Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Campari Group 2018 Full Year 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 Consecutive, Chief Executive Officer of the Campari Group. Please go ahead, sir.
Thank you very much. Good afternoon, and thank you for joining us on our call. Before we jump into the presentation, I'd like to apologize for my voice and the occasional Coff, I should have listened to Palomacizini who says going to vacations overrated and weakens the immune system. Anyhow, having said that, if you have the presentation in front of you, you can see on the semi chart, on page number 3 that the results for the full year 2018 are pretty strong with consistent and solid performance across all of our key underlying indicators. Looking into them in detail on Page 4, you can see that through a sustained organic growth, which has enabled us to both enhance our marginality as well as fuel further investments into the business for the future.
Focusing on net sales, positive organic growth, up 5.3%, thanks to the continuous improvement in sales mix, led by the consistent outperformance of our high margin brands in core developed markets, particularly the global priorities continue to outperform up 8.9%, driven by our PRTs Aperol Campari, Carmel Heating, as well as Brown spirits. Our regional priorities were only up 2.8%. They were handicapped by mostly the Chinchinzano brand, in Russia and Argentina. As well as a difficult comparison base overall. Clearly, our stars here, Espolon, for the Creek, Braulio and Bulldog continue performing very nicely.
Whilst local priorities were down 1.5%, and this is mostly due to a decline in the Brazilian brand, which were particularly hit in the first half of the year. It is important to look at it from a geography standpoint. We've had solid growth, as I said earlier, in the high margin developed market, particularly in North America, Western Europe and Australia, but softness in lower margin emerging markets due to macro volatility as well as comparison basis and this has hit mostly Russia and Argentina. Now focusing on Argentina, if we it is important to underline that our organic growth, so the 5.3% excludes the positive pricing and pricing effect in Argentina, 30 bps. As well on a full year basis and 80 bps in the last quarter of the year.
On a reported basis, our net sales were down to 4%, reflecting the negative perimeter effect of 3.4 percent or $60,200,000, which is linked to, the sale of the Lemonsoda business as well as the discontinuation of the Brown Forman Agency in Italy. On the other hand, ForEx was also quite negative, down 4.2 percent or 73.5000000. Moving on to adjusted EBIT, a very nice organic growth of 7.6% nicely ahead of sales growth. So generating a 50 bps margin accretion. Again, here, the story is the same.
It's driven by gross margin expansion. Linked to our global priority brands, which overall, our gross margin increased by 120 bps. And this, despite some pretty adverse Gavi as well as sugar effects, which not only has the gross margin compensated for these effects, but they also offset some reinvestments in brand building, behind key global brands as well as some selective strengthening of our on premise capabilities. On a reported basis, our EBIT is flattish, down 0.4% and it takes into account the negative effects obviously of the proposals of 4.7% as well as forex at 3.3%. Net profit on an adjusted basis came in at 249,300,000 up 6.8%.
Group net profit on a reported basis is up 296,300,000 down on a percentage basis of 16.8 percent. Free cash flow was quite robust, reaching 235,600,000 of which recurring free cash flow reached 267,700,000. On the basis of that, our net financial debt stood at the end of the year at 846,300,000, which is down by a healthy 135,300,000 And this takes into consideration, obviously, also the proceeds of the Lemonsoda business but also the acquisition of whiskey, the dividend, and the net purchase of own shares. All in all, this leads us to a net debt to EBITDA pro form a ratio of 1.9 times. The Board of Director enclosure has, will recommend keeping the full year dividend in line last year at per share, unchanged.
Moving on to page number 5, And I think this is, clearly, a view which is worth underlining. You can see that we're consistently delivering on strategy, generating a very positive margin momentum, thanks to the organic performance of our global priorities. We've seen in the past 4 years, steady and consistent strong gross margin expansion coming from the mix. It look at it, on a cumulative 4 year basis, our gross margin was up 680 bps, of which 390 organic. If we move on to EBIT adjusted on a cumulative 4 year basis, was up by 300 basis points.
Of which 100 and 30 basis organic, the Nets and Knight's quite solid results. I'm not going to spend much time on chart number 6, we're going to go into the details of the regions, as well as the, as the brands, you can see that we're healthy growth across all of our regions, despite South America. The Americas had nice growth. And the only group in terms of, brand category was under local priorities, driven by the performance of our Brazilian brands in the first half. Moving on to chart number 8, only, worth underlining the fact that actually the, euro strengthened against all our group currencies So that generated, quite a, important Forex negative effect of 4,200,000 or 4.2 percent, sorry, and 1,000,000.
Moving on to chart number 9, what's worth underlining is the Americas are clearly our largest area, accounting for 43.5% of the total. And this is led by the US, which has now reached 26% of the total. Southern Europe, Middle East, and Africa is our 2nd region, 28% of the total, growing much faster than the, market in these areas. And Italy's leader here, again, was 20.8%. Our 3rd largest is North Central Eastern Europe, growing again, outperforming the market benchmarks growing by 6.2% and reaching 21% of the total.
Last but not least, Asia, which had a pretty strong year only 7.5% of the total, but growing very nicely at close to 13%. In terms of our balance between divest and emerging markets, it's roughly stable at 81% versus 19%. Focusing on the Americas, as we saw earlier, the Americas are organic there growing 3.9%, But that's composed of North America, which is up to very nice 6.7% whilst the Al Du Paine was in South America, which was down by 11.3%. In the U. S, quite a solid performance, up 4.5%.
Thanks to the continued outperformance of Espolon Aperol, which has become significant in that market, in Campari, all of these three brands growing at a quite a sustained double digit rate. And added to that, we also have a very nice contribution from Wild Turkey, Grand Marnier, and the Jamaican rums. All of this together was enough to offset the decline in the Sky portfolio. I mean Sky was down 11% As you know, the brand continues to be affected by the destocking exercises, which we kicked off last year and which will probably last till mid of this year, Q2, Q3. In Jamaica, on the other hand, is growing from strength to strength, a large market for us.
Up double digit 14.4%. And what's very positive here is the mix, because clearly all of our high margin brands are performing double digit. Wyoverproof up 14% Campari, 28.7%, Appleton has paid 22.4% and magnetonic lines, 20.4%. So in the very nice performance. The other markets in Northern America were up 10.5%.
Canada, up 4.1, driven by suspects, Mexico for here in Iran, the fastest growing Spirit's company in the market, up 16.1%, largely driven by SKYY ready to drink. Sky, but also again here, Aperol is becoming an interesting factor. Moving on to South America, which is down by 11.3% Brazil had a better second half, so it was down only 2.8%, clearly here, the political instability and the macro is is in unemployment rate hurt us over the year. At the same time, we're also transitioning from the business model based on local brands to higher margin imported brands, and we start seeing as volumes are coming down, but profitability is improving. And we have brands such as Campari and Aperol doing really well in that market.
Argentina, and this is where we had the most pain, down 32.4%. This full year number incorporate a 47% decline in volume in Q4. As you know, we, given the situation, we chose to apply very strict credit policy, and this clearly impacted our selling in the highest seasonality of the year. Having said that, we feel better about the business going forward this year. Last but not least, the rest of the region, up a very solid 29.7%.
