Good afternoon. This is the conference call operator. Welcome, and thank you for joining the Campari Group first nine months 2021 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. Good morning and warm Welcome to our Nine months call to everybody. If you have our presentation under your eyes, I kindly ask you to move on to page three, where I'll kick off with the highlights as usual. As can be seen, you know, clearly highlighted in the chart, we have very strong business performance with double-digit growth across all of our indicators, both versus 2020 as well as 2019. Looking at net sales, on an organic basis in the first nine months, they're up 27.3% versus last year, and this is driven by the bounce back, the strong bounce back in the on-premise, as well as the sustained home consumption.
Versus 2019, we're up 24% and this highlights really the solid underlying business momentum continuing in the second year in a row. The sustained net sales organic growth in Q3 up 12.8%, and this despite a very tough comp base. You'll recall we've had a very strong Q3 in 2020 where we'd grown by 12.9%. The key drivers here are the Aperol in the key summer season. We have a strong growth, obviously also versus Q3 2019, up 27.3%.
On an adjusted organic basis, EBIT margin is accretive by 410 basis points, and this is a result of a gross margin accretion of 140 basis points, thanks to the strong high margin of the AP business, which more than offsets the dilutive fast-growing Espolòn. AMP was neutral and the SG&A line was accretive by 270 basis points. The EBITDA, SG&A margin accretion versus the first nine months of 2019 is driven by top line growth despite the gross margin dilution effect due to agave. We had very strong cash generation. Net financial debt is down by EUR 177.8 million versus the end of 2020, and this brings the net financial debt to EBITDA adjusted ratio down to 1.8x .
If you follow me to page five, you see that we have really strong momentum across the business. Double-digit sales growth, both versus 2020 and 2019 across all our regions and all our brand clusters. We're seeing, as I said earlier, strong momentum in the on-premise coupled with sustained home consumption. That point is driven home, further on chart six , where you see on a two-year stack basis, so in comparison to the pre-COVID period, very strong double-digit, off-premise sellout data. Kicking off with our regions, our largest region, the Americas on page seven. You see the Americas up by a strong 28%, again, thanks to the strong on-premise momentum combined with the sustained home consumption. Starting with our largest market on an organic basis, the U.S. we're up 23.4%.
Very solid growth across all of our core brands with a positive performance in Q3, where we grew by 12.3%. This is on the back of a 21.8% growth in 2019. Clearly, we benefited very strongly from the on-premise reopening as well as maintained and grew share in the off-premise. In particular, Espolòn, Grand Marnier, Wild Turkey, Aperol, and the Jim Beam brands registered robust double-digit growth. Our overall sales performance in the first nine months versus 2019 is up 23.7%. Clearly strong brand momentum across the portfolio, driven by the brands I mentioned earlier. The off-premise sellout reflected a very tough comp base versus the first nine months of 2020.
Whereas on a two-year stack, we're up by 37.7% growth in value versus the first nine months of 2019. You'll also recall that there were stimulus checks in consumers' pockets in September 2020, which actually generated a 44% value growth in our distribution network. Clearly the comp in September was very tough. Moving on to Canada, up 10.7%. Very solid overall growth generated by Forty Creek, Grand Marnier, Appleton Estate, and Espolòn. Our performance in Q3 was slightly negative, but this really reflects the tough comp base in the previous year. Jamaica, very strong, up 37.4%. Here we have again a sustained off-premise performance and a recovery in the on-premise, driven primarily by domestic trade, but also a resumption of international tourism.
Brand-wide, strong performances from Wray & Nephew Overproof, Campari, Appleton Estate, and Magnum Tonic. The rest of the region was up 43.7% with a double-digit growth rate across every single market, to be fair, though, against an easy comp basis. Moving on to our second region on page eight, Southern Europe, Middle East, and Africa, we're up by almost 52%, and this is largely driven by the on-premise recovery. Italy, our largest market in the region, was up by 29.6% organically. Very, very positive. We're growing 50% faster than the market. This is thanks to the recovery in the on-premise and the fact that revenge conviviality is very well and doing well. We've benefited, to be fair, also from the easy comp base on a nine-month basis.
Last year we were down by 11.6%. Obviously, the comp base has changed once we look at Q3 exclusively. Key brands here are aperitifs with Aperol, Campari, and Campari Soda leading the charge with strong double-digit growth rates, while Crodino is up by high single digits. Importantly, the performance in Q3 was positive. We were up 1.3%. This on the back of a very tough comp base. You'll recall that in Q3 2020, Italy was up by 35.4%. Obviously, we benefited by the staycation effect as well as from international tourism. Compared to the first nine months of 2019, again, here the performance is very positive, up 14.6%, way overperforming versus the market.
Compared to Q3 2019, the performance was up by 37.2%, reflecting really the very strong brand momentum in the key summer season. Moving on to France. France was up by 21.9%. Again, positive results with normalization in Q3 against a very tough comp base. The underlying trends remain quite positive. Growth in the nine months clearly again driven by Aperol, Riccadonna, Trois Rivières Rhums, which we bought last year, Campari, Grand Marnier, and Glen Grant. The rest of the region grew strongly, up 62.6%. Positive performance across all the other markets, thanks largely to the on-premise recovery as well as the help of an easy comp base. Moving on to Northern Central Eastern Europe on the following page. Up again, a very robust 19.8% with very positive momentum across markets and channels.
The largest market in the area, Germany, grew 10.1% on an organic basis. This must be seen as a very positive business performance because on the one hand, we've had a very tough comp base. We were up 11.6% last year in the first nine months. We're very happy to see that our momentum continued in Q3, up 7.7%, notwithstanding the quite adverse weather conditions during the summer and a less pronounced staycation effect as Germans took their vacations in the Mediterranean countries. Our performance in the nine months was largely driven by Aperol, up by 9.7%, as well as the very successful launch of the Aperol Spritz Ready to Serve. Campari grew very nicely as well as Grand Marnier and Crodino.
