Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Campari first half 2022 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 Campari. Please go ahead, sir.
Thank you. Good afternoon, everyone, and welcome to our half year call and another strong set of results. If you follow me to page two of our presentation, I'd like to kick off with the overview. Indeed, the first half year was quite strong. Net sales at EUR 1.257 billion grew by 19.2% on a half year basis. Importantly, if we stack that up versus the pre-pandemic era, it's an increase of 45%. Clearly we had strong momentum also in Q2, where we grew by 12.5%, and this despite a very tough comp base. You'll recall that we were up by 54% in the same period last year.
Also, we need to take into account the unfavorable reversal of the Q1 2022 effects. Clearly, the great results were driven by very healthy brand momentum across the portfolio, but particularly by the aperitifs, which benefited from very favorable weather conditions in Europe, as well as the fully reopened on-premise. Moving on to EBIT, adjusted EBIT to EUR 310.9 million, also growing very strongly, 28.2% on the half, or 68.2% versus the first half of 2019. We also have a nice margin expansion driven by the robust top line. We managed to limit the gross margin dilution to 10 basis points, thanks to the positive sales mix by brand as well as in channel.
In particular, as I said earlier, thanks to the outperformance of the high margin, our aperitif portfolio. Clearly, pricing started to kick in as well in Q2. All of these factors together were able to largely offset the accelerating, unfortunately, input cost inflation. We had sustained investments behind both A&P and SG&A, but at the same time delivered margin accretion, thanks to the strong top line. On the Forex side, very good news, very positive Forex effects, 6.9% on sales and an even stronger 11.1% on adjusted EBIT. This, as you would clearly expect, driven by the very strong U.S. dollar. Net debt on adjusted EBITDA came in at 1.7x .
It's a slight increase of 0.1 due to obviously a series of factors, including acquisitions. Moving on to page number three, you see that strong growth is actually both across all the regions and the brand clusters. The Americas, EMEA, North and Central Europe are all up double-digit. APAC was only up high single-digit because they were impacted clearly by the lockdowns in China and then very poor weather, as well as significant logistical challenges due to importations in Australia. Looking at it from the cluster standpoint, very strong global priorities, up 22.2%. Again, very strong regional priorities, up 22.6%, whereas the local priorities were impacted by our RTD business in Australia and only grew by 6.9%.
Diving into the analysis by key markets, U.S. was up 7.1%. Continued nice growth across core brands with an acceleration in Q2, where we're up by 7.5%. This despite the very, very tough comp base. Clearly last year, we outperformed significantly where we were up by 42.6% in Q2. The key drivers here is, you know, strength in the on-premise, where we grew much more than our peers, and nice and resilient home consumption for our brands. Core Wild Turkey bourbon grew by 26.1%, Espolòn by 20.1%, Aperol 20.7%, and Campari by 26%. Very good across the board.
Wuliangye unfortunately was penalized, so it's negative in Q2, due both to a very tough comp base, as well as some volume constraints due to glass availability issues. SKYY also declined in H1, broadly flat in Q2, as it is basically going against the relaunch, the selling of the relaunch in the first half of last year. Looking at the organic growth on a three-year stack in the U.S., we are up by 32.9% versus the first half 2019, which brings a three-year CAGR of 10%, clearly outperforming the market. Canada up 4.5%. Positive overall growth of Wuliangye, Campari, and SKYY. Q2 was flat against, again, a very tough comp base, particularly for the large local Forty Creek business.
Jamaica, continuing to go from strength to strength, up by 22.6%. The strong growth in Q1 continued in Q2, where we were up 25.4%. Key suspects here continue to be Grand Marnier, Overproof, Appleton Estate, the rest of the rums portfolio, and Campari. The rest of the Americas region grew a very strong 35.7%, with consistent double-digit growth rates across all of our key markets, thanks to very positive consumption trends for our portfolio. Moving on to our second-largest regions, Southern Europe, Middle East, and Africa, which was up by a whopping 28.1%. Star performance here by Italy, up 29.6%, with clearly an outperformance in Q2 following Q1. We were up by 12% in Q2, despite a very tough comp base.
I'm very pleased to say that revenge conviviality is alive and kicking in this market. We were also, to be honest, helped by very good weather. Our aperitifs continue to outperform. Aperol up by more than 1/3 , 35.4%. Campari almost by 1/2 , 48.1%. Very good performance of our non-alcoholic key brand, Crodino, up by 1/3 . The amari portfolio also came back nicely, up 13.9%, thanks to renewed strength in the on-premise. Looking again, making the comparison versus the first half of 2019, Italy is up by 35%, generating a three-year CAGR of 10.5%. France was up 4.9%.
You got to bear in mind that last year, France was up by 60.4% in Q2, so clearly the comp base had an impact. But overall, quite positive. Again, very nicely driven by Aperol and Riccadonna and the conquest of the peninsula by the Aperol Spritz. Moving on to the rest of the Southern Europe, Middle East and Africa, very, very strong, up almost 55%. Spain was up 84.6%, South Africa 7.3%. GTR was also performing very nicely, recovering the shortfall to the pre-pandemic level by growing by 110.7%. Moving on to North and Central Eastern Europe on page five. The whole region is up 24.8% with a star performance of Germany up by 34.8%.
Very strong performance in the half, as well as in Q2, where we were up by 31.3%. We're seeing very nice and resilient home consumption combined with a very buoyant on-premise, as well as favorable weather. The performance was largely led by the high-margin aperitifs business, which grew strongly, Aperol by 54.7%. The Aperol Spritz ready-to-drink by close to 130%. Campari by 11.9%, and Crodino, which is making nice inroads, by 43.8%. The organic growth versus 2019 was up 47.3%, leading to a three-year CAGR of 13.7%. Moving on to the U.K., continued strong growth, double-digit growth in this key market, now up 18.5%.
Despite again a tough comp base, we were up by 37% last year, and it's mostly driven by Aperol as well as the Magnum Tonic. The rest of the region was at also a strong double digit, 19.2%, with very nice performances across markets, including Austria, Switzerland, and Belgium, largely led by the aperitifs as well as Crodino, which is continuing to expand its international footprint. Moving on to APAC, which was negatively impacted, particularly Australia, only up 2.1%. This overall performance was driven by a slightly negative Q2, where we were very affected by poor weather conditions as well as significant ocean freight constraints, which impacted, in particular, the availability of the Wild Turkey ready-to-drink business.
As you know, that's about 2/3 of our total Australian business, so clearly that was quite meaningful. The growth on the other hand was driven by Campari and Wild Turkey bourbon. If we look back at the three-year stack, again up 34.6%, very nice, a three-year CAGR of 10.4%. If we look at the remainder of the APAC region, it's up double digits, strong 19%. This despite obviously a negative performance in China. We're doing very well in South Korea, up almost 125%, thanks to a pretty stark acceleration in Q2, driven by the high-end offerings of Wild Turkey, X-Rated, Bisquit & Grand , and SKYY.