And we're particularly pleased by the performance of Peru, which was up 41.8%. You'll recall Peru is our latest new subsidiary. Again, here, key drivers are amongst all the Aperol brand. Southern Europe, Middle East and Africa, up 4.9% clearly, this is the region most impacted by the Perini, sir, because both Lemonsoda, to a large extent, and the Brown, Foreman Agency business, were concentrated in Italy. Italy on an organic basis had a very strong year, up 3.6%.
Given the scale of our business in that. This is a a very nice performance. Clearly led by the double digit growth of Aperol, up 15.3%. This has been now 15 years in a row that we've been growing the brand at double digit. Added to that solid growth of Campari at 7% and then nice, performances as well behind Pralias Perron and SKY.
These altogether helped to offset some softness in the small size of the AT's, Campari Soda and Crodino. As well as the lower margin Cinzano sparkling wines business. The rest of the region was up a very nice 9.4% France continuing to grow steadily at 10%. Again, here, the key year of Aperol, but as well as Likadona Campari and Bulldog. Spain also had a nice growth.
I mean, 6.7% considering that the market, was in dire straits last year. Again, behind the usual suspects, Aperol, Campari as well as Skye. In the African market, very positive developments in Nigeria, Thanks to our premium Campari and SKYY and American Honey brands, up 54.4%. South Africa on the other side was penalized by the comp base from the previous year when we set up our organization in 2017, but it should return to normal trading this year. Travel's travel retail, which belongs to this region, up a very healthy 10.2%.
Very nice performance. The Aperol was please allow me an Appleton Estate in Bogota. Moving on to North Central Eastern Europe, up a very healthy 6.2%. Our largest market in that area, Germany up 6.5%, very satisfactory results, double the growth on Aperol, up 22.6 percent, comparing returning to a nice growth, up 15.9% and also nice beginnings on the Bulldog and Grandma Nier brands. All of these put together more than offset some, short term issues we've had in the 12.
At the end of the year as well as the price repositioning on Alana and the transition of GlenGrant to more aged variance. UK continuing to perform very strongly, double digit, up 19.1% with nice double digit growth across all brands after all, up 56%, Campari, 39, pulled off 25, Appleton, 25, and Wayne, nephew, overproof, 13%. Russia, on the other hand, was down 11.4%, partially that is due to, market volatility as well as a very unfavorable comp base. In 'seventeen, the market was up 40.6%. But what we're also seeing in this market is that mainstream brands catering to The lower middle classes are the ones hurting the most.
So that impacts the Cinzano brand. On the other hand, those brands catering to the higher middle classes are doing very nicely, as we can see, beyond the growth of the Mondoro sparkling premium, sparkling wine range, and very strong double digit growth both in Campari and Aperol. The rest of the area also had a solid growth, up 13% and very nice result in each one of our markets with the aperitifs, again, playing a significant role. Closing up the regions with Asia Pac were up 12.9% organically. Again, this is one of the regions which was most impacted by ForEx.
The ForEx impact was a negative 7.2%. Australia had a very, very strong year, grew 10.5%. And, we practically outperformed in every single category in the marketplace. While Turkey Bourbon gave us a lot of satisfaction as the introduction of the new quite premium extension long branch was very well received by the market, and we're continuing to build the Espolon 10 brands, Sky and Campari brands. Apera on the other hand, again, is as said, a fantastic year in Australia, up 38.8%.
The rest of the region, was also quite strong, up 18.8%. Nice solid growth in Japan, up 22% Sky RTD, Wild Turkey Bourbon, and the Chindano portfolio out there. We returned to nice growth in China as well, 23.4%. As well as in New Zealand. Moving on to chart number 15.
Your thing worth underlining is that our growth priorities now account for 56% of the total. So that's a significant 400 basis points growth versus fiscal year 2017. And one key reason for that growth can be seen on chart number 16 And there are highlights of the top 10 cocktails, individuated by the Strings International Magazine, and you can see that our global priority brands all stack up very neatly against all these key cocktails. And most importantly, we have 2 which are proprietary. 1 is the Negroni, and the other one is the Aperol Spritz.
With the Spritz make the Aperol Spritz making it for the first time in the top 10 coming in at number 9. So it'll be exciting to see what it has next year. Going into detail on the brands, Aperol 15 years, growing very, very strong. We're continuing to build on the momentum from the previous years and our growth model with the free stages is working very well. We're continuing to grow very solidly in our core established markets.
As I said earlier, 3 was up 15.3%, Germany, 22.6%, Austrian and Switzerland also had double digit growth. So All of those markets entering into the 1st stage of growth, which sees consumption linked to meal locations are seeing very, very nice results. The high potential markets are doing very nicely, growing at even higher rate. The U. S, which has become the 3rd market in value terms of the brand was up, close to 74%.
Clearly, our experiential marketing activations, which were focused on the East And West Coast, have worked quite nicely, and we will be looking forward to, significantly driving up the volume on that this year. The UK, we saw earlier, up 56%, Russia also double digit reaching the millionaires club. And the same can be said for France and Spain, as well as Global Title Retail. On the seeding markets, if we look at the Netherlands, Canada, Czech Republic, etcetera, even in South America, we're growing at very strong saying double digit growth rate. And the key reason for that is also the growth model, but particularly the type of marketing we do which is all based on experiential marketing, activations in the right places of consumption working on deseasonalization, as well as meal locations and our activities or events can run from a dozen people.
To actually up to 70,000 people. So, we've developed quite a sophisticated model here, which is working very nicely across markets. Moving on to Page Number 19 and Campari. Excuse me. Campari, 10% of our sales, up to 5.1% was clearly, the Campari trajectory was heavily impacted by Argentina, which used to be a 2nd largest market, because if we exclude Argentina, the brand would have been growing at a double a growth rate at 11.7%.
So we feel quite good about compiling. In CEMEA, Italy growing nicely 7.4%. Double digits in France, high single digits in Spain, North Central And Eastern Europe, the German result is very, very encouraging. As well as what we're seeing in other key markets such as the UK and in Russia. In the Americas, the U.
S, which is clearly the 2nd largest market by value of the brand, growing by 27% as we're continuing to benefit from our classic cocktails, the Negroni Amilcanonbora Ravier in, you know, mythology outlets and speakeasy style outlets. So this momentum will continue going forward. Argentina declined, as I said earlier, by very high double digits. And this impacted the overall trajectory of the brand. Whilst Brazil, it came back in the second half and only registered having turned into positive growth of a low single digit growth, whereas Jamaica and Canada continued growing strongly.
Double digit. Double digits also in Australia, whereas Japan declined on a shipment basis, but did better on a depletion basis. Marketing wise, we're really focusing on 2 platforms. 1 is cinema both through our own short films as well as sponsoring festivals such as the Venice Film Festival, but more importantly, the Negroni Week, which every year goes from strength Last year, we were very active in 10,000 bars in 69 countries. So we'll definitely be raising the bar on that this year going forward.
Moving on to Sky, and this is the only blemish on our track record, 9% of group sales, 8.1%. Clearly, the key mover here is the U S, where we were down by 8% in the 4th quarter as we're destocking the brand. In the U. S, we had a low double digit decline overall 11% on the year, and this compares with depletions being down 5%, whereas the nearsens were down in the low single digit. And the NAP CAS were actually up to the low single digits.
