DVCMY Q2 2025 Earnings Call
Operator: Good evening. This is the Chorus Call conference operator, and thank you for joining the Campari Group First Half 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Simon Hunt, CEO; and Paolo Marchesini, CFO of Campari. Please go ahead.
Simon Hunt: Thank you very much. Good evening, good afternoon to everyone. Thank you for joining us to go through our 2025 half year results as a perspective for the remainder of the year. As always, Paolo with me, along with our IR team, Chiara, and [indiscernible] happy to connect after the call to further deep dive with all of you in the upcoming days as necessary. Now a short summary of our results, you can see that the progress is in line with what we told you last time. Our outperformance in sellout is continuing on track across most geographies with further improvements in Q2, supported by positive start to the peak season. The better weather has played a role, but at the same time, our increased focus on execution and brand building investments are also starting to pay off. Top line trend is on track with growth in Q2 as guided, and we'll dive into details later on. Profitability is on track, driven by initial savings in SG&A and gross margin accretion while A&P remains dilutive due to the front-loading of peak season investments as expected. Cash generation is on track with positive free cash flow despite the continuation of our extraordinary CapEx program. And a few details on our key focus areas where we are progressing in line with our expectations. On costs, there's a visible deceleration in SG&A trend, as we previously guided, the majority of the benefits will be released in the second half to reach our 50 bps accretion target on a like-for-like basis in 2025. On brand building investments, we're not making any compromises. Instead, we're using this period where the sector is under pressure to accelerate investments with a focus on effective spend. On CapEx, we're on track to complete our extraordinary program for production capacity expansion by the end of this year. As I've already mentioned in the past, balance sheet discipline is critical for us and the improvement in our leverage ratio is on track. The closing of the Cinzano disposal, which represents a significant advancement in portfolio streamlining will lead to further reduction of net debt and an additional slight improvement in the ratio. And at the same time, we are maintaining our pause on M&A. In terms of portfolio, geographic expansion of our brands is on track, utilizing our existing footprint of '27 end market companies, we keep growing. For example, in Q2, more than 13 of our markets recorded double-digit growth. While growing, we continue to focus on the quality of our commercial execution and maintaining pricing discipline despite the challenging backdrop. Our aim is to ensure consistency and these set of results are a testament to this. Now let's look at our top line performance and drivers. In H1, we delivered a resilient performance with flattish organic top line growth. There was a marked improvement in Q2 across almost all houses and main regions with a total organic growth of plus 3.5%, of which plus 2% was underlying. The main drivers of Q2 top line were due to a positive start to the peak season despite the ongoing challenging backdrop as seen in our sell-out data outperformance. We had the recovery of the GBP 10 million Easter timing impact from Q1. We had the recovery of a portion of the GBP 11 million U.S. logistics delay impact from Q1 with the rest to be recovered in the remainder of the year. We also had the inclusion of Courvoisier into organic as of May, and we have the negative impact of on German retailer delisting because we would not move on price, impacting us by EUR 5 million in the first half and expected to be another EUR 6 million in the second half. [Perimeter] and FX impact largely offset each other in the first half to lead to a total reported top line growth of plus 0.3%. Now moving on to the sell-out data, which is ultimately the main focus. Our outperformance continued across almost all markets with acceleration at the start of peak season in Q2. In the U.S., our outperformance accelerated in the strategic on-premise channel in Q2 with plus 5% growth versus the sector of negative 2. In NABCA, Q2 was plus 1% compared to negative 3% in the sector. On the off-premise, while our brands continue to grow positively, the rest of the portfolio, which has a higher weight in this channel impacted our total growth. In general, across channels, our key focus brands, Espolòn and the aperitifs drove solid growth ahead of the market. In EMEA, we also outperformed or in line across all markets, with our total performance plus 1% versus a market of negative 2%, again, with acceleration in Q2. The U.K., France and Italy, all saw acceleration. In Germany, where the overall market is under pressure, we also had the impact of the delisting that I mentioned earlier. But we have some brands like Sarti Rosa, Crodino and Aperol Spirtz, which continue to grow strongly and bringing new consumers into our franchise, especially in new occasions. Let's now look at the top line growth by region, starting with the Americas. The organic change in the Americas was minus 1% in the first half, with an improving trend of Q2 of plus 4%, driven by the U.S. and across other countries. In the U.S., following the impacts in Q1, we had a positive performance in Q2, a plus 3% growth on steady days of inventory. Q2 was driven by double-digit growth in both Espolòn at plus 11% and the aperitifs at plus 10%. And this was partially offset by persisting challenges in Sky and a high base in Grand Marnier. Jamaica recorded negative 2% change in the first half with a negative 8% in Q2 impacted by a high comparison base of plus 32% from last year. At the same time, the local market dynamics are very positive and supportive of the core Wray & Nephew overproof rum and Magnum Tonic Wine. And thanks to the completion of the Dunder water treatment facility within 2025, we expect to have increased capacity and increased resilience against potential weather events starting from 2026. The rest of the Americas, which makes up 11% of our group sales continued its solid performance, especially in Q2 with plus 12% growth, mainly driven by Aperol, SKYY and the Brazilian brands. Now moving on to EMEA. We recorded plus 1% growth outperforming the market, mainly driven by our core aperitifs business in the U.K., France and the rest of EMEA. In