The U.K., very strong, up 42.5%. This mostly driven by Aperol, Wray & Nephew, Campari, as well as Magnum Tonic Wine, which is becoming a significant contributor in that market. Russia, despite, you know, a complex situation from a COVID standpoint, the overall market doing very nicely for us, up 32.2%. Again, some normalization in Q3 versus the first half, but very sustained double-digit growth rate of Aperol, Mondoro, and Campari. The rest of the region was up 20.9%. Again, strong positive performance across markets, largely driven by Aperol. Closing up with our smallest but fast-growing APAC region, up 30.4%. This continued growth obviously was helped by some shipment recovery due to the route to market changes we had in Asia last year.
Australia, on an organic basis, was up 5.7%, quite a solid performance against quite the tough comp base. We were up 21% last year. This was helped by a strong start to the year. Q3, on the other hand, was down by low single-digit due to a combination of snap lockdowns, which impacted particularly in our two largest states, as well as the beginning of supply constraints linked to transocean shipments. The underlying trends in Aperol, Campari, and Crodino remained very strong, and the launch of Aperol Spritz Ready to Serve was also a success in this market. Looking at the rest of APAC region, we're up a triple-digit, 120.2%. Very positive results in Japan, and China and Korea were also positively impacted on the strong shipment recovery post the route to market changes.
The triple-digit growth in China was driven by X-Rated Fusion Liqueur, SKYY Vodka, Aperol, Grand Marnier, and Wild Turkey. Japan also was up by strong double digits driven by Wild Turkey Bourbon, Grand Marnier, the Glen Grant, and Campari. Moving on to chart 11 and the review by brands. You see Aperol very, very strong, up almost 30% versus last year, 33.2% versus 2019. Very positive performance across the board and markets. We've been able, thanks to the reopening of the on-premise, to renew our recruitment drives, and this obviously has generated quite a boost for the brand, and we're also seeing sustained home consumption. Our core markets, Italy, the U.S., France, the U.K., Russia, Switzerland, Belgium, Austria grew by sustained double-digit rates, whereas newer markets such as China and Mexico grew even faster, up triple-digit.
The positive momentum continued in the key summer season, with Q3 up 15.5% against a very tough comp base. On a nine-month basis, we grew by 43.2% versus 2019. Clearly, this is really a strong mark of how the brand is doing. Campari, as well benefiting from the same effect, up 28.4% versus 2020 and 27.1% versus 2019. We have strong growth across all our major markets where we're benefiting from home mixology trends as well as very positive on-premise momentum, which is largely driven by the Campari Spritz.
Moving on to chart number 19, you can see the strength, the underlying strengths of our aperitifs versus a 2019 unaffected base, growing a very sustained double digit rate both on Aperol and Campari across all of our markets. Importantly, you also see that the off-premise sellout is stronger than our shipments value organic growth, so that means that there's quite a bit of tension at the stock level, and we don't have much on the shelves. Moving on to chart number 20, Wild Turkey, also double digit against both years. On the one hand, there's an easy comparison base, but the U.S. is driving very nicely, also helped by the solid category momentum.
Australia was flattish due to the tough comp base, up 28% last year, as well as some transocean shipment delays. Looking at SKYY, we're up 11% versus last year, but down 6% versus 2019. With an overall positive performance in international markets, particularly Argentina and South Africa, as well as Germany and China. The U.S., where the brand was relaunched in July, was slightly positive. Now, compared with the first nine months 2019, our performance on this brand is negative, and this is particularly due to the destocking effect which took place in the U.S. during 2020. Moving on to Grand Marnier, which is going from strength to strength, up 43.3% versus last year, 28.3% versus two years ago.
This growth is clearly driven by the core U.S. market, which is benefiting from a very positive homemade cocktail consumption boom, and particularly the success of the Grand Margarita in both channels. Our rum portfolio up 28.2% versus last year, 35.1% versus two years ago. If we break this up, Appleton Estate, which is really benefiting from the relaunch we did last year behind a renewed range, more premium packaging and price increases, was up overall 38.2%, clearly outpacing the rum category in its core markets. Wray & Nephew Overproof also grew by a strong double-digit, 23.7%, and this strength mostly to Jamaica, the U.K., Canada, and the U.S. We're not closing up yet.
Moving on to the regional priorities, Espolòn, despite two price increases in the past 18 months, continuing to perform very nicely, up 41% versus last year, a whopping 83% versus 2019. Clearly a very strong growth driven by the core U.S. market, and we're also doing very well in all of the key markets. Bulldog is also benefiting from reinforced marketing spend behind it, growing by 46.6% versus last year, 16.6% versus two years ago. Key markets here are Spain, Italy, Germany, Argentina, as well as global travel retail. The Glen Grant growing very strongly on a value basis versus last year, 36.3%, flattish versus 2019.
This overall positive performance is, yes, against an easy comp base, but on the other hand, you really see a big change in the mix of the brand as we're repositioning it in the super-premium end. We're gradually shifting from high volume and shorter age variants into premium higher margin propositions. Our Canadian whiskey, Forty Creek, grew double digits, 10.9% versus last year, 19% versus two years ago, and this is mostly driven by Campari. We're also happy to see our Italian Amari portfolio returning to growth. We were down 1.9% versus two years ago, but up 20.3% versus last year, benefiting from the reopening of the on-premise and revenge consumption.
The Cinzano franchise also up double digit, and here it's mostly driven by the sparkling wine, with the vermouth higher-end expression also contributing. Last but not least, our more premium sparkling wines, Mondoro and Riccadonna, growing very strongly, up 56.7% versus year ago, 68% versus two years ago. This is mostly due to Russia, France, and Peru. Now finally closing with the local priorities, you see Campari Soda, which is continuing to give us a lot of satisfaction, and that's very important for us. Up double digits versus both reference points and then building momentum this year, up 40%. Clearly the relaunch which we activated last year and the increase for cocktails to go in Italy are benefiting this brand.
