Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Campari Group 2018 first quarter results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing Star and Zero on their telephone. At this time, I would like to turn the conference over to Mr. Bob Kunze-Concewitz, CEO of the Campari Group. Please go ahead, sir.
Thank you very much. Welcome to all of you for joining us this afternoon. If you have our presentation under your eyes, I'd ask you to move on to page number three so I can start with the summary. As you can see from the summary chart, our profitability indicators continue to benefit from quite a positive sales mix across key brands and markets. However, the organic top line was impacted by emerging market softness as well as some expected phasing effects, which put together are magnified in a small quarter. You will recall that on average, Q1 for us is about 20% of sales, and in many emerging markets, it's actually much less than that. Obviously, things will get magnified. Looking at the results in detail, organic growth came in at 2.2%.
Our global priorities were up 3.8%, with very good performances by Aperol, up almost 23%, Campari 6.6%, Grand Marnier edging up to 4.2%, and Wild Turkey at 6.2%. These were mostly offset by double-digit decline, which we expected in the SKYY portfolio, as well as a decline in the Jamaican rums portfolio. I'll explain that later on. Our regional priorities were down 1.3%. This is due to the double-digit decline in the low margin Cinzano portfolio, as well as some local priorities. What's important to underline, though, is that the sellout data actually remains quite positive for our key brand market combinations, and we continue to maintain a pretty positive underlying trend. Obviously, the exception is SKYY, but also SKYY has started to basically stabilize its progression.
On a reported basis, net sales are down 8.2%. Clearly, this reflects the negative perimeter, which is down 2.9%. Most importantly, the already flagged Forex, which impacted us by -7.5%. Moving on to EBIT. EBIT adjusted, we have very good organic growth of 8.9%, with 110 basis points accretion on sales. Clearly, the strong organic gross margin expansion of 250 basis points helps more than compensate the phasing effects, as well as the increases in A&P and SG&A expenses. On a reported basis, we're down 5.1% but still show a 60 basis points accretion, taking into account the negative effects of disposals and Forex. Our EBIT grew overall by 30.2% to EUR 82.7 million. This takes into consideration positive operating adjustments of EUR 21.6 million, which are driven by the capital gain on business disposal, particularly our carbonated soft drinks, net of some provisions for restructuring costs.
Pre-tax profit on an adjusted basis came in at EUR 54.9 million, up 1%, and on a reported basis by EUR 76.5 million, up 42.7%. Net debt came in at EUR 938.7 million, which means we generated EUR 42.8 million net cash. Clearly, this takes into the consideration both the sale of the soda business as well as the acquisition of Bisquit and the purchase of own shares. Nonetheless, our net debt to EBITDA ratio is now down to 1.8 times. Moving on to the chart number 7, because the previous one will be commented on in detail by market as well as by brands. You can see how our overall progression shows the impact of Forex, -7.5 as the progressive strengthening of the euro in the quarter against the U.S. dollar, the real, the Jamaican dollar, Argentine peso, some British pound obviously had an impact. Moving on to chart number 8.
Not much news here except that clearly with robust growth on developed markets and weakness and phasing effects in developing markets, that ratio shifted a little bit. We're up to 83% developed versus 70% emerging. Moving more into the detail in the Americas, we see that the U.S. had good growth of 3.5%. This despite a pretty tough comp base. You remember that last year, we were up 7.5% in Q1. Now, the positive performance is driven by continued solid growth of Grand Marnier, Wild Turkey, Espolòn, and Cabo. Our tequilas are quite hot. Continued double-digit growth in Aperol and Campari. Clearly, these results helped offset the negative performance of SKYY, which continued to decline due to the persistent competitive category issues, particularly weakness in flavored vodka.
