Good afternoon. This is the Chorus Call Conference operator. Welcome, and thank you for joining the Campari Group Results Presentation, first nine months, 2023 conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Bob Kunze-Concewitz, CEO of Campari. Please go ahead, sir.
Thank you very much, and good afternoon, and welcome to all to our conference call. As is our usual practice, I'll kick off with page 2 of our presentation with the overview. You can see from the overall results that we have continued the strong momentum in the nine months, and this is even confirmed after the expected normalization in Q3. Our organic sales grew by 10.5% in the nine months, and that reflects solid brand momentum, particularly from the aperitifs, tequila, and bourbon, as well as robust pricing across the portfolio. Focusing on Q3, though, organic growth stood only at 4.4%, reflecting the expected normalization.
Also, as you know, due to a very tough comp base, essentially last year in Q3, we were up by 18.6%, where we benefited from a second round of price increases, particularly in Italy. This year we were impacted by unfavorable weather conditions across key markets, and again, in particular, in Italy. Moving on to Adjusted EBIT on an organic basis, it grew by 10.8% in the nine months, generating a 10 BPS accretion.
The organic growth in Q3 was 3.3%, reflecting a 20 basis points margin dilution, with gross margin accretion quite positive, up 60 basis points, which was more than offset by the dilutive effect of SG&A, 120 basis points, driven by the strengthened commercial capabilities, including route to market, as we're establishing our new, in-market subsidiary in Greece, and more about that, in a little while. Forex, unfortunately, was negative, had a negative effect on EBIT adjusted of -EUR 30.1 million in the nine months. Key drivers here were the transactional effects, of the Mexican pesos, as well as the depreciation of the US dollar and the Argentinian currency. Our full year guidance, our flat organic Adjusted EBIT margin is confirmed despite the current volatile and pretty challenging macro environment.
Moving on to growth across regions. You can see that, basically, three out of our four regions are growing in the high single or strong double-digit ratio. The only one growing at only 6.5%, which actually in this environment is pretty good, is the Americas, and that was mostly impacted by the meltdown we're facing in Argentina, and I think that should come as no surprise to anybody. Moving on to our priority clusters. Our global priorities and regional priorities continue to grow double digits, whereas the local priorities were only up 2.9% impacted by Campari Soda in Italy, as well as a few other things in Asia. Moving on to the net sales organic performance by key market, I'll kick off with the Americas.
44% of our sales, up, as I said earlier, 6.5%. The US was up 9.1%, and it reflects very solid growth, largely thanks to Espolòn, Aperol, Russell's Reserve and Appleton Estate, which more than offset the destocking effect of Grand Marnier. Q3 shipments were up 4.9%. For your perspective, this is against a very tough comp base in 2022, where shipments were up 30.2%. And if you look at it from a depletion standpoint, actually, in the US, we were up double digit by 11.2% in the quarter. So, clearly, we've continued robust performance in that market, which is also reflected by strong results in terms of the NABCA as well as the Nielsen indicators.
Jamaica, positive growth up 4.3%, led by Magnum Tonic Wine, Appleton Estate, and Wray & Nephew. However, on the quarter, we were down 11.7%. We were significantly impacted by supply constraints due to dunder treatment, as well as the tough comp base, whereas last year we'd grown by 32.5%. With regards to the rest of the region, overall strong, with strong growth in Brazil and Mexico, offsetting weakness in the other markets, in particular, the very strong negative volume performance in Argentina. Moving on to Southern Europe, Middle East, Africa, 29% of our sales growing overall by 9.2%. Here, the softness is isolated in Italy, which only grew by 5.9%.
Although, you know, we are continuing to outperform the market, thanks to Aperol at 9.2%, Campari up 8.2%, with a strong contribution from pricing. But the strong performance in Q3 was really impacted by a very tough comp base. Wholesaler costs and wholesalers have come to realize that we don't have the delivery issues and bottlenecks and challenges we had last year, so they're more or less traveling with lower stocks at this stage. But I would say that the most important impact, and that was unfortunately the negative perfect storm, was the poor weather on the aperitifs in their peak season, where July was very, very hot and consumers moved to water, whereas August, on the other hand, was very, very wet. So water all around didn't help our retailing business.
France, our second largest market in the region, up double digits, 12.8%. Strong growth driven by core Aperol and Campari, as well as the Codorníu Sparkling Wine. And we're happy to see also, you know, our latest acquisitions there, Trois Rivières and Champagne Lallier, doing very nicely. The rest of the region grew by 17.1%. Positive overall performance, including double-digit growth in Spain and Greece, thanks to continued momentum in a resilient consumer environment led by our aperitifs, Aperol and Campari. Global travel retail is going very, very well, up 36.9%, despite a strong base of 16.4%. Sorry, no, the Q3 number is 16.4%. With good momentum, again, on the usual suspects, Aperol, Campari, Glen Grant, also Grand Marnier, SKYY Vodka, and Frangelico.
