Q2 2026 Davide Campari-Milano SpA Earnings Call
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Speaker #1: Good evening. This is Dr. Roscoe Conference Operator. Welcome, and thank you for joining the Campari Group first half 2026 financial results conference call. As a reminder, all participants are in listen-only mode.
Speaker #1: 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.
Speaker #1: Today's call will be hosted by Simon Hunt, Chief Executive Officer, and Francesco Mele, Chief Financial Officer. At this time, I would like to turn the conference over to Simon Hunt. Please go ahead.
Speaker #2: Great, thanks very much. Good afternoon, everyone. It's a pleasure to be here with you again. I've got Francesco with me and, of course, we have our IR team, who will be available after the call for any follow-up.
Speaker #2: So, let's get going with a summary of our first half results. I think it's important to start by stating that we are doing exactly what we said we would do.
Speaker #2: And we are growing in this important start to the peak season. In fact, we are the only listed spirits player with five consecutive quarters of organic top-line growth.
Speaker #2: Now, overall, in H1, we recorded a plus 2.7% organic top-line growth, with Q2 at plus 2.5%, despite a more difficult comparison base. At the same time, we continue to outperform and gain share across all of our key markets in sell-out, especially on our priority brands.
Speaker #2: In fact, we are gaining share in 95% of our markets. Now, I know you've all heard this a few times, but I think it's worth to reiterate our strategy that we shared at our CMD back in November.
Speaker #2: Because that is exactly what we are doing. So first, we talked about sharper portfolio choices with fewer bigger bets. We're doubling down on the key priority brands and the results on the sell-out are clear with solid share gains across regions, and especially in the strategic on-premise.
Speaker #2: Second, winning the first share drink every day, everywhere, with new formats for new occasions. Following our recent new format launches on our aperitifs, we are seeing very strong initial results.
Speaker #2: With positive feedback from consumers and trade, as well as encouraging velocity and distribution gains. Third, accelerating our geographic expansion. In the first half, we recorded broad-based growth, with expansion into smaller seeding markets.
Speaker #2: By increasing our exposure to these high-growth markets, where we under-index, and also with the rollout of priority brands into new markets, like Saty Rosa in the US, right in time for the summer season.
Speaker #2: And the final two: leveraging our investments to work harder, and driving efficiency across each line of the P&L, allowing us to invest more behind our brands.
Speaker #2: Now, as you can see on the page, we strengthened our gross margin profile by 130 bps accretion, mainly driven by positive mix due to the performance of aperitifs, as well as input cost benefit and lower tariff impact.
Speaker #2: And Francesco is going to go into that in a lot more detail later on. Our brand-building investments continued at pace into the peak season, and front-loaded in the first half in absolute terms as we guided.
Speaker #2: In fact, we are deploying one of the most comprehensive coverages across music festivals and other events, both with our existing products as well as with our new innovations this year.
Speaker #2: Our cost containment program continues to deliver, and we are on track to achieve 70 bps organic SG&A benefit on top line, as guided, with an H1 delivery of 60 bps.
Speaker #2: As a result, we achieved 130 bips EBIT adjusted margin accretion. Although the underlying trends on the main contributors to EBIT have not changed, we are raising our margin expectation for the full year due to a more favorable than expected tariff impact.
Speaker #2: Again, more details on this later in the presentation. On the balance sheet side, we remain comfortable and at sustainable levels. We recorded 64% recurring free cash flow conversion before operating working capital changes, and total recurring conversion was impacted by seasonality.
Speaker #2: Our accelerated expansion in Kentucky is progressing as planned and is on track to be finalized by the end of the year. Our leverage is comfortable at 2.6 times, supported by business momentum, with some impact from seasonality in operating working capital.
Speaker #2: At the same time, we are continuing to streamline our portfolio with new disposals of the rum agricole business, including Trois Rivières, Maison Lamonnie, as well as Biscuits du Boucher and Cabo Wabo.
Speaker #2: As I'm sure you will have seen, we also recently successfully closed a new Eurobond issuance of €600 million, and a liability management transaction, which allows us to feel comfortable regarding the maturity profile of our funding base.
Speaker #2: So now let's delve into some of the details starting with the top line. As you can see, the first half organic top-line growth of plus 2.7% was broad-based across all regions and most houses again.
Speaker #2: In terms of FX, the main impact is coming from the US dollar, while the perimeter impact is in line with what we previously told you, and mainly driven by the disposal of Cinzano, and one-month impact of Averna.
Speaker #2: We'll go one by one, but first, let's look at sell-out, which, as you know, is the critical indicator. So far in '26, year to date, we have recorded outperformance and share gains across all of our key markets.
Speaker #2: With our priority brands, we are growing everywhere in most cases with mid-single to low double-digit growth. In the US, we are outperforming in all channels, especially in NABCA, and the strategic on-premise, where the share gains are even more outperformance across the board.
Speaker #2: Total Europe sell-out data includes 12 countries, and you can see we are growing by 2% compared to the sector decline of minus 1%. And in the on-premise, which you don't see on the page, the outperformance is even more pronounced.
Speaker #2: Now, as I said up front, we are gaining share in every one of our markets, and I think with all the noise in the category—on CEO changes and significant restructures, merger speculation, and consumer pressure—we at Campari are growing.
Speaker #2: And we are growing share because we have a clear differentiated strategy and we are executing it without distractions. So now let's move on to Europe top line.
Speaker #2: Europe delivered plus 1.9% organic growth in the first half, with growth across all markets except Germany. In fact, Europe excluding Germany, where the consumer pressure is most evident.
Speaker #2: This growth was driven by our aperitive portfolio strategy, with contributions from all of our key brands. Innovations also started playing a more meaningful role as part of our convenience strategy.
Speaker #2: Altogether, we are implementing the biggest-ever activation plan in Europe in terms of days of activation, menu placements, and festivals. In Italy, we saw continued growth for our aperitive portfolio, led by strong executions on innovations.
Speaker #2: Notably, Aperol On Tap and CAMPARI Spritz Ready to Serve, which hit shelves at the beginning of Q2. In addition, we are executing 4,700 activations during the peak season, especially into Q3, and we already have Aperol On Tap in more than 1,000 outlets, including festivals, events, but also new outlets like pizza restaurants.
Speaker #2: Aperol's performance was further supported by the rollout of our L'Originale campaign, which is reinforcing our leadership in the on-trade, with almost 500 outlets already proudly displaying the certification badge that they proudly serve Aperol.
Speaker #2: As I mentioned, Germany continues to see a challenging backdrop with subdued consumer confidence and wallet pressure impacting numerous consumer sectors. Now, despite this backdrop, Satie Rosen's performance remains strong.
Speaker #2: And we've seen strong execution behind Codino, and the early success of our innovation rollout, including Campari Spritz Ready to Serve and Aperol On Tap.
Speaker #2: The environment going forward is expected to continue to be challenging, but we will continue to expand our presence and activate behind our key brands.
Speaker #2: In preparation for the market recovery, in France, the aperitif portfolio is performing strongly, with high single-digit growth, partially offset by the local portfolio. Aperol continues to lead that performance, and Sarti Rosa has also started to gain traction, following its launch last year.
Speaker #2: The UK had a strong first half, with +4.3% growth, once again led by double-digit growth in our aperitif portfolio, with contributions from Aperol, Campari, Sarti Rosa, and Crodino.
Speaker #2: There's also strong early traction for the Aperol To Go CAM, with ongoing distribution gains and velocity at three times our original targets. At the BST Festival in Hyde Park, over a two-week period, we sold 65,000 cans of Aperol Spritz in a format that we wouldn't have been able to do previously.