China, as I said earlier, was negative due to the snap lockdowns in relation to the zero-COVID policy, and Japan was negative due to shipment phasing. In the rest of the continent, we have continued momentum everywhere across all of our key brands. Moving on to the analysis by brands. Aperol, on a total basis grew organically by 37.3%. Clearly, all the core markets up very strong double digits. Italy 35.4%, Germany 64.7%, France 39.6%. Spain more than, you know, doubled, actually tripled. In the U.S., also strong double digits. In all CD markets growing at an even stronger rate. Clearly, we're back into major activation and consumer recruitment mode, and we will maximize this in the remainder of the year.
Campari also doing very nicely, up 32%. Italy is the hero here, followed by the U.S., Brazil, where we doubled the business, and Jamaica also doing very nicely. Happy to say also that Germany, Nigeria, and Spain are all key markets continuing to benefit from the at-home mixology trend. Clearly owning, you know, three proprietary cocktails, as well as having, you know, a consumer-driven push for the Campari Spritz, augurs very well for the future. I'm also happy to say that the brand reacted very nicely to the price positioning. I'll agree. Wild Turkey also doing very nicely, up 18.1%. The U.S. very strong, up 28.2%.
Sorry, the Wild Turkey bourbon part of it grew by 28.2%, while the U.S. grew by only 26.1%. Australia up nicely, 8.1%. In South Korea, having strong triple-digit growth rate. Our higher-end offerings Russell's Reserve grew also very nicely, 22.5%. SKYY is the only, let's say, negative mark in the global priorities brand. And this is due to overall negative shipments in the core U.S. and China. The U.S. due to the anniversary of the relaunch last year, and China due to the lockdowns. However, the rest of the world is doing very nicely. It's up by 51.1%, mostly thanks to Canada, Argentina, as well as Italy.
Grand Marnier flattish after weak shipments in Q2 in the core U.S., as we have not only a tough comp base, but also glass constraints, which unfortunately will also continue in the second half of the year. Our Jamaican rum portfolio up by 15.6%. Appleton Estate up 12.5%. Wray & Nephew Overproof up 12.7%, and we're continuing to do very nicely across all key markets. Moving on to page seven in our regional priorities, Espolòn continues to do very, very well, up 20.3%. Bear in mind that in Q2 2021, we were up by 52%.
On the basis of such a tough comp base to grow double digits, 20.3% is clearly a fantastic result, and it's mostly driven by the U.S. as we're quite constrained on this brand. We're dedicating all available volumes to its largest and most profitable market, the U.S.. The Italian bitters portfolio up 28%, nicely boosted by the on-premise skew to Italy, particularly for Averna and Braulio. Frangelico responding very well to the Espresso Martini in the U.S., as well as Spain and Germany. If we look at our sparkling wines, up 26.3%, France clearly continuing to boost Riccadonna, and Italy doing very well on Cinzano.
These numbers obviously also include, you know, our self, let's say, driven move of reducing shipments in Russia. Crodino growing very, very nicely, 44.6%, doing very well in its core market, Italy, as well as in all of its seeding markets. Glen Grant continuing to respond very well to premiumization, up by 34%, and here Asia is being the protagonist. Aperol Spritz up by 37%, mostly driven by Germany as well as the limited rollouts in some international markets. Magnum, unfortunately, is down by 6.3%, and here we were impacted clearly by raw material availability issues.
We've been obliged to actually ensure continuity of shipments in the U.K., which is a higher margin market, at the expense of the home market of Jamaica. The other brands also doing very nicely for the portfolio. Moving on to local priorities, Campari Soda consistently performing very nicely at 7.2%, mostly driven by Italy. Unfortunately, due to product availability issues and out of stocks, our RTDs and Wild Turkey RTDs in Australia only grew by 1.8%, and X-Rated was impacted by the lockdowns in China, and so it's down 8.7%. SKYY Blue continuing to do very well in core Mexico, up 24.6%, as well as Cabo Wabo doing very nicely in its core U.S. markets, up by 21.7%.
This is it so far on the top line, and now Paolo will take you through the intricacies of what's happened below.
Thank you very much, Bob. If you follow me to page 10, we have the financial review section. As you can see there, the net sales organic change in the first half accounted for 19.2%, and the net sales organic growth in the second quarter on a standalone basis accounted for 12.5%. Looking at EBIT, adjusted organic performance in the first half, EBIT was up in value by 28.2% with a very robust margin accretion of 170 basis points versus a year ago. If you look at the second quarter in isolation, EBIT was up in value by 14.8%, you know, actually stronger than top line with 100 basis point EBIT margin expansion in the second quarter.
Looking at the first half, the margin expansion of EBIT was driven by a combination of factors. Gross margin. At gross margin level, dilution has been contained at 10 basis points, thanks to the strong sales mix, which as we saw before, was driven by the outperformance of the aperitifs, as well as the significant positive effects of price increases in the first half, which, you know, combined largely offset the accelerating input cost inflation that we've seen in the second quarter. We then had an increase of 18.7% in value, reflecting sustained investment behind the key brands, showing 10 basis point margin accretion thanks to the robust top line that we've previously commented.
The accelerated investment in the second quarter led to a 17.7% increase in value of the A&P spend with 80 basis point margin dilution. The SG&A line increased by 9.8% in value in the first half, but lower than top line, generating insofar 170 basis point margin accretion. On a reported basis, EBIT adjusted grew by 39.3% in value with 140 basis point margin accretion, where perimeter effects were actually manageable as the combined effect of agency brand termination offset the partial consolidation of the Picon acquisition.
On the other end, Forex was highly positive at EBIT level, with an 11.1% increase, and 60 basis point margin accretion due to clearly the transaction effect of the U.S. dollar revaluation versus the euro on imports in the U.S. market. EBITDA on a reported basis was up in value by 34.9%, of which a very healthy 24.7% was driven by the organic performance of the business in the first half. If we move on to the following page, we have, you know, the segment reporting.
Looking at the EBIT organic margin performance in the Americas region, EBIT accounted for 43.1% of the overall group EBIT with an increase of 8.8%, but on the other hand, a margin dilution of 80 basis points, which was driven by a gross margin dilution of 90 basis points, mainly driven by unfavorable geographic sales mix, the outperformance of Espolòn with high A&G cost, as well as input cost inflation. Those three factors were only partially offset by the pricing measures we've taken in the first half. A&P was diluted by 50 basis points with the accelerated market investments behind our key Americas brand. The SG&A was accretive by 50 basis points, thanks to the sustained net sales growth in the first half.
Moving on to the CEMEA region, its EBIT accounted for 24% of the overall group EBIT and showed a remarkable increase of 87% in value. The business last year was heavily hit by pandemic, given its strongest exposure to the on-premise and the GTR channel. You know, in the first half of this year, largely improved its EBIT weight on 2022, due to the business recovery in the, as said, in the on-trade channel. EBIT adjusted margin improvement accounted for 630 basis points.
It was driven by the combined effect of gross margin expansion, which accounted for 90 basis points driven by mix improvement with the outperformance obviously of the high margin aperitifs business, as well as the pricing measures we've taken in CEMEA, which, you know, the two factors more than offset the input cost inflation, which as said, you know, accelerated in the second quarter. A&P was accreted by 80 basis points, thanks to the strong top line growth, despite sustained investment behind our key brands to benefit also from the on-premise full reopening, particularly in on-trade markets like Italy. SG&A line was accreted by 470 basis points with strong top line, driving operating leverage. In Northern and Central European region, EBIT accounted for 30% of the overall group EBIT.