Unfortunately, the one other negative spot is again impacted by a macroeconomic dire challenges in Nigeria, which we hope we'll be able to overcome next year as the situation settles. Moving on, North, Central, Eastern Europe, our third largest region, 20% of our sales, are strong double digits, 16.1%. Germany, which is our third largest market, up by 24.6%. Very, very solid performance in Germany. And here, it's important, I think, to differentiate the weather impact by the type of market. Italy, being an on-premise market, was severely impacted by the weather, whereas Germany, being an off-premise market, fared much better. Actually, we had a very nice acceleration in Q3 in Germany, up 38.8%, obviously helped by robust pricing.
But again, key drivers were our very strong aperitif portfolio with Aperol, Aperol Spritz, ready to enjoy Campari, outgrowing strong double digits. And we're also pleased to see that our recent innovation, Sarti Rosa, which is tapping into the more intimate female aperitivo moments, has come to a very good, good start, and we look forward to expanding that in more markets next year. Our non-alcoholic Crodino, and as you know, Crodino is the largest non-alcohol brand in our industry, representing 3% of our total sales, continues to grow off a small base. And surprisingly, Cinzano Sparkling Wines also grew strongly against an easy comp. We've had in the UK, which is a very challenged market right now, you know that the overall UK market is quite negative. We've grown double digits, 14.7%, despite the unfavorable weather.
Behind this continued strength in our aperitifs, Aperol, Campari and Wray & Nephew Overproof, although we could have done more on Wray & Nephew had we had supply constraints. In the rest of the region, very good underlying trends, despite the poor weather in the peak summer season. Again, the aperitifs going from strength to strength. Last but not least, our smallest but fastest growing region, Asia Pac, 7% of sales growing 26.6%. Australia, up 9.4%. We've had a nice acceleration Q3, up 12.9%. Also have by an easy comp base, I must say. And key drivers here is, you know, our core brands, the bourbons, Wild Turkey, RTD and glass, as well as Aperol. We're looking at the rest of the region. Positive overall growth in South Korea, driven by the high-end Wild Turkey offerings.
Glen Grant and SKYY Vodka also contributed, but had a soft performance in Q3 due to tough comp base. China registered an overall positive overall growth against an easy comp base, with the key drivers here being SKYY X-Rated, the aperitifs in Wild Turkey bourbon. The overall market, as you can expect, continues to remain quite volatile in China. Japan, we're pleased to see, also registering very strong growth, thanks to our bourbon, as well as Glen Grant and Campari. Moving on to our performance by brand clusters, it's good to see that our global priorities now account for 59% of our sales and are growing double digits, 10.9%. Aperol up 23.3% on the first nine months of this year.
We have strong consumption growth across markets, with positive momentum continuing during the peak season, despite, as I said earlier, overall unfavorable weather in Europe. This brand has been also boosted by pricing and strong consumption, and it's actually resilient to the brand's strong equity that, you know, on, on the back of a price repositioning this year, the brand has revealed itself to be quite inelastic. The Q3 performance was positive overall, up 9%, but reflected a quite tough shipment comparison in the core U.S., where last year in Q3, we were up 110% in the U.S. Now, bad weather and wholesaler caution impacted it in Italy, but it's also good to see that from a consumption perspective, we still had positive growth in Italy.
Campari up 9.2%, strong growth overall, despite, I must say, a softer Q3, 1.8%, which on the one hand, reflected a tough comp base, up 26% last year, poor weather conditions in core European markets, as well as weakness in some other key developing markets for the brands, Jamaica, Nigeria, and Argentina, which are all top ten markets for the brand. Wild Turkey, up 10.9%, continued strong brand momentum, continuing also in Q3, where we were up 8%, and actually the depletions were, were stronger than that. And this, despite the tough comp base, last year, we were up by 30.2%, and it's all driven by the key markets, US, Australia, Japan, and South Korea, as well as GTR.
We're also very pleased to see that our higher margin Russell's Reserve business, the more premium part, continues to outperform. SKYY was up only 2.4%, and this was thanks to growth in international markets, driven by China. But Q3 registered a decline largely driven by Argentina, somewhat by the US, but mostly by Argentina, which is actually a top two market for the brand. Grand Marnier, no surprise here, down 21.8% as the destocking basically came to an end sometime around August. The good thing is that in Q3, shipments started to normalize, and right now we're basically in the same territory as our depletions and consumption indicators.
Our Jamaican rums up 7.8%, again, a little bit, impacted by supply constraints. But despite that, Appleton Estate was positive overall, up 11.2%. We have continued favorable category trends at the high end of the rum market, and the premiumization of the brand is clearly resonating very positively with consumers. Wray & Nephew Overproof grew by only by 3.7% after a shipment decline in Q3 in accordance with Jamaica as well, I must say, in the UK, could have done better due to the supply constraint. Moving on to regional priorities, 24% of our sales growing double digit, 13%. Espolòn continues to go from strength to strength, up 37.6% on the first nine months, 32.4% on the quarter.
We continue to take market share, driven both by volume share gain as well as positive pricing to the very strong brand equity. I must also say that in the environment where we are and the price positioning of the brand, clearly it benefits as consumers move from the $50+ into the $30-$45 range where we're positioned. Our Sparkling Wine and Vermouth only up 2.1%, this with Riccadonna in France compensating weaknesses elsewhere. Italian specialties down 5.7%, again, largely due to a very tough comp base. Last year, we were up by 33.9%. Crodino up 2.3%, doing very well in continental European markets, but impacted by weakness in core Italian Q3 due to the poor weather, as well as the wholesaler cautiousness .