Crodino is growing versus last year, but is down versus two years ago, down 11.7%. We have two stories. International markets are growing double-digit. Italy is slower, but again, this is a brand which will benefit in the months to come from a relaunch. The Aperol Spritz Ready to Serve, growing very strongly, almost doubling versus last year and growing by 156% versus two years ago, thanks to the highly successful introductions in Germany and Australia, and continued strong growth rates in Italy. The Wild Turkey RTDs in Australia up only 4.9% this year, which is clearly against a very tough comp base last year, but up 33.4% versus two years ago.
Magnum, which is becoming a priority in two key markets, not only in Jamaica but also in the U.K. now, growing by 66% versus last year, 90% versus two year ago. Closing up with X-Rated, which is particularly strong in China as well as Korea, growing by 128.5% versus last year, and 181% versus two years ago. This is it in terms of the top line review, and I'll pass on to Paolo, who'll take you through the intricate details of our financials.
Thank you very much, Bob. If you follow me to page 17, we have the P&L at a glance. As you can see to the right-hand side, in the first nine months of 2021, net sales came in at EUR 1,575.7 million, up 22.9% on a reported basis versus nine months of a year ago. Adjusted EBIT came in at EUR 359.8 million, up 44.8% versus a year ago, showing 350 basis point EBIT margin expansion in the first nine months of the year on a reported basis.
If we focus on the organic performance versus a year ago, first nine months, net sales were up 27.3%, and EBIT adjusted was up at 54.2%, showing 410 basis point organic expansion. As you can see, to the bottom of the chart, organic change in EBIT accounted for EUR 134.8 million, where basically, gross profit contribution accounted for EUR 230.8 million in value and corresponding to an organic growth of gross profit of 30.3%, leading to 140 basis point gross margin expansion.
The contribution from gross profit was partly reinvested in AMP Step Up, accounting for EUR 68.5 million, as well as investments in new capabilities and route to market by EUR 37.5 million, still up 12.6% below top line and leading to 170 basis points EBIT margin expansion. On the other hand, the combined effect of negative perimeter and negative Forex drove an EBIT erosion of EUR 23.5 million in value and 60 basis points in marginality. To the right-hand side, we have the comparison versus two years ago, first nine months of 2019. Even here you can see the organic growth has been quite robust with net sales up 24% and EBIT adjusted up 31.7%.
EBIT margin accretion of 140 basis points notwithstanding, a negative gross margin on sales over the two years of 130 basis points. If we compare the, you know, the third quarter on a standalone basis, versus a year ago and two years ago, organically, net sales were up 12.8% and 27.3% respectively, and EBIT adjusted was up 16.2% and 29% respectively. In both cases, versus a year ago and versus two years ago, EBIT adjusted in the third quarter of the year was increasing ahead of net sales with 70 and 30 basis points accretion respectively.
If we move on to page 18, more in detail, gross profit on a reported basis was up 26.2% in value with a 160 basis points accretion. For each and every P&L line, we have highlighted the performance versus both a year ago, first bullet, and two years ago, second bullet. Versus 2020 organic growth, organically, the organic growth of gross profit accounted for 30.3% stronger than top line, leading to 140 basis points margin accretion against a favorable comparison by base. The margin expansion accelerated in the third quarter of the year, as we saw before. It accounted for 170 basis points and was driven by a solid mix, thanks to the outperformance of both high margin aperitifs and high margin premium spirits.
Secondly, you know, price increases in selected brand-market combinations that we've started to take. On the other hand, again, as a positive, thanks to a very robust top-line growth rate, we have a stronger absorption of fixed production cost, and also the suspension of U.S. import tariffs was a positive effect. Those, you know, effects more than offset the intensified input cost pressure that we've seen in the third quarter of the year, particularly in logistics costs, which, you know, were also combined with elevated higher purchase price. Although, you know, on the higher purchase price, we see, you know, an improving trend.
Versus year, two years ago, organic growth of gross profit accounted in value for 31.4%, with a dilution of 130 basis points, mainly driven by the outperformance of Espolòn, which in isolation accounted for a gross profit dilution of 150 basis points. On the AMP side, on a reported basis, big increase in AMP in value by 24.5% with 20 basis point dilution versus a year ago, the strong AMP organic increase of 27.2% reflected the sustained investment behind key brands, in particular, the aperitifs, in the key summer season. The increase in AMP was fully absorbed by strong top line growth, hence the margin was neutral.
If you look at the third quarter on a standalone basis versus a year ago, AMP was up 13.6% in value against a tough comp base and was slightly dilutive on margin. Versus two years ago, AMP was up in value by 18.2% in the first nine months with a margin accretion of 80 basis points, which was entirely driven by the stronger top line growth. Looking at the third quarter in isolation, AMP versus two years ago was up 13.6% in value confirming the continued AMP step up to build brands in the future. Looking at the SG&A line on a reported basis, they were up 11.9% in value with a 210 basis point accretion.
Versus a year ago, the SG&A increased by 12.6% in nine months with margin accretion of 270 basis points driven by strong top line growth. Looking at the third quarter in isolation, SG&A organically were up 18%, growing faster than top line and driving the margin dilution of 90 basis points on the back of investments in enhanced business infrastructure and cycling through lower discretionary spend. Looking at the two years ago comp base, SG&A were up in nine months 13.7% in value with an acceleration in the third quarter, where we had a 20.3% increase of SG&A organically, and that SG&A increase was primarily attributable to the enhancement of capabilities.
The overall margin accretion in nine months versus two years ago accounted for 180 basis points. Net-net, EBIT adjustment on a reported basis was up 44.8%, 44.8% as we saw, 350 basis points and organically, we reiterate organic growth of 54.2% in value on 410 basis points, you know, quite, you know, a strong performance, in organic growth versus two years ago, 31.7%, another 40 basis points accretion, against, you know, a, you know, a year that was unaffected by COVID is again, a very strong performance. Moving on to page 19, we see, you know, the P&L below EBIT adjusted.
