Good afternoon. This is the Chorus Call Conference Operator. Welcome. Thank you for joining the Campari Half Year 2023 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.
Very much. Thank you very much. Good afternoon and a very warm welcome to all of you to our H1 conference call. If you join me on page number two, I'll kick off as usual with the overview. I think, as clearly demonstrated by the very positive first half results, our brand portfolio is clearly in good health and skewed to the most exciting categories in our industry. Organic sales grew by 14%, so very fast, and we continued growing double digit in Q2, 10.1%. The solid brand momentum continued, as I said, in the second quarter, driven in particular by the usual suspects, the Aperitifs, Tequila, and Premium Bourbon. It must also be said that all of those categories were boosted by pricing, successful pricing as well.
The performance in Q2 reflected the expected reversal, which we'd flagged in our Q1 results of the temporary phasing effects. Also reflects very poor weather across our core Southern and Central European markets, as well as some temporary delistings from selected European retailers due to the commercial negotiations in connection with the price increases. I'm very glad to say that these were subsequently passed through very successfully across the board. Looking at organic EBIT Adjusted, also very solid growth of 15.1%, generating 20 bps margin increase in the first half. We're up 5.3% in value and down 120 bps from a margin dilution perspective in Q2.
This margin dilution in Q2, gross margin dilution, is due to the negative reversal of Q1, as well as the disproportional inflationary impact, particularly as you might expect with the high season aperitifs and COGS inflation overall, fully offset by price increases in value terms. The phasing in A&P is actually linked to a late start of the summer activations, which were impacted by bad weather. Overall, our full year guidance of flat organic EBIT adjusted margin is confirmed in the current volatile macro environment. Moving on to page three, you see we've very solid growth across all of our regions. Actually, all our regions are growing double digit, as well as our brand clusters.
Global priorities and regional priorities grew double digit, whilst local priorities only grew by 8% as they were held back by X-Rated and Wild Turkey RTD in Q1. Moving on to the net sales organic performance by key markets, the Americas, which represent 43% of our net sales, grew at a very healthy 10.6%. Very positive overall growth in the US, where we're outperforming the market. In Q2, our shipments were up only 3.3%, but this contrasts versus Q2 depletions of 16.3%, which accelerated versus the 11% we had in Q1. Clearly, we reflected the expected shipment phasing reversal from Q1, as well as the destocking in Grand Marnier, but the underlying business is very, very solid.
The positive performance in the first half was mainly driven by strong growth of Aperol, going from strength to strength in that key growth market. Espolòn, Appleton Estate, as well as Russell's Reserve, where we're driving the premiumization of our bourbon portfolio. Jamaica grew by 15.3%. Again, very positive, also in Q2, up 12.8%, thanks to Magnum Tonic Wine, Appleton Estate, and Wray & Nephew Overproof . The rest of the region grew by 6.1%. Moving on to Southern Europe, Middle East and Africa, for 30% of the total, growing a very strong 16.6%. Italy, our largest market in the region, grew by 13.4%.
Clearly a very solid underlying trend in for Italy, with a very positive Q2, where we're up 8.1%, driven by pricing, including the most recent round, despite some phasing reversal from Q1 and very poor weather in the month of May. The growth in the first half was led again by Aperol, Campari Soda, and Crodino, so the whole aperitif portfolio. The Italian specialties also grew, and Espolòn, off a small base, as we're starting to resupply the market. Strong growth in France, up 21%, up 31.1% in Q2. Again, driven by the Aperitifs, Aperol and Campari, as well as the Riccadonna Sparkling Wine and our Champagne Lallier. The rest of the region grew by 24%.
Very positive overall performance across all markets, including Spain and Greece, thanks to the continued momentum in a still resilient consumer environment. Moving on to North, Central, and Eastern Europe, 19% of our total, also growing strong double digit, 14.5%. Our largest market, Germany, growing even faster, 16.4%, this is quite a contrast to the market, which is actually down. Our underlying momentum in Germany remains very solid, We had a nice acceleration in Q2, up 19.3%. Driven by the Aperitif portfolio, including Aperol, the Aperol Spritz Ready to Enjoy, Campari, all growing double digits, as well as innovation. We launched last year into the on-premise, a brand called Sarti Rosa, which is an Aperitif, targeted at younger, legal drinking age women, and it's proving very, very successful.
I think you'll hear more about that in the years to come. The non-alcoholic Crodino continues to grow off a small base as well, very nicely. The UK, again, quite a striking contrast to the market, which is quite depressed. Our business grew by 20.9%. The key drivers here are Aperol, Magnum Tonic Wine, Campari, and Wray & Nephew Overproof. All of those brands, obviously, up double digit. The rest of the region, also up double digit, 10.6%, and good underlying trends despite the poor weather earlier in this quarter. Moving on to our last region, the smallest one, APAC, 7% of our sales, but the fastest growing region, up 26.2%. Australia, the largest market, up 7.5% on the half, but actually accelerating Q2, 10.1%.
This is largely led by the recovery in Wild Turkey Ready to Drink, as expected, thanks to the recovery in shipments, as well as strong momentum and the core bourbon in glass bottles, as well as Aperol. South Korea, doing very, very nicely, growing double digits in H1. Again, it's all the high end of the portfolio, which is driving this growth, particularly the Whiskeys, Wild Turkey, and Glen Grant. In Q2, the performance was slightly negative due to a very tough comp base. You'll remember that last year, actually, that market grew by 139%. Last but not least, we're also happy to see China getting back to strong double-digit growth, obviously, against an easy comp base. We're seeing, you know, the broad portfolio reacting very nicely, SKYY, Glen Grant, Wild Turkey, as well as X-Rated.
