Good afternoon, this is the Chorus Call Conference operator. Welcome, and thank you for joining the Campari first quarter 2023 analyst 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, a very warm welcome to all to our call. I'll kick off with the general overview on page number two. Whilst Q1, as you know, is quite a small quarter for us, it still gives us quite a bit of satisfaction to have started with a bank. Our organic sales performance continued to be strong, up 19.6%. Here, the key drivers are our core aperitifs, tequila and bourbon. Clearly, we have very solid broad momentum in a resilient consumer environment, particularly in the on-premise where we are overweight, as you know. We're benefiting also from the full effect of the previous year's multiple price increase rounds, and are also favored by some temporary effects, including some shipment phasing and the early Easter calendar.
Moving on to adjusted EBIT growth, up 32% on an organic basis. We also have margin expansion of 220 basis points on an organic basis, driven by a very positive sales mix, obviously the aperitifs make a difference. Pricing effects as well as operating leverage on fixed costs, which more than offset the cost inflation. If we exclude the estimated temporary effects, net sales organic growth in the quarter will be approximately 13%, whilst adjusted EBIT organic growth would be in line with net sales, leading to flat EBIT adjusted organic margin. Based on all of this, our full year guidance is confirmed despite the current quite volatile macro environment. Moving on to the analysis of our sales across regions.
You see, clearly that, we're growing double-digit in all of our regions, and also doing very well in the different clusters of our brands. Global priorities up by 22%, regional priorities up 27%, whilst local priorities are up only 3.8% as they were held up by some temporary issues on the RTD business in Australia. Moving on to the analysis by region on page number four, the Americas, which weigh 47% on total, group sales, up 19.5%. The key market, the U.S. on an organic basis, up 23%.
Clearly, we have a very strong start to the year in the U.S. thanks to the continued very strong performance of Espolòn, up 66.9%, while Wild Turkey Bourbon also up double digits, 18.9% and a very strong quarter for the aperitifs, up a lot, up 153.6% and Campari 72.6%. The only blot here is Grand Marnier, which declined double digits impacted by destocking as we decided to balance out inventory levels after the normalization of logistics, particularly trans-ocean shipments. If we move on to Jamaica, up 17.9%. Again, very strong growth of key drivers, Wray & Nephew and Appleton Estate. The rest of the region up 13.1%. Again, double-digit growth across all of our markets, also in Latin America.
Southern Europe, Middle East, Africa, 29% of our sales. Here, key driver, the largest market, Italy, up 21.6%, where we continue to have very strong momentum despite, I must say, the very tough comp base. You'll recall that last year we were up by 17.2% in Q1. Key driver, again, Aperol up almost a third, 32.9%, Campari 18.6%, and Crodino 19.2%. In this market, we've clearly benefited from the full year effect of the two rounds of price increases we did last year, and we're also favored by shipment phasing ahead of this year's price increase, as well as the early Easter calendar. We have a very nice and positive underlying trend in France.
Against the tough comp base, we were up by almost 39% last year, and key drivers are the aperitifs, Aperol, Campari, as well as Champagne Lallier and our Trois Rivières rhum. In all the other markets, very positive performance, up 46.2%, largely driven by the continued strong momentum in both the on-premise and off-premise, led by Aperol and Campari. Global travel retail was up very strongly, 126.5%, with a triple digit growth in Aperol, Grand Marnier, Glen Grant, SKYY Vodka and Wild Turkey Bourbon. Moving on to North, Central and Eastern Europe, 16% of our global sales, growing by 16% on an organic basis. Key market, Germany, up double digits, 11.1%.
Again, a strong start to the year in this key market, and we've benefited obviously also from the Easter calendar shift. Core Aperol grew double digits, 15.9%. Ouzo 12, which is a regional brand or local brand, actually, they're up 15.2%. Aperol Spritz ready to enjoy up by a quarter, 24.9%. Crodino continues to grow up very strongly from a small base of 15.1%. Campari was slightly negative after a significant price repositioning last year in a tough comp base. Clearly we had a very strong Q1 last year, up 33% as customers phased shipments ahead of our price increase. The U.K. which is our second largest market in the region, doing very nicely, up 21.5%.
Driven by the continued positive trends in Aperol, Magnum Tonic Wine, and Wray & Nephew. The rest of the region, up 17.9%. Very strong overall performances across all of our markets, including Austria, Switzerland, and Belgium, with the heroes being the aperitifs. Last but not least, Asia Pacific, 8% of total group, growing again double digit on an organic basis, 14.5%. Australia was held back by the RTDs, so it only grew by 5.1%, but we have very nice performances by Aperol as well as the Wild Turkey Bourbon. If we move on to other key markets, our new route to market, which we consolidated last year, South Korea up by 90.9%. What's interesting is the mix here.