Even here, it showed a very healthy 36.5% increase in value combined with a margin improvement of 50 basis points, which was driven on one end by a gross margin dilution of 130 basis points with input cost inflation only partly offset by pricing. On the other hand, A&P was accreted by 10 basis points despite the accelerated investment behind key brands, thanks to the strong top line sales performance. On the other hand, the SG&A growth has been contained. So far, SG&A were accreted by 180 basis points, driven by significant efficiencies on the back of the strong top line growth. APAC region. In the APAC region, EBIT accounted for just 2.6% of the overall group profit.
EBIT was down in value by 4.1% and showed a dilution of 120 basis points totally attributable to a gross margin dilution of 120 basis points due to the unfavorable sales mix as well as input cost inflation. On the other hand, A&P and SG&A were awash with A&P with an accretive effect of 50 basis points was partly offset by the dilutive effect on the SG&A line due to the continued investment in commercial and marketing structures in the region.
If you move on to page 12, in the first half, we record EUR 22 million of operating adjustments that are mainly attributable to provisions linked to the Russia-Ukraine conflict, as well as certain restructuring initiatives that we've taken and the long-term retention scheme. The total financial charges accounted for EUR 4.7 million with a reduction of EUR 4.1 million versus a year ago. If we carve out the exchange effect, the financial expenses came in at EUR 10 million versus EUR 13 million of a year ago, showing a decrease of EUR 3 million, thanks to the lower level of average net debt, but also thanks to the reduction of the average cost of net debt to 2.2%, with, you know, 0.2% compression versus a year ago.
The exchange gain accounted for EUR 5.3 million in the first half versus EUR 4.2 million of last year. Losses from related to associates and joint ventures were, you know, tiny and accounted for EUR 1.6 million. Profit before tax adjusted was then up 42.8% versus a year ago and it stood at EUR 304.3 million. Moving on to the following page. As you can see, taxation totals EUR 82.7 million on a reported basis with recurring income taxes that accounted for EUR 83.8 million. The group net profit adjusted came in at EUR 120 million and was up 40.4%, actually.
The recurring tax rate came in at 27.5% in the first half, 100 basis points higher in comparison to first half of last year due to the unfavorable country mix with a higher weight of profit sitting in Italy. The deferred tax relating to the amortization of goodwill and brands for tax purposes accounted for EUR 8.1 million, lower than first half of last year due to lower tax benefit generated by redefinition of the tax law for brands and goodwill step up value in Italy, which was, you know, the law was revised this year.
Excluding impact of the non-cash component linked to deferred taxes, recurring cash tax rate stood at 24.9%, higher than first half of last year, and that was largely due to the country mix which I've alluded to before. The group net profit reported came in at EUR 199 million and was up in value by 24.8% versus the first half of last year. If you move on to the following page, free cash flow generation. Recurring free cash flow came in at EUR 98.4 million, actually down EUR 43 million versus the first half of last year. Actually, if you add up, you know, different components in terms of EBITDA, you know, we on a recurring basis, we recognize an increase of EUR 91.3 million.
Taxes paid actually increased by EUR 61.3 million to, you know, the EUR 74.6 million mark. This is due to the stronger business performance, but also due to different phasing of payment cycles. We had a step up in operating working capital, which generated a negative cash effect of EUR 108.9 million in first half of 2022, which was, you know, slightly higher than last year, EUR 98.7 million. This was very attributable to the phasing of, you know, the sales through the quarters with, you know, peak season for aperitif in 2023. The effect from hyperinflation accounting in Argentina had a positive effect of EUR 3.5 million.
Then, among, you know, accruals and other changes from operating activities, we recognized a negative cash effect of EUR 30.8 million versus a positive impact of EUR 33.5 million of last year. The negative cash effect was primarily attributable to the payout of incentive plans which were accrued in 2021. Interest paid accounted for almost EUR 5 million versus EUR 3.4 million of last year. Maintenance CapEx came in at EUR 37 million. They were up by EUR 11.7 million versus a year ago. On the other hand, extraordinary CapEx came in at EUR 26 million, and those were primarily related to tequila production capacity expansion in Mexico and the office renovation in London.
Free cash flow on a EBITDA adjusted on a recurring basis came in at 27.9% below last year, with, you know, 54%. Moving on to page 15, where we have, you know, the waterfall for the operating working capital increase. Operating working capital increased in value by EUR 144.7 million in the first half, primarily attributable to organic increase of operating working capital that accounted for EUR 108.9 million.
Looking at the three components, you know, the bulk of the step up in organic working capital increase was attributable to inventory build-up, which accounted for EUR 103 million with, you know, a tiny component of aging liquid accounting for EUR 14 million, primarily Grand Marnier, Bisquit & Dubouché, Jamaican rums, and Espolòn. On the other hand, the significant step up of other inventory excluding aging liquid, I said before, is mainly due to the business seasonality ahead of the peak summer period for the aperitifs. The increase in receivables and payables was a wash with, you know, the former increasing by EUR 49.9 million and the latter increasing by EUR 44.9 million. Perimeter was tiny, and Forex accounted for EUR 35 million due to the appreciation of the U.S. dollar.
Operating working capital as a percentage of the last twelve months net sales came in at 32.4%, up 180 basis points versus December end. You know, on a like-for-like basis versus June 2021, it actually was down by 310 basis points. In closing, looking at the you know, leverage, the net financial debt came in at EUR 1.005 billion, up EUR 174 million, notwithstanding the positive free cash flow, but on a recurring basis, accounted for EUR 98.4 million. Clearly, the biggest component was acquisitions accounting for EUR 124 million. Second largest effect was the net purchase of own shares with EUR 69 million, and then clearly the dividend payment of EUR 67.6 million.
Cash and cash equivalent position is still, you know, extremely healthy at, you know, EUR 533 million+, down to EUR 158 million, you know, for the, you know, reasons that I've, you know, mentioned. On the other end, we rely on long-term euro bonds and term loans that in total account for EUR 1.1 billion with an average nominal coupon of 1.4%. Net debt to EBITDA ratio, you know, quite healthy at 1.7x with a slight increase versus December, you know, when it was 1.6x .
You know a clear improvement vis-à-vis, you know, the like for like comp base of June 2021, which showed a leverage ratio of 2.2x . I think you know on the numbers, I'm done. I would hand back to Bob to comment on marketing initiatives and the recent business developments.
Thanks, Paolo. We're actually firing on all cylinders marketing wise. You know, starting off with the Campari brand, you know, we have the cinema as a platform for the brand, which has really helped drive the premiumization and really the strong growth of the brand. We've been able to add the Cannes Film Festival as a further sponsorship, and we had a very successful presence there this year. We are clearly the partner in Venice and New York as well as Cannes, the three main film festivals. On Aperol, we're really continuing to paint the world orange. We're having very large scale activations. I hope those of you based in London were able to go to the Covent Garden takeover. That was quite spectacular.
We're doing exactly the same thing across the Mediterranean, across all of our markets, including global travel retail. We're back in full throttle recruitment mode. Wild Turkey continues to benefit from a strong association with Matthew McConaughey, SKYY continuing on its very consistent approach to marketing. To close up in business development, we closed the Picon acquisition, and we're very excited about the future prospects of this brand in international markets. Just a few weeks ago, we closed a small deal in Italy with a very premium craft, mostly vermouth brand, Del Professore, which is a very nice addition to our portfolio, and will definitely benefit in premiumizing most of our key cocktails, starting with the Negroni. Moving on to conclusion and outlook, before your questions.
Clearly, we've had a very strong performance in the first half, particularly in our higher margin aperitifs business in European markets, and thanks to the overall underlying momentum across our portfolio, as well as strong on-premise recovery. Favorable weather as well as pricing also gave us some nice tailwind. Looking at the remainder of the year, clearly, we expect volatility and uncertainty to remain due to, on the one hand, the ongoing pandemic as well as geopolitical tension. Having said that, we expect a very positive underlying momentum of our key brand market combination to continue. However, the shipment performance will not reach its full potential as it will reflect some temporary supply constraints, and I'm sure you'll have lots of questions on that.
There will also be a less favorable sales mix, also due to seasonality and input costs are accelerating, particularly when we look at the logistics side, as we try to satisfy the demand across international markets and have moved quite a few shipments to actually air, as opposed to ship. On the other hand, all of these are expected to be partially mitigated by planned price increases as well as operational efficiencies. We're confirming our guidance of a flat organic margin in EBIT adjusted in 2022 on the full year basis. We expect a continued positive contribution from Forex, driven by the U.S. dollar.
Net in net, looking at the medium term, while the current challenges persist, we expect to continue benefiting from very positive trends in consumer preferences, which are clearly favoring our brand portfolio. Due to its exposure to outperforming spirits category, as well as our pricing power and brand equity. This is it from our side, and happy to take your questions.
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. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Andrea Pistacchi of Bank of America. Please go ahead.
Yes, good morning, Bob. Good morning, Paolo. I have two questions please, following up on your outlook commentary. So you're saying with H2 shipments or sales performance will be impacted by these temporary supply constraints. Can you elaborate a bit on this? How sizable are, in particular, the glass constraints and whether there's anything else besides the glass constraints that you flagged on Grand Marnier? And what sort of impact should we expect that this will have on H2 sales? I think consensus is assuming around 6% sales growth for the second half, which is quite the slowdown from H1. So how do you feel about that, if I may? And then possibly for Paolo on the other part of guidance.
Your flat margin guidance implies quite a significant decline of margins in the second half. Could you dig a bit deeper, please, on the input costs and the logistics cost pressures? I think at the beginning of the year in February, you were suggesting around EUR 60 million of headwind from cost inflation. Clearly, this must have got worse. What are you seeing now, and how are you thinking about gross margins in the second half, please?
Hi, Andrea. Thank you. I'll take the first one. I mean, with regards to the supply constraints, we expect Grand Marnier as well as Magnum Tonic to continue to be impacted here on Grand Marnier's glass. It's other, some key ingredients on tonic. We also expect the logistics, I mean, international logistics to remain a very big challenge. I mean, we have a lot of containers sitting in ports and being delayed. We don't have really clear visibility on that. We're trying to do our best to try to ship as much as possible by air at a higher cost, as well as paying you know premiums to get our containers on the boat. This will continue to affect us.
With regards to the APAT's funding, currently we have such a strong demand that we're not gonna be able to fully satisfy it. I mean, we're gonna have very, very strong growth, but clearly, in the short term, we'll be impacted by that in terms of production capacity. This is short term as we're already working on, you know, developing contract packing relationships so that we do not have those issues in the short term next year. Separately, we're working on significant plant expansion projects across all our key geographies.
Yeah.
Sorry?
No, I'm just saying if you're able at all to quantify all this. I mean, how much could it knock off your second half sales? I know it's difficult and the limited visibility, but any quantification.
No, you know, we're, you know, the visibility is limited. It won't be, you know, meaningful. You know, the first two, the Magnum Tonic, the Grand Marnier impact was known since the beginning of the year, clearly on import to the U.S. market. You know, the visibility as said is limited. We're not able to ship, you know, all the products that, you know, the demand is currently asking. It won't be, you know, meaningful in the big scheme of things. I'm thinking we're in a safe spot. With the answer to the other question on input cost, clearly, you know. Again, it's a highly volatile market.
You know, the second quarter has shown, you know, an increase in inflation on logistics. You know, being constrained, as Bob said, basically we're I would say overpaying to get, you know, product delivered. We think, you know, this is somehow temporary situation which, you know, we expect over time will ease. Then we've seen an acceleration of input cost pressure on key components like glass, alcohol and sugar. Those are, you know, the four major drivers of input cost risk. Now clearly, you know, if you look at the possible offsets, clearly one is the pricing, the other one is mix. With regards to the pricing piece, clearly, you know, the programs to take price have been, you know, refined.
We came back to the trade to review the price increase for a second time in 2022. We're not, you know, moving again to offset that further, you know, input cost pressure. That's, you know, the less positive news. You know, on the other end, clearly, you know, looking to 2023, clearly we have, you know, the objective of, you know, taking that, you know, extra price increase offset in 2023. You know, the good news is that the price increase that we've taken, particularly on aperitifs and other brands, proves that, you know, our brands have a very low price sensitivity. You know, the impact on demand is manageable.
You know, we've seen it with Aperol compared with the other brands, you know, and all brands are really, you know, in a very strong trajectory, growth trajectory. With regards to the other possibility of offsetting inflation, the sales mix. You know, notwithstanding the fact that the growth of Espolòn is not driving any accretion in our P&L due to the temporary high acquisition price, you know, the rest of the portfolio, particularly the aperitifs, are driving, you know, significant sales mix effect in our gross margin. You know, it's been, you know, a factor over the last many years. We have a very positive underlying sales mix positive impact on gross margin.
In total, you know, the price increase will more than offset the cost increase. You know, as a percentage of sales, you know, in 2022, we are in a position of fully covering the input cost lifts as a percentage. In value, you know, we would do more than that. Again, as said, you know, we have the objective of offsetting that in 2023.
Are you able, Paolo, in rough terms, I mean, at the beginning of the year, you were talking about, I think, EUR 60 million cost pressures. Clearly that's got worse. Where would it stand now? Would it be EUR 80 million-EUR 90 million, that order of magnitude or more?
versus the EUR 60 million, there might be a, you know, 20% increase about.
Okay. Thank you very much.
The next question is from Cédric Lecasble of Stifel . Please go ahead.
Thank you for taking my question. Good afternoon. A simple one for me. In terms of keeping the same guidance after this very positive Q2, the question is simply, did you have in mind such a strong Q2 when you issued the guidance initially? This would mean that you have some comfort maybe on top of your guidance? Or did you see at the same time costs adding up in parallel, so maintaining the same equation and same risk on H2? Could you maybe internally explain to us, you know, what the rationale is for keeping this flat margin guidance despite this very strong H2? I know it's a follow-up to the previous one.
Look, I mean, Paolo can elaborate this a little bit more in detail, but yes, frankly, we're seeing input costs and logistics costs increase throughout the year. We're doing, you know, what we can to compensate them. We think given the context, actually maintaining a flat EBIT margin is pretty good.
Okay.
I mean, I think, Cédric, you know, the message is positive. You know, we have a very strong sales mix effect in the first half. You know, clearly we have two quarters, you know, the first one that is coming is Q3, where you know, the sales mix can still play a meaningful impact given you know, the strong trajectory of aperitifs. You know, clearly the last quarter of the year is more standard categories, you know, whiskey and so forth, where you have positive sales mix, but is less big in size than what you have in Q2 and Q3.
The message is positive, so we will absorb the incremental input cost that we have highlighted by keeping the price increase that we've put in our plan at the beginning of the year. On the other hand, in confirming a better sales mix that will offset that impact. You know, top line robust top line growth should lead to opportunities in terms of margin expansion sitting in the SG&A line. That's how we see the second part of the year and the full year.
Just to confirm on the pricing action, you had some in H1, you have some scheduled in H2, and you had a remark on making up for the cost inflation through the price increase impact in 2023. Should we understand that it will be a full-year basis in 2023 of offsetting the cost inflation?
Yes. You know, with regards to the price increase, you know, the second tranche of price increase is set for August. You know, we confirm it, and we do not see any major issue on that, as we didn't have major issues in taking price in the second quarter. With regards to 2023, clearly, you know, it's you know, the objective is to recover completely, you know, the you know, the impact of input cost inflation, which, you know, like I said, it's something we're planning for next year.
again, you know, the good news is that, you know, our brands in terms of price sensitivity show, you know, that, you know, the impact is nil. Actually, you know, we've seen an acceleration of
Growth trajectory following price increase. I think we shouldn't have any issue in taking price, you know, more aggressively also next year.
Very clear. Thank you very much.
The next question is from Mitch Collett of Deutsche Bank. Please go ahead.
Thank you. I have two questions, please. So the first one is about the longer-term ambition to return to your 2019 level of gross profitability. Can you maybe comment on when you think that you will get back there? And then my second question is on the expansion of Paolo's role. Can you give us some color on that? And is that should we read into that there's some succession planning going on there or is that entirely the wrong conclusion? Thank you.
No, that's. I'll take the second one. That's the wrong conclusion. I mean, frankly, Paolo, for the past four years has been leading supply chain as well as IT on top of finance. It's more a question of formalizing that role, particularly also within the context of 25 years of phenomenal service to the company.
With regards to the long-term profitability ambition, you know, clearly we believe it is absolutely within our reach to recover, you know, the pre-pandemic marginality, you know. Actually, you know, we think, you know, we can even do better given the fact that, you know, as said, you know, the positive sales mix is still there. We set it aside that we've not seen any positive effect coming from agave price reduction. You know, if you combine the current underlying positive sales mix plus the impact of agave price decline, which sooner or later will materialize, we believe, you know, chances of, you know, moving north of pre-pandemic marginalities are, you know, quite high in our point of view.
Can you maybe comment on when you think that could happen? What is a reasonable expectation in terms of timing?
I think, you know, first and foremost, we need to weather the storm and go through this, you know, hyperinflation environment. Thereafter, I think, we can think at, you know, the timing. You know, in the short term, clearly we're catching up with, you know, price increases. I think, you know, as always happen, you know, following the storm we'll have a little bit of calm, and we'll go back to where we were. It's difficult, you know, to forecast when it will happen, but, you know, we're fairly confident it will happen.
Good. Thank you both.
The next question is from Edward Mundy of Jefferies. Please go ahead.
Afternoon, guys. Three from me, please. The first is that you've grown 45% versus 2019, which is a three-year CAGR of 13%, and that's, you know, well ahead of your normal rate of growth. I guess there's two parts of the question. Is there any reason why you shouldn't be able to grow off this higher base in 2023? The second part of the question is, as you reflect on the past few years, what do you feel is the right rate of growth for your business medium term? You know, given that 13 is, you know, well ahead of your historical sort of mid-single digit type of growth. The second question is your. I'd be interested in your perspectives on the sensitivity of aperitifs to a slower consumer environment.
I remember back following the global financial crisis, it was quite an affordable way to go out, have a few nibbles and aperitif in the on-trade rather than a full meal. I'd love some indication of how you think aperitifs will behave in a weaker consumer environment. The third question is really around the supply chain. I think you alluded in your comments around potential for contract packaging and plant expansion. Presumably this is primarily for the bitters as well as some of the other brands. Can you talk about the trade-off between the importance of provenance versus having local manufacturing and bottling?
Hi, Ed. Well, I'll take the first two. I mean, you know, it's, I think it's evident to everybody that the world has become a very, very volatile place. You know, it's very difficult to predict what's gonna happen, you know, both from, you know, if you look at, politics and governments in the Western world, the war in Ukraine, and, you know, central banks, adding their own to the mix, question mark is how is that going to impact, consumer demand overall across markets? Difficult to tell. I mean, if it doesn't sour too bad, clearly we will continue to perform, at a very heightened pace.
Our brands are very, very healthy and we're reaping the benefits of, you know, the accumulated investments and tender loving care we've been giving them for the past few years. Clearly the momentum is there. We'll have to see what happens in the consumer space, and that is what will impact also in the medium term. Now, with regard to the aperitifs, you know, we see the aperitifs as potentially, you know, almost benefiting from, let's say a consumer confidence overall. Because it, as you mentioned, it becomes a very affordable alternative to actually going to a restaurant. We've seen that many times in the past, and this is firmly entrenched in consumers' mind. I think that the rest of the portfolio also, you know, we benefit from being an affordable luxury.
The big question is, you know, how dramatic will there be a shift on the consumer side? Very difficult to tell at this stage. I mean, currently, the consumer space is very strong for us.
You know, with regard to the third question that is around our, you know, programs vis-à-vis the supply chain capacity, you know, expansion. You know, clearly this is, you know, the takeaway from, you know, our, you know, strategic cycle that normally, you know, takes place in June, July. You know, clearly, you know, there we forecast, you know, demand for not next year, you know, of course also next year, but, you know, most importantly, you know, year five and down the road. Clearly, you know, if you look at, you know, three areas that are, you know, the plants sitting in Italy to supply markets with aperitifs.
You know, the Kentucky plant for Wild Turkey and in Mexico, which concerns tequila and you see, you know, demand that our commercial and marketing organization are forecasting in the five years. You know, we need to start moving now to make sure that, you know, down the road we have, you know, capacity, we have, you know, the liquids, we have the production capacity to supply the market. You know, given the fact that capacity, you know, production capacity expansion programs, you know, have a delivery lead time that is not, you know, short-term, you know, we have to plan ahead of time. This is what we're currently doing. We do not see any issue in the short term.
You know, we can bridge, you know, the transition period with both, you know, in-house production capacity as well as by entering into contract manufacturing agreement with third parties. Of course, we need to start moving vis-à-vis, you know, the demand that we see in the future that has been, you know, lifted vis-à-vis, you know, prior cycles. This is, you know, the reason why we are alluding to, you know, to those programs.
Paolo, in terms of, let's say producing, you know, the Aperol liquid in Italy and then shipping it to, I don't know, say the U.S. or Australia and getting it, you know, bottled locally, do you think there'd be any issue with that, you know, from the minds of the consumer?
Well, we don't think we would do that. I mean, you know, that would be, you know, a really dramatic thing if we needed to do that. The origin and Italian lifestyle is quite important for the brands, and we will continue doing that.
Yes, tequila is the same and bourbon, you know, should be bought in Kentucky and other stores.
Okay. Got it. Thank you.
We'd only do that, you know, if, you know, touch wood and all sorts of things, as a backup, something happened at one of our plants is going to be the case.
Yeah. Great. Thanks.
The next question is from Laurence Whyatt of Barclays. Please go ahead.
Afternoon, Bob, Paolo. Thanks very much. Three questions from me, if that's okay. As we potentially enter a challenging consumer environment with the cost of living issues, do you have any differences in perspective around the U.S. consumer versus the Italian consumer? I appreciate your sales profile in the two markets are slightly different, but do you see the two consumers acting slightly differently? And if so, what would those differences be? Secondly, Campari's had a good reputation for a number of acquisitions over the past few years, and there's certainly been a bit more discussion around larger transformational deals. I wonder, do you have any perspectives on the potential for that sort of thing to happen, given the oncoming cost of living issues may create some opportunity among potential vendors?
Finally, we've talked for the past few years about agave prices being elevated, and there was some expectation that they might start coming down. But your comments on the call suggest that certainly hasn't happened yet. Do you have any updated thoughts on what may happen, where we currently are with the agave price and what may happen over the next year or so? Thank you very much.
Yeah. Hi, Laurence. I'll take the first two. I mean, what we've seen repeatedly in the past is that when there's a recession in the U.S., there's a consumption shift from the on-premise to the off-premise. You know, that's another way for consumers to down trade, if you want, continue drinking their favorite cocktails, but actually saving the money and doing it at home. In Italy, on the contrary, we see people actually. You know, it's mostly an aperitif market, shift from going to restaurants to going to the lounge bars, where you typically have an aperitif. Last crisis, we seen a nice boost to our business. Now, with regards to acquisitions, you know, any perspective, I'm not sure. You know, our industry is very long-term minded. It's very much controlled by families also.
It's less, I think the consumer side of it, which would impact, I think, the rates of change and much more succession issues, potentially, or, you know, looking at strengthening through new to market alliances. I think that will be more important than the consumer space.
With regards to the agave prices in the last quarter, we didn't see any change, you know, still flat as a pancake versus last year. You know, clearly expectations of a steep agave price decline are still there. You know, that said, we think that we've been patient for a while. We will accelerate on insourcing of agricultural operations.
In Mexico. That's, you know, just to make sure that, you know, we put an end to that, you know, negative effect in our P&L. We will ramp up agricultural operation in Mexico in the coming years. Clearly, you know, it will take time to see, you know, the positive effects. It's something that over time we can manage.
Understood. From that last comment, can I assume that means that you're not really expecting a slowdown or a fall off in the agave price anytime soon, and we should just sort of expect the current spot rate to remain into the foreseeable future? Is that the right way of interpreting your comment?
Yes. Not this year, for sure. You know, we'll see as the time goes by. You know, it has clearly plateaued and is there, not moving up any longer, and should come down. You know, for the time being, we do not have evidence of significant decline of the agave price.
Understood. Very clear. Thank you very much.
You're welcome.
The next question is from Fintan Ryan of JP Morgan. Please go ahead.
Good afternoon, Bob, Paolo. Thank you for the opportunity to question. Three from me, please. Firstly, with regard to the Aperol brand, specifically in the U.S., appreciate the strategy in terms of historically. The Aperol brand had been outperforming the U.S. market, whereas in the last half, it seems to have slightly underperformed the brand as a whole. Is this a question more of supply constraints, or do you have more activations planned for the second half of the year? How do you see the aperitivo occasions developing in the U.S. market generally, especially if we do go into a recession? Secondly, which is related to that as well, we've seen strong uptake of the Aperol brand in Spain.
How do you see Spain in the long term as a strategic market, and could there be potential to do something similar to?
Sorry, we're not able to understand you because there's some other noise in the background. If you could repeat the second question.
Is this better?
Yes. Thank you.
Yeah. Did you get my first question?
Yeah, Aperol in the U.S. I got that.
Yeah. Secondly, just how do you see Spain as a strategic market, given the strong performance in the first half and for the Aperol brand? Is something where you might consider more M&A to sort of boost your presence and become sort of a name brand similar to main market similar to what you've done with France? Finally, just back to the cost inflation question. Can you give us a sense of what your hedge coverage is for your main commodities, particularly, say, glass and energy costs for the second half of this year and into 2023?
Yeah, I'll take the first two. I mean, we feel very good actually about Aperol in the U.S. I mean, the big issue we've had in the U.S. across many brands of our portfolio, but particularly on Aperol, is out-of-stocks. That really impacted us. We haven't been able to. You know, our inventories are extremely low across the board and even lower on Aperol, and we weren't able to respond due to the issues at U.S. ports. We're going full-fledged on our activations and continuing to, you know, build the brand and recruit new consumers. The response to it is actually great, and we're seeing more and more consumers not only having it as an aperitivo, but actually, you know, dining with Aperol Spritz in the U.S.
All cylinders are firing. We just need to ensure that we have enough product on the ground. With regards to Spain, yes, Spain is a strategic market, but we think we have all the brands we need to develop a very solid and exciting business in that market. Frankly, we don't see anything which would really whet our appetite from a local standpoint. The third one was?
Thanks, Bob. Just, Paolo, on the hedge coverage that you have for the second half of the year and into 2023, I guess for glass specifically, but also, you know, sugar, alcohol and energy costs.
No, you know, we do not have you know major hedging policies and practice. You know, the cost that you see is you know the effect of the true increase in cost. You know, we do not have you know we're still exposed in H2 in the coming years to the increase of input costs.
Okay. Thank you very much.
The next question is from Simon Hales of Citi. Please go ahead.
Oh, thanks. Hi, Bob. Hi, Paolo. Couple of things from me, please. Can I just sort of confirm from a regional standpoint, firstly, where you expect to see some of the biggest impacts of the supply constraints on accelerating inflation refresh in the second half? I assume it's the Americas and Asia Pacific, but just wanted to get a bit more granularity there. Secondly, can you talk a little bit about the second-round price increases you have been taking? Can you talk about, you know, on which brands, which geographies they've been coming through? Any sort of quantification you could share would be very helpful. Finally, transactional FX clearly supported the margins in the first half. Paolo, how do we think about that in the second half of the year, given the euro weakness we've seen of late?
Yeah, I mean, Simon, the constraints from a regional standpoint, as you rightly pointed out, are mostly impacting the U.S. and APAC, and we expect that to continue in the second half of the year as well, with the addition, as I said earlier, that there's such a strong demand for our aperitifs in Europe that we're not gonna be able to fully satisfy the forecasted demand. I mean, we're still gonna grow at a very robust double-digit growth rate, but you know, at this moment in time, we could sell anything we produce. So, that will impact us.