Italy, we had a resilient performance with a negative 1% change in Q2, outperforming the challenging market with consumers remaining conservative in terms of discretionary spend. Aperol and Campari had a flat trend, while Crodino, Aperol Spritz and Sarti Rosa grew, benefiting from convenience trends and our portfolio approach. The brand health of our portfolio remains strong, and we continue to reinforce the franchise in Italy with increased activations as we'll show you in the rest of the presentation. In Germany, we saw a moderation in the performance with Q2 change of minus 2%. Here we recognize the market backdrop is challenging. We have a high comparison base as well, plus, as I said, during the European alliance negotiations while overall very successful. We did have to forego one retailer to hold the line on pricing. Excluding this impact, Q2 growth would have been plus 4% and the first half negative 1%, with most of the impact coming from Aperol. On a positive note, starting growth is now contributing 9% of sales, and it continues to grow very strongly. This brand, which has only been in Germany until this year is now being rolled out to other countries like Italy, following strong pilot tests and we'll share more about this in the future as part of our broader aperitifs play. In France, the environment remains subdued, but our performance is accelerating with plus 3% growth in Q2, mainly driven by aperitifs. The U.K. performance remains solid. We registered double-digit underlying growth, driven mainly by Aperol and Aperol Spirtz as well as Courvoisier benefiting from a new marketing campaign that I'm sure many of you will have seen in London. Any other countries in EMEA, which contributes 16% of our overall sales, there's an acceleration to double-digit growth in Q2, driven by almost all countries, especially Global Travel Retail, Greece and Belgium and the bulk of growth is coming from aperitifs and Courvoisier. Moving on to APAC. Our growth was plus 4% in the first half. In Australia, we had a plus 10% growth in the first half and it was driven by market outperformance in aperitifs with ongoing focus on accelerating on-premise activations as well as the Espolòn bottle RTD, which is now the #1 among tequila RTDs. Wild Turkey, bottle and RTD also contributed off an easy comparison base. And you don't see it on the page, but also the sell out dates confirms the trends with solid growth, especially driven by Aperol, which grew 24% in the first half. In the rest of APAC, we saw resilient trends in Japan, South Korea, China and New Zealand, benefiting from increased focus on direct markets, offset by negative trends in other markets where we don't have a direct presence. This is a region where we've recently made route-to-market investments, as you know, and we will progressively see the benefits in the upcoming periods. Okay. So let's move to looking at the houses, and let's start with the house of aperitifs. Here, we recorded a plus 2% growth in the first half with an improving trend heading into the peak season. Apple recorded an improving trend in Q2, supported by growth in both the Americas and EMEA. And if we look at H1 growth, it was mainly driven by the Americas at plus 8% with a small positive in the U.S. and strong trend in the rest of the region. In EMEA, there was a stable trend. Italy was flat while Germany got impacted by the delisting. The rest of EMEA recorded a plus 3% growth, mainly due to the U.K., Greece and other markets. For Campari, the trend was impacted by the high comparison base in Brazil despite a plus 8% growth in the U.S. and plus 1% in EMEA. Italy remained flat with recovery in Q2 while Germany, again, was impacted, but the rest of the EMEA have trended positively with plus 6% growth driven by acceleration of the Spirtz trend. For the remainder of the aperitifs portfolio, there was solid acceleration in Crodino, with resilient performance across EMEA, including Italy. Aperol Spritz has also started to gain traction on the back of the convenience trend. As consumers expand their consumption into new occasions. Other aperitifs brands, especially Sarti Rosa, continue to grow nicely and support our leadership position in the imperative category. We also want to quickly share the sell-out performance of Aperol in this period. In the U.S., the strong trajectory is continuing in the strategic on-premise as well as in NABCA. Also in the U.K. and France, we had a strong outperformance with plus 13% and plus 17% growth, respectively in Q2 in a muted market backdrop. Italy is growing in line with the category of a higher base and with encouraging performance in the early peak season. In Germany, the decline is higher than the category but off a very high comparison base for the prior year and for the reasons I've already explained. Overall, we're encouraged by the improving trend in early peak season. The weather has been far more supportive this year, and it seems to be continuing in Q3 so far. As I mentioned before, we continue to see double-digit growth in smaller markets across the world, giving us confidence in the geographic expansion opportunities. Okay. In whiskey, the ongoing soft trend in the core U.S. offset the resilient performance in APAC, especially in core Australia and South Korea as well as EMEA off a small base. Russell's reserve has been impacted by product shortages due to the strong demand on selected premium variants in this period as its popularity continues. The positive trend in Jamaican rums continued in Q2 with plus 5% growth despite the high comparison base as recycle the volatility that the hurricane caused last year. This is driven especially by Wray & Nephew Overproof, with ongoing strong underlying momentum. Having just seen the business on the ground in Jamaica and talk to many counterparts in government and in the trade, it's clear that this brand is truly part of the DNA of the country. In the House of Agave, there was an improving trend in Espolon in its core U.S. market, including recovery of the Q1 logistics delay impact, leading to a solid plus 12% growth in Q2. Growth was supported by Blanco plus 4% and especially by Repo, a plus 14% in the first half. And key Seeding markets also continued to grow off a small base, in line with our international expansion plans. Within the House of Cognac & Champagne, the ongoing negative performance in Grand Marnier was driven by the core U.S. market of a high comparison base, we are plus 20% for the first half last year and it was impacted by Q1 destocking and