Aperol Spritz Ready to Enjoy at 7.9%. Very nice growth across its three or four core markets. So that shows, again, the strong demand for the Aperol Spritz cocktail. Glen Grant continuing to grow strongly on a value basis, up 22.9%, really helped by the premiumization as well as the Asia focus behind the high-end expressions. Magnum Tonic up 28.4%, doing very nicely in the core UK and Jamaica. Now, if you look at the other brands, we also have positive growth across the portfolio. Montelobos, Torres, the rest of our Mexican offering, as well as Lallier and Trois Rivières, as I mentioned when we were discussing France. Last but not least, moving to local priorities. Net sales grew by 2.9%. It's only 8% of our sales.
You can see that clearly what really dragged the results were Campari Soda, which only grew by 1.4% due to the weak Q3 overall we had on our Italian business, due to the wholesale caution as well as the unfavorable weather. And then the other brand which held back this cluster is X-Rated, up only 3.7%, and this is due to a very tough comp base from last year. Wild Turkey RTD up 6.3%, and it's building momentum in core Australia. So it's good to see that the negative impacts we had from our supply issues last year, we're basically overcoming them, and we've regained promotions loss and the listings which we'd lost last year. To round it all out, SKYY RTD in Mexico continues to go very strongly, up 33.8%.
Before handing over to Paolo, just to say that we've been very active from a marketing standpoint. Very pleased to see that the second big activation, which we did in the U.S. following Coachella, the U.S. Open, resonated very, very strongly with consumers. We sold an incredible amount of Aperol Spritzes and really painted the U.S. Open orange. Campari continued to do very well with its film festival platform, moving from Cannes into Venice, and again, you know, painting the town red. Again, very successful on Negroni Week this year. 17 increase in the number of bars across the world, which is very, very positive. And one little, nice little anecdote, we started cooperating with Wuliangye in China.
As you know, it's a very premium and very successful Baijiu brand, and they contacted us, and we developed a Chinese version of the Negroni, which we call the Wugroni. This will lead to further cooperation with this key player in the market from a retail perspective as well. Glen Grant, our premiumization is continuing at an amazing pace. We're very, very proud to have broken a few records at auction this year, in the past few months. The Devotion Decanter No. 1 fetched $101,000. The Visionary 68-year-old fetched $256,000. So clearly the brand is going in the right direction.
On SKYY, after many years of no innovation, we've returned with two new infusions, the Espresso and the Agave Lime, and they're being well received by the market. Espolòn continues to do quite well with our overall A&P approach, where from purely, let's say, guerrilla marketing, we're moving to a little bit more into the mainstream, and particularly we're benefiting from our sponsorship, which we'd agreed a few years ago of Inter Miami, which, you know, has become a very, very popular team as Lionel Messi is playing there. On the business development standpoint, we announced a new distribution agreement for the Miraval Rosé brand in the US and France. So this is clearly a strong brand, and it is playing in the aperitivo moment, so it's very complementary to our offering.
In terms of other distribution agreements, we have a new one in France, where we agreed to overtake the exclusive distribution of the Proximo Spirits brands, and for continental France and Monaco, and this basically will compensate the termination of the Beam Suntory brands, which will be going on the run. Last but not least, we're adding our 24th in-market company. You know, Greece is a fantastic spirits market on its own, but most importantly, it is a great destination for tourists, and tourists from all over the world, and we want to really leverage that to continue building our aperitivos and do the brand building and the recruitment via their attractive islands and beaches. So this is my side, and I pass on to Paolo.
Thank you. If you follow me to page 18 of our deck, we can see that in nine months, the organic growth of EBIT adjusted accounted for a very healthy 10.8% in value, with 10 basis points organic margin accretion. While if we look at third quarter in isolation, the organic growth of EBIT adjusted accounted for a 3.3% with 20 basis points dilution. Now, again, in nine months, the organic gross profit increase accounted for 10.4% in value, with 10 basis points margin dilution, impacted by COGS inflation that we had, you know, for good 3 quarters, only partly mitigated by pricing and positive sales mix.
In the third quarter, standalone, the gross margin accretion accounted for a very encouraging 60 basis points, mainly thanks to positive pricing, partly offsetting the easing input cost inflation. A&P, in nine months, increased by 7.3% in value, with a 50 basis points margin accretion, driven by continued very poor weather condition, impacting our summer activations, particularly on the aperitivo portfolio. As G&A were up by 12.5% in value, generating 40 basis points margin dilution in nine months due to normalized top line growth, reflecting the continuous investments in business infrastructure, in particular, you know, the new route to market increase, which Bob just alluded to.