We have very strong growth in India, driven by Aperitifs, particularly Campari and Aperol. Japan also did very nicely, registering strong growth thanks to our brown spirits. Moving on to the performance by clusters, our global priorities, which represent now 59% of our sales, grew at a very healthy pace of 15%. Our largest brand, Aperol, which represents 26% of our sales, growing by almost a third, so 32.4%. Very strong momentum across the board, supported also by positive pricing. The U.S., up 122.5%. Italy, 20 years after we bought the brand, continuing to grow double digit at 18%. Germany, the third largest market, growing by 22%, France by 27.5%. Clearly, the U.K., Spain, Canada, Australia, and all the other European markets grew double digit. Global travel retail, triple digit.
The Q2 performance was quite positive, up 26.6%, driven by all our core markets, including the seeding markets in Asia Pacific. It is also important to underline the fact that we've obtained these results despite some temporary delisting in France and in Germany, in connection which are with our price increases, as well as taking the poor weather conditions into account. Campari, our second largest brand, up 13.2%. Again, solid growth across all its core markets, Italy, the U.S., Brazil, Germany, and doing very nicely in future prospects like the U.K., Greece, France, and the Asian markets.
The brand was also positive in Q2, up 5%, despite, you know, the expected negative phasing reversal, which impacted quite a bit the U.S., as well as the temporary delistings, which I'd mentioned a little bit earlier on, in, as in the case of Aperol. Wild Turkey, 8% of our total sales, up 12.5%. Again, core markets doing very nicely, U.S., Australia, Japan, and South Korea. It's also important to underline the outperformance of our higher margin, really premium Russell's Reserve line, growing by 76%. SKYY, 5% of our sales, growing a very nice 7.3%. Here we have international markets, China, Australia, South Korea, Japan, and GTR, obviously boosting the growth.
We're also happy to say that the U.S. also grew overall after the expected reversal in Q2. Courvoisier is the only negative one here with negative shipments performance, impacted by the destocking with we flagged last quarter. We're balancing out inventory levels in the U.S., but clearly this performance of -30% doesn't reflect the underlying trends, which were much, much healthier. Our Jamaican rums also growing double digits, 13.9%. Appleton Estate, really the premium end, growing by 18.2%. We're really starting to leverage the very favorable category trends in the premium end of rum. Wray & Nephew Overproof grew by 12.4%, thanks to Port Jamaica and the U.K.
Moving on to our regional priorities, representing 24% of our sales, overall, organic sales growth of 16.7%. Espolòn going from strength to strength, taking market share up by 43.3% on the half and 30.8% in Q2. Clearly, this whole momentum is being driven in the U.S. because that's where we've dedicated the stocks so far. Our sparkling wine and vermouths were only up 1.1%, and here, the main driver has been Riccadonna. Italian specialties, Frangelico, down 1.1%, and that's due to mostly Averna and Core Italy.
Crodino doing very nicely, growing 7.4%, obviously in Core Italy, as well as growing very fast, at a much faster pace in central European markets despite the poor weather. Aperol Spritz ready to enjoy double digit, 10.6%, and again, this you need to take to account the weakness due to the weather in Core Italy in the month of May. Glen Grant premiumization is very, very successful. We're up 30.9% in value terms, and clearly Asia is the major driver here, with South Korea, Australia, Japan, and China, which are really benefiting from the high-end expressions which we launched into those markets.
Magnum Tonic Wine doing very nicely, growing almost by half, 46.9%, with strength in its two core markets, U.K. and Jamaica. The rest of the regional brands also doing quite nicely, we're a positive growth across the portfolio, important, we'd like to underline the very positive trend of our Mezcal, Montelobos, our pepper liqueur, Ancho Reyes, Lallier Champagne, and the Trois Rivières French rum brand. Last but not least, our local priorities, as I said earlier, they represent 9% of our sales and only grew by 8%. Campari Soda, the largest brand there, is doing very nicely, growing by 10.6%, while Turkey RTD returned to growth. You'll remember that it was negative in the first quarter, is starting to build momentum again.
X-Rated, again, was handicapped by Q1 and has turned double digit in Q2, so we expect to see those two brands trending more favorably in the second half of the year. Whilst our SKYY RTD continued to go from strength to strength in Mexico, up 36.5%. Before passing on to Paolo, who'll dissect the financials, I just would like to underline that our very unique marketing model is alive and thriving, and where our marketeers are raising the bar, both in terms of creativity as well as the scale of our experiential events, which are proving very, very successful, and we'll continue driving these across the board, across markets, and across all of our key key brands. This is it. I hope you enjoyed the nice pictures, and Paolo?
Thank you, Bob. If you follow me to page 15 of the deck. Looking at the organic performance, EBITDA Adjusted growth accounted for 15.1% in value, with a 20 basis point organic margin expansion. Now, if you look at second quarter on a standalone basis, organically, EBITDA Adjusted growth accounted in value for 5.3%, with a 120 basis point dilution. In the first half, gross profit organic increase increased by 13.3% in value, with 50 basis point margin dilution. It was impacted by cost inflation, as we know, which was only partly mitigated by strong positive pricing and positive sales mix.