So there's quite a difference between consumption and depletion as well as shipments. And as I said earlier, I mean, we will be driving the destocking at least for the 1st 6 months of this year. But what's giving us satisfaction is the brand, and particularly, the marketing funnel is reacting very well to the probably American marketing campaign, which we introduce in the middle of the year and will continue along that path. International markets, strangely enough, we did very well in Argentina, continue growing nicely in Mexico. In Brazil, on the other hand, we were pretty soft.
Simya, Italy was flattish, well, helped to offset the flattish performance in South Africa. North Central And Eastern Europe, nice growth in the UK, which helped mitigate weakness in in Germany, where some of our peers are being very active. On the promotion front. Asia Pac, of China being the 3rd largest market in Australia, one of the top 10 nice double digit growth rate. On the following page, you can see, some of the imagery from the very bulk campaign, which we, which we launched and it seems to be resonating across the spectrum of, consumers, particularly with, millennials.
Moving on to Wild Turkey, 8% on group sales, up 70%, very nice, healthy, and steady growth rate. While Turkey Bourbon grew organic to 8.4%, and Russell's Reserve continued its very solid track American Honey did well in the U. S, but was, temporarily weak in Australia and that drove its overall growth to around 4%. In the U. S, the brand is, reacting very positively to our marketing support built around the cooperation with the actor, Matthew McConaughey, and particularly the release of the, Wild Turkey Long Branch, which, was developed with Matthew was very, very positive as well as, the acceptance of our high end extensions such as Master's Keep Revival.
So that's in that, the brand is on a good path. And that is also spinning over into Canada, which has been growing double digit. Asia Pacific, Australia had a very strong year. And as you know, while Turkey, bourbon and RTD represent about 2 thirds of our sales, in that market. We were up 13% and did also nicely in Japan as well as in New Zealand.
The rest of the world, excuse me, we're very positive momentum growing double digit, but obviously coming from a very small basis. The premiumization of Wild Turkey can be very nicely seen on page number 24, and we'll continue doing that. Moving on to Grand Marnier, our last acquisition, hard to predict. That's almost 3 years now. On page 25, 8% of group sales, nice growth of 5.2%.
And this bearing in mind that we've had the tail end of the continuations of cordon's role as well as cherry and peach Raspberry. So cordon Rouge, the core brand is doing quite nicely. In the core U. S. Market, we're up 6.1%.
In Canada, on the other hand, we had a weak Q4 because we took a significant price increase to bring the brand particularly in Quebec to the price level it deserves. Although the rest of the globe has grown pretty nicely, Again, the strategy is working, but we're coming off a very low base. What's driving the growth of the brand is the LiveGram strategy. That's platform. We're very clear, drinking strategy and very premium imagery across all of the touch points.
Are making a difference and we'll consistently drive this forward. To close off our global priority brands, the Rams Also, it did nicely. The Jamaican rums up 8.3%. Here, we have a very nice performance, both on rain nephew overproof as well as Appleton Estate. We had a little bit of a damper on the, mainstream mix seeing runs, but those will be re launched during the year, and we expect to recover some gains there.
Overproof was up 12.3%, very strong Q4. It's really turning not only a Jamaican favorite, but also mixologists outside of Jamaica, particularly in the, in the U. S. And the UK. Appleton Estate is continuing to premiumize its offerings.
If you go through the following page, you can see the thirty year old and the fifteen year old, that's doing the brand a lot of good. But as you can expect, those are also very heavy cases, so they're helping the the bottom line. That's the night, the Americas are performing very nicely. And in the rest of the world, we're growing at a double, digit rates but obviously coming from a low base. Moving on to Chart number 29 and Espolon Espolon very fastly growing up 26.1%.
And, it's growing at an even higher rate, in non traditional tequila markets in Italy, in Russia and many other places. So we're feeling very good about this brand. Bulldog despite some slowdown in the first two markets, which launched it, which were Spain and, and Belgium. Grew by 7.2%. We launched a new campaign in the last quarter, and we started seeing the brand react to that also in Spain and Belgium.
So we feel good. Frank Grant, on the other hand, as I said earlier, is in transition. We're moving from unaged to an aged range which means that we've put the unaged, which is the bulk of the volume on allocation, and we're slowly reducing that and gaining on the value side of the equation. Forty Creek did nicely, and in Canada, Canada is driving most of that with an 8.5% growth with the brand reacting very nicely to the repack the repositioning, which we introduced last year. Moving on to the Amari.
The Amaris were softish, there were some specific issues, either product allocation on Dralio or, Havana taking important price increases most notably in Germany. Moving on to sparkling wines and vermouth. Here you can see the 2 different tails. Mainstream branch in Zano going through a tough period in Russia, mostly. As well as in Italy on the sparkling wine, whereas the more premium Mondoro and the Cadona brands are growing in the high single digit, up 9.2%.
To close it off with our local priorities, Campari soda, flattish, although we see the brand improving from quarter to quarter, So we'd expect it to be in the low single digits this year. Crodino, on the other hand, was down 2.9%. Here, there's the comp base of the innovation of 2 years ago. We will relaunch the brand this year behind a more adult focused strategy and expect it to return to better pasture. But what's also interesting about this brand is it's starting to become a sizable business in Belgium, Switzerland and then the Netherlands, we're working the experiences for international expansion into other markets in years to come.
Meanwhile, Turkey RTD was up 5.6%. Clearly outperforming the Australian RTD market, particularly the bourbon 1, where we're growing twice as fast. And doing the right things. The Brazilian brands were down 6.2%, we'd expect them go flattish this year as we cycle through some of the transitions we had last year. Uzo, the number doesn't reflect the intrinsic performance of brand.
The brand is performing much more in Germany, which is the largest market in the mid- positive and mid single digits. A very large customer canceled, but the last minute, the promotion in Q4, so that moved into Q1. So it's more of a phasing effect. And the same can be said on our shipments behind the Cabo Wawa brand as its consumption indicators are healthy. This is it on the brand side, and I'll pass it on to Tom.
Thank you, Bob. If
you follow me to Page 33, we have the segment analysis The Americas region remained the group's largest region in terms of net sales and profitability accounting for a 43.5 percent of group net sales and 42.6% of group EBIT. And, and that notwithstanding the decline in South American markets, as well as the negative FX effect, which hit the region and the notwithstanding outperformance of the high margin of Central European region. Moving on to page 34, we have the analysis of the largest region, Americas, top line grew by 3.9% in existing business and EBIT was up by 3 7% broadly in line with sales. Thanks to positive growth across the high margin North American region, more than offsetting weakness in the South America region namely Argentina and Brazil. Gross profit grew ahead of top line.
We need to see basis point margin accretion, thanks to positive sales mix by brand and market. Driven by high margin global priority brands in North America, or namely Aperol, Grandernier, white 30, and despite Sky's negative performance. Further helped by the counter dilutive effect of the negative performance of lower margin, Latin American markets. This positive sales mix improvement helped overcome the adverse effect of both the agave purchase price, which became progressively more impact put in the last part of the year, as well as the losses in the sugar business. A and P was up by 3.8 percent in value, almost in line with the top line in existing business.