If you look at the third quarter in isolation, as G&A grew faster than net sales and were only partly mitigated by A&P containment, leading to a combined margin dilution of 80 basis points. On a reported basis, the Adjusted EBIT increased by 5.7% in value, while looking at the third quarter in isolation, on a reported basis, the EBIT was down by 11.3%. In nine months, we had negative FX effect totaling 6.1% in value, EUR 30 million haircut to the bottom line, with 90 basis points dilutive impact on EBIT, mainly driven by transactional FX effect on the Mexican pesos, which penalized the imports of tequila in the U.S. market, together with the depreciation of both the U.S. dollar as well as the Argentine peso.
On perimeter, we have the positive contribution in nine months of 1.1% in value, EUR 5.4 million with a 10 basis point dilution, driven by the decision to significantly reduce the sale of bulk whiskey to third party on the recently acquired Wilderness Trail Distillery. The EBIT adjusted came in at EUR 601 million, with a reported change of 7.8%. Actually, negative 7.1% in Q3, of which nine months on an EBITDA basis we had a very healthy organic growth of 11.4%, positive contribution from perimeter of 1.9%, and unfortunately, negative FX effect of 5.5% in value. Moving on to the following page, we can see operating adjustment of.
Negative operating adjustments of EUR 29 million, attributable to restructuring initiatives, non-recurring costs, primarily related to IT projects, and long-term retention schemes. Total financial expenses came in at EUR 50.5 million, with a significant increase vis-à-vis a year ago by EUR 39.6 million, excluding, you know, the exchange effects, the financial expenses came in at EUR 38.4 million versus EUR 14 million of a year ago, showing an increase, an overall increase of EUR 25 million, 30, sorry, EUR 24 million due to the combined effect of, on one end, a higher level of average net debt, EUR 1.7 billion versus EUR 0.9 billion of last year. And on the other end, higher average cost of net debt, 3% coupon versus 2.1% of last year.
We then add unrealized exchange losses, accounted for EUR 12 million linked to cross-currency transactions involving emerging markets, namely, Argentina, for which the agent would not be cost efficient, and hence, that has not been activated by the group. Hyperinflation accounting for Argentina generated EUR 6.4 million of profits, while losses from associates accounted for EUR 2.6 million in nine months of 2023. The PBT, the profit before tax, came in at EUR 445 million. It was down 1.7% in value, but you know, on a recurring basis, it came in at EUR 473.8 million, still down 2%.
If we carve out the unrealized exchange losses, the PBT adjusted would be EUR 485.9 million, with an increase over prior year of 2.1%. Page 20, net financial debt came in at EUR 1,815 million, with an increase of EUR 216 million versus last year, versus December and last year. As you know, the positive operating cash flow were offset by the announced and planned CapEx investments, as well as other cash outlays, among which the dividend payment for EUR 67.5 million. A leverage ratio, net debt to EBITDA, came in at 2.6 x, you know, marginally higher than the one achieved in December of 2.4 x.
I think, you know, that set of numbers, I would hand back the floor to Bob for comments on company outlook.
Thanks, Paolo. Before we move on to the questions, let me reiterate our outlooks. I mean, we're confirming our full year guidance of flat organic EBIT adjusted margin in 2023, and this despite the quite volatile macro environment. In terms of organic performance, we expect our top line performance to reflect the strength of our key brands with the continued outperformance versus our core reference markets, positive pricing, as well as the expected normalization of volume growth. Talking about the normalization, though, you know, we do expect Q4 to be stronger in terms of top line growth than Q3. Margin trends are expected to reflect the sales mix evolution, as well as the continuing easing effects on input cost inflation, which help mitigate continued investment to strengthen our group's commercial capabilities.
Unfortunately, the negative Forex trends are expected to continue, reflecting the weakening US dollar in some key emerging market currencies, as well the appreciation of the Mexican pesos. 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 mix improvement, as well as input cost inflation normalization. So this is it on our part, then we're all ears to the many questions which I suspect you all have.
Thank you. This is the Chorus Call conference operator. We'll 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 star and one at this time. The first question is from Andrea Pistacchi with Bank of America. Please go ahead.
Yes, hi. Hi, Bob. Hi, Paolo. I have 3, please, 2, I think for Bob, 1 for Paolo. The first one on top line. So Q3 decelerated a bit more than the Street was expecting. You're flagging that the consumer environment is getting more volatile, a bit tougher, but there were also some one-offs, some negative one-offs, like the weather, the supply issues in Jamaica. I don't know if you can answer this, but are you possible to give a sense in your view of what the underlying performance in Q3 is once you strip out these factors? And of course, you've said that you expect Q4 to be better. Second point on Italy. I'd just like to dig a little deeper there, please, on the wholesale cautiousness situation.
If you could elaborate a bit on this. What stock levels do wholesalers in Italy typically hold? How is this changing? Do you see this mainly as a one-off that affected Q3? Will it continue in Q4? Any color there would be very helpful, and also how you're seeing the consumer environment in Italy. And then for Paolo, please, you've left your margin guidance for the year unchanged, but it would be helpful, Paolo, if you could probably give an update on some of the key drivers affecting COGS as we go into Q4 and next year. In particular, I'm referring to agave prices; they have continued to fall, it seems, and maybe an update on your glass negotiations. Thank you.