our focus on pricing in a highly competitive market to protect brand equity. The on-premise, which is core for the brand has been especially challenging with increased competition. Courvoisier recorded EUR 62 million of sales in the first half and was included in our organic growth as of May. We've started to support the brand in key markets like the U.K. and the U.S. with interim marketing campaigns, as I mentioned before. These are being done with a test-and-learn approach in a challenging category backdrop. On APAC, the brand strategy is still underway given the volatile external environment. And let me reiterate that this is important to consider this acquisition for the long term as the category is still witnessing challenges, including the impact of significant pricing and promotional competition. For the rest, I won't comment too much, just to note that 21% of our overall portfolio is classified as local brands given their geographic concentration. SKYY remains an important part of our portfolio. and Q2 trends are encouraging with ongoing growth in regions like the Americas and APAC. As always, I want to also share some of the highlights of our activations. And given the fact we're entering the peak season, the key focus for us has been aperitifs in this period. So let's start with Aperol. Some of you will have already seen this, I'm sure. But in mid-May, we launched a new Aperol global campaign, and I wanted to show you the short video here. It was 1 of our biggest over the last few years with the launch across 30 countries and a media budget of over EUR 27 million, of which about 60% has been spent so far in the season. Despite the short time since its launch in key markets such as Italy and Germany, we see positive initial signals of consumer traction and impact on brand image. So we haven't tried this before. We're going to see if this works, so please bear with us, but let's see if we can run the Aperol video. [Presentation] Okay. Hopefully, that worked. We didn't get to see it. So I'm really hoping it did. A great piece of campaign, and it's been very well received. So on the next page, we wanted to share with you 1 of our more innovative activations. At the beginning of this month, we held an Aperol Served Summer Stunt in New York. With a fleet of waiters, carrying trays of Aperol Spirtz across Manhattan and Brooklyn to 40 bars with a high engagement rate. This was amplified online through an influencer partnership with Charli XCX, and we didn't stop there. As always, Liquid to lips activations are critical. You don't see it on this page, we're activating 130 music festivals across EMEA, which is a 35% increase versus last year. In fact, 5 out of the top 10 festivals are new additions this year. In Italy, alone, the increase is also significant. We will activate at 31 music festivals this year compared to only 6 last year. In the U.S., we continued our partnership with Coachella for the third consecutive year, garnering 88 million social impressions. That some of these events we're also testing some new serving solutions to better cater our customers' needs. For Campari and said, 2 main highlights of the quarter. First was our partnership with Cannes Film Festival for the fourth year in a row. At the Campari lounge in the heart of the Palais de Festival, we welcomed over 70 top talents. And while on the beach, we hosted exclusive A-List after parties for the films premiering during the festival. The pinnacle of the event was the world premiere of Mads Negroni, Mikkelsen's reinterpretation of the iconic Negroni, and you see him in the video on the screen. The event was amplified online across regions through PR influencers and media activities, and we earned media was 3x what was achieved last year. The second activation was the Bartender of the Year awards in Milan. This event was held at a newly restored Torre Velasca, one of Milan's most iconic landmarks as a tribute to the city's creative spirit. In a weeks leading empathy event, over 50 of Italy's best bars created exclusive cocktails and gave consumers a chance to join the celebration and win access to this unique experience. With a reach of more than 13 million and extensive media coverage with over 110 articles, this reconfirms our established leadership in the on- premise. Lastly, Crodino, our non-alcoholic sprits, we are ramping up the activations. And for the first time ever, Crodino went on tour, brings iconic nonalcoholic sprits and Italian summer vibes to consumers in Switzerland, U.K., Belgium and Austria through its new kiosk format. Over 20,000 Crodino non-alcohol spirtz were served and the events were further amplified by digital media, influencer campaigns and on-premise activations. On top of this, we launched Crodino for the first time in the U.S. during the quarter. We'll give you updates in the upcoming period also on this -- it's still early days, but we're already seeing some positive traction. So before handing over to Paolo for the P&L and balance sheet section, I'd like to give you an update on our key strategic priorities. We will hold a strategy session in person on the sixth and seventh of November in Milan, which I hope many of you will be able to attend. Given the market uncertainty, we've chosen these dates after the Q3 results where we'll have higher visibility for the upcoming year. Moving to cost containment. You can see that in Q2, there was a visible slowdown in the pace of SG&A growth and we expect the declining trend to start as of Q3. Therefore, we are on track to achieve our target of 50 bps benefit on sales in 2025 and 200 bps benefit in 3 years. On portfolio streamlining. We've achieved significant progress with the announced sale of the Champagne&Vermouth and Sparkling Wine business, which made up 2% of our sales and was margin dilutive. The sale for $100 million, and on top of this, we have transitioned production and distribution agreement following the close, which will contribute to our perimeter for a period of time. This sale, together with the previously announced disposal of the bottling plant in Australia and the streamlining of our agency brands means that we have so far divested circa 3% of our sales, which were at lower profitability. As a result, the local brands portfolio share of the total group sales decreased from 25% to 22% on a pro forma basis. and any additional potential disposals will be based on optimizing the potential proceeds, and I can say that more conversations are ongoing. Okay. I'm going to hand it over to Paolo now. Paolo?