We report operating adjustments of EUR 9.7 million, well below the EUR 48.3 million of last year, which were attributable to brand impairment losses and a EUR 9.7 million euro operating adjustments were attributable to tail end effects of restructuring initiatives, you know, namely Jamaica and non-recurring retention schemes. With regards to financial charges, if we carve out positive exchange gains of EUR 3.9 million, net financial expenses came in at EUR 19 million, EUR 8 million below last year, despite higher average net debt, EUR 1.04 billion this year versus EUR 948 million of last year. The compression of financial expenses was due to a lower average cost of net debt, 2.4% this year versus 3.8% of last year.
A decrease in cost of net debt is primarily attributable to a lower average coupon for the long-term debt on the back of liability management initiatives that have been carried out in 2020, as well as due to a lower negative carry effect. On a positive side, we again have positive financial adjustments of EUR 4.7 million attributable to positive, you know, a successful closure of a dispute in Brazil that has been, which, you know, whose cost has been, you know, accrued in prior years. We have, you know, tiny profits from JVs where, you know, the cost of, you know, the call on the South Korean JV was below expectations.
Group profit before taxation came in at EUR 341 million, up 79.4% in value on a reported basis. If we carve out the operating adjustment of EUR 9.7 million, which I'd mentioned before, as well as the positive financial adjustments of EUR 4.7 million, and lastly, the positive adjustments related to the measure JVs and associates of EUR 2.9 million, the Group profit before taxation, adjusted, came in at EUR 343 million, up 66.1% in value versus a year ago.
If you follow me to page 21, in closing, we have the net debt picture quite a strong cash flow generation with a net debt compression of EUR 177.8 million versus December of last year, down from EUR 1,103,800,000 to EUR 926 million. On the back of the robust cash flow generation as well as the steep rise in EBITDA, we see the leverage ratio, the net debt to EBITDA ratio, coming down one turn from 2.8x to 1.8x . Even here, very solid delivery. I think this is it on the numbers. Bob, I would hand back to you on the marketing initiatives and just a conclusion.
Thank you, Paolo, for getting to the outlook. Some pretty pictures illustrating the strong marketing plans we're rolling out across geographies, starting off with Campari, which benefited from a delayed Negroni Week, which was in September this year versus in May, June period we used to be in the past. A very strong presence with the Fellini Forward film in film festivals dominating Venice, a very strong presence in New York, Locarno and Melbourne. This was quite a out-of-the-box exercise as we used our artificial intelligence to analyze Fellini's cinema techniques and then apply that to the biography of his.
Moving on to Aperol, we really painted every possible spot the Aperol orange this year across Europe, the Americas, as well as APAC, and that has been very, very beneficial to our recruiting efforts and the long-term growth of the brand going forward. We also have an important milestone on the brand. We opened the first Terrazza Aperol in Venice. As you know, Venice is really the birthplace of the Spritz. The Aperol flagship, which is owned by us, is in Campo Santo Stefano, which is absolutely strategic, as nine million tourists go by there every year, and it will enable us to develop a model which we then expect to export across international markets.
Wild Turkey is benefiting from a new campaign with Matthew McConaughey, who is doing quite a bit to premiumize the brand, and we've also done that with the new packaging on the Wild Turkey 101. At the same time, the brand is collecting many accolades, particularly on the high end of the brand, with Kentucky Spirit and Rare Breed in all sorts of competitions. The premiumization of Glen Grant continues. We introduced a month ago in London at the Rolls-Royce shop, the 60-year-old anniversary edition. It was a fantastic launch event. It's a very limited edition, 360 of them, priced at EUR 25,000 and upwards.
We're very pleased to say that most of them have already been sold, and some of them have been sold at auction at EUR 50,000. This bodes well for the premium development of the brand. This is it from a marketing standpoint, completed with outlook. I think there's no point going over the conclusion. Very successful first nine months, thanks to sustained home consumption and revenge conviviality in the on-premise, with us really benefiting from the strength of our brands, strong marketing program, continuing to take market share across markets and channels. Looking at the remainder of the year with regards to the underlying performance, we expect our positive brand momentum to continue.
We expect the favorable sales mix to continue in the last quarter as well, partially offsetting the intensified input cost pressures and the logistics costs, as well as the accelerated brand building investments and structural costs, phasing, particularly incentives for the Campari staff as well as the hiring catch-up. Looking at Forex and perimeter effect on EBIT adjusted, we do not expect Forex to materially worsen in Q4 on the perimeter, also probably unchanged on a full year basis versus our previous guidance, with an estimated negative effect of approximately EUR 9 million, mainly due to termination of agency blends. Looking forward to the future years, there is some uncertainty which remains in connection with the evolution of the pandemic and what the pandemic also induced in terms of logistics constraints as well as the intensified input costs.
This despite increasing the, I think, including agave output. Having said that though, we remain quite confident about the solid business momentum, and we will continue to invest behind our brands and capabilities and keep on building momentum on that. This is it on our side, and we're all ears waiting for your questions.
Excuse me. This is the conference operator. We will now begin the question and answer session. The first question is from Simon Hales with Citi. Please go ahead.
Thank you. Hi, Bob. Hi, Paolo. Two questions, please. Can I ask a little bit first about sort of how you see profitability really developing in Q4? I know you won't want to comment specifically about consensus, but you know, from what it was, when I look at the consensus, it looks to be around EUR 90 million of EBIT in the fourth quarter. That's clearly a long way below where we were sort of pre-COVID in 2018 and 2019 for the fourth quarter. Is there anything specific that we should be thinking about as we think about the, you know, the increasing costs and in Q4, higher AMP?