It's driven by high-end Wild Turkey offerings, X-Rated, as well as the high end of the Glen Grant. Well, if we look at the other markets overall, up 30.4%. China remains volatile. It's growing mid-single digits, largely thanks to positive shipments, of course, SKYY Vodka, we have very good momentum in all the other regions. Moving on to the analysis, by brand clusters, our global priorities now account for 58% of the company and are growing by 22%. Aperol, our largest brand, growing by a very strong 43.6%. Clearly very good momentum in all core markets, Italy, Germany, France, Spain, the U.K. as well as a triple-digit growth in the U.S. and global travel retail.
We're benefiting from resilient consumer environment, particularly in the on-premise, and have been favored by the shipment phasing, particularly in the U.S. and Easter calendar shift. The brand is building pace in both mature markets, and we're upping up our game in those with the highest potential, particularly the U.S.. Campari up 23.9%, double-digit growth in Italy, the U.S., Brazil, and Argentina, which allowed us to offset some temporary weakness in Jamaica. Wild Turkey growing more than a quarter, up 26.9%. Again here, a very solid start of the year. Mix also very good with the high-end Russell's Reserve outperforming, up 88%. The overall performance is driven by core U.S., up 22.5%, and South Korea, as well as global travel retail, which grew triple digits.
Moving on to SKYY. Positive shipment performance, up 20.8%, sorry. Also in the core U.S., thanks to restocking. You'll recall that we relaunched the brand in Q2 of last year, so we destocked significantly the whole pipeline, distributors, as well as stores in Q1 last year. The comp effect is quite beneficial now. We're seeing continued very strong trends in key markets such as Argentina, South Africa, Italy, China, and global travel retail. Grand Marnier, as highlighted earlier, is down 30.7% in the small quarter.
These negative shipments performance are impacted by the destocking we decided to drive with our distribution partner in the U.S. in order to balance out the inventory levels, which were brought a little bit out of kilt by all the issues we had in transocean shipments last year. Last but not least, our Jamaican rums up double digits as well, 15.7%, with Appleton Estate doing very nicely, up 26.3%. Wray & Nephew up 13.2%. Moving on to our regional priorities, 25% of our sales growing 27.3% organically. Espolòn continues to go from strength to strength, up 62.4% with a very strong momentum in the core U.S. market. Sparkling wines and vermouth up 7.5% overall positive, thanks to growth in Germany, Spain, the U.S., and South America.
The Cinzano brand particularly was up by 11.8%. Our Italian specialties, mostly Amaris, strong growth across all the brands in the portfolio, up 20.3%. Key drivers here are core U.S. and Germany, whilst the European markets where we're starting to build the brands are also doing nicely. Crodino up 19%, very positive performance, driven by strong growth both in its key market, Italy, as well as in all the seeding markets where the brand is coming very nicely from a small base, but growing very, very nicely. Aperol Spritz, ready to enjoy, up 19.3%. Key drivers here, Italy and Germany. As you know, we haven't expanded this expression in many markets. They're only in a handful. Moving on to The GlenGrant, continuing to benefit from premiumization and innovation, up 34.3%.
Doing very nicely all around, particularly in Asia Pac. Magnum Tonic Wine doing very nicely as well, up 30% with very strong momentum in the core U.K. market. Last but not least, local priorities, 9% of our sales growing only by 3.8%. Campari Soda doing nicely, 6.5% driven by Italy. Here the blotch is, obviously Wild Turkey RTD in Australia, down 1.3%, where we're showing temporary weakness due to some temporary, let's say, issues with our key customers there. We had many out of stocks last year, so we lost promotional slots, and we're regaining them one at a time as we speak. X-Rated growing by 9%.
The key driver here is South Korea, as China still needs to recover, and there's a quite tepid, let's say, demand in the nightlife channel in that key market for the brand. Last but not least, SKYY RTD, up 31.2%. As you know, this is a business mostly focused on Mexico. Before handing on over to Paolo, I'd like to underline two key accolades we've had. We have three Impact Top Brand awards, Aperol, Campari and Espolòn. Campari was also nominated best-selling liquor and top trending liquor by Drinks International. Just a few pictures, we've decided to significantly up our game in terms of activations of Aperol in the key U.S. market, and this is the first kickoff here, the Coachella Music Festival, which has been very, very positive for us.