Speaker #2: And Aperol On Tap will also progressively be rolled out over the summer. In other European markets, representing about 12% of overall sales, we saw broad-based growth of plus 5.5% across most countries, especially in Spain, Austria, Greece, and Benelux.
Speaker #2: Having just been to both Spain and Greece, I can tell you the potential for our portfolio there is really exciting. And the bulk of the growth is coming from Aperol.
Speaker #2: Satié Rosé, Codino, and sparkling wine to support the aperitive trend, as well as solid performance on Courvoisier. Now, moving to North America, we recorded a plus 2.6% organic growth, with all markets growing.
Speaker #2: The US recorded a plus 1.5% organic growth, driven by our priority brands, Aperol and Espolon, especially with strong on-trade performances. Aperol saw solid growth, showing the early benefits of increased investments behind the brand, including an amplified presence at Coachella and the 21 new brand activators in the on-premise across the four states, really driving the business.
Speaker #2: In fact, the accounts that they are covering, we are seeing four times the velocity compared to the accounts that they are not covering. In July, we started a campaign with Hilary Duff to sponsor her concert tour, which is further amplifying visibility into the third quarter.
Speaker #2: Another important development in the US is the June launch of Satie Rosé. Although it's very early days, we are seeing strong pickup, with most locations limiting consumers to a maximum of one- or two-bottle purchases.
Speaker #2: And we're already seeing people come back for reorders. TikTok is leading the social media buzz on this brand, accounting for 41% of the coverage, which is an encouraging signal that the brand is resonating with legal purchase age, trend-driven consumers.
Speaker #2: Espolon also continues to perform well, with high single-digit growth in both Blanco and Reposado. Also, here we continue to activate behind the brand, with the short King Week campaign featuring Ken Jeong, and activations during the World Cup with a series of watch parties.
Speaker #2: Commercially, we placed Espolòn in over 7,000 menus, doubling our original target, with similar success also in off-premise displays. And we'll talk more about the performance later in the day.
Speaker #2: Moving to Jamaica, we recorded plus 8.8% growth, with benefit from the faster hurricane recovery, as well as pricing coming through in the market. For the rest of the region, all countries registered solid growth, including Mexico, which recovered the Q1 phasing impact that we mentioned previously.
Speaker #2: So now, let's have a look at the developing markets. As a reminder, we formed this region at the beginning of the year in order to become more agile and benefit from a repeatable playbook across some of our seeding markets.
Speaker #2: In the first half, we started to see some of the benefits of this increased focus, with widespread organic growth of plus 9.1%. Brazil saw continued momentum of Aperol and local brands, partially offset by Campari phasing into the next quarter.
Speaker #2: Argentina benefited from the ongoing strength of Sky Cosmic, and since the launch of Sky Cosmic was in June last year, we do expect the growth rate to normalize in the second half.
Speaker #2: In the other countries, one of the key drivers of growth was Courvoisier, led by Eastern Europe and South Africa. The new region has completed its strategy work and is now working on capital allocation, in line with the group-wide strategy, in a disciplined way to target the multiple opportunities we have in these markets.
Speaker #2: For APAC and GTR, we registered a flat trend in the first half. The biggest market, Australia, grew by 2.6%, with double-digit growth in both Aperol and Espolon, now contributing about a third of the total top line in Australia.
Speaker #2: And this was partially offset by the flattish trend on Wild Turkey, which still contributes more than 50% of Australia's top line. Here, we're continuing our focus in the on-premise and activating strongly.
Speaker #2: In GTR, we recorded a plus 6% growth. As you might remember, in Q1, it was negative 13.5%. It was off a high base, admittedly, but it was also impacted by geopolitical events in certain geographies.
Speaker #2: In Q2, we focused strongly on the aperitifs in Europe. And below, you can see our launch in easyJet and British Airways of the Aperol To Go CAM, for example, while also activating across numerous airports.
Speaker #2: In the rest of the region, we recorded solid growth in China, India, and other partnership markets, but this was more than offset by South Korea.
Speaker #2: Where the completion of our distribution company integration has led to a negative impact this year. Right. Now, let's change the optics from regions to houses, starting with Aperitifs.
Speaker #2: Overall, top-line growth was an encouraging plus 4% in the first half. Aperol delivered a solid performance of plus 3.3%, benefiting from the positive trend in the bottle, which was amplified by the launch of innovations such as Aperol On Tap.
Speaker #2: All regions contributed to the positive trend, and we'll talk more about the Aperol innovations on the next slide. Italy saw a resilient performance, while in Germany the brand was held back by the challenging consumer environment.
Speaker #2: Elsewhere, we saw good contribution from the US, UK, France, Brazil, and Australia. For CAMPARI, we recorded +2.3% growth, with solid performance in Europe and North America.
Speaker #2: And Campari also benefited from the launch of a Campari Spritz ready-to-serve in Q2 in some European markets. It's early days, but so far the response from the trade and consumers has been very positive, particularly in Italy and Germany.
Speaker #2: The remainder of our aperitifs portfolio grew 8.8%, primarily driven by Sarti Rosa, which continues its solid growth in its core German market and is also progressively benefiting from the rollout into other high-potential countries.
Speaker #2: It's important to note that only a few years ago, in 2023, only 4% of Satié Rosen top-line was outside of Germany. This has now reached 48%, showing the solid reception that it's having in new markets.
Speaker #2: As I mentioned before, the U.S. launch is now underway, and the initial trends are very positive. In the U.K., it has already become the number-one innovation launch in spirits in Sainsbury’s in just a short few months.
Speaker #2: Now, one of the key pillars in our CMD was winning the first shared drink with new formats for new occasions, and providing convenient options for our consumers.
Speaker #2: And here, I want to walk you through what we've launched so far for Aperol. Of course, the bottle and the perfect serve remain a critical piece of our strategy.
Speaker #2: And the on-premise focus remains fundamental in order to reach new occasions and achieve incremental growth. We've accelerated the expansion of the ready-to-serve into new markets.
Speaker #2: Now, we have 15 seeding markets, and the trends are all positive. This allows consumers to achieve that perfect serve at home, in a glass over ice.
Speaker #2: As you all know, we piloted Aperol On Tap last year over the summer in select locations. This year, we are rolling it out across the peak season in more and more high-velocity venues and events in select markets.
Speaker #2: The Tap program allows us to use events not solely for visibility, but also for sales. In just three months, the Tap volume in Italy has reached roughly 1.5% market share of premium beer.
Speaker #2: This is exactly the profit pool we want to penetrate further. Lastly, we also launched the long-awaited Aperol To Go CAM in the UK, Belgium, Austria, and GTR.
Speaker #2: The idea is simple: making Aperol accessible in occasions where we weren't able to play in the past. Towards the end of the year, we're also planning to launch a glass-to-go alternative for some select markets, like Brazil.
Speaker #2: Which, similarly to Tap, can be an on-premise alternative to offset local constraints, like the lack of Prosecco in Brazil. Now, all of these innovations give us incremental top line and higher or on-par gross profit per serve versus the 3-2-1.
Speaker #2: Now, moving on to the House of Whiskey and Rum, we recorded a decline of 6%, mainly due to the impact of the whiskey category challenges in the US, the South Korean impact that I already mentioned, and a temporary demand-led supply constraint on Russell's Reserve, as I've told you before.
Speaker #2: And going forward, supply will be strategically managed in the upcoming years to ensure that we have a more consistent aging liquid supply. Jamaican rums were resilient, with a flattish top line, including solid underlying trends in Jamaica, offset by a high comparison base in the US.