Paolo Rinaldo Marchesini: Many thanks, Simon, and hi to everyone. Let's start by looking at our EBIT margin dynamics. In the first half of this year, we recorded a resilient gross margin while our disciplined approach to structural cost was broadly offset by brand building investments as we had planned in Q2. In terms of gross margin, H1 was up 40 basis points with an acceleration in the second quarter of positive 70 basis points. This was mainly due to the phasing of input costs and especially Agave. Espolon gross margin, in fact, is now above 55%. Overall, we maintain our guidance for input cost benefit of EUR 20 million for the year, but the benefits have faced faster into the second quarter of this year. Our figures are now incorporating the first impact of tariffs starting from April of EUR 2 million. We will discuss further the potential for real impact in the guidance section. But I can say that there is a wide range of potential impact from a minimum of EUR 4 million, assuming EU tariffs are lifted and Canada and Mexico exemption is maintained to a maximum of EUR 45 million in fiscal year 2025. On A&P, we had a step up ahead of the peak season and A&P to reach 18.8% in the second quarter. As Simon mentioned before, this was mainly focused on aperitifs with significant acceleration compared to past years, also benefiting from better weather conditions. The first half figure is a 16.6% as we continue to invest behind our brands. Our full year guidance stays at 17% to 17.5%. As you all know, our cost containment efforts are continuing and becoming more and more visible. In the second quarter, we had less than 1% organic SG&A growth. In H2, we will start to see a declining trend in absolute terms, and we confirm our 50 basis point accretion guidance on a full year organic basis. As a reminder, the full plan foresees 200 basis point improvement over 3 years. Accordingly, EBITA adjusted was realized at EUR 351.8 million in first half. Within this, there was a positive contribution from perimeter of EUR 1.8 million, driven by Courvoisier until April, net of [agency] brands and FX impact of EUR 10 million, which was mainly supported by the devaluation of the Mexican pesos. Given the current evolution of the currency, we foresee that the negative impact of weakening in the U.S. dollar in H2 will be around EUR 5 million at EBIT level. Let's move on to look at our overall P&L with a few comments. So far this year, operating adjustments are contained at EUR 10.8 million mainly driven by the impact of the Australian Derrimut plant disposal in the first quarter of this year that we have already mentioned in the past. In Q2, the operating adjustment were only EUR 3.8 million. On financial expenses, we recorded EUR 50 million in the first half, and this is on track with our expectation of EUR 105 million to EUR 110 million for the full year. The increase versus first half 2024 was driven by the higher average net debt of EUR 2.4 billion versus EUR 1.9 billion last year. For the average cost of net debt, which is at 4.3% versus 3.7% in first half last year, we need to remember that last year's figure was artificially low given cash ahead of the Courvoisier closing, cash coming from the rights issue. Adjusted first half 2024 would have been 4%, which indicates a relatively flat trend in financial expenses and coupon. Recurring tax rate is relatively stable at 29.2% with a decline of 10 basis points versus first half of 2024. Whilst the recurring cash tax rate is 26. 9%. On cash flow, the positive trend remains in place, also positively impacted by EBITDA growth of 5% on a reported basis, 2% recurring. Recurring cash flow from operating activities before operating working capital organic change is stable at EUR 397 million. This means that free cash flow conversion before operating working capital change is at 71%. So very high conversion rate. In the same period, recurring free cash flow is at EUR 113 million, down only EUR 18 million versus first half 2024. Recurring free cash flow conversion is at 27%. On the reported free cash flow, we are at EUR 35 million positive versus a negative EUR 60 million in first half last year. This figure includes extraordinary CapEx of EUR 39 million, mainly related to the capacity expansion program and ESG initiatives. I will mention more on this on the next page. Therefore, you can see that we maintain our cash-generative profile, as we guided in past calls, operating working capital trend has stabilized and will continue to be relatively stable. I will finish this page to summarize the evolution of our balance sheet key indicators. Solid operating working capital management is continuing with operating working capital as a percentage of net sales, down from 59% in first half last year to 51% this year. Here, seasonal trends are important