Innovation continues to drive the Blink brands. Premiumization, we introduced a 21-year-old. We're also continuing to activate very nicely the Appleton Estate high end, taking a very, very strong position in its home market at the Sangster International Airport, Montego Bay, where really millions of tourists go by, return. Last but not least, we're also very pleased to announce the launch of a new tequila brand, super ultra premium, actually, 100% agave brand called Mayenda, priced at $70, so at roughly a one-third premium to top brands such as Don Julio. This is it from the marketing standpoint, now we get, I think, to the heart of the matter, the financials.
Thank you, Bob. If you follow me to page 15 of the deck, you can see that EBIT adjusted on organic basis grew by 32% in value with a 220 basis point margin accretion. Gross margin organically in value increased by 20.5% with 40 basis point accretions, thanks to the combination of three factors. First and foremost, a very positive pricing effect, benefiting largely from the phasing of the previous year's price increases with multiple rounds, with the last round in September of last year. Secondly, a favorable sales mix with the performance of high margin aperitifs in the first quarter, as well as thirdly, the operational leverage on fixed production cost.
You know, the combination of the three more than offset the still high cost inflation that we saw in the first quarter of the year, particularly on the glass front. A&P increased in value by 10.4% with the sustained investments behind key brands showing 110 basis point margin accretion, thanks to the stronger top-line growth of the first quarter. SG&A were up in value by 16.1%, reflecting the continuous investments in business infrastructure in the route to market, generating 50 basis point margin accretion, again, thanks to the strong top-line growth.
Excluding the temporary effects, net sales organic growth in the quarter would be approximately 13%, with EBIT adjusted organic growth of, again, 13% in line with net sales, thus leading to flat EBIT adjusted organic margin in the first quarter of the year. On a reported basis, EBIT adjusted came in at +39.4% in value, including positive perimeter effect of 4.1%, thanks to the first-time consolidation of both Biggar & Leith and Wilderness Trail Distillery, as well as positive forex effects for 3.3%, mainly driven by the appreciation of the U.S. dollar versus the first quarter of 2022, worth noting that in the second part of the year, the trend is expected to reverse given the current spot exchange rate between euro and dollar.
Again, on a reported basis, EBIT adjusted was up 36.8%, with 29.3% organic growth, positive 3.2% Forex impact, and a positive 4.3% perimeter impact. Moving on to page 16, we see operating adjustments of a negative EUR 6.8 million, primarily attributable to provisions linked to restructuring initiatives as well as long-term retention schemes. Net financial charges came in at EUR 16.1 million with an increase of EUR 14.8 million versus first quarter of last year.
Excluding the exchange rate effects, the financial expenses came in at EUR 12.9 million, showing an increase of EUR 7.9 million due to the combined effect of, on one hand, the higher leverage level of average net debt in the first quarter, EUR 1.5 million versus EUR 800 million of last year, as well as a higher average cost of net debt, 3.3% in Q1 of this year, versus 2.4% in Q1 of last year. Exchange losses of EUR 3.3 million versus exchange gains last year, first quarter last year, accounting for EUR 3.7 million.
The group PBT, profit before taxation, came in at EUR 133.6 million, up in value by 24.8%, whilst the PBT adjusted was EUR 139.2 million, up 24.6% versus first quarter of last year. As you can see at page 17, the net debt remained broadly unchanged at EUR 1,616 million. Slightly up versus last year by EUR 63.6 million, mainly due to strong cash absorption of the announced, already announced, CapEx investments, as well as inventory build-up in our own warehouses ahead of peak season, to support the very strong demand that we see at the moment.
The net debt to EBITDA asset ratio came in at two point three times on a reported basis. You know, if we factor in the performance factor of the Wilderness Trail Distillery, the leverage ratio came in at two point two times. Some, you know, new route to market developments in the APAC region, where the group continues to pursue its strategy, further strengthening its route to market capabilities and enhancing its brand focus in two key markets, Japan and New Zealand, by anticipating the call option exercises. More in particularly, in March of this year, we acquired the remaining outstanding shares in the distribution JV in Japan, for which we already had an initial non-controlling stake.
As a consequence of that, the JV, so, you know, the company is now a wholly owned subsidiary of the group. Worth noting that the key brands in these geographies are Wild Turkey, Campari, Glen Grant, and Grand Marnier. Secondly, you know, following, you know, the quarter end, you know, as a subsequent event in April of this year, we gained the majority stake, 60% of Thirsty Camel in New Zealand, where again, we had an initial non-controlling stake. You know, worth mentioning here the key brands are, you know, the Jamaican Rum portfolio, Wild Turkey and Aperol. Prior to coming to the outlook at page 19, we've took the opportunity of revisiting our ESG targets.