Speaker #2: In the House of Agave, Espolon grew 8.2% in the first half, with balanced growth in both Blanco and Reposado, supported by the launch of Extra Negro.
Speaker #2: Here, while we see the ongoing benefit from geographic expansion, the majority of the growth is being driven by the core US, where the brand continues to gain share.
Speaker #2: On the next page, you're going to see some additional details on Espelon. First, looking back at the performance of Espelon in the US over the last 10 years, on the top-left chart, you can see what a trajectory it's had.
Speaker #2: Clearly, there's been a lot of growth in tequila overall, but both in the initial period of growth between 2015 and 2022, as well as in the most recent period, Espolon has outperformed strongly.
Speaker #2: The premium segment is currently the fastest-growing part of the category, as many consumers trade down from the larger super-premium segment. And Espelon's quality-led premium positioning benefits from both trading up and trading down.
Speaker #2: Espolon in 2015 was the fourth largest premium brand in the US. And now, as of 2025, it is number two, with a CAGR growth of over 19% between 2022 and 2025.
Speaker #2: Now, looking instead to the year-to-date sellout data in '26, in the bottom left, we see this trend continuing. In the Nielsen off-prem, Espolon is one of only four growing top-10 brands.
Speaker #2: In fact, across the four largest tequila states, Espolon is outperforming by 9 points on average, including key battlegrounds of California, Texas, Florida, and New York.
Speaker #2: In NABCA, we have gained plus 70 basis points of market share and are the only top-10 growing brand, with a plus 12% growth. Similarly, in the on-premise, we are again the only double-digit scale brand in the category.
Speaker #2: And we plan to continue this trend with investments behind the brand, selective promotions, but keeping our pricing strategy, which we believe the great liquid supports—the strong value equation for the consumer.
Speaker #2: And lastly, looking at the right part of the page, you can see we also have ample incremental room for growth. Smaller packed formats are the main growing part of the tequila category today in the US, with more than 3% growth in packs smaller than 375 ml.
Speaker #2: Versus negative 4 for the overall category year-to-date. We launched our smallest format to date, which is a 200 ml bottle, only in June this year.
Speaker #2: It's already seen a strong pickup, and we expect more contribution going forward, with potential additional innovations to come in this segment of the market.
Speaker #2: Variant innovation will also drive additional growth. The Extra Negro launch in June at $70 per bottle, for example, cements the brand's accessible premium status with one of the most affordable and, frankly, delicious Extra Negro offerings on the market.
Speaker #2: Finally, we're going to have a look at our House of Cognac and Champagne, and then the local brands. The House of Cognac and Champagne recorded a +4.6% top-line growth, with solid performance in Courvoisier, driven by developing markets and APAC.
Speaker #2: In the US, we maintained a stable trend despite the ongoing category pressure. The growth in Grand Marnier, on the other hand, was mainly due to an easy comp base, with normalization expected in the balance of the year.
Speaker #2: Within our local brands, Sky remains an important part of our portfolio, and we're pleased to see growth of +5.7% in the first half, primarily driven by Argentina due to the popularity of Sky Cosmic.
Speaker #2: And that was more than offsetting the ongoing softness in the US, in line with other major players in the US vodka category. On the other hand, over to Francesco, who will walk you through the first half financials in more detail.
Speaker #2: Francesco.
Speaker #3: Thank you, Simon. And good afternoon to you all. Let's start by looking at the EBIT margin trends. Overall, in H1, we recorded 130 basis points of organic EBIT adjusted margin expansion.
Speaker #3: Supported by the pull-forward of gross margin benefit, while AMP and SG&A are progressing as planned. In gross margin, we recorded a solid organic accretion of 130 basis points.
Speaker #3: Supported by a combination of stronger mix effect due to the solid performance of Aperitif in early peak season, the phasing of COGS productivity gains, which we were able to realize faster than originally expected, and now in the base.
Speaker #3: The tail end of the Agave benefit that we have flagged previously, and lastly, limited tariff impact of $7 million. Here, the impact was lower than we originally expected for H1.
Speaker #3: Due to the fact that between February 20 and the end of the quarter, we paid only a 10% tariff in the US instead of the originally expected 15%.
Speaker #3: As a result, we have updated our full-year guidance accordingly. Based on the US administration's most recent decision just a few days ago, the 10% tariff was, for the time being, reconfirmed.
Speaker #3: We will obviously keep monitoring the developments around tariffs. Our AMP-to-sales reached 17.4% in H1, leading to a dilutive impact of 50 bps organic.
Speaker #3: Driven by brand-building investment for peak season and to support our innovation pipeline, as planned. On SG&A, our containment efforts are continuing, in line with our expectations, and we benefited from an accretive impact of 60 bps organic in H1.
Speaker #3: This means that we are on track to reach, by the end of 2026, the 70 basis points guidance that we have provided. Some of you might have seen that Eleanor Fosso has recently joined us as CHRO, and brings with her significant large-scale transformation and automation capabilities.
Speaker #3: To close, EBIT adjusted was realized at €358 million, reflecting a margin of 23.7%, with plus 8.5% organic growth, excluding the net negative impact of €23 million from perimeter and FX effects.
Speaker #3: In terms of P&L, we recorded a positive evolution supported by business momentum. Group net profit adjusted grew by 4.7%, mainly driven by the positive evolution of EBIT adjusted, as well as the favorable impact of financial expenses.
Speaker #3: EBIT operating adjustments were negative at €109 million, mainly driven by the write-down of an asset marked for disposal of €82 million, as we recognize the diminished strategic value for these route-to-market enhancing past acquisition.
Speaker #3: And we've had to adjust their asset value as we dispose of them. Simon will comment more on these new disposals later in the presentation.
Speaker #3: Negative €17 million related to other fixed assets, negative €10 million related to brand impairments, and finally, positive €19 million coming from the Via Verna and Zedapira disposal capital gain.
Speaker #3: Adjusted financial expenses were €44 million, with the decrease driven by lower average net debt at €2 billion versus €2.3 billion last year, with the average cost of net debt stable at 4.3%.
Speaker #3: The positive €5 million adjustment you see in the table is related to the gain we booked due to the bond liability management executed in the context of the €600 million bond issuance.
Speaker #3: For the full year, we are maintaining our guidance of around €100 million in financial expenses, also due to the impact of the new bond issuance, which has further helped improve our maturity profile.
Speaker #3: The recurring tax rate was at 27.9%, minus 130 basis points versus H1 2025, due to favorable country mix. Recurring cash tax rate is at 25.8%.
Speaker #3: Lastly, I will cover the key balance sheet indicator on the next page. Operating working capital as a percentage of sales is at 52%, similar to the same period last year, and seasonally higher mainly due to some build-up of finished goods inventory for peak season, and select increase in maturing liquid.
Speaker #3: Compared to the end of the year, the increase in operating working capital is also due to the normalization in the net trade position, driven by the concentration of capex and related cumulated payables at the end of last year.
Speaker #3: On CapEx, the maintenance CapEx remained temporarily contained at 3% of sales, slightly below the run rate of around 4%. Extraordinary CapEx, on the other hand, is at 2% of sales, including the tail of the production capacity enhancement program, especially in Kentucky, with finalization expected in 2026.
Speaker #3: For a total of €100 million. On cash flow, the recurring free cash flow before operating working capital change conversion is at 64%, aligned with our historical five-year average of 68%.
Speaker #3: The overall recurring free cash flow, on the other hand, remained more limited at a 4% conversion, or €19 million, due to the impact of operating working capital seasonality.