to remember, given operating working capital buildup for peak season amounting to EUR 187 million this year. Last year, there was also the impact of the safety stock buildup ahead of the opening of the Novi Ligure Plant expansion. Compared to the end of 2024, we see some increase, which is related to the buildup of finished goods safety stock in the U.S. ahead of tariffs. On CapEx, maintenance CapEx is at 3% of sales, relatively in line with the envisaged run rate of 4% for the full year. On extraordinary CapEx, our capacity expansion plan is continuing but will end at the end of this year with a tail of EUR 160 million in the second half of this year and reaching a total of EUR [200 million] in the full year 2025. Last year base was higher mainly due to the one-off acquisition of the quarter building. I mentioned already cash flow, so I will not go into details here instead. On leverage, we are at 3.2x versus 3.5x after the closing of the Courvoisier acquisition in May last year. As we progress, our target is to improve this ratio further. Net financial debt is at EUR 2.4 billion, which is relatively stable versus December last year. And with that, I will hand back over to Simon for the guidance.
Simon Lynsay Hales: Great. Thanks very much, Paolo. I started this year by saying it was going to be a transition year, and this is based on our view that cyclical pressures would persist. In fact, our crystal ball seem to be bang on. And the environment is one of the most complex any of us has gone through in certainly recent memory, and there is still very low visibility. It's early days, but we do see some encouraging signs with improvement in sellout in almost all of our key markets, and our continuing outperformance versus the sector and our peers. For us, the Q3 peak season performance will be fundamental for clear visibility for the full year, and we're putting all the necessary measures in place to make sure that we're well positioned. As a result, we continue to remain prudent with focus on what we can control. And as you see, we are delivering against what we told you we would. For the full year, our previously provided guidance remains the same. This means moderate organic top line growth and flattish EBIT adjusted margin before tariff impact. As a reminder, currently over the first half, we have flat top line, a negative 130 bps EBIT-adjusted margin. Recognizing the benefits we expect to flow through in the second half, we see no reason to change our guidance. The potential impact from tariffs is not included in the guidance I just mentioned. In fact, on tariffs, there is still uncertainty as there has been for the last 4 months. And the expected negative EBIT impact in the 2025 year ranges, as you heard from circa EUR 4 million up to, depending on the assumptions, EUR 45 million, and that is if Europe is set at 15% and the exemption of Mexico is removed. So we recognize it is difficult to forecast this, but we respond as quickly as we get the information that you do. Regarding FX, the weakening of the U.S. dollar may post some potential additional negative impact for the second half of the year, while perimeter impact is expected to be negligible. Regarding the medium and long-term outlook, we confirm our previous guidance. We are confident for the future. As I mentioned before, we will come back to the market with more details at the beginning of November in a dedicated session after we get through Q3. So to summarize the first half, we are maintaining our guidance for the year while we progress as planned in the key areas. We've got continued relative outperformance in sellout. We continue to manage the deleverage trend. We continue to do acceleration in SG&A growth, continued focus on commercial excellence, and pricing discipline, and we continue to streamline the portfolio. So let's close there. And now we'll open the floor up to any questions.
Operator: [Operator Instructions] The first question is from Sanjeet Aujla, UBS.
Sanjeet Aujla: Simon, Paolo. A couple of questions from me, please. Firstly, on the U.S. Can you just talk a little bit more where you are on inventory levels? I think you called out destocking on Grand Marnier. Are there any other brands in the portfolio where you feel your inventory levels are out of sync with the current rate of sell-out? And just on that, would you expect sell-in and to allow to be aligned in the U.S. as we look into the second half of the year? My second question is on Italy. Can you just talk a little bit more what you're seeing in the on-trade channel specifically? I think you highlighted very well the off-trade channel trends, but I'd love to get your take on trade, what you're seeing there in Q2 and at the start of Q3, please? And just maybe a broader comment on on-trade channel in the rest of Europe.