Importantly, though, these effects were amplified by the distribution transition we had in Q1 2017 when we moved 17 states to Southern Glazer's Wine & Spirits. Obviously, there was a pipeline effect which creates a comp base. Sellout trends, though, on SKYY are pretty stable at mid-single digits. Jamaica did quite well, up 13.9% on an organic basis. The sustained performance is driven by Campari, which is growing at a high double digit, as well as Appleton Estate, as well as some local brands. The offsetter in this case is Wray & Nephew Overproof, which in the comp base, discounts the fact that it was impacted by pre-loading in Q1 of 2017 ahead of a price increase in Q2 2017. You'll recall that in Q1 2017, Overproof was up almost 37%. Moving on to Brazil. Brazil is down 32.1%. Actually, Q1 is smallest in Brazil.
It's about 16% of the annual total. It was impacted by both a comp base. Last year, we were up by close to 52%, 51.7% to be exact, as well as tightened credit policies on our part within the context of pretty challenging macro and political environment. We have temporary declines in SKYY, Sagatiba, and Dreher. We were not able to offset these by strength on Aperol, BULLDOG, and Cinzano. Argentina was down 5.2%. Again, here, key driver is macro weakness, as well as our desire to tighten credit policies within the macroeconomic environment. Having said that, the underlying trends behind our brands are all pretty solid. The rest of the region grew up by 8.2% with robust performance in Mexico, 8%, double-digit growth in Peru, whereas Canada was broadly flat. Moving on to EMEA, which was up 1.1%. Italy had a pretty good quarter, up 3.9%.
Very positive trends on Aperol and Campari, as well as good trends on our single serves. In this market, and strangely, it was the only one in Continental Europe, which was positively impacted by the Easter shift. That helped as well. If we look at the rest of the region, we're down 8.1%. The key driver here is actually South Africa. You remember that last year we set up our new distribution platform in South Africa, and Q1 was a big pipeline filling month. If we look at the underlying depletions and actually consumption, we're actually growing very robustly, so we're not worried about that. Other key markets such as France continue to grow nicely, Spain as well. Aperol and Campari, the usual suspects. We're happy to note that Nigeria is back to growth, again driven by Campari as well as by SKYY.
GTR saw an overall flat performance, that's on the back of a pretty tough comp base in Q1 of last year, where we'd grown by 18.2%. Moving on to North Central and Eastern Europe. We're down 3.8% on an organic basis. Germany was down 2.6% with a weak start to the year. Aperol is growing very nicely, up 21%, as well as BULLDOG, SKYY, Cinzano, and Wild Turkey, but from a lower base. Clearly, all those put together weren't enough to offset the negative performance of low-margin agency brands and sparkling wines. Campari was also weak, as we're putting more and more of an emphasis on the on-premise, and there's a channel mix effect here. Whereas Averna was hampered by a significant price repositioning, which we took at the beginning of the year. Russia was down 30.5%. Here, we have an unfavorable comp base.
In the previous year, we grew by 86.5%, and added to that were the impact of price increase negotiations, which dragged on a little bit longer than we'd planned. Obviously, this is a market which remains volatile. Having said that, though, the sell-out data remains positive across the portfolio. Looking on to the rest of the region, we're up 6.9%, with robust performances across the majority of our markets, and particularly up the U.K., up 13%, again, driven by Aperol, BULLDOG, Campari, and the Magnum Tonic Wine. Rounding up the region with Asia Pacific, which actually had a very strong quarter, up 17.8%. You remember last year we had a weak quarter due to weather and competition-related issues. Having said that, we're continuing to take good market share across our portfolio. Particular very strong double-digit growth of Aperol, Campari. Wild Turkey is performing quite nicely.
SKYY Vodka and Espolòn as well. Importantly, though, the Wild Turkey ready-to-drink returned to growth, thanks to the pack size innovations introduced to the market. The rest of the region was up 44.8%. Very positive performances in Japan, driven across the portfolio. New Zealand also did very nicely. Here in the rest of the region, we're talking shipments, so these performances will even out during the rest of the year. Moving on to the detailed review by brands. Aperol on page number 14, up 22.8%. Here, what continues to be very encouraging is the continued positive performance in core markets. Italy, Germany, Austria, and Switzerland are growing high single or double digits. On the other hand, we have very robust growth across all the rest of the markets. In particular, we're happy to note in the U.S. which has now become our third-largest market in value.