Speaker #3: This is expected to normalize in the second half of the year. On leverage, we remained comfortable at 2.6 times, marginally higher than the year-end leverage ratio, due to some impact from the seasonality that I mentioned before.
Speaker #3: In fact, the increase of €110 million in net debt is primarily linked to these operating working capital increases, as well as some impact from the dividend payment.
Speaker #3: Mitigated by the proceeds of the Averna disposal. And with that, I will hand back to Simon to talk about certain activity in 2026 and our outlook.
Speaker #3: Thank you.
Speaker #1: Great, thanks, Francesca. Look, you've all seen this page before, which is a summary of what we plan for 2026. The reason we put it up is it's exactly what we are doing.
Speaker #1: And I won't go one by one, as we've already covered the majority of these points. But it's important to note that all of these points are on track, and we'll remain so for the balance of the year.
Speaker #1: Tonight, returning to our portfolio streamlining, we want to give you an update on what's been keeping Fabio de Fede so busy over the last 12 months.
Speaker #1: And with this release, we are happy to announce that we have closed another two disposals that you see on this page, which might be limited in terms of size but have a clear and solid rationale.
Speaker #1: The first is the Rhum Agricole business, including Trois Rivières and Maison La Mauny, and the second is the disposal of Cabo Wabo Tequila and the Bisquit Dubouché Cognac business.
Speaker #1: Now, in the past, we needed these brands to open up new markets, but this is no longer the case. For example, the Rum Agricole portfolio was acquired to support the route-to-market in France.
Speaker #1: At the same time, their margin diluted, cash intensive, and with very limited upside to grow within our portfolio. So, together with the previously announced deals you can see on this page, we have already made significant headway over the last 18 months in this regard.
Speaker #1: With the disposal of more than 10 brands or businesses, by the end of 2026, we are planning on coming to the end of our portfolio streamlining.
Speaker #1: This significantly reduces complexity in the business, and allows us to concentrate resources, investment, and management focus behind our fewer, bigger bets. This is absolutely consistent with our capital allocation discipline.
Speaker #1: Now, moving on to our outlook for the rest of the year. As you can see, we have an update on our guidance. Starting with the top line, we are confirming the full-year guidance of approximately 3% organic growth.
Speaker #1: On the EBIT-adjusted margin, we now foresee an incremental uplift. This is due to the more favorable tariff environment, which means we can expect a €10 million benefit flowing through to the bottom line, compared to our previous guidance.
Speaker #1: Accordingly, the full-year negative tariff impact we now expect is around €20 million instead of €30 million. Considering the positive phasing into the first half, the second-half EBIT adjusted margin, therefore, will be relatively flattish versus the same period of the previous year in organic terms.
Speaker #1: All other contributors to the margin remain unchanged. This means that the underlying gross margin trend, where we recorded phasing into the first half, is not altered in our full-year expectation.
Speaker #1: Now, as I'm sure you've heard from many companies, the claims on the potential 2025 tariff refund have started. We've also made a claim and recorded €15 million as a contingent asset.
Speaker #1: However, given that the timing and extent of the refund remain uncertain at this stage, and we see additional potential geopolitical volatility impacting incogs in the second half, primarily from things like logistics, we believe that these two effects might reasonably offset each other, with no incremental benefit for the full year.
Speaker #1: Now, to be clear, if we do see a benefit from that, we'll update the guidance when we give you an update on Q3. But at this stage, we don't want to count on anything, given the volatility around tariffs, payments, and the geopolitical environment we're operating in.
Speaker #1: On A&P and SG&A, we confirm our previous guidance, as we invest confidently behind the long-term development of the business. So overall, we're encouraged by the progress we made in the first half, and we continue to remain fully focused on executing the strategy we presented at our Capital Markets Day.
Speaker #1: With positive traction across our priority brands and geographies for five quarters now, for us the key word going forward is: execute, execute, execute. We're now happy to open up the floor for any questions you have.
Speaker #1: Thank you.
Speaker #2: Thank you. This is the Coral Skull Conference operator, who will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone.
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Speaker #2: The first question is from Sanjit Aula, UBS.
Speaker #3: Hey Simon, Francesca, a couple of questions from me, please. Firstly, on the US, Simon, can you just clarify if there were any further inventory adjustments into Q2?
Speaker #3: And how are you seeing the pricing environment evolve across your categories in recent months? And then, just to double-click on that, we fully appreciate the positives in the portfolio, but there are a couple of drags—in particular, Grand Marnier and Wild Turkey.
Speaker #3: What are you doing to try and stabilize those brands in the portfolio, please? I've got a second question after that, but maybe we can kick off with the U.S.
Speaker #1: Sanjit, I've got three questions on that first one. So, let me see how we go with those. So, look, I think in terms of the inventory adjustment in Q2, business as usual—no extraordinary movements on inventory. Full stop.
Speaker #1: The second one was on pricing. In terms of someone's reading the question, categories in recent months. Yeah, look, I think we're continuing to see people getting a bit more aggressive as the trends remain challenged.
Speaker #1: I think in certain categories, we're seeing it more than others. I know there's a huge degree of speculation about what's happening in tequila. At this stage, we're not seeing the read-across in terms of really impacting our performance on Espolon.
Speaker #1: As I've said to you before, we believe we've got the right price strategy with Espolon. We're well positioned in the consumer's eyes, and the trade's eyes, as a good quality tequila with a good value proposition.
Speaker #1: And so, I think, look, we're going to have to wait and see. There's a lot of speculation as to what may happen in the next couple of weeks in terms of new strategies.
Speaker #1: We're confident in what we're doing. We're price-promoting in the way that we would normally do it, around the key seasons. But let's wait and see.
Speaker #1: As we've said before, pricing is always relative. But we don't see a big read-across between potential movements of brands above us impacting the business.
Speaker #1: Last one, I think it was Grand Marnier and Wild Turkey. I think what's interesting on Grand Marnier is, and I'm sure you see this in some of the data and have heard it from other people, we're seeing the traffic numbers in the US starting to come back.
Speaker #1: But what we're seeing is the tickets aren't following quite the same velocity yet. So, I think where we see the opportunities with things like the Grand Margherita, as people are going out again—if they are going out—they want to trade up. I think we can continue to leverage that trend on Grand Marnier and take advantage of people getting back into the on-trade.
Speaker #1: I think on Wild Turkey—look, it's a tough category. You've seen it in a number of the reports, and from other companies. I think we've been rebasing our strategy.
Speaker #1: We've been looking at what other opportunities we have to work with it. We've got new innovations that we're looking at in ready-to-drink in Australia to keep things moving forward.
Speaker #1: But look, it's a tough category at the moment, and we've got to carve out our rightful share of it.
Speaker #3: That's really helpful color. My second question was really on Germany and just understanding the weakness there. To what extent is that a continuation of the retailer headwinds you had in Q1, or is it just a weak category and you expect those trends to persist into stage two?
Speaker #1: Yeah, look, great question. I think it's just a weak category. We've got no issue with the German retailers. We've managed to continue to work with the retailers across Europe.
Speaker #1: I think we're pleased with where everyone ended up this year. But I think, look, if you look at the consumer data, you look at what's happening in terms of other consumer goods outside of our sector, the German consumer remains under significant pressure.
Speaker #1: And you see that very selective purchasing power. And as a result, look, we've got to position ourselves the right way for when they do come back.
Speaker #1: And I think we're doing exactly that.
Speaker #3: Thank you.
Speaker #2: The next question is from Andrea Pistacchi, Bank of America.