Simon Hunt: Sanjeet, very happy to. Look, in terms of the DOIs in the U.S., our forecast on this is we're staying flat. We didn't increase any inventory, I know some of our peers did. In our first half, our numbers are broadly flat on where we finished out the year. I think on Grand Marnier, to be honest, we've got some challenging trends at the moment. So we're probably going to be a little heavier, but we're not building lots of inventory on that. Our focus is really just executing on the on-premise, really getting behind the [grand margarita] during the season and driving the [ hell out ] of. More generally, in terms of our forecast and the way we look at it is that ultimately, ships and dips are aligned is the forecasting that we look at. So from that point of view, we don't want to be building wholesaler inventories. We want a consistent performance flowing through the whole value chain. Having in Italy, on the on-trade, we are positively encouraged by what we're seeing in the on-trade. Couple of things, and this is maybe -- it's -- we're seeing it in Italy, but we're seeing more generally across both the U.S. and across EMEA. As the teams are out in the on-trade, they're hearing that traffic numbers are actually quite positive. There's some research that's been done that says 21% of people are encouraged to go out more, whereas only 9% want to go out less. So there's a positive swing in that. But what we are finding is why people are going out and traffic numbers are up that they are definitely affected by the economic situation in a number of these countries. If you take the savings right across Europe, we're seeing less disposable income going into the on-trade as people moderate their spend in the cycle that we're in. And so as part of that, if you imagine -- if you go out and you have 2 drinks instead of 3 that may not sound like very much when you roll that into a demand signal for a business like ours in Italy, it's a fairly big shift, just simply based on someone saying, I'm only going to spend money on 2 drinks instead of 3. So I don't believe there's any on the brand side or fundamental on it. This is purely around economics, and I think we will come out the other side of it.
Operator: Next question is from Simon Hales, Citi.
Simon Lynsay Hales: So just a couple for me, please. Simon, can I just sort of follow up on. Some of your comments generally about the accelerating trends I think we saw in many markets in Q2, particularly as you referenced in Italy and the U.S. Can you just provide a little bit more color perhaps how the quarter developed itself. I don't know if you could talk to maybe some of the exit rates what you saw in June when we were seeing some of that better weather finally sort of picking up in Europe? And how has that translated in the sort of directly into the early July positive trading you sort of referenced. And then just secondly, just a quick one on the U.S. logistics issue, which obviously hit Q1, and you got back most of it, I think you said in Q2. How much is left to sort of flow through in Q3, please?
Simon Hunt: Sure, Simon. I mean I think in terms of the overall improvement in trends, I mean the key thing for me is the outperformance. We all know it's a tricky market. We know consumers are being cautious on how they're spending. But if you look at our performance versus the sector, whether it be U.S. on-premise is we're up plus 5, the sector is down 2. You look at Aperol, where plus 23, the sectors is at plus 2. On NABCA, we're plus at 10, sectors at plus 2%. In Italy, we're at plus 3 against the sector that's flat. We have multiple markets, and these are big important markets for us that we continue to do very well in. So I think it's -- for me, it's about the relative outperformance. That is one of the key messages that gives you a bit of confidence heading through Q2. In addition to that, as I said in the prepared remarks, we've got over 13 countries that are growing double digit. And to be honest, I don't see many of our competitors doing that at the moment. So it gives me a lot of confidence in terms of what we've got and how we're executing. I think in terms of the shape of the development through Q2, clearly June was a big peak. We saw the weather improved. We saw the launch of the new campaign and a lot of our A&P that Paolo was talking about that upweighted A&P really kicks in June. So I think through June and then I think that was the start of positive trends, and we've seen those positive trends continuing into the beginning of Q3. What's the second one?
Paolo Rinaldo Marchesini: Logistics.
Simon Hunt: Yes. on logistics, yes, I mean, there is some delay that we had in [indiscernible]. I think we're enacted how do we recover that in the second half. We think we've got about 5 or 6 back in the first half, and we need to recover the same again. In some cases, I mentioned we had some glass supply on American Honey, where we did actually hit out of stocks. So that's more difficult for us to recover. But on the other ones, I'm confident that we'll be coming out in the second half.
Operator: Next question is from Andrea Pistacchi, Bank of America.
Andrea Pistacchi: So firstly, just a broad question on how you see sort of the next few months. I mean, Q2 was, I mean, very solid even when you exclude the technical effects, include visibility is still poor you said you'll have better visibility at the end of Q3. But yes, when you think geographically, what are you more, less confident on? I mean, in Italy, you've got an easy comp now in Q3, given also the destocking? And how sort of wholesalers feeling in Italy after what happened last, last year when they were caught out. There was a lot of destocking in Q3 last year. So regionally, where is your level of confidence? And I just wanted to ask something, please to Paolo about tariffs and potential mitigation. If we take probably the main tariff U.S. to Europe, assuming that 15%. I think you said EUR 20 million impact would be for this year and then a EUR 35 million annualized. That is before any mitigation how much do you reckon you could potentially mitigate of this? And if I may squeeze in another quick one, please. It's on Sarti Rosa which you're rolling out more. So how are you thinking about timing of going into new market pace of that? And how you're sort of positioning it? Is it more of a female SKU? How is it different from the rest?