Campari continuing to grow very nicely despite weakness in South America. You know that Brazil and Argentina are large markets for the brand. Despite that, we're up 6.6% with very nice growth across markets. SKYY, as I mentioned at the beginning, continues to be impacted by softness in the U.S., although the trends are stabilizing, and if we look at the latest NABCA, maybe there's some shimmer of hope. A little bit too early to say anything on that, but at least we've stabilized the trend. Clearly, SKYY was also impacted by the phasing as well as the weakness in emerging markets, as Argentina, South Africa, and China are important markets for the brand. Moving on to Grand Marnier, up 4.2%. Here, the key driver is the core U.S. market. The brand is reacting well to our relaunch efforts.
We're only at the beginning of them, let's wait and see. The American Whiskey portfolio doing nicely, up 6.2%, with practically strength across brands as well as markets. The Rum portfolio was down 4.5%. Here it's a mix of things. Appleton Estate doing okay. It's mostly Wray & Nephew Overproof, which is a sizable brand in Jamaica. Clearly, on a shipment basis, it is feeling the impact of the comp base. Nonetheless, from a pure consumption standpoint, the brand is trending very nicely. Moving on to Espolòn on the following page. Continued double-digit growth, up 28.8%. Very strong in the core U.S., growing at a stronger pace, 45%, very nice trends across the markets. Obviously, this number would have been stronger hadn't we had the overall weakness in Russia, as Russia is quite an important market for the brand.
On the other whiskeys, Glen Grant is being impacted from phasing as we're switching from unaged to aged variants, we're allocating available volumes, it will recover during the year. Forty Creek is a tale of two differences, doing very well in Canada and poorly in the U.S., that is something we're looking forward to fixing in the quarters to come. The Amari portfolio, relatively flat, with ups and downs across markets and brands. Clearly, the price repositioning on Averna, which in Germany, which is its second-largest market, impacted the overall portfolio. Frangelico is seeing nice growth in Spain and Australia, is hit by temporary weakness, actually, more phasing, in the U.S. and German markets. Moving on to round up the Spirits portfolio. BULLDOG Gin doing very nicely, growing 14% with strength across markets. Moving on to Cinzano.
Clearly, its two largest markets are Russia and Argentina, this is impacting the brand. On Sparkling Wines, we have more of a mixed performance. Net in net, we will cycle this as we go through the year. The rest of the Sparkling Wine portfolio was up 28%, with the interest in Prosecco in many markets in line with the growth of the overall spread helping drive the performance of these brands. To round up the portfolio, Campari Soda, flattish, up 1.9%. We're seeing it flat in Italy, where it is starting to pick up some momentum in key markets, particularly Germany and the U.K. We're starting to see the same thing on Crodino. Italy, flattish, very strong growth in international markets, where we're coming from a small base, it's contributing nicely to the overall performance.
We have a nice turnaround on our Wild Turkey RTD business in Australia behind the innovation. Whereas the Brazilian local priorities, Dreher and Sagatiba, are impacted by the overall environment as well as our tightness on credit. Ouzo, relatively flattish. Wouldn't read much into it, as in its largest market, Germany, it turned around very quickly in April. Cabo is continuing to accelerate, benefiting from the tequila boom in the U.S., so net to net growing 27.2%. This was it from a brand perspective. Now let's follow the financial numbers.