Speaker #4: Yes, thank you. Hi, Simon. And ciao, Francesca. Two questions, please, on two aspects of your guidance. Starting with the top line, just under 3% in H1—so your guidance for the year, which is, to confirm, about 3%—implies, I'd say, something similar or a fraction more in H2.
Speaker #4: Now, bearing in mind the more difficult comparison base in H2, where do you see the incremental positives that will take you close to 3?
Speaker #4: And are you able to share any color, maybe, on how Q3 may have started? And for Francesca, on margins—up 130 basis points in H1—I think, Simon, there are a lot of moving parts in the margin, but I think you said flattish for H2.
Speaker #4: That's one way to look at it. Now, the tariff benefit should be a positive in H1 and in H2. The positive mix, I assume, should continue, as you outperform with that parity.
Speaker #4: So where is the main offset that will hold back margins in H2 versus H1? I mean, it's probably a bit less agave benefit, but maybe you can talk about the COGS pressures, the input cost situation, along with this.
Speaker #4: Thank you.
Speaker #1: Ciao, Andrea. Okay, I mean, I think in terms of the top-line question first, we're guiding on the full year at 3. As you can see, we're pretty close there for Q1, pretty close for Q2.
Speaker #1: We've got a bit of work to do, but I think what we've got is some good momentum. Coming through in terms of the brands, we're seeing very strong execution.
Speaker #1: Particularly from Q2, and to answer your question, and into Q3, I'm pleased with what I'm seeing in terms of the activations we've got, across not only North America, but also across Europe.
Speaker #1: Which is giving us, I think, some strong momentum coming into Q3. So I think, from that point of view, that's really where we're seeing the difference between where we've got the first half and then landing the full year.
Speaker #1: But look, it's a competitive market. We've got some work to do, but that's our target, and that's what we're going for. So, Francesca, do you want to take it from here?
Speaker #3: Absolutely. In terms of margin, I mean, you pointed out the key driver of the margin trend during the second part of the year. We still expect a positive COGS evolution, but to a lesser extent compared to H1.
Speaker #3: And to be fair, we actually feel that for the entire part of the period, the weight of the tariff is on the other side. So, we expect some accretion on the COGS side, but limited.
Speaker #3: And clearly, the rest remain the same. We expect some pressure on price, offset by mix remaining positive, as we saw in H1.
Speaker #1: And Andrea, I might just add one thing to that comment as well. As I said in my closing comments, I think the key thing here is, around the tariffs, we've seen—I think it's fair to say—a fairly massive degree of volatility in how that has played out.
Speaker #1: And as a result, any updates we have on that, on refunds or anything else, we can pick up in Q3. But at this stage, we don't have that level of confidence yet.
Speaker #1: And I think we can continue to see what that looks like and update you accordingly.
Speaker #3: Maybe something I can add in terms of input cost: we are actually still maintaining a good position on general input costs, with the exception of logistics.
Speaker #3: Clearly, we've increased already in the first half and keep increasing in Q3. We expect the same to continue in Q4.
Speaker #4: Perfect. Thank you.
Speaker #2: The next question is from Céline Panotti, JPMorgan.
Speaker #5: Thank you for taking my question. My first question is on Italy. You mentioned that—well, can you talk a bit about the market? I understand from your charts on slide 4, I think the market was up 1% on sell-out.
Speaker #5: It seems to have decelerated in Q2. But, if you can, talk about those new tabs—you said it is 1.5% of the bear market.
Speaker #5: What is it in terms of total Aperol? And if you can talk about price point in that market and how you think there is further upside to grow in Italy.
Speaker #5: And then my second question is, in the U.S., can you talk about the market environment? It seems on-premises showed—are you seeing any change throughout the quarter in terms of maybe an improvement at the end of the quarter or early July, if there's anything you can do?
Speaker #5: And overall, what is your assumption on the US as you look at your guidance for the second half? Thank you.
Speaker #1: Sure. Hi, Céline. I think in terms of Italy, the important thing is, when you're looking at comparison between the quarters, you've got to remember the first quarter in Italy is significantly smaller than the second quarter.
Speaker #1: So there may be some movement there, which is driving your read of one point down. I think the key thing on this is, if I reflect on the same conversation we had last year where the market was very negative, and the fact that we’re now delivering as a group plus 5%, and with the focus brands plus 4%, I think it really reflects the momentum that we’ve got.
Speaker #1: I think it's coming from a number of things. As I said, the first one is, I think we're seeing extremely strong execution this year, with over 4,700 activations across Italy.
Speaker #1: I mean, that's a massive amount, and a real step forward for the brand. We increased the investment, and we've also—as I said—increased the formats.
Speaker #1: So, we're starting to broaden what is already a very established ritual in Italy into new occasions that we couldn't get into before. If I just use an example of one of the festivals we went to, which was the Bad Bunny concert at San Siro recently.
Speaker #1: Previously, we would have sold zero Aperol Spritz. By having it on tap, we sold 22,000 Aperol Spritz in one night to a very dynamic legal purchase age crowd.
Speaker #1: So I think what we're seeing there is a broadening of the occasionality through the formats. And I think just momentum in terms of getting the brand back on track in its own market.
Speaker #1: So, I think for that first point, having that answer— I think the second one is, let's see, any changes seen in any kind of quarter date.
Speaker #1: Going into the second half—yeah, I think, as we said in our overall guidance, it still remains quite a tricky market. You look at all the same data we do. I think the key thing, where we have points of difference, is on the brands we're focusing on and where we're building them. Both in NABCA and also in the on-premise, we are significantly outperforming the market.
Speaker #1: And so I think it's a balance between a very positive story on those priority brands, balanced also with the broader portfolio that doesn't have the same level of focus behind them.
Speaker #1: And as a result, that's why, on the full-year guidance, I think we're being quite sensible in terms of balancing those two sides of the portfolio out.
Speaker #5: Can I just have a follow-up? On the previous question, regarding your gross margin—you said that the beat in H1 doesn't change the outlook for the year.
Speaker #5: So, if I understand correctly, it's a question of the phasing of the productivity savings, and maybe as well a phasing of the cost-benefit, and maybe again, cost impact in the second half.
Speaker #5: I just want to understand on the mix, because you mentioned that as a positive impact. And the fact that you mentioned a good start to the year, is potentially a good summer incremental to your flat margin or, let's say, gross margin guidance for the year?
Speaker #3: Yeah. Céline, for sure, it's a phasing on the calc side, so we can confirm that. In terms of mix, clearly, mix is still positive.
Speaker #3: Also, in the second part of the year, it's driven by the aperitifs growing faster. But then the rest is clearly affected more when it comes to price.
Speaker #3: We feel more pressure in terms of price, so the net-net impact in terms of margin is lower compared to H1.
Speaker #5: Thank you.
Speaker #2: The next question is from Simon Hales, Citi.
Speaker #4: Thank you. Good evening, all. So two for me as well. I want to start if we could just come back to your comments around how Q3 has started.
Speaker #4: I really hate to ask about the weather, and maybe building on Céline's comments there—clearly, we've had good weather in Europe through the back end of June and into July.
Speaker #4: Is that support to your business present in all of your markets, or has it been problematic in some regions? Has it been too hot for people to go out? I suppose that's my underlying question, because I think there was some fear that’s what we might see on the terraces in Italy.
Speaker #4: Is that something that you've seen? And then secondly, with regards to the recently announced brand disposals, are you able to help us in terms of how we should think about the impact of those disposals on earnings in 2027?
Speaker #4: You've given us the rough proceeds number of around €30 million. How should we think about the contribution of those brands from a sales and EBIT standpoint at the moment?