The second quarter, uh, the gross margin dilution accounted for 100 basis points due to negative reversal of shipments, uh, of, uh, of the first quarter, uh, negatively impacting the, um, the sales mix in, uh, in the second, uh, quarter, as well as the disproportional in- inflationary impact, uh, which, uh, particularly, uh, hit the, uh, the aperitifs in, uh, in their high, uh, peak season. The cost inflation overall, uh, was, uh, fully offset by price increases in value terms. The AMP spend increased by 10.7% in value, with sustained investments behind key brands, uh, showing 50 basis point margin accretion, uh, driven by, uh, AMP phasing due to b- to very poor weather conditions, impacting the st- the start of the summer activation programs.
The SG&A increased by 13.1% in value, reflecting the continuous investments in business infrastructure, but generating 20 basis point margin accretion, thanks to the very strong top-line growth in the first half. If you look at the second quarter, on a standalone basis, both in AMP, grew slightly above top line, with a combined margin dilution of 10 basis points. On a reported basis, EBITDA Adjusted came in with a growth of 16.7% in value, including a negative Forex impact of a negative 1.9%, EUR 6 million, mainly attributable to the depreciation of the US dollar. The positive perimeter, on the contrary, generated EUR 7.8 million of positive contribution.
Corresponding to a +2.5% with 10 basis points accretion on net sales, due to primarily the consolidation of Picon and to a minor extent, the first time consolidation of Wilderness Trail Distillery. With regards to Wilderness Trail Distillery, the contribution was lower than originally guided contribution, due to the prioritization of liquid allocation from bulk sales to third parties, to future growth of high margin own brands. The EBITDA Adjusted came in at EUR 411 million, with a reported change of 16.4% in value, which 15.1% was the organic contribution, 3% the perimeter effect, and a negative 1.6% due to FX, and primarily the US dollar. We move on to the following page, where we have the segment reporting.
The Americas region, as a whole, it represents 42.1% of the group overall EBITDA Adjusted. It showed an increase of 13% in value with a margin accretion of 80 basis points. The gross margin dilution accounted for 80 basis points, and that was due to COGS inflation, as we know, a less favorable sales mix due to the outperformance of Espolòn, which still continues to be impacted by the very high agave purchase price. And that effect was only partly mitigated by positive pricing, which of course, we took in all the markets. AMP and SG&A were both accretive by 30 and 100 basis points, respectively, thanks to the sustained top line growth of the region.
SEMEA accounted for 28% of group Adjusted EBIT with a growth in value of 29.9% and a margin improvement, a very healthy margin improvement of 230 basis point. Which was driven by both gross margin expansion of 20 basis point caused by very, very strong pricing, including the price increases introduced, the second round of price increases introduced in 2022, in the fall of 2022, as well as a positive sales mix, both more than offsetting the COGS inflation. The AMP was highly accretive by 110 basis point due to delayed activation programs in connection to with the very poor weather condition in the SEMEA market.
The SG&A were also accretive by 100 basis point, with strong top line driving operating leverage. Northern, Central, Eastern European market as well, this region contributes by 28% of the overall organic EBIT. It grew by 8.8% with a margin dilution of 190 basis point, which was driven by a gross margin dilution of 180 basis point, where the COGS inflation was only partly offset by the pricing effect kicking in towards the late, towards late second quarter. In fact, in 2022, we did not implement it in the Northern and Central European Region, the second round of price increases in the fall, as we did in SEMEA.
The AMP, although it grew, was accretive by 70 basis point, following the delay in the start of the summer activation with the poor weather condition. The SG&A, on the contrary, they were diluted by 80 basis point due to strengthening of our commercial capabilities in key Northern and Central European markets. APAC as a region, accounted for just 1.5% of the overall EBIT Group, EBIT Adjusted, and it was down by 14% in value, with a margin dilution of three times, 310 basis point. Actually, in this region, we had a healthy gross margin accretion of 270 basis points, thanks to also here, very strong pricing, a very favorable sales mix, which was driven by continued premiumization.
Those effects more than offset the COGS inflation in the region. The AMP, both the AMP and the SG&A grew faster than the top line, on the contrary, leading to margin dilution of 200 and 380 basis points, respectively. Those were driven by robust investments behind premium brand and the buildup of route to market capabilities. We move on to page 17, we can see that the operating adjustments totaled EUR 16 million, and they were primarily attributable to provisions linked to restructuring initiatives, long-term retention schemes, as well as non-recurring costs related to certain IT projects. The total financial expenses came in at EUR 32.4 million, with a significant increase of EUR 27.7 million versus the first half of last year.
The financial expenses, if we excluded the exchange, the exchange rate effects, came in at EUR 21.9 million versus EUR 10 million of last year, showing an increase in value of EUR 11.9 million. That was due to the combined effect, on one end of the higher level of the average net debt, from EUR 890 million to EUR 1,664 million, as well as, the higher average cost of net debt, which increased in the first half from 2.2% of last year, to 2.6% of this year. The exchange losses accounted for EUR 10.5 million versus exchange gains of EUR 5.3 million of our first half of last year.
Those losses were linked to cross currency transactions involving a certain emerging market currencies, including Pesos and Ruble, for which the hedging would not be cost efficient, and then hence, we did not activate hedging for those currencies on intercompany transactions. Also, hyperinflation effects, as well as the profit related to associates and joint ventures, came in at EUR 1.2 million positive and a - EUR 1.4 million. The profit before taxation came in at EUR 311 million, up 10.2% in value, and on an adjusted basis, the profit before taxation came in at EUR 326 million, up 7.2% in value versus first half of last year. Page 18, the taxation, total EUR 93 million on a reported basis, with recurring income taxes equal to EUR 91.6 million.