Thank you. If you follow me to page 21, we have the first quarter EBIT adjusted analysis with its key drivers. EBIT adjusted came in at EUR 74.7 million , down 5.1% on a reported basis, but up as a percentage of sales from 17.6% of last year to 18.2%. Looking at the organic performance, EBIT adjusted was up in value by 8.9%, well ahead of the top-line growth of 2.2%, thus leading to 110 basis point EBIT adjusted margin expansion. The EBIT accretion was achieved on the back of significant organic gross margin expansion of 250 basis points, totally driven by a favorable sales mix, which was partly compensated by higher A&P investments, which accounted for 50 basis points negative, and higher structural costs on the back of investments in distribution capabilities, which accounted for 90 basis points gross margin dilution. Sorry, EBIT margin dilution.
With regards to perimeter, in value, it generated a negative impact of 5.4%, or EUR 3.5 million in the first quarter. FX had a negative impact in value of 8.5%, or EUR 5.5 million. With regards to the clean EBIT, it came in at EUR 82.7 million, up 30.2%, after positive organic adjustments of EUR 21.6 million, driven by the capital gain from the Lemonsoda disposal, which accounted for EUR 38 million, and net of the recognition of provision for restructuring costs in the U.S. and Brazil. EBIT adjusted came in at EUR 74.7 million, down 5% in value on a reported basis, and at 22.2% on sales. If we move on to the following page, more in detail, we can see gross profit. On a reported basis, it was down 3.6% in value, but up 290 basis points on sales to 59.5%.
In existing business, organic growth of gross profit was 6.7% in value or 250 basis points margin expansion, which is quite a remarkable result considering that last year, Q1 delivered 140 basis points gross margin expansion over prior year 2016. So it's 250 over 140. The organic growth of gross margin was well ahead of the top line, thanks to the favorable mix by brand and market, with overperformance of key global and regional priorities in developed markets such as Italy and the U.S., but I would also add the Aperol and the Aperitif portfolio in Germany. Thus leading to a reduction of COGS as a percentage of sales. Forex and perimeter had a negative impact there, but a meaningful one in value, 10.3%, driving 40 basis points of margin expansion following the disposal of low margin businesses.
The A&P, on a reported basis, was down 3.4% in value, but up 80 basis points on sales to 16.1%. In existing business, A&P grew by 5.4% in value. Leading to 50 basis points of EBIT margin dilution, and this is purely driven by phasing effects of our investments, more skewed now into Q1, as well as Q2, we'll see later, reflecting major investments in global brands such as Campari and Grand Marnier. On the other end, Forex and Perimeter had a combined negative impact of 8.8%, driving 30 basis points of EBIT margin dilution. Again, this is the technical effect of the disposal and deconsolidation of low A&P density businesses like Carolans and Lemonsoda. SG&A, on a reported basis, were down 2.6% in value, but up 150 basis points on net sales to 25.2%. In existing business, the SG&A growth is under control at 5.9% in value.
We have 90 basis points margin dilution that is primarily driven by the soft start in the year with regards to the top line. We expect, as the time goes by, the dilution will normalize. Of course, the dilution is reflecting in the quarter the full year impact of group investments in distribution capabilities that were completed throughout last year. Coupled with the disproportionate incidence of structural cost on sales in a small quarter, that as we saw before, accounted for just 20% of sales last year. Forex and Perimeter had a combined effect of minus 8.5% in value and drove 60 basis point margin dilution. If you move on to the following page 23, we have the analysis of the consolidated P&L through pre-tax profit.
We can see net financial charges came in at EUR 5.8 million in the first quarter of this year, down by EUR 4.3 million, It is driven by two drivers. Number one, we had a reduction in the average cost of net debt from 3.1% last year to 2.7% this year, thanks to the successful execution of liability management transactions. Secondly, the average indebtedness decreased from EUR 1,195 million to EUR 960 million in the first quarter of this year. Group pre-tax profit came in at EUR 76.5 million, up 42.7% year-on-year. Once we take into consideration the non-recurring adjustments, pre-tax came in at EUR 54.9 million, up 1% versus last year.