Thank you, Andrea. Now, let me start with the first question, and I think I'll take a little bit of a bigger picture view than just Q3, Q4. I think it's become quite clear to everybody that our growth algorithm has changed. I mean, if in the past we had mid-single digit, medium, long-term top line growth objective, it's very clear that we're growing at a much faster rate. And if you allow me, you know, to give you a little bit of an imagery, if the spirits industry is a highway, you know, in continental Europe, we're on the left lane overtaking all the others. Now, clearly, highways aren't only straight, and sometimes you hit a curve, and you need to slow down, and then you accelerate again.
So, you know, our underlying growth rate, if we get headwinds, is probably in the high single digits. If the market is more benign, it's in the low double digits. So that is, you know, our overall expectations going forward, also for next year. As I said, Q4, we expect it to be better. Let's see how it goes. Definitely, October is a better month than what we had in September and August, where particularly in Italy and in Argentina, we had the perfect storm. So, you know, storms have an end, and then you move on. Moving on to wholesaler cautiousness. You know, Italy wholesalers usually have, what, four-six weeks of stock.
Probably last year, they might have added a week or 10 days more on top of it, because we, you know, due to logistics issues as well as allocation issues, they weren't always being served the right way. I think this summer, they've come to the conclusion that we're able to deliver without any issues, you know, within a few days, so they've probably took a week, 10 days stock off. I mean, the biggest impact on the Italian numbers, as I said, is more, you know, the short term weather impact effect.
The consumer sentiment is not helping, but on the other hand, as you know, you know, during all the crisis years we've had, actually, when consumer sentiment was subdued, our aperitifs ended up doing very well because consumers then moved from restaurants to the longer aperitif, where for the price of a cocktail, you can also dine for free. So we feel quite comfortable about that going forward. I hope that has answered your first two questions. I'll pass on to Paolo.
Yeah, on the Q4 margin guidance, and then on, you know, 2024 margin guidance, you know, Q4 clearly is a big quarter for us. You know, where we have lower weight of aperitifs and a higher weight of brown spirits. So if you look at the Q4, starting from the top line, you know, it always boils down to volume, pricing, and mix. So volume, you know, the business it still has very good traction. And clearly, the softness that we've seen in Q3, that is primarily due to tough comps and as well as poor weather conditions.
So this is a not recurring effect, so, you know, the volume piece is good and healthy, and in October, you know, started pretty well. On pricing, you know, clearly as we have, you know, guided at the beginning of the year, clearly, you know, we have on the other end a tougher comps, because, you know, we're cycling through the second round of price increase of 2022. And so, you know, the impact of pricing will be less strong than in Q1, Q2, and Q3. But overall, if you look at the year, you know, we can say that, you know, the achievement on price increase is probably even ahead of our initial expectations.
And talking to mix, that is, you know, third factor, you know, driving the performance of the fourth quarter, I said, you know, we have a lower proportion of aperitifs, and then clearly, we can rely on a lower contribution from mix vis-à-vis, you know, Q2 and Q3, where we have the peak season for aperitifs. On costs, you know, the environment is overall easing. You know, we've seen in Q3 60 basis point gross margin expansion. That is, you know, extremely, you know, encouraging and clearly bodes well for the remainder of the year and also for 2024. Now, talking to 2024, you know, I said, you know, on Agave, that is our biggest single efficiency opportunity.
You know, I tend to remind always that any pesos of agave price containment translates into about $5.5 million of incremental EBIT or, you know, lower costs, as you will. So you know, we have very, very positive conditions. You know, we are currently renegotiating most of the contracts, you know, the vast majority of the contracts, you know, bringing down the purchase price to its fair value. Currently, spot price for top quality agave plants, that is what we normally. That is what we take to distill for our tequilas is now down to about 19 MXN /kg , versus 28 MXN /kg .
That is the, you know, the average for, for this year. So there is a, there is a significant cost efficiency opportunity sitting in next year. You know, clearly glass is the other, you know, big conundrum. We've closed some of the contracts, so, you know, more to come. But overall, you know, the softness in consumption in FMCG space is clearly boding well for, you know, a positive outcome of our discussion with the vendors. I think, you know, we'll be in a position of giving, you know, you know, to shed more light on that front, as we announce the full year results. You know, other commodities, you know, they are, you know, not, you know, as low as we would like.
You know, energy costs is not, you know, collapsing as we hope. But, you know, overall, looking into 2024, we remain extremely confident to achieve, you know, gross margin expansion. Also thanks to COGS, COGS containment. Yeah.
Thank you very much.
You're welcome.
The next question is from Simon Hales with Citi. Please go ahead.
Thank you. Hi, Bob. Hi, Paolo. A few for me. Bob, can I just sort of clarify around some of those technical effects that you just mentioned in relation to Andrea's question? Just so I'm clear, it sounds like obviously the destocking of Grand Marnier is complete. The wholesaler caution that we've seen weighing on Q3 probably shouldn't weigh on Q4, and shipments in Italy probably should be matching depletions. And then the other area around the supply constraints in Jamaica, you haven't said much about where we stand on that going forward. So I'll be interested to see do those constraints continue from here, or when do they start to ease? That's the first question.
Secondly, just coming back to the margin outlook, Paolo, in Q4, you know, given that you've had 10 bps of margin expansion year to date, it sounds like despite some easing of COGS headwinds, the combination of that weaker mix, and I imagine ongoing SG&A investment in relation to Greece, is gonna mean that EBIT margins will be diluted in Q4. Is that the right assumption? And then just finally and briefly, on financial expenses, clearly a big step up, over the first nine months. How do we think about financial expenses into the year end, and should we expect a further step up in the average coupon in 2024?
I'll kick off with your first question, Simon. Good afternoon. Yeah, I mean, clearly the one-offs in Italy, I confirm that they're one-offs in the sense that, I mean, okay, we don't control the weather, but, you know, the wholesaler caution, it's not like they're gonna turn super optimistic. But I think what the mini destocking they've gone through, you know, there's not much margin to go any further than that. On Jamaica, we'll probably continue the next six months to have those supply constraints, before our dunder plant comes on stream. So we'll see how that goes, and we'll try and compensate it with other brands. But the underlying Jamaican business is very healthy.
Yeah, with regards to the, you know, fourth quarter, you know, margin guidance, you know, per se, you know, of course, you know, the fourth quarter, in order to hit, you know, flagged EBIT margin for the, for the full year, you know, there's. Given the fact that, we have, you know, expansion in, in the first nine months, it's marginally dilutive. And as you correctly pointed out, there is, you know, some leakage sitting in SG&A as we are basically, you know, front loading the investments on, on the Greece new route to market initiative, where basically, we've hired most of the sales organization without having, you know, the contribution of the revenue.
So that's, that's clearly, you know, effect. Conversely, you know, if you look at the A&P, clearly, you know, there are, you know, the promotions and the activations that have been planned in Q4, but we're not going to double down and, you know, shift the investments in activation that we couldn't do in the third quarter due to poor weather condition into Q4. So that's not, you know, any further, you know, dilutive effect. So that's on Q4.
With regards to the cost of debt, you know, our long-term loans overall, they have a coupon of 3.7%, but you know, 40% of the overall debt is currently paying variable interest rates, so you know, it's less than that. I would say we're in the nine months, we're at 3%, you know, for next three years, probably will be, you know, marginally higher than 3%, will be about 3.3%.
Very helpful. Thank you, gents.
Thank you.
The next question is from Laurence Wyatt with Barclays. Please go ahead.
Hi, Bob, Paolo, thanks so much for the questions. A couple from me, if that's okay. Just following up on the agave price reduction, just wondering how long you expect that to take to flow through both your long-term contracts and the production of tequila. Should we expect to see the full impact in 2024, or is that gonna be a bit of a longer term process to see that profitability improve? And then secondly, you talked about Espolòn benefiting from people trading down from the over $50 a bottle of tequilas. I'm just wondering elsewhere in both Europe and the U.S., whether you're seeing evidence of down trading across the board? Are there any other countries or categories you'd highlight where that down trading is taking place? Thank you very much.
So vis-à-vis vis-à-vis agave price reduction and the, you know, the timing of its, you know, positive impact on our P&L, you know, the tequila is, you know, short time production cycle, so you need to hedge much. So it will be, you know, pretty quick. You know, on the other end, the full potential can be achieved over a longer period of time due to the fact that some of the contracts had, you know, fixed prices. You know, overall, I think, you know, probably, you know, a phasing effect of three to six months is makes a lot of sense.
But again, you know, I cannot exclude that also, you know, moving forward, vis-à-vis, you know, the current 90 MXN /kg , the price can go even lower. So, you know, it's a moving target that is difficult to predict, but it's clearly, you know, going south, and that's extremely positive for us.
Well, with regards to your second question, yes, I mean, there is overall softness on the really high end, but I think you need to differentiate it. As if, you know, on the bourbon side, you have some really special, unique expressions, they continue to do very well. It's more once you get into, you know, categories and things which are sort of, interchangeable. So if you look at, you know, tequila, particularly, you know, in the past few years, we've seen some incredible, you know, price points coming into the market above $100, $150. Those are clearly coming down, significantly. And, if you look at the other categories, yes, there's a little bit of softness, but it's not anything, you know, really major. What's interesting is that in this environment, though, the on-premise continues to do well.
Thanks very much for the clarifications.
The next question is from Olivier Nicolai with Goldman Sachs. Please go ahead.
Hi. Good afternoon, Bob and Paolo. Got three questions. First of all, follow up on Italy. Italy was down 9% in Q3. I think it's been asked before, but are you able to quantify at all the poor weather impact versus the wholesaler consciousness, and then potentially any weakness on the consumer? In other words, what was the kind of exit rate in Italy in September at the end of the quarter? That's the first question. Secondly, going back to normalization in the U.S., you expect a better quarter in Q4 for the group. Does this apply to the U.S. as well? And then related to that, again, on the U.S. market, what's your view on the spirits RTD category, and does Campari have any ambition in that category?
And then lastly, if I may, Bob, unfortunately for us, we've learned that you're going to retire in April 2024, after a phenomenal run for the last 16 years, as the CEO of Campari. First of all, what would you have wanted to achieve if you had decided to stay a few more years? And what is the main piece of advice you gave to Matteo? Thank you.
Thanks. Thanks for your questions. I mean, Italy did -9% in Q3. You need to put it, you know, within the context also of the comp base. I mean, last year, we did the second price increase, which was, you know, the first time we've ever done that, ever since I'm in the business, and that had a huge impact of pulling into Q3 volumes from Q4 last year. So clearly, that was one very big impact. On the consumption side, you know, had we had sunshine, clearly, I think we would have been much more in the high single digits, at least on a total basis, and continued growing double digits on our APIT. So that was quite meaningful.
Moving on to your question about the U.S. business, I mean, as I said, our U.S. business is doing very, very well. You know, in Q3, our depletions were up 11.1%, so significantly ahead to our shipments data, which again is significantly ahead of the market and most of our peers. So the overall portfolio is doing quite nicely, and we'd expect that momentum, you know, to continue for the rest of the year and, you know, also potentially, you know, next year, assuming there's nothing major happening from a macroeconomic standpoint. What is our view on spirits RTD? You know, our view is that it's probably a fad. We view that it is something negative if you flanker your brands and create, you know, RTDs.
We have some minimum exposure to that, as you know, but it's some long-term, historical exposure. When we have a significant, you know, cocktail which we own, like a Campari and soda, we have the RTD, or we have the Aperol Spritz Ready to Enjoy in selected markets as convenience items. But, you know, we're not. We don't wanna get into the rat race of having to launch every year more and more RTDs just to basically compensate the comp base, and at a certain point, you find yourself with your main brands seriously impacted from an equity standpoint. So this is our view. We might be a dissenting voice in the industry, but, you know, we've really learned also our lessons from the innovation mania in vodka, so we're not gonna play that game again.
What would I have liked to do? Well, I think, you know, if I go back to when I took over 16 years ago, I think we've done much, much more than what I thought was possible at that point, to be honest. I think it's a great transformation of this company, and the great thing about this company is that irrespective of the CEO, there's a very, very strong management team with this very strong support of a long-term majority shareholder and a very clear strategy, and that's gonna continue. So if the, you know, transformational acquisition doesn't happen during my watch, I'm sure as hell it's gonna happen in my successor's watch, so it is what it is.
The one advice I would give to my successor is that, you know, what really our secret sauce is our people, and that's what really makes a difference, having the right people in the right positions with the right motivation, and we need to keep on, you know, building and scaling up that secret sauce. Our culture makes a difference.
Thank you very much.
Thank you.
The next question is from Trevor Stirling with Bernstein. Please go ahead.
Hi, Bob and Paolo. Two from my side, please. First, I'll just go back to the U.S., Bob, and looking at trying to move beyond the tough comps. I think you mentioned that depletions were up 11%, which basically means that the U.S., your underlying trends continue to be about 5-10 percentage points better than the market. So is that the right way to read things? And the second thing, Paolo, you talked about agave prices and the sensitivity to agave prices, but also in the presentation, you talked about the headwind from transactional FX and the strength of the Mexican peso. Have you any rough sensitivity to give in terms of the peso dollar rate, what impact that has on margins?
Thanks for your question, Trevor. Yes, I mean, I confirm our underlying trends in the U.S., and if I go back to, you know, the metaphor I used earlier, whereas we're, you know, overtaking people on the left lane on the highway, that's even more valid in the U.S. Because frankly, we're positioned against the right categories, tequila, bourbon, aperitifs, at the right price points, with brands with very strong equities, as well as a very distinctive marketing model, brand building model. And I think that will continue generating a lot of satisfaction going forward.
Vis-à-vis the sensitivity, you know, for this year, given the current revaluation of Mexican pesos versus dollar, which if I'm not mistaken, is about 10-11%, you know, the impact is about EUR 14 million, 14 to the COGS, to the EBIT.
Superb. Thank you, Bob and Paolo.
Yeah.
Thank you, Trevor.
The next question is from Celine Pannuti with J.P. Morgan. Please go ahead.
Thank you for taking my question, and good afternoon. My first question is on pricing. You did a lot of pricing last year, and this year, I would like to know if you think you're done with pricing, and/or whether there will be more to land in 2024. My second question is on the cost side and the margin equation. I'm not sure whether you answered the question about your glass cost outlook, especially if I look into 2024. I think at H1 stage, you mentioned the agave weakness, which you mentioned again today, and as well the potential follower cost on glass. I see that consensus organic EBIT margin run sits at 140 basis points for 2024. Are you comfortable with that? Thank you.
Thanks for your question. I'll take the first one. Now, pricing, indeed, in the past two years, we took significant pricing, and it's a combination, and there were two types of pricing. There was the price repositioning, both of the Campari brand and as well as the Aperol brand. You know, depending on the markets, they went up between 10 and 25%, so significant price repositioning. I mean, you only do that once. Hopefully, we won't have to do it again in the next decade or so. And then separately, there's a pricing which we took to compensate the input cost inflation, which was very, very strong. Now, I clearly talked about the repositioning and on input cost inflation, we are in a different scenario going forward.
So while there might be some pricing, it will be much more, you know, similar to what we used to do in the very low inflationary period. So there will be, you know, a sort of full year effect impact on next year and here and there, some pricing, but clearly not at the pace at which we've done it in the past two years.