With a particular, focus on global priorities,
Grand Marnier, Peru, white turkey, and and sky
as well. As well as the selective regional priority brands, namely, Espolon. SG and A increased in value by 5% in existing business, sir, driving 50 basis points of dilution on EBIT margin. And this was primarily due to the strengthening on on premise capabilities, in certain North American markets. We then had a negative effects effect largely driven by the strengthening of the euro versus the Latin American currencies and some negative perimeter effect in the region reflecting the postal of the carolan's brand.
EBIT in the region came in at 1,000,000 at 21.7 percent. On sales, with a dilution of 10 basis points on the net sales on a reported basis totally attributable to effects and your perimeter. If you move on to page 35, we have the analysis of the CEMEA performance, net sales were up 4.9% in existing business and EBIT was down 5.6% still in existing business, driving 10 basis points accretion on the back of, the key Italian market and sustained growth in the rest of the region in particular. We had positive performances in France, Spain, as well as in the Duty Free channel. Gross profit grew by 8% in value, driving 170 basis point margin expansion driven by solid performance of high margin operative portfolio in particular Aperol and, and Campari.
A and P was, up 12.6% in value, well above the top line growth driving 110 basis points, the dilution on EBITDA. The the NPE step up was driven by brand building investment behind, again, the parity portfolio across Europe as a whole, and high potential market. As well as some selective regional priority brands in the global travel retail chain. G And A were up, in value by 7.1% driving 50 basis points of dilution. On the back of the strengthening of on premise capabilities in, certain selected markets.
FX impact in the region was an extra bold why is the negative, perimeter effect that was attributable to the disposal of low margin on core businesses as well as the termination of agency brand distribution, particularly in in Italian market. EBIT came in at €83,600,000, up to 17.4% on sales, 20 basis points accretion on a reported basis. If you move on to page 36, 36, we have Northern And Central European and Eastern European market. And that says, we're up 6.2%. EBIT was up 12.1 center in value, well ahead of sales growth with a 170 basis points accretion.
Driven by some performance of aperitif, again, also restriction across the whole, markets. Gross profit was up 10.5 percent leading to 260 basis point, EBIT margin expansion. Again, also here, we are, you know, a very strong sales mix improvement, led by the positive performance of, high margin operative portfolio in particular, Aperol. Which grew, by double digit in core high margin markets, namely Germany, the UK, and and Austria. A and P was up 11.3% in value, driving 60 basis points dilution.
Again, we stepped up A and P spent, particularly on the Aperitif portfolio. And the SG and A were up 8.1% in value driving 30 basis points dilution reflecting the enhancement of our on plan capabilities in certain high potential markets. Again, also in this region, we have a negative effects, particularly due to the evaluation of the Russian ruble, as well as the negative perimeter driven by the termination of some agency grants distribution. EBIT, came in at 115.1000000 up to 32.1% on sales. Or 120 basis points over prior year.
Page 37, we have APAC top line in existing business was up 12.9% and bottom line was up 29.4%. Driving, in existing business, 100 and 90 basis points accretion, thanks to positive result across the whole region. But in particular to the Australian market. Gross profit was up 12.7%, broadly in line with the top line. So accretion impacting this region at the level of gross margin.
A and P grew slightly below top line driving just 20 basis points. Although, you know, steering value was up 11.4% in 2018. And the SG and A grew at a very moderate pace of 2.4 percent in value. That's leading to 190 basis point EBIT margin expansion driven by cost containment programs, and positive operational leverage. Negative effects, effects, the largely driven by the weakening the weakening of the Australian dollar versus the euro.
And, in this region, the perimeter impact was, almost neglectable. EBIT came in at €18,700,000 up to 14.5 percent on sales or 120 basis points over prior Let's skip a few slides and move to page 40 where we are in summary, the highlights on EBIT adjusted performance. Gross profit on a reported basis was up one point percent in value to 60.1 percent on net sales, showing 230 basis points of gross profit expansion. In existing business, gross profit grew by 7.5 percent in value. As you saw before, showing 120 basis point margin expansion Again, here, we reiterated a favorable mix by brand and market with the outperformance of key high margin global digital priorities, in key developed markets.
Those, you know, positive effects, have overcome that Versa Federal Booster the agave purchase price progressively more impactful in the last part of the year. And on the other hand, the losses in the sugar business. ForEx and perimeter in aggregate, the negative impact on the gross profit of 5.9 percent in value. But you know, on the other hand, the 1210 basis point margin expansion, on the back of the disposal of low margin is a determination of certain distribution agreement. The A and P on a reported basis was up 3.3% in value to 16.9% mark, showing 90 basis points, dilution on a on a reported basis.
In existing business, GSK has been stepped up by 7.8% in value, leading to 40 basis point margin dilution, and reflecting higher marketing investments in brand building initiatives, in particular, behind the brands, Campari, after all, Skype, Wild Turkey, and, Pro Money. Forex and perimeter, combined effect of a negative 4.5% in value and 50 basis points margin dilution. The SG and A on a reported basis were up 2.3% in value to the level of 21. Percent of net sales leading to 100 basis points dilution on a reported basis, whilst in existing business, the SG and A were up 7.1% in value higher than the top line leading to just 30 basis points margin dilution. That was due to selective strengthening of both group on premise capabilities as well, investments in the duty free channel.
Phonics and perimeter combined effect of a negative 4.8% in value and 70 basis points margin dilution was, clearly driven by the deconsolidation of disposed businesses, which were carrying no structural costs. EBIT adjusted on a reported basis was down 0.4% in value with 40 basis points accretion on a reported basis. In existing business, as we saw before, the value growth of the EBIT was 7.6%. And, we, we achieved a basis point, EBIT margin expansion. On the other hand, ForEx and 30 meter combined effect, who was, you know, even bigger than the organic growth.
So the EBIT at 8 19 value and driving 10 basis points margin dilution. And if you follow me to the page to page 41, we can see, you know, visually, you know, the key drivers of the, I achievement of the reported EBIT adjusted. It came in at 1078.8000000, down 0.4 cent, at 21.1, 32.1 percent, a margin on sales with 40 basis points accretion. Most most notably, as you can see, you know, below against all odds, you know, I mean, agave and sugar, For the 2nd year in a row, the group managed to achieve 120 basis point gross margin expansion 50 basis point EBIT margin expansion, notwithstanding higher investments in A And P, which costed the 40 points, margin dilution and strong investments in our sales and infrastructures costing further 30 basis points Most importantly, again, looking at the the, EBIT, adjusted organic performance, In 2018, the group delivered a very healthy 7.6% after a very healthy 8.7% delivered in 2017. FX, negative 3.3% in value 12,600,000 Euroheater at the level of the EBIT and perimeter 4.7 percent for the €18,000,000 heat the level of the EBIT.
Moving on to page 42 financial charges, they came in at 1,000,000, down 6.3%. Thanks to a action of the average indebtedness, which came down from 100 and 42.44 down to 925 €1,000,000. The average cost of net debt came in at 3.3%, up from 2.9% of last year. Reflecting the negative carry effect on excess cash, which is huge at the moment, is north of 1,000,000. Positive financial adjustments of €1,800,000, primarily related to some minor financial asset, sale.