Speaker #1: Sure. Hi, Simon. Yeah, look, I think in terms of Q3—and I think it's one of these—I mean, the way we've run the business is, look, we hope for good weather, but we don't count on it. That's the way we look at it.
Speaker #1: And that's why we've increased the number of activations and are putting it out. So I think actually—I haven't got the data in front of me—but from memory, I think, actually, the number of sunny days across European capitals has been reasonably similar year on year.
Speaker #1: So I don't think it's been a big driver of it. I think what's been a more positive driver is our execution and what we're doing in terms of getting out to the trade and getting into new occasions.
Speaker #1: So I think, from that point of view, look, it's better for the sun shining, of course, but we're not relying on it.
Speaker #1: I think, on the second part, on the disposals, the overall impact we've talked about coming through—Francesca, I don't know if you want to take this one, or do you want me to?
Speaker #3: Yeah, no, no. Let me take it. If you look at 2026, we have indicated a perimeter impact of €70 million in sales and €30 million in terms of EBIT.
Speaker #3: You need to consider that Cinzano is impacting for 11 months, and Averna is impacting for 7 months. So all in all, when you look at the entire asset that we dispose, the, let's say, pro forma revenue were about €130 million, including Cinzano, Averna, all the rest.
Speaker #3: I mean, the last bit, the last transaction, is for about $40 million in total. So, the others were $90 million, and so the additional is coming for a much, much smaller number.
Speaker #3: When it comes to Cinzano and Averna, they had a positive EBIT contribution. But when it comes to the last disposal, they had a very, very negligible contribution in terms of EBIT.
Speaker #3: So, they are EBIT accretive in terms of—and I would say they are also gross margin accretive and EBIT accretive. So, you need to look at this disposal in a very different way.
Speaker #3: These are assets that were more difficult, were not generating growth, and were not generating gross margin.
Speaker #4: Got it. Thanks very much.
Speaker #2: The next question is from Trevor Sterling at Bernstein.
Speaker #4: Yeah. So hi, Simon, and hi, Francesca. Two questions on my side. Simon, concerning A&P: A&P is clearly up in the first half. I think, from memory, you said that that increase in A&P would probably be first-half weighted behind the activation.
Speaker #4: So, given the momentum in the business, I wouldn't be surprised if you're going to throw a bit more A&P into the second half as well.
Speaker #4: But any guidance on that would be welcome. And the second thing—a question for Francesca around the extraordinary capex. I think, buried in the back of the presentation, there's a chart that says that was €34 million in the first half.
Speaker #4: So, implicitly stepping up to 66 in the second half. And I wonder if you could just explain why the capex is second-half weighted on the extraordinary capex.
Speaker #1: Hi, Trevor. Yeah, look, on the A&P, as we guided—look, we always have a bit of a weighting into the second quarter as we get ready for the peak season.
Speaker #1: But, of course, there's a balance between that as we go. Look, we don't just have one peak season; it runs Q2, Q3. So actually, there's a balancing between first half and second half.
Speaker #1: Clearly, if we see the opportunity to invest more behind the brands, as I’ve said before in the CMD, I really think now is the time you invest.
Speaker #1: When everyone is pulling back and kind of making short-term decisions, we're investing for the long term. So if the top line is there, we'll be reinvesting behind that.
Speaker #1: And one of the good examples of that would probably be Sati, where we see some outperformance, and we are maintaining a healthy reinvestment rate to build the brand for the long term.
Speaker #1: So, Francesca, do you want to take the second one?
Speaker #3: Yes, you actually pointed out, we confirm around 8% of CapEx over net sales for the entire year. There are a number of items that have been moved to the second part; there is, for sure, the headquarters, where we are progressing, but the vast majority of the work is taking place now because the first part was more foundation.
Speaker #3: And we are completing the Kentucky project. That is the part that is attracting most of the capex in the second part. All in all, we are going to have, let's say, maintenance capex of around 4%, maybe a bit more, and extraordinary capex, a bit less than 4%.
Speaker #3: All in all, it's slightly below 8%, and we can confirm that.
Speaker #1: And Trevor, as you know, just practically on this, you don't normally pay up all of it until you know it's working. So we're heading out to Kentucky in about four weeks' time to make sure it's there.
Speaker #2: The next question is from Lawrence Wyatt, Barclays.
Speaker #4: Hi, Simon and Francesca. Thanks very much for the questions. A couple from me. Firstly, you've now got your 21 brand activators and have been in the US market for about six months.
Speaker #4: You sort of mentioned that they were performing particularly well, but I was wondering if there's anything that's appeared from the last six months that perhaps was unexpected, or any other way that you think they've done better than you thought, or any issues in them being in the market that you didn't expect.
Speaker #4: And perhaps I assume the majority of the impact has been in the on-trade, but wondering if they'd had any further impacts on any off-trade sales as well.
Speaker #4: And then secondly, I was just wondering, on Espelón, if there's anything inherent to the brand that's driving its better performance compared to other tequilas in the market.
Speaker #4: You sort of talked about the execution that you're doing. But I'm wondering if there was anything unique to the brand that is helping it particularly whether the additive free status was do you think was really driving any of those sales?
Speaker #4: Thank you.
Speaker #1: Okay. Hi, Lawrence. Look, I think in terms of the 21 brand activators, as we said, to give you an idea, they look after between 75 to 100 accounts, depending on which state they're in and the geographies they're in.
Speaker #1: I think, in answering your question, I’m not really unexpected. I mean, that’s the reason we put them in—we were anticipating that there would be a positive impact on velocity, which is exactly what we’re seeing in the on-premise.
Speaker #1: But I think there are two parts to that. They are not really unexpected, but I think it's beneficial and difficult to quantify from a model point of view.
Speaker #1: One is, at the moment, a lot of companies are pulling back on their on-trade support, and we're not. And I think the trade is recognizing that and very much welcoming it, given the fact they're under quite a lot of pressure as well.
Speaker #1: That's the first part. The second part is, Campari has always had a very strong on-trade relationship with bartenders, through the Campari Academy, through the activations, and things like that.
Speaker #1: So I think from that point of view, it definitely helps in terms of reinforcing what makes us a bit different with the trade and with customers.
Speaker #1: There is a knock-on effect. We think that by investing in the on-trade, we do see some uplift in terms of the off-trade that is nearby.
Speaker #1: And that's a model that we've seen work several times. But there's less direct calling into the off-trade of that group. They're predominantly an on-premise-focused team.
Speaker #1: I think in terms of Espelon, a few things going on there. Look, there's been a lot of speculation for the last six months that suddenly it's going to be this massive price war and various other things going on in the category.
Speaker #1: The key thing that we've been doing is really just focusing on what we do well, and we've been building the distribution. We've been getting the menu placements.
Speaker #1: As I said, we ended up targeting twice as many menus as we had originally set out. We got significantly more displays heading into Cinco de Mayo.
Speaker #1: We've got good trade support behind the brand. Bartenders love serving Espolon—we know that. There's real momentum there, and that's not something you can build in a couple of weeks.
Speaker #1: That's stuff that's been built over the last 10, 15 years, so I think that's really where we're seeing the benefit. I think the other part is just practically, on the liquid, it's really good tequila.
Speaker #1: And at a fair price. And I think both the trade and the consumers see that. There's nothing on additive-free status. There's nothing that we focus on with that.
Speaker #1: We focus on just really good tequila, at a fair price, well-represented by bartenders because they like working with us, and they love the irreverent side of the brand.
Speaker #1: As we talked about before, things like the cocktail fights are something that no one else does with them. It's fun, it's engaging, and it kind of pokes a bit of fun at how serious the rest of the world is on this.