Moving on a couple of slides, page 25, we have the analysis of the group net financial debt, which decreased by, as we saw before, EUR 42.8 million versus December of last year to EUR 938.7 million. That number fully factors in the positive impact of the disposal of Lemonsoda business, which generated an influx of cash of EUR 81.5 million, as well as the sale of the Bisquit business, which generated a cash outlay of EUR 59.44 million. The long-term gross debt is still EUR 1,300 million . That is currently paying an average coupon of 2.4%. The net debt to EBITDA ratio on a pro forma basis came down quite solidly from 2% to 1.8%, That puts us in a very good spot to leverage our capital structure if we need it for future M&A activities. This is it on numbers, Bob.
I would hand back to you for the new marketing initiatives section.
Thank you, Paolo. Quickly go through the initiatives, then we'll open it up to your questions. Just to highlight off, kickoff with Grand Marnier, where we staged a very premium event in New York for the relaunch of the new campaign, to set the standard for the look and feel for the brand going forward. That was very successful. We got a lot of social media coverage, the campaign is on air right now, so far so good. Moving on to Campari. I think everybody's familiar with our short films now. What's important for the brand equity, we've regained control of the Campari brand in the historic Vittorio Emanuele Galleria in Milan, we will restructure this going forward, it'll become an important brand house for us, as Milan has become quite a tourist magnet in the last few years.
Last but not least, continuing to build brand equity. We've launched a very limited edition, but highly sought after by mixologists, called Campari Cask Tales, which is aged Campari and bourbon barrels. These went off like hotcakes. I think there's almost a black market for them at the moment. It is doing the brand a lot of good, there's more to come in following years. The most important piece of news, though, is the launch a few weeks ago of our cooperation also on the brand and product and liquid side with Matthew McConaughey, where he spent quite a while collaborating very closely with our Master Distiller, Eddie Russell. His signature, the new cosign, let's say, Bourbon Longbranch, has been launched to very strong reviews, both from the trade press as well as bloggers and specialists. Was launched, interestingly, live on social media.
Very interesting as a marketing exercise, very successful as well. We've been overwhelmed by customer orders. Now, in the months to come, the jury will be in the consumer support, we're pretty confident. Before opening up to your questions, just to summarize the overall Q1. As discussed, the Q1 sales organic results were impacted by emerging market softness as well as some expected phasing, which put together were magnified in a small quarter. On the other hand, though, more importantly, profitability indicators continue to benefit from a very positive sales mix by brand and market. On a reported basis, the positive underlying trends were impacted by the expected perimeter as well as Forex effects. Looking into the rest of 2018, our outlook remains unchanged, both in terms of organic growth drivers as well as perimeter and Forex impacts.
On the organic side, we expect our sales to be driven by the continued outperformance of our key high-margin global and regional priority brands in our core developed markets. We expect gross margin expansion to be driven by that favorable sales mix, helping to overcome adverse agave price impact, as well as A&P and SG&A. The latter, though, we expect to remain stable in organic terms as a % of sales. Looking at perimeter and Forex. On the perimeter side, we have an estimated negative impact of EUR 70 million in sales and EUR 16 million in EBIT adjusted on a full-year basis. This reflects the portfolio streamlining as well as discontinuation of some agency brands, clearly with a broadly neutral effect on adjusted EBIT margin on sales.
On the Forex front, we're expecting an estimated negative impact of EUR 90 million in sales and EUR 24 million in EBIT adjusted on a full-year basis, reflecting, obviously, the devaluation of the US dollar versus the euro. Nonetheless, putting all of this together, we feel pretty confident in delivering a positive performance across all of our key underlying business indicators in 2018 as well. This is it with regards to results, and looking forward to your questions.
Excuse me, this is the Chorus Call Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. We kindly ask you to use handset when asking questions. Anyone who has a question may press star and one at this time. The first question is from Olivier Nicolai with Morgan Stanley. Please go ahead.