Versus, you know, a 24,800,000, euro cost in 2017 attributable to 1 off liability management transaction in the same period of last year, which helped contain the cost of, the cost of giving that cost of net debt in 2018. Page 43. The analysis of group net, profit reported bottom line, the group net profit came in at 1,000,000, down 16.8%. But that was, you know, Q2 reduced adjustments versus prior year. In the following slide, we'll see the recurring performance of also be adjusted and recurring EBIT.
The the decline in, in the net profit reported was attributable to lower positive operating adjustments. In 2018, we had a positive €1,900,000,000 attributable to the gain on the Lemonsoda Business Disposal, net of, partly compensated by the provisioning recycling initiatives. Last year, in 2017, we achieved a gain of €13,900,000, which again, was attributable to another proposal, like a car owner's 1, with a capital gain of $49,700,000, roughly offset again by the provisioning for, other restructuring initiatives. We had a positive impact from financial adjustments of 1,800,000 mainly related to some minor financial asset sales versus, you know, a negative, 24 point you were attributable to a one off, liability management transactions. And then negative impact from higher total taxes a €54,900,000 this year versus a negative, you know, a positive €29,700,000 of prior year.
Attributable to both the adjustments, the one off adjustments related to the US tax reform in 2017 as well as the cumulative effect of the patent box tax relief in Italy. Looking forward into 2019, we highlight the overall net positive adjustments, accounting for €14,000,000 derived from the pit and bust back tax relief in Italy, which is in its, a 5th and final year 2019. And which is assumed to be in line with, with 20, 2018 at the 26,000,000 mark. Which, you know, that positive will more than offset provisions for the completion of certain reorganizational projects that were launched in 2018. Totaling 1,000,000.
And then we are clearly to factor in the corresponding physical effect on those costs. Which accounts for about 4,000,000 positive. Page 44, we have the group network adjusted NEPS, you know, this is the recurring 1. A group net profit on the contrary, was up by 6.8% achieving 249,300,000 on the back of decrease in, recurring net financial charges. By 6,300,000, 33,800,000 this year versus 1,000,000 of last year.
Reduction in put option cost and others accounting for a delta of €4,900,000, positive 2,100,000 this year, negative 2.8 last year, and the reduction in total recurring taxes of 1,000,000, worthwhile highlighting on tax side. The recurring tax the recurring tax tax rate down from 23.7 percent to 23.4 percent and recurring effective tax rate down from 30.9 percent to 28.2 percent. Page 46, we have the analysis of accrete, the free cash flow. As you can see, we we, we show here posted the the reported cash flow to the left hand side as well as the, you know, the recurring, the the free cash flow, stated came in at 135.6 after €8,500,000 versus the prior year. Whilst the recurring flag, free cash flow came in at 1,000,000, up to €18,000,000 over prior year.
We had a slight decrease of EBITDA adjusted of about €5,000,000 total attributable to perimeter and FX. Focusing on recurring items. We had the recurring taxes at €72,500,000. With, you know, a difference versus 2017, which was impacted by phasing all the tax payments operating working capital change lower versus last year, 1,000,000 versus 1,000,000. And recurring financial expenses of 20 €28 lower than prior year at €27,000,000.
Maintenance CapEx at about, you know, 1,000,000, 49.7. Overall CapEx, 70,900,000 a negative impact from other non cash items of €31,000,000 on reported and recurring on on the recurring side, a positive amount of €5,600,000, very healthy, cash conversion, recurring free cash flow on EBITDA ratio at 6 the 1.9%, almost 62 from 57% of the of last year. If you move on to page 47, we have the analysis of working capital. Working capital came in at 636,000,000, as a percentage of sales 37.2, percent. Up from 33.3% due to, perimeter, as we can see up there, the consolidate a first time consolidation of its withdrawal, 330 basis point dilution in operating working capital as a percentage of sales.
In existing business, sir, organic increase of operating working capital was contained at €25,500,000 with a 30 basis points reduction of operating workings, on operating working capital on net sales thanks to, operating working capital containment initiatives in existing business. We then add €9.9,000,000 of ForEx impact positive and, and a negative impact of €36,700,000 compared to Page 48, CapEx, no major change in 2018 versus 2019. 2018 total spent 1,000,000, including real estate disposal of 1,000,000, of which maintenance CapEx for accounted for 49,700,000 and extraordinary CapEx, 26, 25, 26,000,001,000,000. For for this year, we're forecasting, we're envisaging a a CapEx spend of about €78,000,000, of which, 54,000,000 in maintenance CapEx and further €24,000,000 in extraordinary CapEx, the primary attributable to investments in Brent Houses to build, you know, the the Campari, the government brand and other brands and, you know, few other minor products. Page 49, we have the next financial that analysis overall decreased our €135,000,000, with, you know, totally analyze the free cash flow generation of 100 €5,000,000.
The net impact of acquisition of disposal was a positive €22,000,000. Dividend paid, 1,000,000, buyback of own shares by 1,000,000 my role adjustments are counting 49.5 €1,000,000 in the 846,300,000 with an add back to be the, pro form a ratio of 1.5%. That maturity No. It will change. As I like that, the group is, you know, totally edged vis a vis the repayment of, the outstanding short term maturities with a €632,000,000, excess cash and the the back of the long term data currently paying fixed interest rate at at 2.03%.
Page 51, very quickly. As you all know, there is the introduction of the new IFRS rule. For what concern this this is, recognition, which is, you know, all about the remeasurement of all material lease contract. That they have, you know, to be recognized on the on the balance sheet. So, basically, in nutshell, rent expenses will be replaced by by depreciation.
As you can see below, you know, we had a positive impact on the EBIT adjustment of 1,000,000 due to rent expenses that have been, substituted by, incremental depreciations that you can see below at €13,500,000 with a with a net positive impact on the EBIT adjusted of €2,400,000. This is, you know, the picture based of 2018 numbers. You know, 2018 numbers, we would have recognized the next financial charges for €3,100,000 And then at the bottom of the page, you see the impact on that financial debt, there is a negative 83,300,000. So on a on a on a reclassified basis, the net financial debt would move from 846 to $929,600,000. I think this is it on numbers.
I'll continue on the also, Cabo.
Thank you, Pablo. Before opening to your questions, just to recap, the year 2018 is actually demonstrated by the presentation. We have very constant delivery on strategy with a very solid organic performance across all of our key profit indicators. Robust organic top line with continued sales mix improvement driven by the 4th year in a row continued outperformance of a key high margin brand core developed markets. On the other hand, on a reported basis, clearly, the overall results reflected a pretty heavy negative ForEx as well as some perimeter effects.
Looking forward to 2019, our outlook remains pretty balanced in terms of both risks and opportunities, We see the underlying business performance as continuing to keep its current momentum. We have very good momentum. And this despite uncertain macroeconomic scenarios, as well as some continued volatility in some emerging markets, We expect our key high margin combinations of global and regional priorities in core developed markets to continue supporting the sales mix improvement as well as organic gross margin expansion. So as to offset the negative agave effect, which will unfortunately remain at an elevated level this year, due to a strong trend of the tequila category and some poor harvests, by some of our peers in their own land, and they're moving on to the open market to purchase. In terms of the current underlying trend in EBIT, we expect our organic margin to continue expanding It will be supported by gross margin accretion, even after reinvestments into the business, particularly continuing on some selective on premise capabilities as well as the new brand houses development.