The group net profit on an adjusted basis came in at EUR 234 million, up by 6.2%. The recurring tax rate stood at 28.1% in first half, actually 60 basis points higher than first half of last year, due to the unfavorable country mix. The deferred taxes related to amortization of goodwill and brands for tax purposes came in at EUR 10.9 million, with a value change positive of EUR 2.8 million versus a year ago. If we include the impact of a non-cash component, the recurring cash tax rate stood at 24.7%, with a decline of 20 basis point, and that's good, thanks to the higher deferred taxes component.
The group net profit, on a reported basis, came in at EUR 216.9 million, up 8.9%, and basically, earning per share on an adjusted basis at EUR 0.21, was up 6.6%. With regards to the free cash flow, page 19, the recurring, the recurring cash flow from operating activities, excluding the working capital changes, came in at EUR 340 million, remarkably, up by 36.6% in value versus a year ago, up in value, you know, EUR 91.3 million. This was driven to an increase in EBITDA Adjusted of EUR 58 million, as you can see, to the right-hand side of the page.
The higher taxes paid accounted for EUR 40.8 million, reflecting the stronger business performance, as well as tax, certain tax payment cycles. You have, you know, tiny effects for Argentina, hyperinflation accounting, EUR 5.2 million, and changes in accrual from operating activities of EUR 39 million due to excise taxes, VAT, and also forth. The recurring free cash flow overall was negative by EUR 91.7 million, with the reduction of EUR 190 million versus a year ago, due to, you know, first and foremost, a significant step up in operating working capital, which totaled EUR 372 million. Net interest paid by EUR 18.5 million, and maintenance CapEx of EUR 41.5 million. The extraordinary CapEx component in the first half amounted to EUR 46.9 million.
You know, they were mainly related to the production capacity expansion projects that we've announced at the back end of last year. Looking at the operating working capital, page 20, as a percentage of last 12 months rolling revenues, operating working capital came in at 39.1%, versus 28.8% over a year ago, and 32.4% on a comparable basis at June end 2022. The increase, the reported increase accounted for of operating working capital for EUR 354 million, versus December last year.
Organic was EUR 372, as we saw before, where, you know, the back of the increase is coming from increase in inventory, which accounted for EUR 230, almost EUR 231 million, with an increase of EUR 57 million due to aging liquid investments in both whiskey, rum, tequila and cognac. On the other hand, we have a step up of other than aging liquid inventory for EUR 171 million, which was driven by the planned inventory build-up to support the consumer demand ahead of key summer season for the operatives, as well as the build-up of certain temporary safety stock in connection with the planned capacity expansion programs in the three biggest production sites in Italy, the U.S., and Mexico. Also, receivables were up by EUR 128 million.
This was due to the combined effect of very strong business performance, and on the other hand, you know, at constant volumes, the price increase is clearly generating an increase, a correspondent increase in receivable. A slight decrease in payable by EUR 12 million. Perimeter was tiny, EUR 9.8 million, and Forex as well, tiny, another - EUR 8 million. Operating working capital on net sales on a pro forma basis is not far from reported basis at 38.9%.
Page 21. Net financial debt at June end stood at EUR 1,823 million, after EUR 268 million versus a year ago, reflecting the negative free cash flow, which I've just commented, EUR 454 million. Largely due to the cash absorption tied to the inventory build-up, as well as the cash outlays for a dividend, EUR 67 million, and acquisitions of minority stakes and other investments for EUR 13 million. Cash and cash equivalent accounted for EUR 624 million, up EUR 188 million. Long-term euro bonds and loans accounted for EUR 1,137 million, and those are paying an average nominal coupon of 3.61%. Leverage ratio, net debt to EBITDA, came in at 2.5 times at the back end of the year, you know, with a tiny increase versus December, and Y was 2.4 times. I think I have dissected the numbers. Bob, the floor is yours for the outlook.
Yes, before we open up to your questions, a brief underlining the outlook we have. Looking at the remainder of the year, we're providing a full year guidance of flat organic EBIT Adjusted margin in 2023. We're confirming what we said in Q1, and this despite the current volatile macro environment. The positive business momentum across our key brand market combinations is clearly expected to continue, reflecting a base business seasonality and expected normalization in volume growth. Clearly, this momentum is driven by very strong brand equity and our continued strength in the on-premise, which is the one channel which across all markets is still in good health. Margin trends are expected to reflect the sales mix evolution, different comparison basis for pricing effects, as well as the initial easing effects on input cost inflation.
I'm sure you'll have questions for Paolo on this. Alongside phasing of AMP, as well as continued sustained investments to strengthen our commercial capabilities, in particular, route to market. On FX and perimeter, unfortunately, the negative FX trends are expected to accelerate, reflecting the weakening US dollar, as well as some other key group currencies. As highlighted by Paolo, the perimeter effect is expected to be approximately EUR 10 million-EUR 15 million on EBIT Adjusted on a full year basis, reflecting the prioritization of bulk liquid allocation of Wilderness Trail Distillery to the future development of our own brand. This is clearly a vote of confidence on the future prospects of our bourbon portfolio.