Here we have an update where we show more ambitious environmental commitments, thanks to solid progress that we made on that front. In particularly on the energy efficiency and decarb, the target would reduce the greenhouse gas emission intensity from direct operations, so Scope 1 and 2 by 70% by 2030, pardon. With interim target of 55% compression by 2025 using 2019 as a baseline. Worth mentioning the previous target was 50% by 2030 and 20% by 2025. Again, reduce greenhouse gas emissions intensity from total supply chain, so including Scope 3 by 30% by 2030, using again 2019 as a baseline, where the previous target was set at 25% by 2030.
Then source 90% renewable electricity in all groups production sites by 2025 versus the previous target of 100% compression limited to the European production sites. Water, again, we produce water intensity by 62% by 2030, with an interim target of 60% by 2025. Again, same baseline where the previous target was set at 40%. Waste, zero waste to landfill from direct operation by 2025 that, you know, stayed unchanged versus previous commencements. This is it on numbers. You know, I would happily hand back to Bob for the outlook.
Thank you, Paolo. I'll be brief because I'm sure you've got tons of questions, hopefully more for Paolo than for me. In terms of the outlook, looking at the remainder of this year, our full year guidance is of a flat organic EBIT adjusted margin in 2023, and we maintain that, and we confirm it despite the current volatile macro environment. We expect a positive business momentum across all of our key brand combinations to continue, thanks to our very strong brand equities and continued strength in the on-premise. With inflation on input costs is showing some initial easing effects, margin trends are expected to show the pricing effect increasingly entering into the base over the course of the year, alongside obviously sales mix evolution and normalization throughout the year in volume growth.
In terms of Forex, trends are expected unfortunately to reverse, mainly due to the weakening of the U.S. dollar. In the medium to long term, clearly looking beyond 2023, we remain quite confident to continue delivering strong organic top line growth and mix improvement leading to organic margin expansion. This is it from our side, now we're here to answer 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 touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask you to use the handset when asking questions. Anyone who has a question may press star and one at this time. The first question is from Simon Hales from Citi. Please go ahead.
Thank you. Hi, Bob. Hi, Paolo. Couple of interrelated questions to start, please. I wonder if you could just help me understand the scale of some of the phasing benefits in individual re-regions in the period. Bob, you called out in your presentation certainly some phasing benefits that you saw in Italy and North and Central Europe. You know, is that where there was really the concentration of shipments ahead of price increases? Associated with that, I wonder if you could just run us through what price increases you've taken as we've moved into the second quarter, where they've been taken, on which brands. Any more color there would be great. Just a second question around inventory levels. You flagged the destocking of Grand Marnier.
is that now all done, and are you happy with the inventory situation both on Grand Marnier in the U.S. and your broader portfolio?
Okay. Thanks, Simon. The scale of the phasing benefits is a combination of things. It's clearly the phasing is one dictated by the calendar with Easter shifting earlier on. It's mostly customers buying ahead of price increases. We've had price increases in February and March in most markets. Italy has a price increase in May, but actually this year, beyond the one month notice, we gave our customers two months notice. Clearly March was quite impacted by that. We've had, you know, we took two rounds last year, taking a nice round across the whole portfolio, clearly more behind the aperitifs. So far, so far, so good.
With regards to inventory levels, I need to explain a little bit what happened to Grand Marnier. Grand Marnier is a large brand for us in the U.S., so the way it works is with direct shipments from our plant, via container ships to our distributor partners. Last year, as the ports were being all, you know, backed up, they were placing more and more orders where clearly for us, as soon as something leaves the factory, it's a shipment credit, whereas they hadn't received it in their warehouses, so they didn't have the inventory levels. This year we decided to rebalance all of that, and I think we'll be pretty much done at this stage.
The brand should continue, you know, on a full year basis, hopefully reflect the depletion growth of mid single digit. If you look at all the other inventory levels in the U.S., they're all pretty normal. We're happy to say that on export now we're in a situation where we're not faced out of stocks. That was really impacted us very negatively last year, and we were able to return to normal levels.
That's really helpful, Bob. Just to confirm, coming back to the whole phasing, you know, sort of debate. I mean, I think when I calculated it on my numbers, it looks like it was about a EUR 35 million benefit to your sales line in Q1. You would expect that to be.
Yeah.
reversed out to the numbers in Q2. That's how we should think about it.