You've talked about higher SG&A costs that could really mean that you could be significantly below 2019 levels of profitability in Q4, or is it just that consensus is just plainly wrong at this point? And then my second question is just looking forward into your comments then, Bob, around input cost pressures as we look into 2022. Where are you seeing those pressures building most in your business? And are you able to share any more detail about the scale of the COGS inflation that you're seeing and your confidence in your ability to offset at least a significant part of that through pricing?
These are questions for me, I believe. With regards to Q4, you know, the first question, if I remember it well, is around the SG&A cost in Q4. Now, you know, if you look at, you know, the development of structural cost in 2022 versus 2021, we have two factors here. On one end, we have, you know, a phasing effect, where clearly we've put on hold hiring new hirings in the company for a good year. You have, you know, a phasing effect of SG&A build up across the quarter. Secondly, you have the effects of the accruals on STI and LTI.
We're basically you know last year you know the Q4 of last year we've clearly reduced STI and LTI to take into consideration the deterioration of the company performance. While you know this year we're basically you know we're increasing STIs and LTI to reflect the you know the robust performance of the business. So I think you know a better way of you know measuring the SG&A trajectory is to compare the Q4 performance to the performance of 2022 versus 2019. So two years 2021 versus 2019, so two years ago. So comparing not with 2020, but with 2019.
We think if you take, you know, Q3 of two years ago, the SG&A were up about 20%. I think, you know, we will, you know, marginally increase versus that trajectory, but I think this is, you know, a number which, you know, takes into consideration all the effects of phasing and as well as, you know, one-off effects that I've mentioned before. You have, you know, I believe a question on gross margin on Q4. We expect that, you know, although we've spotted some sort of risk on input cost pressure, given the strong underlying business momentum and sales mix, we expect Q4 still to have, you know, a gross margin accretion.
We're not really, you know, changing our guidance on a full year basis in terms of gross margin as a percentage of sales. Where, you know, to be, you know, everybody on the same page is to recover, you know, at least 50% of the 280 basis point gross margin on sales shortfall that we've incurred in 2020 versus 2019. Then I think you had a third question that is looking beyond in 2022, how do we see, you know, margin evolving?
Due to the deterioration of input cost environment, particularly on logistics, we believe that our goal of covering in 2022 entirely the gross margin as a percentage of sales shortfall of 280 basis points in 2022, that plan is to be probably shifted by six months. We believe we'll hit our goal of achieving neutral gross margin on sales, neutral versus 2019, by the end of first half 2023 as opposed to December 2022. That's how we see it. You know, we see in the last three months, we've seen a further deterioration of input cost environment.
We think this is you know probably a temporary effect. In the second part of next year, I think you know things are starting to improve. For the next year, we're overall targeting an increase of cost you know at constant volumes of about 5%. That's you know the number that will factor in our plan, including any potential saving coming from agave. On the other end, you know that 5% would be more than offset by you know combination of savings improvement. We're seeing you know the mixes has been positive so far and will keep on being positive in future.
You know, as we have highlighted, we have a number of initiatives, internal initiatives to achieve efficiency in procurement and production. We can also rely on operational leverage in production costs, where, you know, a good chunk of production costs are fixed, and even the robust top line, we have some opportunities there. I think, you know, overall, we'll deliver gross margin accretion, but, you know, overall, and of course, you know, price increase. I forgot the, you know, the most important piece, you know, will be, you know, quite aggressive on pricing next year. The goal is, you know, to achieve gross margin expansion in 2022, although at a more moderate pace vis-à-vis what we've initially, you know, imagined, even the short term bump in the procurement arena.
That's really helpful, Paolo. Can I just check on the pricing point? Have you taken any pricing sort of recently as we've headed into Q4 in any particular markets on your main brands?
We've taken price, you know, being quite aggressive on tequila, for example. That was at the beginning of Q3. You know, most of the price increases will be, you know, effective, fully effective from Q2 onwards, I would say. This is when, you know, we're negotiating price increases, and they will become effective, you know, from Q2 onwards.
We, you know, if you look at the phasing, probably we will have, you know, tougher comps at the beginning of the year, Q1 and Q2, in terms of margin and easier comps in the second part of the year on the back of easing market conditions on procurement, on input cost and the benefits coming from price increases that, you know, have, you know, a little bit of delayed effect in the second part of the year.
Brilliant. Thank you ever so much.
The next question is from Laurence Whyatt with Barclays. Please go ahead.
Morning, Bob. Morning, Paolo. Thanks so much for the questions. You've highlighted in your presentation that the cost of agave is making Espolòn dilutive, and you mentioned in response to Simon's question that it might be a little bit better recently. I was wondering if you could quantify any movements that you've seen in agave in recent months, and also what your expectation on agave pricing is for 2022. Secondly, you've mentioned you're doing a step up in your AMP investments. Your peers are also saying similar things. Are you seeing evidence of aggressive pricing at all in the market, or is it becoming more expensive to do the advertising, or are you simply just getting better returns from your advertising?
Finally, U.S. consumers appear to be drinking overall more volume of alcohol from the data that we can see. Do you think that the overall volume has materially increased versus 2019 levels, or is this simply a price mix thing that means that the overall value is increasing, but volume is staying similar? Thank you very much.
I'll take the last two questions, and then I'll take a break. Now with regards to U.S. drinkers, I mean, we met with our U.S. distribution partners last week, and in terms of volume, I mean, they were saying that volume growth is pretty much stable across years. We're talking about, you know, something around 2%, with more of the growth actually coming from price mix and mostly mix. Yeah. Now on AMP, I mean, the reason, the step up in AMP we're talking about is within the usual range, which we've always mentioned, which is plus or minus, you know, 20-25 basis points. So we're not talking about anything huge. But clearly, there will be a step up in Q4, which then will have that impact on a full year basis.
The reason why we're doing that is that we're seeing very good ROI behind our digital efforts, and we see a great opportunity for our premium plus aged dark spirits in the last quarter of the year for gifting purposes. It is really an opportunity we see ahead of us.