In the medium term, looking beyond 2023, we remain quite confident to continue delivering strong organic top line growth, as well as margin expansion, leveraging both mix improvement as well as input cost inflation normalization. This is it from our end, and looking forward to 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. Please pick up the receiver when asking questions. Anyone who has a question may press a star and one at this time. The first question is from Simon Hales of Citi. Please go ahead.
Thank you. Hi, Bob. Hi, Paolo. As you suggested, Bob, maybe one for Paolo to start with around the margin guidance for the full year, please. Obviously, clearly, we still saw 20 bps of margin expansion in the first half, so you didn't see that full unwind of the H1 benefit in Q2. Obviously, you called out AMP spend delay, perhaps accounting for that better Q2 delivery. I'm still trying to reconcile that full year guidance to still flat margins, given that we have got those easing COGS pressures, lower logistics costs, I think you called out back at Q1 as well, as well as the benefit of flow-through of the Q2 price increases. What are we missing that's gonna drive H2 EBIT margins down organically? That's the first question.
Then there's sort of a couple of brief ones around sort of current trading, really. I wonder if could you talk a little bit about trading through the end of the quarter and into perhaps Q3 in some of your core markets, particularly maybe in Western Europe, whether we've seen any weather impacts in particular regions to call out in the early part of Q3? Then associated with that, just what the inventory position is generally in your main markets at the end of the half year, you know, particularly in areas like the U.S., Bob, should we be expecting now shipments to match depletions through the second half?
You know, Simon, I think the first one on margin guidance. You know, as you correctly, you know, pointed out in EBIT terms, you know, we've delivered 20 basis point, you know, margin expansion in the second quarter. If you adjust that to the AMP phasing, you know, that's been, you know, delayed to the second, third quarter due to the poor weather condition, actually the EBIT margin was down by 20 basis point. You know, it's, we have been about, you know, EUR 6 million of AMP phasing into the third quarter. That's one. Vis-a-vis, you know, the COGS, you know, the view that we had is completely confirmed.
You know, costs are coming down, driven by the reduction of commodity prices, logistic costs, and most importantly, the agave, which is now, you know, significantly below spot price, vis-a-vis the average 28-30 pesos per kilo that we've been paying over the last few years. You know, if you look into the remainder of the year, I think, you know, the point is, now we still have, you know, to cycle through, you know, the third quarter of the year, where we have another, you know, heavy quarter for Aperitifs. That is extremely important.
You know, I remind you that last year, in third quarter of 2022, we had, you know, a gross profit dilution of 450 basis points due to inflation. You know, the quarter that is the most exposed to inflation typically for us is second and third, but, you know, with a higher proportion of exposure to third quarter. Clearly we hope we could surprise you on the positive side, 'cause, you know, poor weather conditions in EMEA, certain, you know, delistings, you know, prevented us from achieving in the second quarter, you know, the upside. We'll see, you know, certain fourth quarter still jury's out. We're in a good spot. I think, you know, pricing, you know, very good news.
We really managed to deliver the expected price increase, average price increase. You know, all the negotiations with the trade have been finalized. We think we're really in a good spot there, you know, very solid, two consecutive years of price increase, you know, high single-digit price increase for two years in a row. Now, if you look at the COGS trend, clearly it's only a matter of timing. When we'll be able to recover, you know, the and decrease cost of materials, packaging materials and the other price.
I think, you know, with regards to the biggest component, that is agave, I think we're, you know, clearly we have contracts in place for this year, so we will have, you know, marginal benefits in Q4 of this year. You know, the big price sits in 2024, as already anticipated. Vis-a-vis logistic costs, and this is happening as we speak, because there you pay spot prices. Vis-a-vis, you know, glass, that for us accounts for 18% of our cost of goods sold. You know, clearly we're having, you know, interesting discussions with our suppliers. You know, more to come as we finalize the contracts for 2024 with our key glass suppliers.
I'll take the second question on current trading, Q2, Q3. Actually, you know, the very positive business momentum of our brands is continuing. You know, we're quite skewed to the on-premise, and as I said earlier, the on-premise is actually thriving across all of our core markets. And we're also continuing to outpace, you know, both the markets and our competition in the off-premise. From our side, pretty good. In certain markets, you've seen also from the consumption data, which came out yesterday and the day before, that there's an acceleration in the U.S., which is very positive.
Weather is impacting us to a certain extent, but what we see is at the moment, the sun returns, you know, the consumers flock like crazy to the on-premise and make up for what they've been missing before. Overall, I think pretty good there. With regards to inventories, let's be very clear, we have quite low inventories, actually, in the U.S. in the first, you know, six months of this year, we've decreased our inventories by 15 days, so that's quite a bit, and we're below our contractual obligations. In the rest of the world, particularly also in Europe, there's hardly anything worth mentioning.
We're low on inventories at the trade wholesaler level, but clearly, we have plenty of inventory in our own warehouses, so we'll be able to satisfy the robust demand for our brands.
That's really helpful, gentlemen. Just to clarify, sort of, Bob, you know, the delistings that we saw in the first half, you know, those issues are now resolved, are they, as we head into Q3?
Yeah. Yeah, yeah, they are resolved. I mean, there was two large retailers in France and in Germany reacted with a lose-lose mentality to our price requests. We were delisted for about two months at both of them between Q2 and Q1 and Q2. You know, then they realized we were quite serious holding our ground, and at the same time, their shoppers actually switched and went to their competitors to a large extent. You know, we found then an agreement and were relisted in line with the conditions which we had presented at the very beginning.