Yeah. Our estimation is more like EUR 30 million.
Got it. Thank you.
To be reversed.
Okay.
The next question is from Andrea Pistacchi from Bank of America. Please go ahead.
Yeah. Hi. Hi, Bob. Hi, Paolo. Three from me, please. The first one on the U.S. Now, after some of your peers reported last week, there has been a bit of concern on the U.S. What is going on in the U.S. market. It'd be interesting to hear, Bob, your assessment of what is happening in the U.S. Clearly you're very decoupled probably from some of the softer market trends. Are you able possibly to share a depletion number for the U.S. in Q1, and what do you expect for the rest of the year? A second question probably for Paolo on logistics costs. What are you seeing there? Are logistics costs starting to decline year-on-year?
I think some non non-spirit companies recently have actually called out they're seeing a decline in transatlantic freight costs. The third question really about the consumer environment in Europe. In your outlook comments, Bob, you're talking about you expect continued strength in the on-premise. I guess that would suggest that you're clearly not seeing any signs of slowdown there. It'd be interesting to hear even from the sense that you're getting from wholesalers, their level of confidence that the environment in Europe, which has been fine until now, will continue to be fine or pretty strong, in fact. Thank you.
Thank you, Andrea. I'll take the first and the last question. What's going on in the U.S., I mean, it's very interesting because there are two speeds, depending on the channel and depending on the type of consumers you're going to. Obviously the shape of the brand portfolio impacts a lot how one trades in the U.S. It's clear that the off-premise has slowed down and, you know, depending on the month, it turns negative because value price increases have impacted consumers as well as the overall macroeconomic situation. Having said that though, the on-premise remains quite buoyant.
If you look at our key categories, which are American whiskey, so bourbon, tequila, those are very strong categories, as well as our, as the aperitifs, which we obviously are the only ones playing there. The reason is, compared to some of our peers, we're actually targeting more young urban professionals who aren't really being impacted currently by the economic situation and are maintaining a very active lifestyle. So that's the difference versus some of our peers, which although they're selling more premium, let's say, aged spirit categories, they've been catering more to blue-collar consumers which have been impacted by the, you know, return to normality and the challenges currently from a macro standpoint and employment standpoint.
With regards to the consumer environment in Europe, I mean, the off-premise in Europe too is, let's say stable or slightly declining, but from a much higher level compared to 2019. What we're seeing on the on-premise gives us a lot of reassurance. I mean, currently all of our customers, cash and carry, as well as wholesalers, are doing very, very well, and are actually, you know, very keen to make sure that they get hold of our key brands. We're looking with confidence at the rest of the year. Having said that, I mean, weather could make a difference, but we'll see how that goes.
I think you have a question on logistic costs, which I would, you know, explain to shed a little bit of light on gross margin.
Yeah.
you know, results for the first quarter and trends, you know, going forward. The question is, you know, logistic costs, particularly transatlantic costs, are they coming down? Yes. you know, if you look at, first quarter, you know, given the still high, you know, cost inflation, you know, we're seeing, you know, high single digit or low double digit, cost increase versus last year, which is not visible in the number we've disclosed, where you see, you know, 40 basis point gross margin accretion in existing business due to a combination of factors. On one end, you know, we've, you know, we've mentioned these, the effect of those, you know, multiple price increases rounds.
The fact of having taken price, you know, twice last year with not a big, you know, another meaningful increase in September, put us in a position this year to take price over, you know, a price that has been raised twice. Basically what you see, if you look at the, you know, average price increase of this year, you know, clearly, you know, the average price increase that we're targeting is very much, you know, front-loaded because, you know, we have easier comp in Q1 and then, you know, the price effect is starting to get diluted, you know, quarter after quarter. That's one. We've mentioned the favorable sales mix, and of course, given the very robust top-line growth, the operating leverage on fixed production cost is there.
This is all, in a way or another, hiding the fact that if you look at procurement costs, you know, the costs, you know, are growing, you know, very, very quickly, you know, versus a year ago. That said, on pricing, you know, we have a big, you know, price gain in Q1, which is then, you know, reduced as, you know, the comps get tougher and tougher quarter after quarter. On the COGS, you know, on the other end is through the opposite as, you know, we've guided towards, you know, cost inflation increase, that, you know, that we'll start to ease towards the back end of the year.
In the first quarter, clearly we're using, we're consuming products that have been produced and stored a year ago. Clearly, you know, the first quarter doesn't show in its totality the COGS increase. Now, if you factor in all, you know, the different elements of the equation, so, you know, the effect of price increase, you know, the mix, that is an important one, as well as what I've said on COGS trend. Now, you know, if you strip out everything, the first quarter would have been, you know, diluted by about 70 basis points the first quarter.