Simon Hunt: Sure. I mean I think it's a difficult question to answer in terms of the confidence from a geographic point of view. As you've seen in this first half -- we've seen some good growth across most of our major markets and our performance across most of our markets. So I mean, I think some of the things that we're looking at are more related to the consumer behavior and that confidence. So as I said, when we look at the consumer confidence, the savings rate, the disposable income in Europe, it's still a challenging environment. And at the moment, as I said, we're seeing probably Germany be the poster child for that consumer behavior. And so we've got to watch that pretty carefully. I think your question around wholesalers in Italy, I think they're positively responding to the increased activations that we're doing -- we're upping the support for the brand. They're seeing that. They're seeing a new TV campaign. And I think just they're encouraged by what they're seeing in terms of the execution on the on-premise. I think if we jump over to the other side of the Atlantic, look, it's still highly volatile. We all are trying to predict what's going to be next. And let's be honest, it's pretty difficult to do that. So the impact that has on consumer behavior in that uncertain environment, again, as I said in the on-premise, there's still, I think people are going out, but they may be on a little less as a result of the concern around employment, the impact of tariffs, inflation coming through and just for the geopolitical impact. So it's -- I wouldn't say there's a region I'm more confident or less confident on. What I'm looking at is really what the consumers are doing and making sure that we're executing brilliantly. So when they are out, their first choice is one of our brands.
Paolo Rinaldo Marchesini: Yes, vis-a-vis the tariffs, the 15%, the number is correct, is confirmed because it seems that there are ongoing negotiations still for this year is EUR 20 million. and EUR [35 million] for the next year. So basically, the potential of sites might be just 2 of them. One is production delocalization in the U.S., but in a very volatile environment when every other day, there is a new news on tariffs, you were not planning any move in that respect, which would, in any case, take time to be implemented. Why the second measure might be price increase. But given the current environment in the U.S. of relatively low consumer confidence and contained disposable income were not thinking at this stage to take a price in a meaningful manner in year 2025, then 2026, we'll see.
Andrea Pistacchi: Okay. So yes, sorry. No, just to finish on that. So those numbers that you're giving in the short term, they are -- I mean the gross numbers, but that would probably be not far away from the impact you get in the short term, if those tariffs are concerned then?
Paolo Rinaldo Marchesini: Yes. In the short term, the impact is as big as the amount of the tariffs that we have highlighted.
Simon Hunt: Andrea, one of the areas on that, and I think this is quite important is actually the tariffs is only one part of the story from a consumer point of view. But the current devaluation of the dollar means that if you're running at a 10% or 15% or 20% or whatever the tariff range is, you've then got a negative FX impact on it as well, which means that the ability to offset some of this is quite limited. But in answer your question on Sarti, we're really encouraged by what we're seeing at the moment. It is at a premium price. It is a fantastic exotic liquid in terms of passion fruit and blood orange. And of course, it's bright pink. So it's not skewed towards the females. It's skewed to people that enjoy the exotic taste of Sarti with a brand that increasingly, we're building more and more relevance with. So we're in Italy. We're in Germany, we're in France, we're in the U.K. And we're just getting going with it. But so far, it's pretty encouraging because it is absolutely incremental to what we're seeing within that split segment.
Operator: Next question is from Mitch Collett, Deutsche Bank.
Mitchell John Collett: At the full year results, way back at the start of the year. I think you had a line in your guidance about an improving trend in the second half of the year. And I don't think that's in today. So I just wondered, is that because 1H was a bit better than you thought? Or perhaps is that because of limited visibility, tough market conditions? Are there reasons why maybe you're a bit more cautious now than you were then. And then I guess I hear a bit in the industry press about [Audio Gap] optimistic about going forward? Or is it broadly irrelevant?
Simon Hunt: Sure. I mean I think in terms of the improvement in the second half, I think, look, generally, I think the entire industry is hopeful for that, given the fact that it's been a pretty bumpy 12 months for the whole industry. I think in terms of our guidance, I think it's in there. We still believe that we'll see an improvement in the second half, driven by some of the margin accretion that will come through the SG&A savings we've already indicated. So I wouldn't see any change in terms of that. I think on the second one, the best thing about Aperol is the fact that people are experimenting it as well. We have our core range that works really, really well. One of the things on this is that the bartenders get behind it, support it because they see what we do and then continue to experiment. So that's while several different versions that we've seen, and we'll see how it develops.
Operator: Next question is from Edward Mundy, Jefferies.
Edward Brampton Mundy: I've got 3 brand questions, if that's okay. The first is on Aperol with your new campaign. I was hoping to sort of get a bit more context sort of what you're hoping to achieve through it, what type of sort of fresh thinking are you able to bring to the brand. Clearly, Aperol has got very strong brand equity. What is it that you're sort of hoping to achieve through that campaign? The second is on Courvoisier, where you saw some growth within the U.K. with a new marketing campaign. Again, what's behind that? Is it a brand refresh? Is it packaging? What are the sort of attributes you're trying to get behind that, Simon. And then the third one is on Crodino and this other priorities category that's seeing very strong growth. Could you perhaps some pick which was the growth rates within that? Is it or Crodino, is it Sarti Rosa is it the RTD Aperol Spirtz, what is it that's really driving that growth?