Brilliant. Thanks ever so much.
Thank you.
The next question is from Mitch Collett of Deutsche Bank. Please go ahead.
Hi, Bob. Hi, Paolo. I've got two questions, please. I think at the one key stage, Bob, you talked about underlying growth rate of around 13%. You just reported 14.2% for the first half. That's despite a number of headwinds, including the poor weather and the delistings that you've talked about, and also a lower level of stock in the U.S. Could you perhaps provide an update on what you think the underlying level of growth is now, and if there are any things that you think will make that better or worse as we move into the second half and beyond? Then my second question is on the longer term opportunity for margin.
Paolo, could you perhaps give us some quantification of, you know, how much margin upside you think there is in 2024 or beyond, as some of the cost pressures you face start to reverse? Thank you.
Hi, Mitch. Thank you for your questions. I mean, look, we're definitely outpacing our reference markets and doing that on a consistent manner, both in the off-premise and the on-premise across our portfolio. At the same time, though, it must be said that the markets are slowing down. Clearly, you have comp base effects due to pricing as well as volume reactions. I think, overall, we're in a very, very good position. We'll continue trending, but I think, you know, there's no point in providing an exact number at this space. It's quite clear that we have very strong marketing programs, which will be kicking in, have actually kicked in from July onwards, and we look forward to maximizing our sales. We feel good about the top line.
Yeah, with Mitch Collett, with regards to the long-term opportunity, you know, 2024 and beyond on gross margin expansion, I think, in our point of view, the opportunity is quite sizable. Given, you know, the two rounds of price increases, I think we're in a very, you know, in 2022 and 2023, we're really in a very good spot. With regards to costs, you know, clearly the biggest opportunity sits in the agave price. You know, just to frame it, you know, any Pesos of price reduction, is worth about, you know, $5 million for us of profit. You know, it's quite sizable.
You know, we think, you know, to be defined exactly which part of the overall opportunity we'll be able to reap in 2024, but, you know, we believe it is meaningful. Of course, you know, the glass, the logistic costs, those are all on top of that. You know, basically, if you compare, you know, our, you know, running gross margin on a 12 rolling months, you know, gross margin as a percentage of sales organically versus pre-pandemic level, we're still clipping at, you know, standard basis points below pre-pandemic. You know, we've, you know, stepped up the price in a meaningful manner. Clearly, if you look at EBIT, the impact versus pre-pandemic, is much lower.
It's probably one third of that, and this due to the fact that the top line, you know, the operating leverage delivered a significant offset to the gross margin dilution coming from cost increase. You know, we think it's definitely achievable to recover the standard basis point gross margin expansion. Will we be able to recover, you know, that all in one year? It's still a question mark because, you know, Mexico is not Switzerland, and, you know, we all know that the glass industry is an oligopoly of a few suppliers, but we think it's at our reach.
Very clear. Thank you, both.
The next question is from Edward Mundy of Jefferies. Please go ahead.
Afternoon, Bob. Afternoon, Paolo. Three questions from me, please. The first is Aperol within the U.S., which again, was very, very strong. Could you perhaps talk about what's driving the momentum and any perspectives you're able to share at this stage on sort of how pushing Aperol within the U.S. might be different to, let's say, Europe? Second question is, unfortunately, we didn't manage to go through all the very detailed slides around some of your activation programs. I'd love to know a little bit as to sort of how much of your marketing today is experiential relative to traditional above the line advertising.
Appreciate this is, you know, commercially sensitive, you know, how do you think about that relative to, let's say, five years ago, or perhaps relative to some of your spirits peers? You know, how much of your marketing is really experiential? Then the third question is around pricing. You know, you've had two, you know, very strong years of pricing, high single-digit growth. How sustainable do you think this is going into 2024, or do we go back to sort of more normalized low single-digit cadence, as some of the commodities roll over?
Hi, Edward. Yeah, thanks for your questions. Yes, I mean, with regards to pricing, you know, clearly as inflation gets reined in, our pricing will also normalize in the years to come. With regards to the marketing mix, we hardly have any classical media anymore. I mean, frankly, I would say over 95% of what we spend goes into experiential and digital media. We're very, very focused on there. I mean, jokingly, I always say that, you know, we've become an entertainment company because we really create the content, which is very alluring for our consumers, and then they basically broadcast that via their own social network.
It's a great system, and it's working very, very well, and we can see that also working very well in the case of Aperol in the U.S. where the one difference we're doing is we're doing not only the local activations in the on-premise, et cetera, but going for very sizable events like Coachella, and we'll have another very interesting one at the end of August, early September in New York. That's where we capture consumers from all over the U.S. We get liquid to lips, and we know that once we do that, then they become converts. Working very nicely. You've seen our consumption data. We're growing by 60% in the U.S., and this brand is becoming very, very meaningful, and it's starting to get, you know, to a tipping point.
I think about, I've asked on previous calls that there's sort of no bottleneck with Prosecco when it comes to making Aperol Spritz in the U.S. you know, you're managing to sort of get around that, potential, barrier, unlike, you know, Europe, where there's, you know, plenty of cheap Prosecco.
Yeah, no, there's no issues.
Great. Thank you.
Thank you.
The next question is from Trevor Stirling of Bernstein. Please go ahead.