You know, this is why, you know, we're still targeting flat EBIT margin for the full year, given the fact that, you know, as Bob just said, you know, second quarter, we will see, you know, the reversal of the positive effect. And then, you know, following June, this is when, you know, we believe that we will be able to leverage truly on costs, procurement cost reduction. That's the guide. You know, we remain extremely confident towards, you know, the mid-term, so back end of 2023 and particularly 2024. We just need to be a little bit patient to see, you know, the whole gross margin opportunity flowing through the P&L.
Two quick thanks, Paolo. Two very quick clarifications here. One, you said, I think in Q1 you saw high single to low double digit. Is that COGS increases, I think you said? The second thing, if you are able, Bob, please to share a depletions number for the U.S., if you have it. Thank you.
Yeah. Sorry, Andrea, I forgot that. No, in the U.S., we grew by 11% in the first quarter on a value basis.
Thank you. Thanks.
The high single digit to low double digit is, you know, procurement cost increase, not COGS. You know, COGS clearly.
Okay.
You know, less than that, as you said, that we're using last year. You know, pro-products that had been produced last year at lower costs.
Super, very clear. Thank you.
The next question is from Mitch Collett from Deutsche Bank. Please go ahead.
Thank you. To follow up to the last one actually. Just so I've understood the phasing of profitability for this year, given that you've got off to such a strong start, so would it be right to think that gross margin expansion is more in the second half than in the first half, and that it will be other cost lines that offset that to keep profitability flat on an organic basis? Then I think there was EUR 6.8 million of provisions. Can you just give a bit more color on what that was for? Thank you.
Yes. On costs, sorry, on phasing of results, yes, clearly, you know, the second quarter in terms of gross profit, gross margin will be, you know, impacted twofold. On one end, there will be, you know, the reversal effect of Q1 temporary effect. Secondly, you know, we have, you know, the peak season for the aperitif portfolio that is, you know, the most exposed to inflation given the fact that, you know, on aperitifs, you cannot rely on liquids that have been distilled, you know, 12 years ago. The immediate translation of inflation into increase of cost of goods.
You know, in the second part of the year, there will be, you know, the opportunity of, you know, recovering that gross margin dilution. You know, I think, you know, we're extremely positive with, you know, the negotiation and the discussions with the trade. I think we're in a good spot there. On pricing, I think, you know, mission has been, you know, I would say accomplished. You know, and the rest is, you know, as we said, unchanged. You know, we're targeting slightly bit margin this year.
Clearly, you know, the health of the top line and the robust demand puts us in a comfortable position to keep on investing on our brands and our structure to control distribution in as many markets as possible.
Understood. Then 13% that you said is the underlying rate for Q1, I guess is remarkably similar to the EBITA you had by the end of last year, I guess at least versus pre-pandemic. I appreciate you're not gonna, you know, give a top-line guidance in specific terms for this year or beyond. How should we think about that 13% going forward? Is that, you know, something that can be sustained or are there reasons why that might start to slow?
No, you're right. We're not providing any guidance. Clearly our portfolio has very good momentum.
Understood. Thank you.
The next question is from Edward Mundy from Jefferies. Please go ahead.
Afternoon, Bob. Afternoon, Paolo. A couple from me, please. Bob, you famously coined the phrase revenge conviviality a couple of years ago. Are you seeing any signs of, you know, major fatigue in revenge conviviality? You know, what exactly are you seeing from that perspective? Second question is on this new tequila launch, Mayenda. Could you talk about what's differentiated, you know, relative to some of the peers within that price point, you know, quite high-end tequila? The third question is really around Asia Pac, where you're bringing in a distribution in-house in a number of new markets. Could you talk about sort of how much of your sales in Asia is now through your own distribution?
In those markets where you're bringing distribution in-house, what are the main things you're gonna be doing differently?
Okay. First question, Whyatt. Revenge conviviality. I think revenge conviviality is alive and kicking, doing very well in the on-premise, but is a little bit more subdued in the off-premise. Yeah. You see that clearly also in our results and any Nielsen numbers from the industry. People are still going out, having drinks, meeting people, but they're doing it less so at home. With regards to Mayenda, what differentiates us, it's a very proprietary process which makes it a much rounder liquid. I will not go into the details, but if you taste it, there's a night and day difference between the us and our higher-end competitors. I think that we have also a very nice story to tell.