On the second round of pricing, I wouldn't like to get into the details out of competitive reasons, but you can expect that, you know, it's been across key markets with a big emphasis, obviously, on the aperitifs.
Yeah. With regards to the FX impact, you know, actually, as a preamble, you know, what we recognize in the FX column is a combination of two different things. One is FX. You know, that clearly affects the FX. Then the effect of hyperinflation in Argentina. Basically, you know, we apply hyperinflation accounting to that region, which means that we carve out the effect on pricing inflation in that market from the organic growth. Basically, we deflate our organic growth, and we recognize the impact of local inflation into the FX. That's a portion of what you see.
Of course you have, you know, the exposure to currencies where we're actually exposed to the dollar, which, you know, generates a transactional impact on all imports, you know, Grand Marnier, Aperol and Campari, most importantly. In the second part of the year, you know, we expect, you know, a trend, you know, a positive impact in top line and bottom line that basically mirrors what we've seen as a percentage of effect increase in the first half, top and bottom line.
Yep, that's very helpful. Paolo, can I just sort of follow up with one quick other question? Just the SG&A line, that move into loss that you saw in the first half from positive contribution last year, what was driving that, please?
The losses is, you know, in this case, it's, I think, primarily attributable to minorities of companies which we control.
Okay. Thank you.
The next question is from Trevor Stirling of Bernstein. Please go ahead.
Hi, Bob and Paolo. Three from me, please. First one, if I look to the three-year stack, Bob, you mentioned it's 45% in H1, but I think it's virtually identical 45% in Q1 and Q2. Your, when we last talked three months ago, you've been talking about phasing, and the second half would be tougher. Is the way of thinking that there was a tough comp coming from phasing, but that was offset by good weather in Europe or other factors in there that have kept that three-year stack so high? I guess second question, around the U.S., as you highlighted, Bob, the Q2 comp was incredibly tough.
Does that mean that you think we could see an acceleration in quarterly growth in the U.S. as we get into Q3 and Q4? Final one for Paolo, you talked about tax being up 100 basis points on H1, Paolo, and that's because of profits from Italy. Presumably, at best, we're gonna be neutral in the second half, and we're looking at 50 basis points of accretion for the full year and possibly a little bit on the high side. Is that the right way to think about tax?
Let me take the first one. On the three-year stack, I think the demand which we're seeing across the portfolio is really very strong, and it's good to see that it's actually sustained. Clearly the weather helped significantly for the aperitifs business across the board, and a few other factors which I think will have a long-term impact. One which is very important is how Aperol Spritz has gone beyond the aperitivo moment and is actually now an integral part of informal lunches and dinners, not only in Italy, but this is spreading across the globe. The usage occasion of the brand is expanding significantly. The other big change is really what the Campari Spritz is doing for the Campari brand.
Again, this is something which, you know, came bottoms up from the consumer and is spreading across all of our markets. That's clearly adding some dynamic. Last but not least also, you know, we're starting to internationalize brands like Crodino, and, you know, this is also adding up. Now, with regards to the U.S. acceleration given comp basis, in theory, yes, but I think in practice it will be decided by also logistics. You know, if everything goes well from a logistics standpoint, our ability to import and then distribute, et cetera, then yes. At this moment in time, you know, it's difficult to pass judgment on that. Clearly we've strengthened our customer service teams in the U.S. and working very closely with our distributors to make sure we don't have any issues.
you know, the proof will be in the pudding.
Yeah. With regards to the recurring cash tax rate, you know, the lift that we've seen in the first half of 1%, everybody is fine and we expect, you know, that to materialize also on a full year basis.
Super. Thank you, Paolo.
You're welcome.
The next question is from Alessandro Tortora of Mediobanca. Please go ahead.
Yes. Hi, good afternoon, everybody. I have three brief questions, if I may. The first one, I'm sorry, is a follow-up on the FX impact you mentioned of adjusted EBIT. If I understood well, the outlook you made, is it fair to assume that probably at full year we would have an impact of, let's say, at least EUR 45 million or EUR 50 million for FX in absolute terms? This is the first question. The second question is on the one-off, let's say, item. If you can give us, let's say, a little more color on, let's say, the number that we saw in the first half, and also if you can give us, let's say, some guidance for the full year for this item.
The last is on the organic growth in the second quarter. Can you give us an idea of, let's say, the component of, let's say, price plus mix, the amount of these of this factor considering the 12.5% sales organic growth. Thanks.
You know, with regards to the FX, I guess, you know, you're probably there. You know, we're expecting, you know, a mid-single-digit impact top line and a low double-digit, you know, bottom line. You know, it's about that what we've seen in one.
Okay. One-off item.
Yeah, the one-off item is the, you know, as I said, you know, the effect of, you know, the write-off of certain assets in Ukraine, you know, most of it. We have, you know, two other structuring programs in place. We have, you know, the retention scheme that has, you know, impact in H1.
The next question is from Gen Cross of BNP Paribas Exane. Please go ahead.
Oh, yeah. Thank you for the questions. The first one, can I just follow up on the last question? Are you willing to share what the breakout of the 12.5% like-for-like growth was in Q1 between price mix and volume? The second one is just on the SKYY brand. I think you said that you expect it to be flat to slightly up in low single-digit range globally for the full year. Is that still your expectation? Thank you.
Yeah. Let me start off with the SKYY brand. Yes. That was roughly the expectation with international markets helping compensate the shipment weakness in the U.S..
Thank you. Sorry, on the first question, the breakdown of the like-for-like growth.
The breakdown of the 12.4%?
Yes, please.
Yeah. I think, you know, with, you know, we've not disclosed, you know, the, you know, the price impact in Q2 and in H1. It's, you know, a good portion of that.
Okay. Thank you.
The next question is from Chris Pitcher of Redburn. Please go ahead.
Thank you very much. A couple of follow-up questions. On the aperitif demand, could you talk a little bit about where your production capacity is for Aperol and Campari? I appreciate they're incredibly efficient brands. As part of the EUR 170 million CapEx, can I confirm that you're expanding capacity for those brands? Or was it just a matter of not building enough stock ahead of some very good weather? And is that the right sort of number for CapEx going forward? I apologize if I missed that. Secondly, could you give us a bit more color on some of your other brands, like BULLDOG and Forty Creek? And thirdly, how is the RARE division working? I mean, you launched it this year.
Are we seeing it having a meaningful better fit on things like Appleton and other such brands within that? Thanks.
Yeah. I mean, look, the aperitif demand is very, very strong. Currently we're working essentially on four shifts, six days a week. The demand is probably exacerbated at this moment, helped by the weather. I mean, the underlying consumer demand is very strong. Looking at the years to come, it is clear that we need to start moving now to satisfy that demand. We can bridge, as Paolo said, short term via third party contracting, so that we don't expect any issues next year. We're planning for nice growth next year. For the mid- to long-term, clearly we need to invest in CapEx.
What you've been seeing this year in CapEx is mostly tequila capacity expansion as well as the Thunder program in Jamaica, which is an important one from an ESG standpoint.