Hi, Bob and Paolo. I'd like to follow up, please, a little bit on the agave, Paolo. The first thing is you talked about spot prices being much lower. We're seeing some reports of spot down to 16 and falling. Is that consistent with what you're seeing? The second one is, regarding the upside, three years ago, Paolo, I think you said that the upside was north of EUR 30 million, and at that stage, probably your tequila business has doubled since then. Would it be too simplistic to say the upside is in the order of EUR 60 million today if you go back down to MXN 6 ?
Yeah, with regards to agave price, yes, I confirm, you know, MXN 16, you know, seems to be a little bit on the low side. You know, it's, you know, I would say, you know, south of MXN 20, you know, in a consistent manner. Of course, you know, sometime you can find something at lower prices. Of course, you know, the point is, you know, the, you know, the lag effect, because, you know, we have contracts as all, you know, industry players. You know, they have, long-term agreements, you know, you have annual agreements. You don't buy basically anything, you know, on the spot in terms of, you know, you buy your current price.
You know, clearly, we're already discussing the contracts for next year, and we hope and we believe that we will have, you know, significant savings next year in the agave space. You know, the sensitivity which I was alluding to is for us, given the size of our tequila portfolio, is $5 million of cost compression, any pesos of price reduction. That's, you know, the conversion of pesos to cost compression for us. Starting from, you know, I would say a base of 28 for 2023 and 2022. That's the size of the price. The, you know, ideally.
Thank you.
In terms of timing, Trevor, I think, you know, back end of July, September, October, we will start, you know, tackling the suppliers, the agaveros, and, you know, so, probably between October and February, we will shed more light on the outlook for the agave cost in 2024.
Perfect. Thank you very much, Paolo.
You're welcome.
The next question is from Andrea Pistacchi of Bank of America. Please go ahead.
Yes. Hi, Bob. Hi, Paolo. I have three questions, please. First one, Bob, on India, where you opened the subsidiary a few months ago, it's obviously still a very small market for you, but if you could comment on the initial performance there, on how also Aperol and Campari are being received by Indian consumers, but also your sort of portfolio priorities longer term in India on a five-year view, considering that it's clearly a whiskey market, India. Bob, just going back on the stock levels in the U.S., please, on Grand Marnier. I probably didn't understand earlier, but did these talking on Grand Marnier, would you say is it complete now?
Should we expect the performance of Grand Marnier to trend towards depletions in the second half? From a depletions point of view, I mean, at least based on Nielsen, the brand seems to be growing, if you could confirm that. Paolo, please, going back to all the point about the margin. In Q4, margin last year, EBIT margin, was only around 11%, which is much lower than Q1, Q2, Q3. Is there any reason why margins in Q4 should be structurally much lower than other quarters? Because I don't think before the pandemic, that was not the case.
Okay, let me take the first two questions. Hi, Andrea. Yes, India for us is, it has become very strategic. We actually opened our subsidiary last year. Mid-term, we're focusing clearly on the Aperitifs, Campari, Aperol, but also Bulldog Gin, and Glen Grant whiskey. I think eventually, when we have more volume, we'll also be endorsing our bourbon offerings in that market. We're focusing on, you know, not the whole country, but mostly, you know, where affluent young consumers are. So it's Mumbai, it is Delhi, as well as Goa. The consumer reaction is very, very positive. I mean, currently, I'm told that the Negroni is the number one cocktail in India.
We're getting quite very good repurchases on Aperol and the Aperol Spritz. Obviously, the whiskeys and the gin are flying. Sorry, I also forgot to mention that we're bottling locally SKYY Vodka, which is also doing very well. It's a pretty broad portfolio. We have high expectations for that market going forward, because as you know, the Indian consumer's palette is clearly very well adapted to Western spirits. With regards to Grand Marnier stock levels, I suspect that we've done, you know, most of it. Could there be a sale in July? Potentially. We would expect in the second half, you know, the shipments to track the depletions and consumption.
The new campaign kicked in May. We're already starting to see its positive effects on our consumption data. We feel good about the brand.
Yeah, vis-a-vis, you know, the comm base for Andrea, for the fourth quarter of the year, I think, if I remember it well, in fourth quarter of last year, we had, you know, combination of factors. We had, you know, significant AMP on revenues, you know, a big spend in Q4 of last year. I do remember we had, you know, a very strong performance of Espolòn, which was, you know, driving dilution. Overall, you know, we had, you know, very high, you know, COGS inflation-wise. Just in SEMEA, we managed to take price for the second, for a second round of price increases. In Northern and Central European markets, we've been exposed to input cost hyperinflation. This is where, you know, the, the reasons.
Thanks.
Of course, yes, of course, you know, the peak season for aperitifs is Q2 and Q3. And on those brands, we all know we have, you know, higher than average gross margin as a % of revenues.
No reason why, in the long term, sort of margins in Q4 should remain so significantly below the other quarters, right?
No, you know, the, it shouldn't. You know, structurally, clearly, you know, Q4 is not benefiting of the peak season for aperitifs and the AMP phasing, you know, it's a bit fickle and volatile. It depends on weather condition and opportunities. You know, outside of that, I don't see any structural reason why it should be, you know, as low as 11%.
Thank you.
The next question is from Isacco Brambilla of Mediobanca. Please go ahead.
Yes, hi, good afternoon, everybody. Thanks for taking my question. I have a quick one, which is on operating working capital. Is there any sort of indication you can provide to us on the level you would like to achieve by the end of the year as compared to the 39% posted in the first semester? Thanks.