Going to Asia Pac, we're probably at more than three-quarters of sales through our own subsidiaries. Bear in mind, we're still, you know, leading very strongly in the Pacific area with Australia and New Zealand impacting quite a bit. Having said that, you can see the very, very positive development of our business in new markets such as Korea, now Japan, which has come online. What we're doing is, you know, having control of it. Obviously, the A&P commitments increase and we're much more focused on bringing to the market our growth models. It becomes a little bit clearer as to what the priorities should be in the market and how they should be executed from a marketing standpoint.
Thanks, Bob. On Japan, I mean, you highlight the key brands you're selling there. It's the Wild Turkey franchise, Campari, Glen Grant, and Grand Marnier. Do you see an opportunity for Aperol Japan?
Yeah.
Is that, you know, something a bit further down the line?
No, Aperol Japan is coming, but it's a, you know, it's our usual, focus on the oil strategy. Currently, we're focusing on different neighborhoods in Tokyo. That's gonna take a while.
Very good. Thank you.
Thank you.
The next question is from Laurence Whyatt from Barclays. Please go ahead.
Hi, Bob and Paolo. A couple from me, please. Firstly, your advertising spend is slightly below even the sort of run rate of 13% growth. Is that an intention to slightly lower A&P as a % of sales, or would you expect that to increase in subsequent quarters? Secondly, on agave prices. At the full year results, you're expecting them to be a slight positive in this year. Are they going in the right direction? Are you seeing slightly lower agave prices? Slightly related to that, you mentioned that you were seeing an improvement in agave supply. Do you think that there's a bit more opportunity to take tequila more globally? It's been a bit of a U.S. phenomenon to date.
Do you see a bit more opportunity in Europe and perhaps Australia and some of your other markets? Thank you very much.
I'll take the first question, Lawrence. I mean, our outlook on A&P for the year is basically flat on an organic basis as a percentage of net sales versus last year. Clearly, you're going to see a strong concentration of A&P in Q2 and Q3, and particularly in Q2, as we're having a major thrust activating our activities surrounding Aperol in all markets, but in most, particularly in the U.S.
With regards to the agave price, your guidance, you know, this is unchanged. You know, we still see, you know, very positive effect this year. That's totally confirmed. You know, we're getting more and more access to liquids, and to agave piñas to be distilled. You know, in 2024, I think we can start kicking off our international expansion campaign for our tequila brands, particularly Espolòn. Where we see, you know, a lot of potential, untapped potential given the prior years' constraint on supply.
Thank you. Just following on the tequila, are there any countries that you'd call out as being the key areas where you would aim to roll out further?
Yeah. I mean, most European markets as well as Australia and some Asian markets. Tequila is starting to become, I think, a global phenomenon. Consumers are yearning for it. I think key driver there is more the Paloma than the Margarita, so it's slightly different than in the U.S. We, like all the other players currently, we're constrained. The volumes are mostly going to the U.S., and hopefully this will start improving in the second half and then improve significantly more at the beginning of next year.
That's great. Thank you very much.
The next question is from Alessandro Tortora from Mediobanca. Please go ahead.
Yes, hi. Good morning to everybody. I have, let's say, two brief question. The first one, if you can help us to understand the impact of Wild Turkey on, let's say, on the gross margin side, because I see, let's say, the perimeter effect, positive perimeter effect on, let's say, the adjusted EBIT, so we'd like to understand if, let's say, the company is contributing also at the gross margin level. The second question is on, let's say, the volume component, considering, let's say, taking out the temporal effects you mentioned.
Just to understand if the volume component, considering the 13% organic growth, sales organic growth, is still positive considering the channel mix you mentioned before, but for, let's say, positive on the On-premise side and let's say negative, in negative territory for the, for the other channels. Thanks.
I'll just say that, I mean, volume, is growing. I mean, we're positive volume across, I mean, with the exception obviously of Grand Marnier, across the portfolio.
Yes. The other question is on, you know, if you could repeat it.
Wild Turkey
Wild Turkey
impact on gross margin.
Wild Turkey, you know, as a business, as a brand is accretive even if, you know, price positioning. Yeah, in the sense that it's, you know, it's tiny, you know.
Okay, thanks.
The next question is from Trevor Stirling from Bernstein. Please go ahead.
Afternoon, Bob and Paolo. Just one question from my side. There was one fact you didn't mention, Bob, in terms of the phasing, and that's the weather comps. I, from memory, they're reasonably tough this year as you get into Q2 and Q3. Is that still a factor that we should be bearing in mind?
