially marginally better. As you know, the momentum on our brands is quite good. Probably in emerging markets, particularly in South Africa, we're a little bit behind plan. It's such a small market for us, it won't change the picture.
Okay.
The next question is from Laurence Whyatt of Barclays. Please go ahead.
Hi. Thanks very much for the question. One on SKYY for me, please. There was talk of being able to get SKYY back to zero growth, but also zero decline during the year. I was wondering if you still think that would be possible, and if you could just let us know what you're doing on pricing on that brand with regards to the competition. Secondly, on the Patent Box, you mentioned that the Patent Box tax regime will end at 2019. Can you confirm there's no way that can either be extended or in any other way not end in 2019, so that 2019 is certainly the last year that we'll get that benefit? Thank you.
Yeah. Focusing on SKYY, we'd expect international markets to compensate for the de-stocking in the U.S. so that we end up the year on a zero basis or flattish. If we see what's happening in the market, our Born in California campaign, an inclusive campaign, seems to be working. Core is reacting quite nicely. Actually, our consumption indicators are up. We're not doing anything significant on pricing. Where we're still suffering is on flavors. That will take a little bit longer because that's especially the part which we are de-stocking. We feel overall good about how the franchise is trending given how tough the market is.
Yeah. With regards to Patent Box, I can confirm the benefit, the law is will not be renewed unless the government changes its mind. I very much doubt, they have quite different priorities at the moment. I think this is on the wish list of the current government.
Excellent. Thank you very much.
The next question is from Nico von Stackelberg of Liberum. Please go ahead.
I want to recap two points that were just previously raised. I want to make sure I got it right. Germany, I guess in my model, is around a low single-digit growth rate market. Is it fair to assume that should be maybe at the high end of the low single-digit range now that your global priorities are really kicking off there? I was just trying to square Simon's comment, or the answer to Simon's question about Grand Marnier, because I get there's a technical effect there with the shipments ahead of depletions in the U.S., but it seemed like net net, that would maybe work against the organic growth rate of around 9%, I guess it is, right? How do you circle that square there? One final question.
I was watching a Bloomberg interview, where you sort of seemed to hint, maybe I misinterpreted it really, but on some sort of alcohol-free aperitif. I'm not sure if that was right. Are you referring to Crodino there or is there maybe a trick up your sleeve that we're not aware of? Thanks.
I doubt there are any tricks up my sleeve you guys aren't aware of. Starting with the first question, on aperitif, we have Crodino, which is, if you want, the grandfather of non-alcoholic-Let's say spirits. It's a little bit of an oxymoron, but that's what it is. This is something which we're revitalizing in Italy, but most importantly, we're testing very positively in the rest of Europe. At the same time, we're also working on NPD in this area. I won't say much more on this. I think it'll be interesting to see what happens next year. Clearly, I think we have a very strong competence in liquid development in the non-alcoholic area, as well as a strong competence with aperitifs, so that will be interesting. Germany, without having Q2 and Q3 under my belt, I would say conservatively is a mid-single-digit track market.
We're doing very well within the market. Clearly, weather can have quite an impact on Germany, and so far so good, but I think I'll be able to say more to that when we come to July or even October.
Okay. I guess the final question there was really around the 9%. I wasn't quite sure how you sort of get there, really.
Which one? Germany or?
No, just the group. You sort of seemed to imply that this sort of level of growth was repeatable.
There's so many moving parts because on the one hand, there's the easy comp base, then there's the Easter, which moved. If you look at, we have advanced shipment phasing on Grand Marnier as well as on White Overproof. At the same time, we've had the opposite effect from a shipment standpoint on our so-called partnership markets, as well as some strong established markets like Australia due to the Easter effect. I think, without being too scientific about it, all of them sort of compensate each other.
Okay. All right. Thanks.
Which is why I'm saying, we have good momentum behind our brands.
Great. Thank you.
The next question is from Andrea Pistacchi of Deutsche Bank. Please go ahead.
Yes. Hi, good morning. I have three questions, please. The first one on the U.S., 11% organic growth. Grand Marnier, you said Grand Marnier shipment phasing added a bit to that performance. On the other hand, SKYY destocking was a bit of a negative. Feels like the underlying performance there is probably close to, not quite double digit, but close to that. Given how the portfolio has evolved there, Aperol, Campari, Espolòn, all bigger brands compared to a year or two ago, do you think this is the sort of level now, high single digit growth, a sensible level for your growth going forward? The second question is on SG&A. Understand a bit where this spend is going. I think in most of the quarters last year, SG&A was growing at around 5%-6%. SG&A grew faster than that in Q1. There's no new subsidiaries.
Is it sort of hiring more salespeople and where the focus is? Third question, if you could just give a little bit more color on Crodino. You suggested there's a brand relaunch. Could you tell us a little more about that, please?
Yes. With regard to the U.S., if I really focus on this year, I would say, we're probably more in the mid-single digit range, because you need to factor in the destocking of SKYY, which will continue till at least, the first half. SKYY weighs quite a bit on the overall numbers. But if you take it out, take the rest out of the equation, we have a very strong Grand Marnier is growing to low to mid-single digit. We have the bourbon portfolio growing high single digit, and the rest from a small base actually growing at a very strong, sustained double digit. Clearly, as we start building mass along the lines of the Aperol and the Espolòn and the Campari, that will mid to long term have an impact on our average U.S. growth rate.
With regards to Crodino will get a relaunch in Italy in the second half of this year. It will be a complete relaunch. At the same time, what we've learned quite a bit on Crodino in the European markets last year, we're going to fine-tune the proposition to take that into consideration, and that will impact also, the serving size, et cetera.
Yeah. With regards to the SG&A, Andrea, the point is, the comp base versus last year, we're basically, in terms of value growth, not in terms of margins, we're heavier in the first part of the year. As you know, we were at the back end of last year. This is due primarily to the move of the company in the U.S. from San Francisco to New York. Clearly, the ramping cost occurred at the back end of last year. In the first part of the year, we're running against tougher comps, and then it should level out. I think that's the reason. Overall, if you look at the SG&A line as a % of sales, we're not seeing any drift.
Thank you.
The next question is from Paola Carboni of Equita SIM. Please go ahead, madam.
Yes.
Yes.
Hello. Hi. Good afternoon, everybody. I have a few questions. The first one is about SKYY. Just to check if I got it right, you anticipated
Still some decline in your latest comments in March. Wise, I'm understanding now it's possible to close the year with a flattish trend. Is that the case? If so, can you focus on what is possibly getting better than you originally anticipated? The second question is on your outlook for profitability. Actually, the sentence is actually unchanged, and it's exactly the same as in March. With margin improvement similar to last year. My perception from the tone of this call today is that probably thanks to a buoyant top line, you seem to be more confident about at least the fact that we might avoid the kind of dilutive impact from growing AMP and SG&A, which we had last year. Is that the case? Again, this is my question. Thank you very much.
Let me kick off with SKYY, Paola. Yes, you're right. If we look at this year, we expect SKYY to come in flattish. With international markets, we started to pick up pace, particularly, some emerging markets, Brazil, Argentina, South Africa, to help compensate for the de-stocking in the U.S. Having said that, though, we're also starting to see depletions and consumption improving on core in the U.S. We're still doing very poorly on the flavors, on the infusions. Core, which is the bulk of it, is actually in positive territory now from a consumption as well as from a depletion standpoint.
Yeah. With regards to AMP and SG&A on sales, it's confirmed. As I said before, we don't see this year the risk of meaningful drifts in both lines as a percentage of sales. Clearly, we have very good momentum on the top line. We have some ops on the gross margin as well as a percentage of sales. There are some threat that is primarily the agave thing, which we cannot control. We believe that we're quite edged considering the top vis-à-vis, the delivery of satisfactory EBIT performance in value terms due to the very strong top-line momentum.
Mm-hmm.
As usual, Paola, we would be more precise on the back of Q2. Once we have Q2 under our belt, that is a very important quarter.
Sure. Thanks. Sorry, coming back on agave. Also, on this point, you seem to be a bit more worried a couple of months ago, wise now it seems the case that the impact of agave will be flat on a full-year basis, no further impact, we might say.
Yeah, that's the game plan. We do not have the crystal ball. We're basing our assumption on what analysts are saying. They count the number of plants that are in the field, and they track the volume, the demand of agave. The analysts are saying that the agave will start declining at the back end of this year. To be demonstrated. I don't think overall it's a major threat. Still, we're still buying at MXN 25, MXN 26. If you think that the normal cost for the agave, if we weren't into the bubble, it would be about MXN 7. There is a big opportunity decision into the agave.
Sure
When does this opportunity materialize? A little bit of question mark. If you take the incremental cost of agave sitting in our P&L is about EUR 20 million of EBIT based on the delta between MXN 7 and MXN 26.
It's a big opportunity. The phasing is a little bit difficult to predict. This quarter, the other quarter, we don't know. For sure, 2020 is what they are saying is the year when the price will start declining sharply.
Okay. Thank you. Thank you very much.
Okay.
As a reminder, if you wish to register for a question, please press star and one on your touch-tone telephone. For any further questions, please press star and one on your touch-tone telephone. Mr. Kunze-Concewitz, at this time, there are no questions registered, sir.
All right. Thank you all for joining us, and talk to you again at the end of July. Have a nice afternoon. Bye-bye.
Bye-bye.