Yes, you know, as we've, as we've highlighted, you know, we intentionally decided to build up significant amount of stock in the first half. Cope with, you know, the two objectives, you know, or issues, call it. On one end, we're in the middle of the CapEx program in key sites, so, you know, we want to have, you know, stocks in our warehouses and plants available for shipment, particularly given the peak season of the aperitives. We did not want to end up in a trap of putting no markets in out of stock positions. Basically the plan is to run down inventory in the second half, and target is confirmed.
you know, the 31% operating working capital on revenues, which was, you know, the number that we've, you know, aired is so far confirmed. Of course, you know, last quarter comes with volatility, you know, but that's where we will land.
Okay, thanks.
The next question is from Paola Carboni of Equita SIM . Please go ahead.
Yes, hello. Hi, good afternoon, Bob and Paolo. Good afternoon, everybody. I have a few questions. The first one was about your reference in the press release to a normalization of volumes in the next few quarters. Can you better elaborate on what are you referring to in particular with this word normalization? Because we had few positives and negatives, and so I was wondering what do you really mean? Apparently, the statement on the top line, also from the conference call is quite positive. I would expect the normalization might imply a bit of improvement in the volume trend, but just to be sure on what you meant with this statement. Second point, sorry, is on the CapEx phasing.
I was expecting a bit more in the first half, based on your guidance that you gave in February. I was wondering if it's just a matter of phasing, and we should expect a catch up in the H2, and if there is any reading behind that. A further question is about the SG&A line. You have mentioned the strengthening of commercial capabilities in APAC, which I clearly understand, but also in Northern Europe. If you can elaborate a bit on that, what are the initiatives and in which market in particular? Also, possibly if you can help us in, in guiding for the full year trend of SG&A going forward. Last question, sorry, on the cost of glass. Was wondering whether the positive discussions you are experiencing with your suppliers might start having an impact maybe in Q4 and not simply waiting for 2024. Thank you very much.
I'll be quick with the first one. What we meant and what we mean with normalization of volumes is actually with regards to markets. Clearly, you know, post-COVID, the markets grew very, very quickly and at a rate which wasn't the normal rate of the spirits market, and now we're returning to that. You also need to take into account that, you know, consumers are obviously in this volatile macro environment, and inflation, et cetera. Overall, markets are getting a little bit more weary, and potentially, you know, consuming a little bit less than usual. Having said that though, you know, the markets will normalize, but we'll continue to outperform our reference markets.
Paola Carboni, with regards to CapEx, which I think is your first question, you know, the guidance is confirmed. For this year, we have a maintenance CapEx in the region of EUR 100 million-EUR 110 million. We've announced a three year program of between EUR 550 million-EUR 600 million of CapEx this year. Probably, you know, depending on, because, you know, these are big projects, you know, the phasing of those projects, we believe we may end up in a position between EUR 200 million-EUR 250 million of extraordinary CapEx. You know, more to come in H2, given the fact that in the first quarter, you know, CapEx for progression was, you know, how can I say?
The low pace, we will see an acceleration in the second half. With regards to the SG&A, you know, investments and trends, you know, honestly, Asia is a priority market to us, we keep on investing in that geography. Also, as you correctly spotted in Northern Europe, we're building commercial capabilities in key markets. You know, existing markets like Germany, for example, but also, you know, recently, markets where we recently our own in market company like the U.K., that are, you know, extremely promising. We are definitely investing to support the development of our brands.
Vis-a-vis the trend of SG&A for the full year, you know, we expect, you know, SG&A to come in fairly flat as a percentage of revenue. We don't see, you know, any meaningful drift. Vis-a-vis the cost of glass, you know, the contracts are structured in a fashion where basically you have, you know, the commercial discussion with the suppliers, which are basically aimed each and every year at defining, you know, sort of standard cost. You have true-up mechanisms, whereby based on trends of commodities, you adjust, you know, at the end, the conditions. We'll see.
You know, clearly, the procurement team, teams are at the moment, you know, focused in redefining, first and foremost, the cost for year 2024. That's key, given, you know, the significant compression of TTF energy costs and so forth. You know, we will adjust accordingly this year. I think, the, you know, the Q4, we will see. You know, this is an ongoing discussion. At this stage, it's too early to call. As said, both agave and glass, we would like to give you know, updates, as soon as, we have better visibility, which could be, you know, back end of October as we announce third quarter results, or, you know, worst case, February, as we announce the full year results.
Okay. Thank you very much. Bye.
The next question is from Gemma Cross of BNP Paribas Exane. Please go ahead.
Good afternoon. Thank you for this question. It's a very quick one from me. I was just wondering if you could give us an update on your view on net finance costs for the year. I think you said on underlying basis previously that you're looking for around EUR 45 million?
I'm sorry, we didn't catch the question. Could you repeat it?
Yeah, sure. I think previously you mentioned expectation of around EUR 45 million of underlying net finance costs for the full year. I was wondering if you could just give us an update on that.
Yes, on the interest charges, you know, given the significant rise in interest rates, there is an increase of EUR 10 million, so EUR 45 million-EUR 55 million.
That's great. Thank you very much.
You're welcome.
As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. Mr. Kunze-Concewitz, there are no more questions registered.
Thank you.
At this time.
Thank you. Thank you all for joining us. We appreciate it. We wish you a very nice vacation and plenty of Aperol Spritzes, Negronis, and Campari Seltzers. Have a great vacation, and we'll catch up probably pretty soon.
Talk to you soon.
Bye-bye.
Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.