Yes. I mean, that's a key point, Trevor. I mean, weather was very, very good last year. We've had very good weather actually in Q1. Now the beginning of Q2 is less good. I mean, we've got more rain in continental Europe and in England, as far as I understand. You know, we don't have any crystal balls. We don't see how it's, you know, gonna develop over the rest of the year. You know, rest assured, with climate warming, I mean, it's a long-term positive trend, unfortunately for us.
Very good. Thank you, Bob.
The next question is from Paola Carboni from Equita SIM. Please go ahead.
Yes. Hello. Hi. Hi, Bob and Paolo. Good afternoon, everybody. I have a few questions. First of all, on the, let's say, your statement in the press release, you are anticipating a normalization of volume, and you were pointing also on, I mean, some attention on the evolution of the mix. Can you better elaborate on this, what did you mean in the press release, and whether you were referring simply to the reversal of the temporary phasing effect we saw in Q1 or with a longer view to the full year, let's say? Another question is about the evolution of organic profitability we saw in Q1, if you can comment on how the main drivers would have performed excluding the temporary effect.
Kind of, gross margin organic without the temporary effect. SG&A, sorry, I was also wondering, particular without the temporary effect, how this would have performed. A further question, sorry. Still on this temporary effect, you seem to expect a reversal in Q2, but at the same time, if I got it right, you mentioned, when commenting on the financial position, an inventory built up ahead of the peak season to support a very strong demand. In theory, I mean, I don't know to what extent we are going actually to see this EUR 30 million reversal in Q2. Thank you very much.
I thought I'll take the first one. Yes, I was referring to mostly the reversal. Then you also need to take comp basis into consideration, obviously.
Yeah. If I understood it well, Paola, you know, your point was to understand a little bit, you know, the margin evolution in Q1, once you factor in all the temporary effects. I said, you know, the normalized net sales level would be, you know, 13%, you know, as we said. You know, I've alluded to, you know, once stripping out all the effects, the gross margin illusion of about 70 basis points. You know, as Bob just said, you know, for the full year, we're targeting A&P neutral on revenues. There would be, you know, a reduction of what you see. Sorry, an increase of what you see.
The SG&A, you know, given the robust top line, would have been, you know, slightly accretive. you know, leading to better organic EBIT margin. With regards to the second question, you know, the inventory build up is not, which we've alluded to, at, you know, trade level or distributor level. It's within our own warehouses. you know, it was a comment to explain why we had significant cash absorption in the first quarter of this year.
No. Yes, sorry.
It's not impacting, you know, this is not impacting on top of the reversal of Q1 effect of the second quarter.
Okay. Thank you. Just to follow up on the SG&A, you were commenting before on organic basis and without temporary effect. I was just wondering if we should account for any acceleration in the second part of the year, for investments in route to market, in APAC, with your now directly controlled subsidiaries.
Not really, you know, the two, you know, APAC regions, where we're going direct, you know, they account in total for 1% of our revenue, so not a major, you know, drift there. You know, there might be something, but you know, we will trim, you know, the SG&A, you know, growth also in light of, you know, the top-line development. Still, you know, too early to call. Let's wait, you know, June comes, you know, as we announce the first half results, so we will disclose more, you know, for the full year, the, the trend in gross margin and the SG&A as a percentage of sales feel, you know, leading to flat EBIT organic margin.
Mm-hmm. Okay. Thank you very much.
You're welcome, Paola.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is a follow-up from Paola Carboni from EQUITA SIM. Please go ahead. Paola Carboni, your microphone is open.
Okay. Thank you very much. Sorry. I was wondering about the Campari in Germany. You referred to it as a temporary effect, temporary negative trend. Can you elaborate a bit on what you are seeing in terms of final demand? If, I mean, to what extent this might be temporary and for how long do we expect it to impact?
Yeah.
Thank you very much.
Oh, that's a Q1 versus Q1 effect. I mean, it's comp basis because we had a significant price repositioning of Campari in Europe, and particularly in Germany last year, which kicked in in Q2. you know, obviously, that impacted in Q1. Overall, if you look at the brand, it is doing quite nicely. Particularly, it's starting to, I think, trend more in the on-premise, and also the Campari Spritz is starting to play a role.
Perfect. Thank you very much.
Perfect.
Mr. Kunze-Concewitz. Gentlemen, there are no more questions registered at this time.
Thank you. Thank you very much, all, for joining us. I'm sure we'll touch base in the next weeks and months. Stay well and enjoy your Negronis and spritzes. Thank you. Bye-bye.
Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone.