Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining Campari Group's 1st Quarter 2019 Financial Results Presentation. As a reminder, all participants are in listen only mode. 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 4 of our So I can kick off of 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 figure is certainly our 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 recovery in emerging markets, which were helped by a favorable comparable base. 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, while Turkey, Grand Marnier and the Jamaican runs. Though I'm pleased to report that SKYY Vodka was slightly up this quarter, up 0.7 percent, 0.7%, sorry, 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 Espolon Cinzano, which made a comeback Frangelico, Forti Creek and GlenGrant. 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 to 0.1% with a positive ForEx effect of 2.6%, more than compensating for the negative perimeter effect of negative 2%.
Looking at adjusted EBIT with an organic growth of 15.4 percent, well ahead of the organic sales growth generating. So 100 basis points in margin and this is driven both by the combined effect of the 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 2 50 basis points in the first quarter. On the other hand, on the positive side, there's a slower growth in A and P investments, although they were growing quite significantly, but less than sales, as well as a higher absorption of fixed costs due to these strong sales growth. On a reported basis, we're up 18.5%.
Again, thanks to the positive FX here, which had a 5.1% impact which more than offset the negative perimeter impact of 2%. Looking at pretax 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 TRY 893,900,000, so a little bit higher than the end of 2018, up 47,700,000, and this is due to a change in accounting treatment with an increase of 1,000,000 attributable to the first time application of the IFRS 16 pertinent to leases. And this brings us to a net debt to EBITDA pro form a ratio of two times.
Moving on to chart number 9 in the Americas because we're really covering all the other info, anyhow in more detail, The Americas, our largest region, 48.3 percent of the total, growing on a reported basis by 19.2% and on an organic basis by 14.1 percent. The largest market here, North America, up double digit organically 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 depletion, a solid performance behind Wild Turkey, the whole portfolio, very strong Aperol, Campari, Espolon, and the Jamaican runs.
The SKY portfolio declined by mid single digit on a shipment basis, and it continues as expected to be affected by the destocking exercise, but it's closing the gap, as I said earlier. Skycore, 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 Rain Nephew Overproof, companion 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 Aperol40 Creek Appleton Estate in Guaramanier.
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, Sky ready to drink and SkyBot 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'll recall, we were down for the 2.1% last year, but overall, with 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're up 19.6%. Clearly, the comp base helps a little bit. But very good underlying performance with Chinsano vermouth making comeback Aperol very, very strong. The rest of the region was down 7.2% as it's mostly partnership markets were the distributors aligned the shipments to arrive in Q2 in time for the 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. I mean, Italy growing by 6.4%, very solid start to the year. Very nice to see continued sustained double digit growth of Aperol and solid growth of Campari 5.6, a return to growth of Campari Soda on the other hand, Crodino was soft. 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 GlenGrant. 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 5.8%, behind Aperol, mostly GlenGrant as well as Appleton Estates.
Moving on to North Central And Eastern Europe, very strong organic growth of 11.6 percent. 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 2 bounced each other out. Very nice double digit growth of Aperol, up 24%.
And continued positive performance on Ouzo 12, Frangelico, the Chinsano sparkling wines, which more than offset some softness in Averna, although Averna is coming back. And Campari, which was impacted by a price increase, which we took in the month of January. As you know, Germany is not early in the 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 UK, up 10.4%, positive start to the year, continued outperformance of Aperol Campari in Chinsa over move, 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, Espolon and Wild Turkey, whilst the Cinzano portfolio, we did quite well on the on the vermouth. And 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 market with Austria driven by VIPs, very strong growth in seeding markets, for Aperol such as Scandinavia and the rest of Eastern Europe. Lastly, Asia Pacific, this is actually a region which was impacted by the late Easter as most of our retailers decided to destock in the month of March. And we had a very strong actually start of Q2, the month of April related to that. So overall, Asia Pac is 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, it's kind of what can Espolon 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, very tough comp base last year where we were up by 140%. Moving on to Page Number thing. 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, They're up to 58%.