Yeah. Talking to CapEx, you know, prospectively also this year, you know, we've guided the market towards EUR 170 million investment, of which,
You know, maintenance was about 60%, EUR 100 million, and 40%, EUR 70 million extraordinary CapEx. You know, most likely, you know, we will step up and spend this year. In coming year, you know, CapEx are not destined to come down, because we have to buy back capacity in the Italian plants in Kentucky as well. We need to, you know, over time insource, you know, Picon brand in France. Of course, we're investing, as I said on the agave in the fields for the insourcing of the agave production.
You know, we will finalize the plan, and then, you know, come back to you with a three-year horizon of expected CapEx.
Moving on to your second question, I mean, BULLDOG is benefiting from the international strong demand for gin driven by gin and tonic, so doing nicely. Forty Creek has slowed down a little bit, was actually flat or slightly negative in Canada. That's on the one hand due to a major packaging changeover which we're starting to improve currently as well as some slowdown in the Canadian off-premise. But we would expect, you know, the new packaging to really benefit the brand in Canada, and see it coming back in the second half of the year. With regard to the RARE division, we're doing very nicely. I mean, this is currently more of a lab than a full scale division. We're currently in four states.
It's great to see that where our high-end expressions are growing anywhere between 13%-50% faster in those states, and we're really learning a lot from a consumer as well as a retail market standpoint. Watch this space as we'll add more states next year, and we'll continue innovating and testing things before we go fully national probably in a few years' time.
Thank you.
The next question is from Paola Carboni of Equita. Please go ahead.
Yes. Hi. Good afternoon, everybody. Hi, Bob and Paolo.
Hi, Paola.
Hi. I have a few questions. First of all, apparently you said that constraints are not going to weigh too much on H2, if I got this right. I was wondering whether, and to what extent you were already, in any case, envisaging a slowdown in the second half, because of clear seasonality, but also because of early buying from the trade. The same you commented on Q1 probably was repeated in Q2 as well ahead of the second price hike. If you believe that there has been a further increase in stock by the trade, in at least in Europe, where there were less logistic constraints. Second question is on gross margin.
Actually, we have seen a dilution of gross margin on an H1 basis, across all the regions except for Southern Europe. I was wondering whether, say, to what extent this could be a proxy of what we should expect when the push from aperitif will fade in the second half of the year. If you can elaborate on your flat-ish EBIT margin guidance for the year by gross margin, and then A&P and SG&A line by line, let's say. If you can provide some more colors on the efficiencies you are planning to contribute offsetting the acceleration in inflation cost for the second part of the year.
Really last quick question on the price hikes, the second round of price increases, are these going to involve both the on-trade and the off-trade channels? That's it. Thank you very much.
Just quick on my side, with regards to the last question. Yes, price increases in, when we run them, it's across all of our channels. Quick one on your first question, Paolo can get more in depth. I mean, let's be very clear. We have very, very low inventories across all of our markets. You know, if you look at customers and distributors, we've never been at such low stock, so clearly, you know, we won't see any of that effect.
Yeah. With regards to the third question on impact of constraints and, you know, stock, you know, on hand and sitting at, you know, distributor levels, you know, clearly, you know, the certain brands, you know, the ones that, you know, we've alluded to at the beginning of the Q&A session, you know, Magnum Tonic, Grand Marnier, and so forth. You know, if you have, you know, constraints on raw materials, there's nothing that you can do. You know, you simply cap, you know, the volume available to the market, and you extract, you know, as much price increase as possible. With regards to logistical constraints, you know, I said before, you know, those are impacting, particularly, ocean freight, so imports into the U.S., and so notably, Campari and Aperol.
Grand Marnier is capped because of the, you know, glass constraints. Secondly, you know, the ocean freights to Australia. Think of, you know, Wild Turkey, you know, ready to drink that is locally bottled, but, you know, bulk is coming from the U.S. as well as all the, you know, Australian imports. That's, you know, the region where we have, you know, the highest issues. You know, in terms of business momentum, you know, we confirm also in the second half a very solid business momentum. The point that we're making is that we cannot exploit the full potential of demand on our brands. You know, that does not necessarily mean that, you know, the second half will be, you know, poor in terms of organic growth.
With regards to the stocks, we rack up, you know, as much as possible stocks in our own warehouses. In the first half, you've seen it, you know, we've seen the inventory drift in the first half. But on the other hand, stock, as Bob was saying, sitting at distributor level, it is minimal. You know, both in the U.S., all time low, and as well as in the two-tier market. If you think about Italy, for example, where we have the two channels, off-trade and wholesaler, even there, you know, we're at the bare minimum.
Actually, you know, it is actually causing sometimes, you know, a very, you know, poor service level to the market with out of stocks. Because we cannot rely on buffer stock that you typically put between you and customers to offset, you know, demand volatility. You know, demand keeps on growing. We do not have buffer stocks, and we cannot rebuild the buffer stocks in the short time. That's where we are at the moment. You know, as said in terms of top line, we remain quite confident on H2.
With regards to gross margin dilution, you know, clearly you've, you know, you're right in saying that, you know, most of the offset of the dilution is coming from the recovery also of SEMEA, and also, you know, the good momentum that aperitifs have, broadly speaking, in all markets. You know, we intentionally did not want to give a precise guidance on gross margin on sales for the full year at the beginning of the year. We would rather do the same for the remainder of the year whilst, you know, speaking to a flat EBIT margin on sales for the full year.
Clearly, you know, the robust top-line growth in the second half, as we see, you know, will generate some interesting operational leverage in the SG&A line whilst, you know, we believe A&P will be kept flat on sales on a full year basis also in the second part of the year. With regards to the efficiencies, you know, we have many projects. You know, we'll not spend too much time in detail.
You know, I think, you know, given the robust top-line growth, you know, the impact that can alleviate the cost inflation is primarily sitting in a better absorption of fixed costs in production, logistics, in SG&A as well. You know, that's where we see the opportunity. In glass, 25% is fixed. In A&P, 10% is fixed. And in SG&A, you know, as we currently said, you know, years ago, you know, when the market was crumbling, 85% of SG&A are fixed.
You know, they represented, you know, a major, you know, threat, you know, in a downturn economy and, you know, they are clearly in a rising demand environment, an opportunity to explore.
Okay. Thank you very much. I have just a follow-up question on glass. I don't know if you are elaborating on a possible rationing of glass scenarios in Europe and how this might impact on the future availability of glass for the next few quarters. Should we assume, for example, the higher inventory is also linked to an early sourcing of glass to be prepared for more difficulties in this respect, for example? Or how do you think about this potential disruption? Thanks.
Oh, you know, on glass it's not possible to buy glass ahead of time. It's just on time, just in time, you know, you order, you get it, and, you know, immediately, you know, products are produced and shipped. You know, it's, you know, we're lucky because, you know, we do not have, you know, plants in Germany, which from a structural standpoint is the country which could be the most exposed to gas shortage. You know, most of our production in Europe is sitting in Italy and France and in U.S. of course, you know, we do not have an issue there. Also, you know, the vendors, the glass suppliers for our European plants are not sitting in Germany, so that to a certain extent alleviates the risk.
Of course, you know, that's a fact. This is a risk for everybody.
Okay. Thank you. Thank you very much.
Thank you.
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