Hi. Good afternoon. I got three question, please. On the gross margin improvement, you had 250 basis points in Q1. You said, Paolo, that it was due to sales mix, which was positive. Now, could you just quantify the gross margin impact from the Aperol brand only? Because obviously the brand grew at like 23%, and I assume the gross margin would be much higher than the rest of the group. That would be great if you could give us a bit more color. Second question is again on gross margin on the full-year basis. Obviously 250 basis points in Q1 is a lot. How should we think about your gross margin improvement on a full-year basis?
Lastly, on Italy, Aperol has been showing exceptional growth for now a number of years in Italy. Could you just remind us what is your primary source of growth? Are you gaining mostly share from hard spirits, or is it wine, or is it actually beer? Thank you very much.
Well, let me take the last one. That's the easiest one to respond to. Aperol is continuing to grow, depending on the month, either high single or low double digits on a consumption basis in Italy. All of the data we have tells us that reliably over time, about two-thirds of that consumption comes from beer and one-third from sparkling wine and wine. Clearly, this might increase a little bit as we continue to move into new drinking occasions, such as informal meals.
With regards to the disproportionate increase of gross margin in the first quarter, which accounted in existing business for 250 basis points, of course, Aperol takes the lion's share. It's not just Aperol. With a very moderate top-line growth of 15.2%, also brands like Campari growing 6.6%, Grand Marnier 4.2%, Wild Turkey 6.2%, Espolòn 29%, and BULLDOG 14%, they all contribute to the gross margin expansion. On the other end, clearly geographies like Russia, Brazil, and Argentina, which went south, further contributed to the gross margin expansion. Also, the single-serve aperitifs in Italy, which are relatively big brands, they do fetch a nice gross margin on sale. Also they were on the positive side. Looking at the Aperol brand per se, that's your question, in the first quarter, the group delivered 59% gross margin on sales.
This is a brand, as we said, all global priorities deliver more than 70% gross margin on sales. 22%, you can run the math, but it's quite a meaningful impact. With regards to the second question, which is gross margin on a full year basis, so far we're not changing our guidance. We believe the business is naturally running with 120 basis points gross margin expansion, of which 60 basis points are dented by the price increase on the agave. Net of the agave effect, that is, will be visible for the whole 2018, and will ease in 2019 onwards. The gross margin expansion is expected to come in at 60 basis points. Clearly, we need to understand how Q2 and Q3 will unfold to change guidance.
For the time being, you have also to recognize the fact that the first quarter in EBIT terms is 17% of the last year EBIT. It is a very preliminary quarter for us, the first one.
Thank you very much.
The next question is from Alicia Forry with Investec. Please go ahead.
Hi. Just a couple of questions. One, you mentioned shipment phasing a number of times, it sounds like that was behind some of the very steep declines in a number of the brands. It also seems to be a feature across a few different markets. I am just curious if we can just dig into it a bit more. Is this all Easter timing and the U.S. distribution changes, or are there other factors at play in Q1 that caused this phasing, which seems to be a bit more than usual in the quarter? Secondly, the Appleton Estate brand, I think, was a bit weak, but seemed to be strong in Jamaica. I did not quite get the explanation as to where the weakness was coming from with that brand. Maybe if we could just talk a little bit about that, too.
Let me take the overall phasing question. Obviously, we're impacted by what happened prior year. Last year in Q1 was a year of important changes. On the one hand, in South Africa, with our new route to market, and partially, or a large part of actually the route to market is with third-party distributors, there was the pipeline effect into these distributors. The same held true for the 17 states in the U.S., which we moved to Southern Glazer's Wine & Spirits. If you look at Brazil and Russia, they were also impacted by very high comp bases last year. These are the ones we're taking mostly into consideration. There are some other things as we move now, minor changes to route to market on certain brands in certain areas where we've held up shipments.