So 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 and Austria and Switzerland. And we've had a very, very strong start across the rest of the market. Particularly in the U. S, Russia, UK, Australia, Spain, GTR, Scandinavia and Eastern Europe.
So 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 at 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 out in Negroni.
So we'll start benefiting from that from June onwards. Gold Money 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 out during the rest of the as you know, where we're launching the brand there. Moving on to the following page and the American whiskey portfolio overall up 10% a nice start for the Wild Turkey, up 4.6%, but very, very positive contributions. From the premium variant long branch. And all of this helped to 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%. Rain, if you overproof up 15.3%, very solid trends in international markets.
But also 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, Espolon continues its strong double digit growth, up 22.7%, a nice, mostly driven by the U. S because of the size of the U.
S. Market on the total brand. We'll talk on the other hand, slowed down. It came in at 1.6%. We have 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 0 kilometer.
Gens where every Spanish city knows has different 10 different craft chains on the market. Moving on to the whiskeys, GlenGrant benefiting from premiumization and the focus on the age portfolio, up 6.4% and 40 Creek was up 9.8% thanks to its turning 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 Bralu brand. It's the only one which has aged and this situation should improve in the quarters to come. The Cinzano brand, as I said earlier, up 11.1% was removed 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 fast up 8.3%, mostly thanks to Germany, whereas Germany, sorry, 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 brands was, up in a nice state where Riccardona was impacted more by the Easter promotions. To close it all up, with the local priorities, Compag Soda, starting to give us satisfaction, up 2.3% Whereas Casino still down mid single digit, but 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 and 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, was down 10.2%, but we're, relatively confident about the good performance of the brand from a depletion and consumption standpoint. So this will revert in the remainder of the year. This is the review from a sales perspective.
I'd like to follow-up 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 was on a reported basis was up in the first quarter by 11.9% in value to 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 lines and to a very favorable sales mix overcoming the adverse aggregate 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 tail end effect of the previous year's transactions, mainly the termination of lower margins, agency branch distribution. A and P on a reported basis was up 8.6% in value to 15.9 percent on sales with 20 basis points accretion. In existing business, A and P 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 foreign perimeter in the first quarter accounted for 2.3 percent in value with a 30 basis point margin dilution driven by the tail end of effect of termination of low and P intensity branch distributions.
SG and A expenses on a reported basis were up 9.4% in value to 58 to 25% on net sales with 20 basis points accretion. In existing business, SG and A expenses grew by 8.2 percent in value with a 30 basis points margin accretion driven by the higher absorption of fee structure 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 percent with 10 basis points margin dilution. EBIT adjusted came in at 1,000,000 with a reported basis increase of 18.5 percent in value to 19.6% on net sales. With 140 basis points, EBIT adjusted accretion.
In existing business, EBIT adjusted grew by 16.4% in value with 100 basis point margin accretion, with a negligible impact of IFRS 16, first time adoption, which accounted for 1,000,000 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 point margin accretion. EBITDA adjusted on an reported basis was up 19.9% in value, to 24.2% margin on sales, showing 200 basis points accretion. The EBIT adjusted, does factor in 3,100,000 incremental depreciation due to the first time application of IFRS 16. In existing business, EBITDA adjusted grew 17 percent in value with 150 basis point margin accretion, why the combined effect of ForEx and perimeter accounted for 2.9% in value and 50 basis point margin accretion.
If you move on to the following page, page 22, we can see that the EBIT adjusted, of 1,000,000 was up overall by 18.5% on a reported basis, to 19.6% margin on sales showing 140 basis points accretion. Now if you look at the existing business, EBIT adjusted was up, by 15.4% in value, well ahead the top line, driving an overall one of the business points accretion driven by 20 basis points coming from gross margin, 50 basis points are coming from A and P and 30 basis points coming from from the SG And A. The effects accounted in isolation, for 5.1% in value of EUR 3,100,000, driving 40 basis points accretion and perimeter had a negative impact of 2% in value was neutral on margin. If we factor in, you know, the negative effect of the comp base on operating adjustments, where last year, we recognized 1,000,000 of gain on the disposal of the soda business net of last year provisions. The EBIT, following, you know, the tough comp base on the 1 off line was down on a reported basis by 13.3% in, in value to 1,000,000.
If we move on now to Page 23, we can see net financial charges, at $8,300,000 in the first quarter of this year, up by 2 1,000,000 versus last year, despite a lower average indebtedness in the first quarter, down from 1,000,000 to 1,000,000 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 percent of last year, reflecting the negative carry effect on, on excess liquidity. And secondly, the effect of the first time application of IFRS 16, which accounted in the first quarter for almost 1,000,000. Group pretax profit adjusted of the 1 off effect was up 16 0.5% in value. While if we factor in the 1 off effect, the group pretax profit clean was down point 4 percent to 1,000,000.
If we move on to Page 25, we can see the net net financial debt, which stood at €893,900,000 as at March end versus 1,000,000 of, of March last year with an increase of 1,000,000, which clearly is as already anticipated, totally due to the step up, of the due to the first time consolidation application of the IFRS Six team amounting to 1,000,000 on a pro form a ratio and that EBITDA, at two times. At March 10. This is it on numbers, Bob.
Yes. Thanks, Pavel. I'll close-up with just quick review of marketing initiatives and the conclusion. I mean, 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 number 2 cocktail in premium bars.
We was the hero subject of our red diaries 2019 film entering red. We're going to follow-up with a big emphasis on the Negroni Week next month and then with the reopening of the Camparino in September in Milan. On after all, the orange wave continues, I mean, some of the statistics are impressive. As you know, we're sponsors of the Australian Tennis Open And during that month, we actually saw 180,000 Upper Spritzes, and it was by far the number one most sold beverage at the tournament. We're doing some interesting front things such as door by door delivery of Aperol Spritz in the UK, the seasonalizing the brand during ski season.
So continuing to execute, hopefully, even better than in previous years. Our free stage access 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 whiskey. On Bulldog, we have a new global campaign in the way, so 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 remove formula. So that makes us the only large remove brand going back to, the original vermouth formula, and we think this will be the brand a lot of good. And at the same time, we're premiumizing at both the 1757 range and continuing to premiumize the Grand Marnier range, rolling out the new Louis packaging and new liquid, which seems to have had quite positive response in the U. S. So to conclude, strong start to the year, despite the latest Easter, it is driven by a combination of both positive underlying in core developed markets, but 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, we'll see continued positive business momentum in sales growth This despite the uncertain geopolitical macroeconomic environments. But from quarter to quarter, it will reflect different comparison basis. 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 over the previous year's transactions. But we expect them altogether to be less adverse than last year. Net profit reported is expected to benefit from the net positive adjustments of approximately 1,000,000, which are driven by Patent Box tax relief in Italy what will it be its 5th 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, you. Our first question comes from Edward Mundy of Jefferies. Please go ahead.
Good afternoon, Bob. Good afternoon, Paolo. I'm three questions, please. You flagged the timing of Easter as a negative first quarter. I was wondering if you were able to quantify how much that impacted your Q1 sales The second is on phasing of A And P.
Is this business mix or you're just keeping your powder dry for the summer of April and Negroni activation through the year? And then the third question is on Aperol. I appreciate it's still a very early part of the year. You've got off to a pretty good start. Does it still like a 20% to 30% type of year?
Or does it feel like, this is something you could do a little bit stronger than that range? If you have to provide any color on that?