Yes. With regards to the agave, you know, we have two factors here, you know, in the overall cost of internal cost of production of tequila. With regards to the agave price, we were seeing improving conditions and the cyclical declining prices are destined to continue in 2022, and if anything will accelerate. Within the 5% as cost and volume increase for next year, we've embedded a decline of the agave. We think, you know, we're well covered there. We're on a declining trend.
Secondly, you know, in 2021, clearly we're being penalized from a production perspective by the fact that, you know, the huge rise in tequila demand and the steep rise of the Espolòn brand led to poor performances on distillation with, you know, lower yields on the agave distilling, cooking, milling and distilling. This is something, it's one of the, you know, production efficiency programs that we've launched and that, you know, will help offset the overall input cost pressure in 2022. I think, you know, the worst is clearly behind us on the agave. It's just a matter of, you know, speed of recovery.
If you look at the, you know, comp base versus 2019, we're saying, you know, we're still lagging behind by 140 basis points versus two years ago in terms of gross profit on sales. 150 basis points is explained by Espolòn. If we manage to stabilize that, you know, we would be in a better spot to achieve, you know, our goal in terms of gross margin on sales by H1 2023, parity versus 2019.
That's great. All very clear. Thank you.
The next question is from Andrea Pistacchi with Bank of America. Please go ahead.
Hello, Bob and Paolo. I also have three, please. The first one on the pricing environment in the U.S. You were saying earlier you're quite optimistic about pricing next year. The pricing in the U.S. hasn't been easy for most categories in past years. Do you think the current environment with all FMCG companies facing cost pressures and clearly a very healthy spirits industry backdrop could all this put together mark the return to probably more sustainable pricing in the U.S. market? Second question on Europe. You've seen clearly remarkable growth, very remarkable growth in Europe versus 2019, even in some of your more mature markets. How do you think about the medium term in some of these countries like Germany, Italy?
Do you think the big step up that we've seen versus 2019, the higher base, this higher base could actually be a new level upon which to grow from? Or maybe some of the staycation benefit or revenge conviviality, maybe some of this comes out going forward. Then the third one is I just want to follow up please on SG&A, Paolo, you're saying SG&A up 20% in Q3 versus 2019, possibly a bit more in Q4. I mean, historically, SG&A has grown around 7%-8% per annum, so this is quite a bit more. So is there anything specific, any specific capability build that you've done this year? And going forward, should, let's say, the growth rate of SG&A tend to normalize towards historic levels?
Hi, Andrea. I'll take the first two questions. I mean, first of all, with regard to pricing in the U.S., I mean, in the past or in the recent years, there hasn't been much real pricing being taken in the U.S. We're probably one of the few companies taking real pricing, particularly in tequila. But as you said, you know, with these input cost pressures, and really impacting FMCG companies and actually at a more heightened rate versus spirits, there is an overall environment where we believe that pricing will become a factor in the U.S. You know, all the spirits companies are on the same boat, and sooner or later, you face reality.
Our expectation is that pricing will start, real pricing and not just mix, will start happening in the U.S. next year. With regard to Europe, whether you know the current levels are a new base, we think that overall you know the base will be higher in Europe, but the growth will normalize in the years to come. Clearly, during lockdowns, spirits have penetrated even more households. You see that in the three-year decks of you know off-premise sellout, which we've showed even in markets like you know traditional on-premise markets like Italy, you do see that you have double-digit growth. We expect to grow from a higher base but at a more normalized rate.
You know, with regards to the SG&A point, and it's a very good question, but you know, if you factor in the numbers, you know, a 20%+ increase in Q4 versus two years ago, you still end up with a gross rate of SG&A over a two-year period that represents a mid- to high-single-digit gross rate for each and any year, 2020 and 2021 average, which is not inconceivable considering the two effects. On one end, you know, still versus 2019, we have over two years a double-digit gross rate. You know, you still have drift.
Of SG&A in value that is driven by variable compensation, sales force and so forth, SPIs and whatever. Secondly, clearly, the investment in Asia has been big over the last two years notwithstanding pandemic. Now we've kept on investing to pursue the opportunities. Secondly, again, even thankfully, we've significantly beefed up our capabilities in marketing and commercial capabilities as well. As well as we strengthen our presence in e-commerce and on trade. I think, again, we've invested the organic growth rate of SG&A over a two-year period is not off chart.
It's, you know, marginally worse than it used to be before, but it's totally explained by the reasons, the factors that I believe I've highlighted. You need to normalize everything because also, you know, if you look at the progression of SG&A increase in 2021 versus 2019, still there is a phasing effect because, you know, they're increasing 6% Q1, 14% Q2, 20% Q3. You know, the combined effect of the four quarters is not the 20% that I've mentioned for the fourth quarter in isolation.
Yeah. All very clear. Thank you.
The next question is from Olivier Nicolaï with Goldman Sachs. Please go ahead.
Hi, good afternoon, Bob, Paolo. Got a couple of questions, please. First, on the U.S., could you give us an update on your level of inventories and if retailers are complaining about shortages on some of your products, which could potentially impact the depletion in Q4? You mentioned the stimulus for the consumer at the beginning of the conf call. Are those, you know, stimulus being scaled down, how do you see consumer demand into Q4 and also into next year? The second question is on, or actually third question really, is on France. Sales were down in Q3, so normalizing post a very strong H1.
Now that you have integrated Trois Rivières and you got the Rothschild distribution for Champagne, how should we think about the normalized growth rate in France going forward? Is mid-teens reasonable? And are you also seeking to add more brands to your portfolio to enhance the distribution? Thank you.
Yeah. Hi, Olivier. Now with regards to France, I mean, we're building momentum there, so we feel very comfortable about the robust growth in that market. Clearly, we have strong momentum behind Campari, behind Aperol, Glen Grant, as well as some selected brands in distribution. Moving on to the U.S., what about the level of inventories? I mean, our inventories are actually quite low at both the wholesale level as well as at the retail level. So we can be faced with out of stock situations. For instance, we had that on the larger sizes of Wild Turkey in Q3. So our supply chain is working 24/7 to try and you know, produce what is requested.