ForEx and perimeter effects, whilst driven by the continued volatility of some currencies as well as the tail end effect of the previous year's transaction, are clearly expected to be less adverse than previous year. Net profit is expected to benefit from net positive adjustments driven by the patent box tax relief in Italy, which will be running out as its 5th and final year. Net we remain pretty confident in delivering a positive performance across all of our key underlying business indicators in 2019 as we did in 2018. So looking forward to your questions at this stage.
The first question comes from Mr. Edward Mundy of Jefferies. Please go ahead, sir.
Good afternoon, Bob. Good afternoon, Paolo. I'm two questions, please. The first is on Slide 16, where you shared the top 10 cocktails of 2019. I think what's quite interesting is that very similar cocktails to, let's say, 10 years ago, I think the Meto is out, especially Martinez and Sandreich's out, our prospect is in.
Where do you think we are in the Aperol Spritz of Cycle. Do you think this is a drink that's got longevity for 10 years or so? And how do you feel about current momentum of high 20s being sustained rather than the 2016 or 2017 high teens growth? The first question. Second question, obviously, Paolo, could you perhaps run through some of the key moving parts around margins for 2019?
And then the third question around M and A and the M and A pipeline that will be only hotter or colder than usual?
Let me take the first and the third question Ed, good afternoon. We feel pretty good about Aperol Spritz and its momentum. I mean, frankly, the growth model is really validating itself in all of the markets and first stage. It's really about penetration in the spring summer. Then we decarbonize it.
And finally, we move into other usage occasions. I mean, when you see Italy growing by 15% in its 15th year. I mean, that does clear testimony to the legs of this brand. And the key reason for that is that source of business for Aperol and Yaperol Spritz isn't under spirits. It is a huge source of business, which is mostly beer and then some some wine and some sparkling wine.
So we feel very confident about the, momentum of the brand going forward. On the M and A pipeline, I mean, there's always the pipeline, but we've, turned more selective over the years. So we'll see what happens.
Hi, Ed. With regards to the margin, you know, guidance for, 20, 2019, after after the couple of years of steady and consistent growth of the EBIT margin expansion at 50 basis points, which was clearly driven by gross margin expansion, which in both consecutive years accounted for 120 20 basis point and that clearly helped expand the EBIT progression in value terms from know, mid single digit, that is, you know, our top line into high single digit, 7.6% and 8.7% respectively in 2018 2017. For 2019, you know, we, you know, we feel confident vis a vis the EBIT margin expansion that that we can achieve. With regards to the key drivers of the EBIT margin expansion, we we still believe that gross margin is the, you know, the the gross margin expansion is the way to go. And, we feel confident also vis a vis 20, 2019.
And, and your part probably of the of the of the achievement, will be, you know, if, you know, target is, is achieved and exceeded, you know, reinvested into minor step up in A and P as we did, you know, last year. On the back of, you know, better than expected, negative FX impact. With regards to retrospectively looking into 2018, clearly, we've guided the market for a 60 basis point margin expansion. And then, you know, we landed at a 120 basis point. Clearly, it's a combination of factors on one end, you know, certain high margin brands and high margin markets, performed better than expected.
But on the other hand, we also have to recognize, like, a part of the gross margin pension was achieved on the back of, you know, the decline of, certain emerging markets, namely, you know, South America, you know, Brazil and and Argentina. Which by the way, compromised to certain extent or had a negative impact on the top line performance in, in 20, in 2018. So, you know, this, you know, the magnitude of this can be seen in about, you know, 30 basis points. So, you know, you should read at the 120 basis points achieved this year as potentially, you know, 90 basis points. We all know that there is, that there is, 60, sixty basis points, negative hit from agave in, twenty 20 in 2018.
In 2019, we were hoping that, you know, I have a could, could decline faster on the contrary you know, thanks to, you know, due to the, very strong performance of tequila in, in the US market. There is still, you know, an imbalance between supply and demand. So potentially the or the, you know, the the change in, in that action, the in the aggregate price, is expected to, to a schedule later than than envisage. But overall, you know, we we feel that, you know, if we combine all these things together, we we feel pretty confident, to achieve very nice gross margin expansion.
Great. Thank you. And Bob, just coming back to APO again, I don't know whether at this stage you're able to to comment on whether you think the growth is going to be more like the 2016 2017 high teens growth or more like the 2018 growth, which clearly accelerated more towards the high 20s level in light of the continued success in Italy. Continue to roll out a number of markets and for the momentum you're seeing in the U. S.
As well, which feels like it's just getting started?
Well, the brand is building momentum, as I said, and we'll see where it goes. I mean, the model is working and it's working everywhere. So, we feel very good about it.
The next question is from Mr. Andrea Pistacchi of Deutsche Bank. Please go ahead. Yes.
Hi, Bob. Hi, Paolo. I have three questions, please. The first one is on your SG and A reinvestment. You've been stepping up on trade capabilities, in a number of your markets now for some years and you're flagging reinvestment also this year.
Where do you think you are in the process of really of stepping up your this route to market? Whether we should think of it as an ongoing process as you continue to grow the top line for the next few years? A second second question is on your tax rate actually last year. I think you said that the U. S.
Tax reform would become more meaningful in in 2019. So wondering whether this this is still the case. And if you could give any indication about your your tax rates for for this year, please? And the third question is generally a bit of an outlook on your emerging markets, which held that growth in 2018. Now a lot of this is macro.
Some of this, I believe, is also because of the nature of your portfolio, which is due to local brands. What do you expect for these markets? Mainly Argentina, Russia and Brazil, in 2019.
Okay. Let me take the first one. I think you know, what we're talking about here in terms of SG And A buildup is really fine tuning as we go ahead. I mean, if we look at you know, this year, probably the bulk of it is going to go behind, you know, important brand ambassadors and educators for our VIPs and particularly Aperol in in Asia. I mean, we're seeing the brand also attracting, attention in key Asian cities.
So we're looking forward to developing the future growth of the brand because frankly, it's really nowhere there at this stage except for a few key bars and key hotels. And we know how big a beer market it is. At the same time, you know, we're seeing a lot of Asian tourists in particularly Chinese I'm thinking a lot of macro sprints as an entity. So, we're starting to build that. The other part is some sort of one off on on brand houses, as we start to reinforce, if you want the foundations of some of our brands, we've done it with, Wild Turkey.
We've done it with Glenn Grant. We've done it with, Appleton Estate. This year's the turn of the Campariino and potentially something on, on Apolo. So I would say it's a mixed bag. But it is clearly as responding to opportunities as we see them show up.
With with regards to the to the tax rate, Andrea, yes, you're you're correct. We're we're expecting, you know, further, your old being equal, you know, the sales mix, further reduction in the recurring cash tax rate, driven by the US tax reform. You know, the magnitude, you know, could be in the region of 50, 50 bps, 50 bps, 50 bps, so you know, all being equal because we have also to assess what impact of the reforms that our government is introducing in, in our, in Italy, in the domestic market. You know, the, you know, the storytelling is, you know, reduction in the corporate tax rate, you know, to to be seen, you know, man, more skeptical around the possibility of containing the the effective tax rate in, in this country. So we'll see.
And then lastly on energy market outlook, please.
Well, I mean, if you look at it, what really hurt us last year were 2 areas. 1 was Russia, and the other was mostly, Argentina. I think we would see Russia returning to nice growth this year, particularly driven by the Aperitifs as we said earlier, Campari and Aperol, which is very beneficial to the mix. On Argentina, we're cautious still at this stage, where we'd expect it to be flattish, whereas, Brazil should return to nice growth somewhere between mid to high single digit and the emerging markets continuing around the current path. Thank you.
The next question is from Trevor Sterling of Bernstein. Please go ahead, sir.
Just one question from my side, Jacqueline. In Q4, there's quite a deceleration in virtually every region, and I'll be quite a few tough comps in there in phasing of shipments Is there anything else there apart from those, your quarterly effects, that you'd like to mention?
No. I mean, in terms of, consumption, we actually had, with the exception of SKYY vodka in the US, very good consumption indicators. So we feel very comfortable about that.
The next question is from Emma Letherin of RBC. Please go ahead, ma'am.
Hi, yeah. I just wanted to ask a bit more about q4, the moving parts of what grew that, slowed down growth. I think you talked about Russia and Argentina being particularly weeks are?
Well, the biggest, if you want to decelerate during Q4 was our performance in, Argentina where we were down on volume basis by 47%. I mean, that would, had Argentina gone to a normal path If we haven't put any of the, you know, very strict credit policies, we would have added quite a bit of bits to our top line growth.
Okay.
The next question is for Marianne Buchanan of MainFirst. Please go ahead, ma'am.
Hi, everyone. Just two questions for me. 1 on the A and P ratio. How do you see it evolving going forward? Should we expect it to continue to go up as higher intensive marketing brand go faster.
And, then, on Sky vodka, so you mentioned destocking should continue, at the beginning of the year, but what magnitude do you expect in the U. S? And also, can you give us a bit color on the sell out trends there? Thanks.
If you look at SKYY, as I said, last year, we are patients came in at minus 5% and our shipments at minus 11% whereas if you add up Nissan and NAPCA consumption was roughly flat, So we would expect this year, the, depletion and our consumption to be roughly flattish. I think it's too early to swing victory on the campaign, although it is working quite well. And the destocking will basically soften as we move through the, through the quarter. So we would expect the brand to be down somewhere in the low, it's low single digits. Thanks to also an acceleration in other markets outside of the U.
S. I'm not sure I caught your first question.
It was on the A
and T ratio. How how do you see it evolving?
Well, we we practically see the A and P ratio in line with with last year. As is our custom, you know, there could be swings plus or minus 25 bps, we'll see how how, especially the peak season of the Aperitifs in the in the summer progresses. Clearly, if we see a longer spell of good weather, we will add on activations and then leverage the good weather.
Okay. Great.
I'm looking to range. I've I've indicated.
The next question is from Mr. Alessandra Tostra of Mediobanca. Please go ahead, sir.
Yes, hi. Good afternoon to everybody.
I have a very the three brief question from my side, if I may. The first one is on the working capital on-site on sales plan. If you can, let's say, give out any idea of what next in this ratio for 2019 2020, let's say in the medium term. The second question is, if you can share with us any update on the of the Villa Gramani in Capzada. And, the question is, as you mentioned before on the outlook for Argentina, the get this context to figure out.
What do you believe, maybe the performance of Campari considering that clearly the relevance of Campari in Argentina? Thanks.
No, let me take Argentina. As I said, I mean, full year performance we've had in Argentina was exacerbated by our credit policies. I mean, consumption wasn't down to that level. We're seeing things sort of smoothing out in Argentina, although it remains a pretty volatile country. We would expect the overall situation to be flattish and that would obviously reflect upon one of the largest components of the business there.
Is the, Campari brand. You know, if the overall macro environment turns slightly positive, we could also have a nice, nice surprise there. Moving on to the Villa, and I give the first question to Paulo. I mean, there are people who are interested in the Villa. But as you know, the sales process is not in our hands.
It's in the hands of the family. They have 5 years to sell the villa. So by the end of June, 3 years, we'll have a pass. And, frankly, if somehow, they decide not to sell it because they're not happy with the price within the 1st 5 years. The Villa becomes ours 100% at the end year 5, and I'm sure we'll find the seller.
Okay.
Yeah. With regards to the operating working cap I'll try and looking forward. We're, you know, we're guiding the markets towards the a flattish operating working capital on the net sales. Which means that the world, we're not sleeping, actually, means that we the objective is to absorb, you know, the investment in in aging liquids for Mhmm. Glenn Grant, also, Turkey by Turkey and and Appleton, basically.
We will absorb those investments, which last year accounted for 1,000,000 by operating working capital containment project in a existing business. And over the last years, we've also, you know, massively expanded our route to market, opening new in market companies And even the and that, you know, clearly generates, potentially an operating working capital drift as a percentage of sales as you internalize stocks that were previously, capped at distributor level. We always managed to absorb that investment via containing the the other operating working capital, the existing operating working capital.
Okay. Thanks.
The next question is from Nicole Von Stackelberg of Liberum. Please go ahead, sir.
With with the Italian macro looking, let's just say, not as bright as it possibly could be, is there any change to sort of low single digit out for that market. And the next question, I have is, Campari. So it's the 100th year of the Negroni, as I understand, you had a wonderful extension with the cast tails. And I'm just sort of wondering I understand a lot of bartenders are looking for no gromey, that is a Campari, Negroni without, alcohol. And I'm wondering, would you consider launching a product like this?
And and if not, why not? I mean, I would assume it's probably more additive to the mother brand. Rather than being cannibalistic. And the last question, I was just wondering if you, Pablo could could discuss the, the sort of trade off between growth and margin and returns on capital for Glenn Grant. So as you pursue more of a value strategy, clearly there's an aging nature of this product.
So your returns probably get depressed to some degree. How do you think about that?
Well, starting off of Italy, I mean, you know, as I could share some of the confirmed you might have on the macro side, what we're seeing is still pretty strong consumer confidence and, consumption at this stage is, at a very, very nice level. I mean, We've had bigger macro issues last year during the back and forth with the European Union, and, we we saw consumption doing extremely well. Our early indicators for this year are, again, underlining that fact. So we'll we'll see how it goes. I mean, Having said that, even in the years when we've had really big issues in Italy, we've always managed to grow the business in low single digits.
Thanks to our ability to take market share. So all of the franchises are pretty solid. And, we have a few good ideas to reinforce our our smaller sized Aperitifs So we feel good about the Italian business. Moving on to Campari Negroni, Nagroni, you know, we think there's only one Negroni and it is the original and rented by accounts Camilo Negroni, and we will not move away from that. We say no Campari no Negroni, and it has alcohol.
Having said that, we believe that the nonalcoholic Aperitif area is interesting, which is why we're expanding Crodino into many European markets quite successfully, I might add, and looking into becoming a player in that area potentially with other franchises as well. Okay.
Yeah. With regards to the Grant Grant strategy, as you correctly pointed out, we we seen a very strong traction on GlenGrant, you know, in high end propositions, the 10 to 12 an eighteen year old as well as, you know, the special finishes. So, basically, what we're trying to want to do is to to lay down potentially more stock. And on the other hand, to contain consumption of, younger proposition, like, you know, an age ten and five year old. So here it's a it's a gross margin play.
The more we see, you know, the the older age propositions grow, the more we We contain discounts, promos on an age than five year olds. And the more we we put, you know, an aged and five year old on allocation. So, you know, in in the short in the short run, you know, you see potentially negative hit on the top line that is broadening gross margin level. And going forward, once, you know, we cycle through the pain of, increasing the the agent we could stock on, for the 12 and above, we will, we'll see a dramatic increase in gross margin value and as a percentage of sales.
The next question is from Ms. Paulo Karaboni of Equita SIM. Please go ahead, madam.
Yes. Hi. Good afternoon, everybody. Hi.
Good afternoon. So just
two questions from my side. One is a provision. You mentioned potential 90 bps, margin expansion for full year 'nineteen. I wanted to be sure that you were referring that to, gross margin, or to, if it's available, organically And, in particular, I want to be sure, about what you would anticipate, in terms of, agave costs for, for 2019. My understanding is that there shouldn't be any positive impact clearly, but not a negative one.
I don't know if I am correct compared to a full year 'eighteen.
And then
the second question is more on the evolution of your SG and A line. Actually, I haven't had time yet to, to look at all moving parts for, for the full year and for what you just disclosed about, following you on the presentation, apparently,
the major
the tops in, on premise capabilities were actually in North American markets and south of Europe and north of Europe. So basically regions are where you have already, strong roots, actually. So This is somehow counterintuitive, and I'm wondering, instead, whether you are, thinking as you've already started mentioning, you know, one of the past answers. If you're start starting to think about, internalizing, and so directly managing your presence in some, more APAC regions. Like China or Japan, I don't know.
Thank you very much.
On the on the first one. Yes.
You know, I was refer no. I was referring to to gross margins when I, you know, when I said that the actual the beat to the to the looking into 2018, the beat to the margin expansion guidance from 60 to 120 basis points was, you know, partly attributable to to a huge decline in a certain emerging market, namely, you know, Argentina Gina, as well as, as well as the Russia. The the if you just take the last quarter of the year, Q4 talk into the to the top line and you isolate the impact of, of Argentina, we would have had a 4th quarter organic growth of 4.2 instead of 2.1 it was big impact. And you can imagine, the set price, clearly, the dilution on the sorry, the accretion at gross margin level. You know, this, you know, we we we've, quantified that in about 30 basis points.
So assuming that this market, bounced back, you know, next year, you will have, you know, dilutive effect of, of 30 basis points. That is totally driven by by these, these markets. So it's, so, you know, the 120 basis points, that is the underlying trend might be, you know, partly offset by by that effect, which is not, you know, negative to the bottom line. It's actually increasing the bottom line by the dilutive in terms of margin. So, you know, I the point that I wanted to make is that for 2019, instead of, you know, focusing on gross margin A and P and SG and A, we said after 2 years, in a row, in which we achieved point, EBIT margin expansion, we feel more confident as to the, sorry, EBIT margin expansion, we feel more confident as to deliver you know, a sustainable EBIT margin expansion also for, for, for this year.
With regards to the academic costs that you've mentioned, Yes, you know, we were hoping that the agave price could start declining sooner than, but, you know, actually, it is not. So we do not have the crystal ball. We're saying that there could be potentially, you know, a more a risk than opportunities on agave, but, you know, nothing, you know, big or meaningful, you know, whatever happens on agave, you know, where at the back end of the cycle, it's just a matter of phasing, you know, understanding when it starts declining. But it will start declining for sure. And there's nothing that we cannot absorb within the bigger scheme of things considering the healthy progression of our global and regional priority brands.
With regards to the SG and A, probably have lost a bit, a piece of your question, your question is, are we envisaging the the, you know, the massive investment in SG And A for this coming year. If that's the question, this is not the case. Clearly, we've, selectively invested in, in the market, you've mentioned North America a little bit in Southern, in Southern Europe and Northern Europe. Clearly, we're looking forward to long term, probably Asia is a market where we can, we can do more, but, you know, nothing that will, meaningfully impact in 2019.
Mhmm. Yeah. It was more a matter of regional, allocation, let's say, in which it was the second part of your answer. Okay. Thank you.
But practically, we're following the API beef trail, which makes a lot of sense for us.
Okay. Thank you.
We have a follow-up question from Mr. Nico Von Stackelberg of Liberum. Please go ahead, sir.
Hi there.
Just comparing my numbers to how your numbers came out. I was looking at the NCEE region. The other countries was a little bit softer than I'd expected. I mean, a quarter probably isn't a trend frankly, but I was wondering if there's any sort of, thing to read into there. I guess, Austria, I guess, for the full year was quite strong.
Just do you have any comment on the quarter on how that sort of played out? Thanks.
No, actually, I mean, I want to see exception of Russia, we're doing, we did very, very well across all of the markets of the Northern Central Eastern Europe business units. And I wouldn't read anything into it. I mean, obviously, there's some phasings to customers ordering patterns, this and that. But I mean, the overall good momentum, in terms of consumption, has been kept in Q4. And Q1 is looking good as well.
We have a question from Mr. Marco Baccajio of Kepler. Please go ahead, sir.
Yes. Good morning. Just a quick question on the M and A impact. 2019. So what is the queue of your disposals and the end of distribution in terms of sales for this fiscal year?
Well, if
you look at, you know, what's what's left in the other business, I mean, 5% of it is a local branch, 5% is agency brands and about 5% is what we do in terms of contract packing, mostly in Australia and some other things. So net to net, if you look at the big picture, what would we have to dispose is 5% of, local brands? I mean, I don't think this is the the best time to do that. And, with regards to agency brands, we'll look at them on a 1 by 1 basis and decide whether it makes sense for us to keep tomorrow.
Okay.
We have a follow-up question from Marion Boucheron of MainFirst. Please go ahead, madam.
Yeah. Just you were just commenting on Q1 that goes for now. So is there anything else we we need to be aware about for q 1, like, phasing or any other issues besides the Sky is talking or continue?
No. I mean, as we said, you know, for our overall outlook for the year, we have pretty good momentum behind all of our key brands and key brand market combinations. So we're feeling good. With regard to some developing markets, they should do better this year than last year. But, you know, before coming out with any bullish sentiments, we'd like to have at least 6 months of trading under our belt.
Alright.
Next question is a follow-up from Renico Von Stackelberg of Liberum. Please go ahead.
All right.
I guess I just have one last question here on Bulldog. I'm sort of wondering, about the brand repositioning that that you discussed. And, can you just remind me where we are with the I guess there were sort of volume earnouts,
with the acquisition.
Can you just remind me where we are there? Thanks.
Well, we're doing quite well versus actually running ahead of the game.
In terms of the burner positioning, what's that all about?
Essentially mostly image driven in the campaign angle behind that. We developed a global campaign and we're running it out And on the other hand, in some selective markets, we put pricing.
Mr. Kunze Concewitz, at this time, there are no questions registered, sir.
Great. Thank you all very much for joining us. And We look forward to further dialogue in the weeks and months to come. Thank you. Bye bye.