Overall, it's more the comp base on those four big ones, which made a difference. With regards to Appleton Estate, its largest market is in Canada, and we were actually flat in Canada. That's what impacted the overall number.
Okay. Thank you.
The next question is from James Edwardes Jones with RBC. Please go ahead.
Thank you very much. You said that the global priority brands all deliver over 70% gross margins. Just for the record, I presume that includes SKYY. Can you give us any quantification of how SKYY's gross margin compares with the other global priority brands? Secondly, could you give us an idea of how the 2.2% splits between volume and value?
With regards to the first question, we do not disclose the gross margin by brand. We gave you an average number, which enables you to appreciate what is the gross margin impact.
Can I just check I got this right then? I think you said all global priorities deliver over 70% gross margin. Is that correct?
Yep.
That will include SKYY?
Yeah.
Thank you.
The next question is from Marion Cohet-Boucheron with Raymond James. Please go ahead.
Hi, good morning. First question on the phasing impact. Where would you expect to recover from this phasing? When would be the new route to market implemented?
Could you speak up a little bit louder, please?
Yeah. Can you hear me?
Yes.
Yeah. I was asking, on the phasing impact, when do you expect to get the benefits from the route to market changes so we should get the early selling back on the brands? On emerging markets, could you give us maybe some flavor on what you expect during the year, maybe in Brazil, Russia or Argentina? If you could talk about also inflation there.
Well, we would expect to recover the phasing in a combination of Q2 and Q3 with the bulk of it coming in Q2. Moving on to emerging markets, if you look at them, we were pretty straightforward when we released our full-year results and gave a guidance and said we expect them to be volatile this year, and that's what we're seeing. We're seeing very different things in different markets. Now, in Russia, it's ups and downs. We don't see that changing over time. Underlying consumption is there, but customers are pretty moody. With regards to Brazil, unemployment is increasing. They have elections this year, so we wouldn't really expect anything positive coming out of that market, unfortunately, this year. Whereas Argentina, we all know what happened last week with the central bank intervening and strong inflation being fueled. Obviously, in all of those markets, we recover inflation via pricing.
Consumer demand is there, but there's no confidence, really, to lay out. They're all in a wait and see sort of approach. I think a prudent outlook for those three markets would be for them to be flattish this year with potentially better performance in Russia and Argentina going forward.
Okay, thank you.
The next question is from Virginie Rommery with Bryan, Garnier. Please go ahead.
Yes, good afternoon. Could you please give your guidance for Germany for this year? Thanks.
Yes. We would expect Germany to grow somewhere in single digits on a full-year basis.
Okay, thanks.
As a reminder, if you wish to register for a question, please press Star and One on your telephone. The next question is from Paola Carboni with Equita. Please go ahead.
Hello. Hi, good afternoon, everybody. I have a couple of questions. The first one is about the Grand Marnier. If you can elaborate and comment it organic growth by volumes rather than pricing or price mix better. Secondly, in terms of gross margin, should we assume the impact of agave accounted for about 60 basis point in this quarter as well, or should we be aware of any seasonality in the overall impact you have guided for on a full year basis? My third question is instead on SG&A which actually accelerated in this quarter, with a +5.9% year-on-year growth, was a bit stronger than the growth we saw in Q4. Actually, I was expecting to see still some benefit here from the savings in the French headquarters of Grand Marnier which I assume we should keep seeing at least in the first part of this year.
Basically, what should take this growth in SG&A lower during the next few quarters? Thank you very much.
Let me take the Grand Marnier progression question. We have some slight volume gains in the U.S. and some more accentuated declines in the rest of the world, outside of North America, as we've discontinued our aggressive discounting and have cut all sorts of low-priced line extensions. Put them all together, I would say it's more of a price mix issue driver at this stage.
With that follow, with regards to your first question, the defasing effect of the negative impact on agave on our P&L across the four quarters. Overall, it's confirmed the 60 basis points. It accounts for EUR 10 million-EUR 12 million on an annual basis. Clearly, more skewed into the second part of the year, and this is due to the fact that we're still using liquid that has been aged and stored at an historical cost that is lower than the current spot price. As the time goes by the end of the year, and in 2019, we're expecting, market is expecting, agave to progressively come down. The negative impact will, if expectations are confirmed, will ease in 2019 onwards.
On top of the EUR 10 million, EUR 12 million, for sure, thinking at the opportunities midterm, we have the sugar business in Jamaica, which also this year is delivering EUR 7 million of losses as last year. This is an opportunity sitting in 2019. 60 basis points is the overall impact of agave. The gross margin expansion for the full year for the time being is confirmed at 60 basis points, with a gross margin expansion that from 250 basis points will decelerate in coming quarters. With regards to the third question, which was the SG&A trend, for this year, we're not expecting to extract any operational leverage in SG&A line. We're expecting SG&A to grow in line with top line. In the first quarter, SG&A grew in value by 5.9%.
We think, more or less, this is the trend that SG&A will keep on having coming quarters.
Okay. Thank you. Just a follow-up, if I may. You said the business, before one comment on gross margin, this business is set to deliver 120 basis point gross margin expansion, which this year will be dented by agave.
Right.
In general, should we take this 120 basis point gross margin expansion as a normalized cruise speed for your-
Yes
for your business also for the following year?
Yeah.
Okay. Thank you so much. I heard something different. I was wrong. Thank you so much.
Yeah. On the other hand, the comments I made before on SG&A are clearly relating to existing business, to organic performance. We also have to consider that we've sold some brands that obviously absorbed SG&A cost. If you bundle together perimeter and FX, we have a negative impact on the EBIT line of about 40 basis points dilution, driven by clearly dilutive effect on the SG&A, and dilutive effect on the A&P in perimeter, partly compensated by gross margin accretion from perimeter. On the other end, Forex, you have a minimal transaction effect due to the U.S. dollar trend that is basically denting the profitability of European brands, and particularly the Grand Marnier one, where most of the costs are sitting in France and are euro denominated.
Perfect. Thank you very much.
The next question is a follow-up from Olivier Nicolai with Morgan Stanley. Please go ahead.
Thank you very much for taking the follow-up. Two quick one, please. Just to follow up first of all on Aperol in Italy. Could you just remind us of the key demographics in term of age group drinking Aperol? Essentially, I know one of your competitors in town today, are you concerned that if the beer category was to bounce back, you could see a slowdown in Aperol growth, and how are you monitoring that? That's the first question. I know it's multiple, but that's the first question. Second one is much quicker. On Grand Marnier in the U.S., have you increased the headline prices for Grand Marnier Cordon Rouge? Thank you very much.
We haven't increased headline prices on Cordon Rouge. We've basically stopped discounting it. We're waiting for the new campaign to strengthen brand equity before we do that. We think within a reasonable horizon it will be doable. Moving into Aperol in Italy. Our consumption per capita is a little bit north of 0.2 liters per person, whereas beer is closer to 30 liters per person. I think there is quite a bit of room for growth there for us. Clearly, there are a lot of players in beer trying to get into the Aperol spritz moment, some more successfully than others. We think it's good because it keeps us on our toes, and helps us to continue innovating and strengthening our marketing efforts as we go forward. With regards to the age SKUs, we don't really have any SKU.
I mean, at this stage, I would say that we pretty much represent the demographics, both in terms of gender as well as in terms of age, obviously with a certain cap.
Thank you very much, Bob.
Sure.
Once again, if you wish to ask a question, please press star and one on your telephone. For any further questions, please press star and one. Mr. Kunze-Concewitz, there are no more questions registered at this time.
Thank you. I guess both of you have to reimmerse yourself in the beer world.
Enjoy.
Enjoy it. We'll move on to an Aperol spritz. Thanks for joining us. Bye-bye.
Bye-bye.
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