Thanks Ed. I'll take all three of them. I mean, 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. So I would without getting too scientific, say that the 2 of those effects easy comp basis in emerging markets and the delayed Easter to offset each other. With regard to A and 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 VIP is comparing Aperol. So you'll see a hike in the A and P in those two key quarters. With regards to Atharo, what to say, I mean, you know, the business model as well as as us, the free stage model is working and 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, and we only have 4 markets in that stage. We have about 5 to markets in the deseasonalization phase. And they're doing very nicely as well, whereas the rest of the world, for the bulk of markets, are actually growing at a very, very strong double digit rate.
And, we'll see what happens. Clearly, we're not shy. We try to execute better every year, but at the same time, we have 2 important quarters in front of us. So I think we'll add a lot more color when we talk next at the end of July.
Understood. Thanks. And just on April, within the U. S, mean, clearly there's an element of deseasonization that's probably going on, but you've also got some of the warmer states contributing to APO growth. Are you able to quantify what APO growth was in the in Q1?
Well, Aperol grew around 60% in the U. S. If you look at our consumption indicators, in those markets, where you have a, you know, warmer climate than where we had our activations, it was growing in the 90 to 100% range.
Great. Yeah. Thank you.
The next question is from Trevor Sterling of Bernstein. Please go ahead.
Hi, Bob and Paulo. Coming back to the question of A and P and SG and A and gross margin on 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 and P and SG and A. This quarter, Katie, the top line was so strong that that wasn't the case, would you expect to cross the balance of the full year that we'll see both A and P and SG and A catch up a little bit?
Hey, Trevor. I'll try and answer your question. So with regards to the gross margin, you know, we've, you know, we, we've confirmed the guidance that we've given for the beginning of the year, you know, the back end of last year, sorry, which is the group is having a sustainable gross margin expansion shown 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 negative impact, sorry, we had a positive impact last year on gross margin due to a poor performance of emerging market, which market, which we quantified in about 30 basis points. Looking into 2019, the 30 basis points accretion driven by poor emerging market performance is destined to bounce back.
So that will be a negative to gross margin expansion for this year. Now in terms of phasing of this emerging market effect. This is very much front loaded because the performance of emerging market last year was particularly pure poor in Q1, Q2. And so, you know, we're, 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.
We're basically, we're still currently buying at a higher pesos per kilo versus Q1 of last year. And this is destined to normalize over the, over the course of the full year, with potentially declining prices at the back end of the year. So 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.
So looking into the phasing of gross margin expansion, we expect in 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 tank for the 2 negatives of, emerging markets and agave effect. Looking into the A and P line, we confirm our guidance of last year, E and P on sales with a 2025 basis point flex up and down. And again, as Bob has just mentioned, clearly, support the strong development of our operative portfolio, Q2 and Q3 are particularly heavy in terms of A and P on sales. Worthwhile noting the fact that even if you look at the Q1, you know, A and P in value terms was not, you know, held back because it grew by 6.4% in value. So it's just accretive because the top line is in existing business is way faster than the increase of A And P.
Looking at the SG and A, for the full year, we're not envisaging, you know, major drift. But 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 and L as it happened in the first quarter of this year. Hope I'll pass for your question.
The next question is from Fernando Ferreira of Bank of America. Please go ahead. Thank you.
Good afternoon, Balvin Paulo.
I have 3, please. First one on Aperol. Maybe for Bob, can you remind us how relevant are the CD markets relative to the established markets in terms of sales today And if you can broadly compare how those 2 groups of countries are growing, please. And then 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. And then maybe the last one for Paolo, just another one on A and P and SG and A.
I mean, in the last couple of years, seen the ratios, right, of
A and P to SG And A And SG
And A growing way ahead of sales, which we didn't see continuing now in Q1. And as you mentioned, you are going to see, right, we are going to see some pickup in those lines throughout the year. But I just wanted 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? And we're not going to see, right, both A and P and SG and A growing way ahead of sales.
Yes. I can start with the 3rd question so that we follow-up on Trevor's question. Yes, yes, it's confirmed. We're not seeing AP SG and A meaningfully moving as a percentage of sales on on top line, which, you know, would mean that, you know, if the top line moves faster than expected, we have a little bit of room to accommodate further A and P step up to fuel a further growth on our global priorities and particularly the Aperol and the authorities. With regards to the SG and A, we don't see any major drift in terms of SG and A on sales.
So it's clearly the momentum is on top line is very strong and that clearly simplifies the management of the two lines A and P and SG and A.
Let me take the other questions. On Grand Marnier, yes, you're right. I confirmed the fact that the underlying growth of the brand is, somewhere between low to mid single digit. So that's what I would take into consideration. And there might be some disruption due to the introduction or the renovation of the QVA line this year.
So 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, are represent about 20 25% of the total. If we take our top 10 markets, they represent about 75% to 80%. If you look at the different growth rates, I mean, our established markets, let's say the top 4 are growing anywhere between 12% to 15%, 16%, 17%.
Although Germany is sorry, it's growing faster than that. If we look at the deseasonalizing markets, they're growing much higher than that. I would say at least twice. Whereas the seeding markets are growing 4 to 5 times as fast as our established market. So 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 of 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. And then second, maybe quick one for Paolo. Obviously, you flagged for the average cost of debt is 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 movements?
Yes, I mean, in terms of shipment phasing, I mean, if you look at it, we'd expect a sort of a balanced approach because yes, in the U. S. And in Jamaica, There are some sales, which were faced into Q1. But on the other hand, all the other partnership markets we actually have a phasing more into Q2 because of the Easter and the same in some established markets such as in Australia. I would say it's pretty balanced.
Looking at Grand Marnier, particularly at Grand Marnier is growing somewhere between 3% to 5% from a consumption standpoint and depletion standpoint. So that gives you an idea of how much phasing we've had. And in Jamaica, I mean, that's a market which goes up and down. I mean, we're still growing consumption, which is incredible on white overproof, in the high single, low double digit numbers. So the brand is in a pretty good health.
Clearly, there's some speculation due to the price increase, which happened at the beginning of April.
With regard to the financial charges for 2019, we're expecting financial charges to come in at about 35% to 30 1,000,000, including the impact of IFRS 16, which accounts for about 1,000,000. So it would be excluding the IFRS about 1,000,000 euros, interest on, on understanding that. If you take into look into the, you know, more into the long run, our cost of long term cost of debt on the gross debt excluding liquidity has been reduced from two point 35 to 1.97. And this is actually attributable to the fact that the new the new ish ones was, was finalized at 1.6%, 65%, 1.65%. So actually, we're reducing the cost of debt.
But as you know, the liquidity piles up, we have a negative carry effect, which is lifting the coupon as a percentage of net debt.
That's absolutely superb. And Bob, just coming back on your comments, I mean, if I put it all together and look at all the technical moving parts in the first quarter, you flagged the timing of Easter was clearly a negative, but that probably was offset by the emerging market bounce you got against an easy comp. We've then got some shipment phasing, which puts the takes on overall, you know, is the 9.6% organic growth you delivered in the 1st quarter 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. But I mean, we're only at the beginning of the year. Important Q2 and Q3 is for us. So I'm not making any prognostic at this stage.
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 April in these two markets, we saw accelerating strongly last year and 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? And the second question is following up on the SG and A lines.
Where do you stand now in terms of profitability in the markets where you open roots to market not so long ago I mean, by here, the UK, Spain, Peru and South Africa. Thank you.
Yes, I mean, with regards to, Germany, in Italy and in Aperol, as I said, I mean, we've got about 4 to 5 markets, which are, entering the 1st stage of the brand development Italy's further ahead Germany is following now where the consumption occasion of Aperol is going beyond just the API Tif and people are starting to substitute other drinks, alcoholic drinks over brunch, lunch, or even dinner at times. So 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. So we'll see how it goes so far so good.
Yeah. With regards to SG And A in new route to market, I would say in developed markets, the UK and Spain, we're absolutely in line with our internal plans, potentially, generally better. As you know, the momentum on our brands is quite good, and 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 Lawrence Wyatt of Barclays. Please go ahead.
Hi, thanks very much for the question. 1 on Sky for me, please. There was talk of being able to get Sky back to so zero growth but also zero decline during the year. I was wondering if you could still think that would be possible. And if you could just let us know what you're doing on price seeing on that brand in regards to the competition?
And then 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 that could either be extended or in any other way, not end in 2019? So the 2019 is certainly the year, we'll get that benefit. Thank you.
Yes, I mean, focusing on Sky, we'd expect international markets to compensate for the destocking in the U. S. So that we end up the year on a 0 basis or flattish. If we see what's happening in the market, I mean, our born in California campaign and inclusive campaign seems to be working. Core is reacting quite nicely.
Actually, our consumption indicators are are up. We're not doing anything significant on pricing. Where we're still suffering is on flavors, but that will be take a little bit longer because that's especially the part which we are, destocking. So we feel overall good about how the franchise is trending given how tough the market is.
Yes. With regards to betting box, I can't confirm the benefit, the allowance will not be renewed. Unless the government changes his mind, but, you know, I very much doubt, you know, they have quite different priorities at the moment. So I think this is on the on the wish list of the current government.
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. So 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 sort of global priorities are really kicking off there.
And then, I was just trying to square, Simon's comment, or the answer to Simon's question about Grand Marnier, because I mean, I get that technical effect there with the shipments ahead of depletions in the U. S, but it seemed like net net, that would that would maybe work against the, the organic growth rate of, you know, around 9%, I guess it is. Right? So how do you circle that square there? And then 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.
Yes. I doubt there are any tricks that might keep you guys aren't aware but anyhow, starting with the 3rd question on Aperitif, we have Crodino, which is if you want the grandfather of nonalcoholic, 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, very positively in the rest of Europe. And at the same time, we're also working on NPD in this area.
And 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 liquid development in the nonalcoholic area as well as the strong competence with Aperitifs. So that will be interesting. Now, Germany, you know, Germany, we're not having Q2 and Q3 under my belt, I would say, conservatively as a mid single digit, track market.
We're doing very well within the market. But 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 question there was really around the 9%. I wasn't quite sure how you sort of get there really. Which one? Germany or Well, no, just the group, you sort of seem to imply that this sort of level of growth was reduced.
I mean, there's so many moving parts because on the one hand, there's the easy comp base but then there's a Easter which moved. And if you look at, we have advanced shipment phasing on Grand Marnier as well as on, white overproof, but 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. So I think without being too scientific
about it, all of them sort
of compensate each other.
Okay. All right. Thanks.
Which is what I'm saying. We have good momentum behind our brands.
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 percent organic growth.
Grand Marnier, you said Grand Marnier shipment phasing added a bit to that performance. On the other hand, Sky destocking was a bit of a negative. Feels like the underlying performance there is probably below not quite double digit, but but close to that. Given the how the portfolio has evolved there, after all, can areas Bollon or bigger brands compared to a year or 2 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 And A. Understand a bit where this spend is going. I think in most of the quarters last year, SG and A was growing at around 5%, 6%. SG and A grew faster than that in Q1.
There's no new subsidiary. So is it sort of hiring more salespeople and where the focus is And 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. Now with regard to the U S, I mean, if I really focus on this year, I would say, we're probably more in the mid single digit range. Because you need to take factor in the destocking of Sky, which will continue until at least the first half. So Skyway is quite a bit on the overall numbers. But if you take it out, it takes the rest out of the equation.