Speaker #1: It's a fun brand, and I think people feel that.
Speaker #4: That's really helpful, Simon. Thank you very much.
Speaker #2: The next question is from Olivier Nicolai, Goldman Sachs.
Speaker #4: Hi, good evening Simon, Francesca, and good evening. I have two questions. First, on RTDs: you had good feedback in the European markets where you've launched RTD.
Speaker #4: It doesn't look like there's much cannibalization. Could you give us, perhaps, a bit of an update on your potential plan to expand in the US?
Speaker #4: And if you will, would you prefer to use a local partner, or do it in-house? And then secondly, going back to SARTI, if I may, on slide nine, could you give us an idea of the additional capex requirements that you would need if the brand is really being scaled up across Europe?
Speaker #4: And in terms of marketing differences with Aperol Spritz, is it the same price point, or is it even more? And is it even more tilted towards a female consumer?
Speaker #4: Thank you.
Speaker #1: Okay. I think some good questions there. Just the first one is in terms of local production. Yes, I'm ready to drink generally as a principle.
Speaker #1: I would much rather be in local production as close to the consumer and the customer as we can, particularly given logistics. And I think that's a model that we can look to other industries that you want to particularly in higher volume products, you want to be as close as we can.
Speaker #1: It's not saying we're going to be building—maybe further down the line, if this is even more successful than we think it's going to be.
Speaker #1: But at the moment, I'd rather use someone else's capex. There's more than enough capacity in America to be able to go after that. So I think we'll continue to see how that develops.
Speaker #1: I think easy one on Sarti. We have no additional capex requirements on Sarti. We've already invested in our major plants in Novi Ligure. That's the extraordinary capex we've put in.
Speaker #1: We're in good shape on that. I don't see any problems in capacity of that taking off. We have enough capacity for both Aperol, Sarti, Cinzano, and Mondoro, for all of the brands.
Speaker #1: I'm very pleased that the previous team had already put that in. I think the second part of the question, if I get this right, was about the same price point.
Speaker #1: SARTI is slightly higher. And as a result, what we find on this is with SARTI, is that it's not even though it's got a very exciting color in terms of being bright fluorescent pink, it does tilt a little bit female in terms of the color.
Speaker #1: But in terms of liquid delivery, we see lots of guys very happily drinking this as well, so it's more gender balanced. What comes through is a very different spritz experience than the rest of our portfolio.
Speaker #1: More tropical, slightly sweeter, with passion fruit and blood orange coming through. And as a result, I think it's more gender balanced than anything.
Speaker #4: Thank you very much.
Speaker #2: The next question is from Richard Whitagen, Capital Chevreux.
Speaker #3: Yeah. Good evening, all. Thanks for the presentation. I have two questions as well, please. First of all, on the SG&A benefits—the 70 basis points that you're looking for this year.
Speaker #3: You already achieved 60 basis points in the first half of the year. Is there any reason for a slowdown in delivery of these benefits in the second half of the year?
Speaker #3: And the second question is on the FIFA World Cup. You're obviously not the official sponsor, but I think Simon, you mentioned on Espelon, you had some—so is there any impact from the World Cup on your numbers in the second quarter?
Speaker #1: We start on the first one. Honestly, when we see at 70 basis points, it means that the acquisition in the second party needs to be higher to be fair because, in order to get to 70, you need to have at least 60.
Speaker #1: But we are going to get more. There is also some phasing. When you think, we actually reduce our workforce by just short of 500 people during 2025.
Speaker #1: So now we are also changing our operating model, which is going to be, I would say, the next phase to gain efficiency, and clearly, this requires some time.
Speaker #1: But we don't expect a slowdown in the second part of the year in terms of SG&A acquisition. To the contrary, we expect some further efficiency.
Speaker #1: And I think, as you said at the Capital Markets event, you might find this a bit odd, but every single hire in the company is signed off by us.
Speaker #1: So, it's a very strong message to the organization about being disciplined with SG&A, making sure that we're putting the money where it's most important and has the biggest impact.
Speaker #1: So certainly, from that side, I think we'll continue to keep that a big focus. And answering your question on FIFA and the World Cup, I don't think it was a big contributor.
Speaker #1: I think there were a couple of things we saw that worked quite well. One is, we had some block parties on Espolon that were irreverent.
Speaker #1: There was a bit of a counter to the $11,000-a-ticket final average pricing, which allowed people to get engaged in the event and in the momentum of the event, but in a fun way that was a bit light-hearted and not too serious.
Speaker #1: And so we had some watching block parties that worked very well. I think one of the other things was, I thought the UK team did a brilliant job of actually getting Aperol into some very high-volume, high-venue, high-footfall accounts.
Speaker #1: And watching some of the videos of England play, every time England scored, instead of seeing beer being thrown in the air, we saw this wall of orange going up as Aperol was being used to celebrate. So I think the key thing here is our brands can play across these platforms.
Speaker #1: And it's not about the football. It's not about what's there. It's about the conviviality and sociability. And as you heard me say before, our brands are uniquely positioned for that.
Speaker #1: We're down-to-earth, good fun, easy. They can fit into those occasions very well.
Speaker #3: Thanks.
Speaker #2: The next question is from Chris Pitcher at Rothschild & Co Redburn.
Speaker #4: Thanks very much, and good evening, all. A couple of questions—one, I'll follow up on the ready-to-drink question in the United States. I'm just wondering your view on one of your big competitors sort of taking their cognac brand into the subcategory.
Speaker #4: I mean, clearly there's enough stock around to do, whether it's something you're doing or whether I've missed it or not. And then secondly, as sort of a specific question on the UK, but more broadly for the group, is the UK business—with all the supply issues and disruptions from a year ago—now on a much more even keel, and are you well positioned for the summer?
Speaker #4: And more broadly on the group, do you feel in the second half that you've got most of your markets on much more steady footing, having been through quite a disruptive sort of 18 months?
Speaker #4: Thanks, Simon.
Speaker #1: Yeah. Hi, Chris. Look, in terms of the US one—look, I don't really comment on other people's products. You can ask them that question.
Speaker #1: We're not planning to get into ready-to-drink in Cognac. That's all I'll say at this stage. But I think, in answering your question on the UK side—yeah, very comfortable in terms of supply.
Speaker #1: I think we've had some good learnings. We've made good progress. I think our forecasting is getting better. I think we're also benefiting from the investments we've put in through the extraordinary capex to make sure that we've got the headroom to be able to deal with it.
Speaker #1: I think some of the growth that we see in some of these markets, where you're suddenly getting double-digit, we're all delighted—and the whole supply chain team's having a heart attack because it's more than they were planning.
Speaker #1: But I think what we've managed to do is build that flex into the system, and as a result, we have no issues in terms of supply.
Speaker #1: Our on-time-in-full is improving, and we continue to make good progress on our OEE and on our COGS measures, which is what Francesco was mentioning in terms of some of the input costs and seeing those improve.
Speaker #4: Thanks very much.
Speaker #2: The next question is from Tilly Enno at Morgan Stanley.
Speaker #5: Hi, good evening. Thanks for taking my questions. First, just on the US sell-out—clearly still incredibly strong compared to the overall market. But if I just compare the slide on sell-out for H1 versus Q1, there was a bit of a moderation.
Speaker #5: Is there anything that you would call out there driving that? And if that sell-out trend were to improve into the second half—you mentioned that you didn't do any further inventory adjustments on the non-priority brands in Q2 in the end.
Speaker #5: If your overall sell-out trends improved elsewhere, would you take the opportunity to do any more of that cleaning up of inventories on the non-priority brands?