Yeah, vis-à-vis the margin guidance for 2024, clearly, you know, as usual, you know, we tend to be, you know, more precise, you know, as we announce the full year results. Which, you know, this is the timing when we intend to shed more light. But, you know, directionally, the message we wanted to vehicle is, you know, first and foremost, you know, as in the past years, our ability to deliver gross margin expansion, primarily, was sitting on mix, positive sales mix. This is, you know, a formula that is destined to stay in the future.
And potentially, you know, our ability to expand the gross margin is destined to increase on the back of the collapse of the agave price, which would make Espolòn Tequila, you know, margin accretive in the future, while at the moment, you know, being a brand with lower than 40% gross margin on revenue is highly diluted. So that's a positive fact. Then, you know, as Bob just said, you know, pricing, we will take price also next year, for sure, not at the pace of this year, but something we'll do, and we can also rely on the carry forward effect of the high price increase that was generated this year. So even on pricing, on top of mix, is a tick.
And volumes, clearly, I said before, the business is quite sound. On COGS, you know, the discussions with the glass suppliers are still ongoing, and so we plan to have them closed by back end of the year. So we'll be in a position of giving, you know, further visibility in February 2024. But directionally, you know, again, it's a very positive environment for the industry, for us as buyers.
Thank you. Maybe if I can just squeeze an additional on that. So gross margin, you immediately clearly made a point for gross margin to expand next year. How do you balance then your gross margin delivery versus reinvestment at this stage of the cycle or as you see the demand unfolding and maybe some of the weakness you have mentioned?
Yeah, as said, you know, our ability to generate a gross margin expansion, primarily from positive sales mix. That is, you know, very strong traction on aperitifs and generally speaking, on global priority brands. So, you know, it's not. We're not in a position of delivering gross margin expansion on the back of double-digit price increase. So, you know, we don't believe that there is a risk of consumption softness due to excessive pricing on our portfolio. Yeah.
Sorry, I was.
To your question.
No, in fact, I was wondering whether, given that you will have gross margin expansion and when you have like, of course you reinvest, so your appetite to reinvest, when you see that benefit coming through on the gross margin side?
Ideally, we would like to keep A&P and SG&A flat on revenues. So, you know, any margin, you know, gross margin expansion would translate into a EBIT margin expansion. Of course, you know, any now and then we see opportunities like, you know, the Greece one, and we redeployed a bit of that into building our sales organization in new markets. But vis-à-vis geographical reach, most is and most has been done. So, you know, we do not envisage a meaningful drift in a G&A line. And I said, you know, A&P is there to stay, you know, in the future, 2024 onwards, very flat on revenues.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Paola Carboni with Equita SIM. Please go ahead.
Yes. Hi, good afternoon, everybody. Just a few questions left from my side. First of all, just to be sure, on your indication for marketing in the fourth quarter, as I understood, right, you're not going to catch up what you didn't spend in Q3 because of less activation due to the weather. And so overall, should we expect A&P to be accretive a bit more than usual on a full year basis this year? I'm reading correct what you said. And a second point, although I know you do not provide details on cash generation by quarter, but I was wondering if you can come back on your guidance for CapEx for the year.
Is everything confirmed, in particular about EUR 200 million CapEx for expansion or production capacity you had planned? Or is there any delay you should have in mind? And last point, in terms of inventory, you mentioned the build up at the end of June. So just wondering if the poor Q3 performance and the cautious attitude by the trade has driven an increase at the end of September in your inventories, and whether we should in any case expect this to be reabsorbed by the end of the year? Thank you very much.
Thank you, Paola, for your question. On the marketing front, yes, it's a yes. So, you know, as we do not intend to double down on, so to recover the activation investments that we didn't do in Q3 into Q4, A&P as a percentage of revenues in Q4 may be, you know, overall on full year might be slightly accretive. You know, we always said that, you know, we have a flex of ±20 basis points, but this time around will be a little bit more on the negative side.
Vis-à-vis cash generation, in nine months, yes, and for the full year, you know, the CapEx program, that is, you know, additional, roughly EUR 200 million of expansion programs is confirmed. It is on plan, as we absolutely need that production capacity to support the development of our, portfolio, in the key three sites of aperitif, Italy, bourbon, where the performance is extremely robust, as well as tequila, where you see we're growing at 30% clip. Vis-à-vis inventory, you know, clearly the very poor weather conditions in Q3 caught us a little bit off guard. And so, you know, the inventory were higher than what we normally target.
You know, we think there is a possibility to, to trim the, the inventory level down by year-end, probably we will not be in a position of entirely recovering that. You know, we, we gave a guidance of operating working capital on revenues of about 31%. Probably will be, you know, marginally higher than that, but nothing meaningful that we cannot recover in, in a short period of time.
Okay. Very clear. Thank you very much.
You're welcome.
Gentlemen, there are no more questions registered at this time. I turn the conference back to, back to you for the closing remarks.
Oh, thanks to all for joining us. Wish you a good afternoon, and let's make the most out of this opportunity. Thanks. Bye-bye.
Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.