The question mark is, will the trucks show up to get the goods? Now, we're working proactively ahead of time to ensure that, you know, we're not impacted by that, but we'll only know for sure at the end of the year. Clearly, consumer demand is very robust, particularly in the on-premise. I mean, if you look at, you know, SipSource data, I don't know if you're familiar with that's basically consolidated distributor depletion data. If you look at by the end of August on a rolling twelve-month basis, the U.S. was up 7.4% on value, the off-premise by 5.9%, but the on-premise by 17.7%. Clearly very robust.
As you know, we also skew more to the on-premise in the U.S. versus the average of the market. We're well-positioned. We'll do our best to make sure the goods are there. Let's hope that logistics constraints do not become much of a handicap.
Perfect. Thank you very much.
The next question is from Edward Mundy with Jefferies. Please go ahead.
Afternoon, Bob, Paolo. A couple from me, please. The first is really around revenge conviviality, which has been very strong. What's your sense as to how long that might last before we revert back to more normalized consumption patterns? The second is on ready-to-drink or ready-to-serve. If we take Wild Turkey in the U.S., you know, clearly you're focusing a lot on brand building and premiumizing that broader brand family. You know, how do you think about the opportunity for ready-to-drink for Wild Turkey in the U.S. if that spirits ready-to-drink piece is taking off? Then on the Aperol Spritz Ready-to-Serve piece in Italy, Germany, and Australia, what is the criteria when you think about broadening distribution outside of those markets? Then the final question is really around, you know, bringing distribution in-house.
You've clearly, you know, done a lot of changes in the last few years in Japan, France, seeing good success. Are there more opportunities to bring distribution in-house in other markets?
Yeah, I mean, you know, most of the distribution in-house things, developments, as you know, have been happening in Asia, where we have high ambitions, and we've created a series of joint ventures. That is the model which we'll probably pursue in the years to come on a, you know, on a market by market basis when the opportunity presents itself. The idea is always to go in, you know, with a strong local partner on a minority basis, and then as the business grows, take it over. It's quite, I'd say, efficient from a financial standpoint. Moving on to your first three questions, revenge conviviality.
I don't have a crystal ball, but I have a gut feeling that this is here to stay for longer than people estimate. I mean, if you think about, you know, how people are reacting to, you know, the opening and the fact that it's still uncertain whether when markets will shut down again, as you know, if you take a market like the U.K., for instance, where the cases of COVID are increasing significantly, I mean, that's driving even more people to make the most out of, you know, the openings at this stage. There's this sort of carpe diem mentality, which I personally think is gonna last at least for a few more years.
You know, we will tell whether I'm right or not, at least I'll be proud of having coined the term revenge conviviality. Now, moving on to RTDs in the U.S. and particularly on Wild Turkey. You know, we're pretty selective when it comes to, you know, brand extensions in the RTD area on our existing brands. We think that a lot of what's been happening lately in various markets, particularly in the U.S., will bring short-term gains, but long-term, a lot of pain to the brand owners. When we do something like that, we do it very, very selectively. We only do it when we own it all. I mean, we own the Aperol Spritz, we own the Negroni, we own the Campari Soda.
When we own the call, we do it, and we do it in a very premium fashion with glass bottles. To cut a long story short, we have no plans of introducing an RTD on Wild Turkey in the U.S. Wild Turkey is doing very, very nicely as we're premiumizing the brand, and we're seeing very strong growth on the high end of the brand. Now, with regards to Aperol Spritz, I mean, currently, the Ready-to-enjoy Aperol Spritz accounts for somewhere between 9%-10% of the volume of the mother brand. Again, here, we're very, very selective. Customers in our markets are clamoring for it across the globe, and we're only allowing those where we have already a very well-established perfect serve of the mother brand in the on-premise.
We have various consumption per capita criteria as well as the quality of the drink criteria. We're very selective with it. What we found out from research is that it's not a recruitment tool, it is a convenience tool. We only introduce it in those markets where we have a very established presence and consumers are looking for some more convenience.
Thanks, Bob. Is it too early to say whether that's gonna be rolled out to other markets next summer?
Well, I don't think we have any plans at this stage.
Thank you.
I mean, it's growing at a very sustained double-digit growth rate across all markets.
Thanks.
The next question is from Trevor Stirling with Bernstein. Please go ahead.
Hello, Bob and Paolo. Nearly all my questions have been answered, gentlemen, but just one question for Paolo. You talked about the intensifying input cost, Paolo. Is it just on logistics, or is there something else? Is it both ocean freight and ground transportation?
Yes, Trevor. No, it's broader than just logistics. You know, logistics clearly are the highest cost increase driver, but also on packaging materials, particularly glass, which is a constrained supply environment. The huge rise in overall demand is putting pressure on glass, which is one of the biggest bill of material components. Also on other raw materials, you know, alcohol, cereals, sugar, and basically, it's everything. It's broader. On logistics, you have the combined effect of cost pressure and logistics constraints that is causing some freezing effects on shipments. This is something we're carefully monitoring and managing.
Super. Thank you very much, Paolo.
You're welcome.
The next question is from Fintan Ryan with JP Morgan. Please go ahead.
Good afternoon, Bob, Paolo. Thank you for the questions. Three for me, please. Maybe firstly, just following on from Trevor's question there. Were you able to give a sense of which particular products or markets are where you're seeing the most impact from other input cost inflation broadly or specifically logistics costs? Appreciate you called out Australia.
Sorry, can you repeat the question and speak a little bit louder because we missed it.