Speaker #5: And then the second one, just for Francesco. You mentioned the working capital seasonality. There was quite a significant increase in receivables as well. Could you just explain a bit what was behind that, and what was different this year?
Speaker #5: Thank you.
Speaker #1: Okay. Hi, Tilly. Yeah, answering your question, a couple of things on that. You've also got a bit of a comp base we need to think through between Q1 last year in the US, which I remember was quite a tricky quarter.
Speaker #1: And then a more positive Q2, and then cycling the opposite this year, where we had a steady Q1 and a better Q2. So I think there's always a bit of that going on.
Speaker #1: Look, I do think that we need to recognize the U.S. market is still tricky. Now, I'm really pleased with what the team's doing, and we're getting a good lift in terms of overall market share.
Speaker #1: But look, it is a tough market, and so we're having to carve that out. I think the more we continue to do that, the more we'll continue to see those share gains coming through.
Speaker #1: We're well positioned for the long term. As you've heard me say before, we're 3% of the U.S. market, so even if the market is tricky, we need to go and get an unfair share going forward.
Speaker #1: And that's what the team's doing. I think I'll pass over to Francesco on the receivable side.
Speaker #3: Yeah, absolutely. I mean, you are actually right. Receivables increased. The main reason is that they were linked to innovation that was queued into quarter-end.
Speaker #3: We've made many, many launches—in Ready to Serve, in TAF, in Ready to Drink. And so, this was concentrated in order to be available for the peak season.
Speaker #3: And that's the reason for that. So, in a sense, it's a business-related reason, which is a positive, driving innovation and volume.
Speaker #5: Great. Thank you very much.
Speaker #2: The next question is from Edward Mundy at Jefferies.
Speaker #6: Evening, guys. So, I've got two sort of interrelated questions. First, and I don't think it's an unfair question because, Simon, I know you know the industry very well, but 15 years ago we saw the growth of the copycat spritz, especially the Hugo.
Speaker #6: And that lasted a couple of years, and it was nipped in the bud, I think, about 10 years ago. Could you remind us what was the strategy to sort of suppress that and for Aperol to really do its thing?
Speaker #6: And then the second question is, as you’ve broadened distribution of SASE outside of Germany, what are the learnings that you can bring to the U.S. rollout in particular when it comes to taking on other sweet spritzes, such as this Elderflower variety?
Speaker #1: Yeah. Hi, Ed. Look, I think you're testing my memory here from 15 years ago, but I think what I can tell you is what we are doing on this. I think as we continue to broaden our offering within Spritz, I mean, let's be clear.
Speaker #1: This is our category. We invented it, right? And as a result of our leadership position in that, what I'm really pleased to be seeing now is that we're taking more of a category management approach.
Speaker #1: And so the fact that we have Mondoro doing very well in Europe, playing in the Hugo Spritz category—Hugo Spritz is not branded like Aperol.
Speaker #1: Like SASE. And as a result, I think consumers are very happy for us to be able to come in and offer a great-tasting Hugo Spritz at a more competitive price point.
Speaker #1: And so I think some of that we'll continue to see. But the big thing for me is actually just that, as we see consumers work through Spritz, you see—same as you see in other categories—there are different flavors that appeal to different consumers.
Speaker #1: And we are uniquely positioned to be able to take someone from a tropical blood orange, passion fruit SASE, into a more bitter apple, into a more bitter Campari, into a very bitter Cynar, with all the flavors that run through that.
Speaker #1: And I think that's unique. As a result, we continue to see the trade recognize that and want to work with us. So, from that point of view, I think it will be more of a combination of doing what we do well and just reconfirming our leadership in the category we created.
Speaker #1: I think your second question on SASE, I mean, some of the learnings we have on this is that what's a bit different on this brand is we're still building the on-premise.
Speaker #1: That's very much where the brand lives, and we will build it that way. I think one of the learnings we have in Germany is that the brand can mostly be built in the off-premise.
Speaker #1: And that's what we've seen. We're seeing some of that already in the US. So if you look at Total Wine & More and the pace at which the brand seems to be moving there, we're seeing a significant lift from it already.
Speaker #1: Now, we're still in the on-premise. We're still building the brand, and 3, 2, 1, and all the stuff we do really well. But we're now seeing the off-premise potentially playing a bigger role than we've seen in the past.
Speaker #1: And I think that may just be that the as you see the more consumers looking for earlier in the day, lower alcohol, all the brand fit, all the great color cues, and the exciting passion of Italy, behind all of it, then I think we're seeing a bit more permission to steal from other categories.
Speaker #6: Great. Thank you.
Speaker #2: The next question is from Paola Carboni at Equita.
Speaker #5: Yes, hello. Good evening, Simon. Ciao, Francesco. I have a few questions—mainly, if you can come back on COGS phasing at the gross margin level, and if you can elaborate a little bit more on what is the reason behind it.
Speaker #5: Then on tariffs, I'm puzzling a little bit that we are going to have a bigger impact in H2, let's say. So I was expecting a bit more balanced impact and so I was wondering whether you have been cautious to some extent in quantifying the 20 million euros impact for the full year.
Speaker #5: And possibly a clarification, if I may, on your indication about phasing for marketing costs: is it still valid to stick to your previous indication of skew on H1?
Speaker #5: I wasn't quite clear on that. Thank you.
Speaker #3: Is this one?
Speaker #1: Okay. Do you want me to answer this one on gross margin?
Speaker #3: Yeah.
Speaker #1: Okay.
Speaker #3: So, gross margin—what we actually experienced in H1 is a number of positives on glass, sorry, glass and other agave input costs. The only negative, the only headwind, was coming from logistics and insurance, and the cost of moving goods that clearly are affected by what's going on.
Speaker #3: And so, this is clearly—we actually improved also our technology to do that. But at the end of the day, the price of energy has increased.
Speaker #3: We, on the other side, when it comes to tariff—you’re right—that there is 20, which is more than the 7 that you saw in H1.
Speaker #3: We are taking a balanced view about the quantification for the year. We don't know whether the 10 will continue or whether we are going to be 15.
Speaker #3: There is a second investigation pending. Honestly, we don't know, so that's why we are taking a guess—which I think is an indication of where we see a reasonable amount for the entire year.
Speaker #1: And I think, Leslie, is there anything else you'd like to add to that? I mean, if you look at the volatility we've seen on this topic over the last 12 months, I think we're absolutely right.
Speaker #1: And I think Francesco's comments are bang on. Just to make sure that we are being as prudent as we can. It also depends a little bit on the brand mix.
Speaker #1: So, as you're seeing what happens with tariffs in Mexico or tariffs in Europe, again, we're going to have to see how some of that plays out.
Speaker #1: I think in terms of your other question around the marketing costs, I mean, we're still skewed to the first half. But to Trevor's question, like it was, or Ed's, I can't remember who it was, but I think, look, if we see continued momentum behind the brands ahead of what we are planning, then we will see some balancing in the second half.
Speaker #1: But I think we'll still stay skewed to the first half, front-loading in terms of the key peak season.
Speaker #2: Okay, perfect. Thank you very much. As a reminder, if you wish to register for a question, please press star and one on your telephone.
Speaker #2: For any further questions, please press star and one on your telephone. Gentlemen, there are no more questions registered at this time. I will turn the conference back to you for any closing remarks.
Speaker #1: Great, thanks very much, everyone. Thanks for your time. Hopefully you can see we've had a solid first half. I'm really pleased with the results.
Speaker #1: But, yes, if further questions come up, please follow up with the IR team directly. And thanks for your time. Thanks very much.