We have very strong. I mean, Armani is growing too low to mid single digit. We have the urban portfolio growing high single digit and the rest from a small base actually growing at a very strong sustained double digits. So clearly, as we start building mass along the lines of the Aperol and the Espolon and the Campari that will mid to long term have an impact on our average U. S.
Growth rate. With regards to Crodino, I mean, Crodino, we'll get a relaunch in Italy in the second half of this year and it'll be a complete relaunch. But at the same time, what we've learned quite a bit on Crodino in the European markets last year. So we're going to fine tune the proposition to take that into consideration and that will impact also serving size, etcetera.
Yes. With regards to the SG and 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 1st 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 of the company in the U.
S. From San Francisco to New York. So clearly, the ramp up in cost recorded at the back end of last year. So in the 1st part of the year, we're running against tougher comps and then it should level out. Think that's the reason.
But overall, if you look at the SG and A, line, as a percentage of sales, we're not seeing any please.
Thank you.
The next question is from Paulo Carboni of Equitocin. Please go ahead, madam. Yes. Hi. Can you hear me?
Yes.
Hello. Hi. Good afternoon, everybody. We
have a few questions.
The first one is about, Sky, just to check if I got it right. So you, anticipated that still some decline, in your latest comments, in March, wise, I am understanding now. It's possible to close the year with a flattish trend, if that's the case. And 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, I mean, the sentence is actually unchanged and that is exactly the same as, in March. So, with, margin improvement similar to, last year, But, I mean, my perception from the tone of this call today is that probably thanks to, and volume top line, and you, seems to be more confident about at least the fact that we might avoid the, the kind of dilutive impact from, growing AMC and SG And A, which we had last year. Is that the case? Again, this is my question. Thank you very much.
I mean, if we look at this year, we expect SKYY coming flattish with international markets, we started to pick up pace particularly some emerging markets, Brazil, Argentina, South Africa, to help compensate for the destocking 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, but core, which is the bulk of it, is actually in positive territory now from consumption.
As well as from a depletion standpoint.
Yes, with regards to A and P and SG and A on says, you know, it's confirmed. As I said before, we don't see this year the risk of meaningful, you know, drifts in both lines. As a percentage of sales. Clearly, we have a very good momentum on the top line. We have some ops on the gross margin as well as as a percentage of sales and as well as some threat that is primarily not the agave thing, which, we cannot control, but we believe that we're quite edged considering the top vis a vis the delivery of satisfactory EBIT performance in value terms due to the very strong top line momentum.
As usual, 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. And sorry, coming back on agave, Also, on this point, you seem to be, a bit more worried a couple of months ago, wiser now it seems the case that, the impact of agave will, will be flat on a full year basis. So no further no no further impact, we might say.
Yeah. That's the that's the game plan, but, you know, we we do not have, you know, the the crystal ball. So, you know, we're basing our assumption on, what, you know, analysts are saying. They account the number of plants that are in the field and they track, you know, the, you know, the, you know, the, you know, the, you know, the, you know, the, you know, the, you know, the, you know, the, you know, the demand of, So the analysts are saying that the agave will start declining at the back end of this year. You know, to be to be demonstrated, but you know, I don't think overall is a is a major strategy still, if he managed to, we're still buying a 2025, 26 pesos.
So if you think that the the normal cost for the agave, if we were entering into the bubble, it would be about 7p. So that there is a big opportunity decision into the agave. You know, when does this opportunity materialize? Is it a little bit a question mark? But, you know, if you take, you know, the cost of the incremental cost of agave sitting in our P and L is about 1,000,000 of EBIT based on the delta between 7% 20 2026.
So it's a big opportunity. I mean, that phasing is a very difficult predicted this quarter, the other quarter, we don't know. For sure, 2020 is for sure, this is what they are saying is the year where when the price will start declining sharply. Okay.
Mr. Concepcotiades at this time, there are no questions registered.
All right. Thank you all for joining us and talk to you again at the end of of July. Have a nice afternoon.