Yeah. Sorry about that. It's just the which particular markets or categories are you seeing the most impact from the logistics cost inflation? And should this be something that could impact shipment phasing between Q4 and maybe into 2022 in terms of availability? Secondly, would you be able to give us a sense as to what level broadly the on-trade in Europe has returned to? Are you seeing much of a difference between markets like Germany, France, Italy, and U.K.? Anything maybe you can share in terms of what your outlook would be for the on-trade, specifically, an outlook for Q4?
Finally, I guess for Paolo, we saw that the net debt has come down by around EUR 140 million since the end of H1. Sorry, could you give us a sense of what the drivers of that were please, and some of the key moving parts we should be thinking about for free cash generation toward the year-end? Thank you.
Yeah, I'll take your question on the level of the on-trade in Europe. I mean, looking across markets, the on-trade is either in line with 2019 or has grown significantly versus 2019. We're seeing very strong growth versus 2019 in those markets which you know are either tourism destination markets around the Mediterranean such as you know Italy, Spain, Greece, France, et cetera. And other markets benefiting more from staycation effects. I mean, clearly not many people really traveled abroad in the U.K., for instance. We saw very robust growth there. Whereas in Germany you know most people actually left the country for the Mediterranean and we had a much less staycation effect. Having said that, overall we're seeing very strong conviviality across Europe.
I expect that to continue next year as well.
Yeah. With regards to the brand categories that are most impacted by logistics constraints and phasing effects, I think the 3PL world, logistics is and the issues that we're seeing are clearly impacting both ocean freight as well as land transportation, railroad and trucks. Clearly, if we had to highlight the area where we see most of the congestion is inbound logistics into the U.S., due to the combination of constraints of ships and inbound land transportation in the U.S. This is where we see the biggest issues at the moment.
Clearly, if you look at our portfolio, you know, Campari, Aperol, and Grand Marnier are, you know, the usual suspects, you know, brands which have, you know, a longer lead time to the U.S. consumers. Again, also ocean freight is creating issues on sourcing to Asia for both, you know, bulk that we're managing quite well, you know, bulk whiskey for Wild Turkey Australia, as well as, you know, premium brands in Asia in general. So that's the area where we see the biggest issues to be managed.
With regards to the second question, that is, you know, the cash flow generation in the first nine months, which, you know, is clearly, you know, ahead of expectations. You know, if we are to highlight, you know, a key factor, it's probably, you know, the increase in operating working capital at the moment, you know, which is due and led by the steep rise in shipments and consumption, is below, you know, our initial forecast. You know, you may remember that we've given as a target the objective of achieving 100 basis points, 1% operating working capital as a percentage of sales compression versus the 2019 level.
You know, from 13.6% to 36.6%. Here, we're performing, you know, better than that. This is causing you know, a better cash flow conversion. You know, the key reason is, you know, compression of inventories due to logistic constraints. We're running down stocks at the moment to supply the markets. And again, you know, we're very disciplined on trading terms, and this is, you know, resulting in probably better days of sales ratios. I think we need to see, you know, how the you know, the fourth quarter of the year unfolds. I think, you know, on cash flow, if anything, we're on the positive side.
Perfect. Thank you very much.
The next question is from Paola Carboni with Equita SIM. Please go ahead.
Yes. Hi. Hello, everybody. I have three questions, please. First of all, looking to 2022, I appreciate you gave your outlook on COGS. I was wondering if you can give us some flavor also of how do you expect SG&A costs to keep growing in the future, as we should look at H2 as a catch-up phase. In a more normalized environment, should we expect SG&A to grow ahead of revenues or to be a possible source of operating leverage given the robust top-line momentum you have mentioned?
Second question, I come back on prior before from a colleague of mine about the state of the art in terms of breakdown between on-trade and off-trade now, two years almost since the start of the pandemic. I was wondering if you can update us on this balance on your main market as this is going to be the next starting base from now on. Third question for you is about the price hikes you are going to perform during the next few quarters. I would appreciate if you can give us some example on the main product market combination of the kind of magnitude you are thinking about. Thank you very much.
Yeah. On the first one, you know, both, I would say, on SG&A and A&P, as a percentage of sales, we're not seeing any risk of drift in 2022. You know, they will broadly, you know, follow top line development. If anything, there is, you know, a tiny opportunity sitting in SG&A as a percentage of sales. Whilst on A&P, you know, we're quite disciplined in keeping, you know, unchanged A&P on sales to further strengthen our brand equity over time. I would also take, you know, probably, you know, the last one on price increase, where we cannot be specific on which brand market combination, but typically it would be more aggressive on brands that have low price sensitivity.
Typically, you know, all specialties, you know, are clearly potentially the areas where we may want to cover the input cost pressure. While, you know, of course you have, you know, standard categories where, you know, you can do something but not to the fullest extent. This is, for example, vodka, where you can take price, but you need to be more cautious. Overall, we will have, you know, quite ambitious price increase strategy for next year.
I think, you know, the overall environment, frankly speaking, is going well to take price because, you know, we're not, you know, alone in taking that measure, giving the input cost environment that is, you know, under the eyes of all industry players or, you know, FMCG companies broadly speaking.
Coming to your second question, the balance between on-trade versus off-trade. As you know, Paola, I mean, the off-trade naturally gained share last year, significant share, as there were, you know, lockdowns and, consumers discovered their inner mixologists. What we're seeing now from the second half of this year is that the on-premise is growing, much faster than the off-premise. Sometime in the next 18-24 months, I would expect things to rebalance themselves, and we go back to the patterns we had, around 2019. Clearly, I think on an overall basis, volumes will be higher for spirits, as spirits have taken market share, across both channels from other alcoholic drinks.
Okay. Good. Thank you very much.
Thank you.
Mr. Bob Kunze-Concewitz, there are no more questions registered at this time.
All right. Well, thank you very much for joining us. I'm sure we'll be meeting in the next weeks and months and answering more questions. Thanks for being with us and treat yourself to what's an after-dinner mantra, a Negroni in the evening. Stay well. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.