Simon Hunt: Sure. I mean, starting off with the new campaign. This is the first time that I think we've gone out and really use the campaign to show the occasion. So this is about driving relevance frequency and really championing the occasion that is uniquely a talent but aspirational even if you're not at selling. And I think that was the key message we're trying to get through. We put in some new rigorous testing now on all of our advertising. And this ad tested extremely well in terms of relevance and in terms of brand fits. So from that point of view, we're very confident, which is why we doubled down on EUR 27 million spend behind it, which let's be honest is not main significant amount of money. So I think from that point of view, very keen on it. The key thing on this is we'll then see what we learn from it as we finish the campaign through the peak season. But as I said in my comments, I think the response to it has been very positive. And on -- certainly on some of the social media tracking, we've seen some good support for it coming through on that side. Secondly, on Courvoisier in the U.K. As we said when we acquired the brand and my comments back at the beginning of the year, this is something that's going to take some time. We are operating in a category that has seen its 2 biggest markets, U.S. and China have an extremely tough time. And so we are testing some different interim marketing campaigns. So we have one in the U.S. that is slightly different than we're testing in the U.K. But what it is giving us is it's giving us some noise and support for the brand because the brand really hasn't had very much. And as a result, I think we're seeing positive response and just enthusiasm for what is a much loved brand in the U.K. getting some attention again. So I think that is what's really helping there. I take the learnings from those 2 campaigns as we shape the broader reset that we're still working on, given how dynamic the category is and also making sure what we come up with is truly ownable by the brand and different from the category. I think the final one is in terms of the growth on the other properties. There are 3 brands that are really driving it now. Number one is driving it Sarti. It's now 9% of our sales in Germany and continued double and triple-digit growth in many of the markets it's in. We've seen positive response behind Aperol Spirtz where we've seen a shift towards that convenient format opening up new occasions. I think it led to sums off the top of my head are running at plus 18% to give you an idea. So you're seeing a bit of a switch but another angle to the Aperol brand playing in occasions we haven't been able to play in, in that convenient space. And then the third one has been Crodino, where we've seen positive response in Italy to some of the TV campaign we've been running there, but also a positive response to the launch into new markets where the nonalcoholic splits and the unique liquid that we have with Crodino is starting to build traction.
Operator: Next question is from Trevor Stirling, Bernstein.
Trevor J. Stirling: My detailed questions have been answered, but maybe one overall question, Simon Compared to 3 months ago when you last talked to us, what has gone better than you expected over the last 3 months? And what's gone -- what's disappointed you?
Simon Hunt: Good question, Trevor. What's excited me is when I wake up and see the sun on a Friday, that really makes me very happy. That's one thing. And [jagging] aside, look, the weather has helped, but actually what I'm probably more positive on it is the focus of the team behind the execution during this peak season. We are better organized, better targeted and executing better than as I understand that we've ever done before. And I think that's what really gives me some enthusiasm behind it. It's also, I think, realizing the potential that we have with this portfolio and actually seeing how -- when we start getting other consumers introduced to it, whether that's in Australia with a plus 24% both or in Thailand or in South Africa, or in Argentina, you're seeing a universal appeal for what it is we do. And that for me is really pretty exciting.
Trevor J. Stirling: That's particularly on Aperol when you refer to that?
Simon Hunt: Yes, it would be. But also, as I said, the growth that we've seen on Sarti on Crodino, on the Aperol Spirtz as well and also on Campari. I mean I think -- so from that side, I think it's been very positive. I think the fact that we're holding pricing discipline on Espolòn on repo is important. It would be very easy to follow some other people down on that. We don't think that's the right way to go. We are the company wants to take a long-term view. And really, it takes a long time to get those prices up. And so we want to hold that pricing as long as we can in a very competitive environment. I think the worst thing at the moment will probably be the volatility that we're still seeing because as a result of geopolitical events and also that the impact it has on consumer confidence and people getting out. I think we are seeing people going out. But it's -- as I said earlier, it's just seeing a more discretionary spend when they are out. We're hearing this from the on-trade. We're hearing this from restaurants. And as a result, it's just a bit different. It's also the uncertainty of tariffs, Trevor, which again keeps going up and down as I know all of you have been modeling this -- every week, something changes. So I think hopefully, we're starting to get to something that eventually we all know what it is, and we can then plan around, but it is quite disruptive.
Operator: Next question is from Javier Gonzalez-Lastra, Berenberg.
Unidentified Analyst: I had one question on Agave. I was hoping you could help us understand better how much of the benefits from lower Agave prices already in the base. And how much is still to come as supply contracts continue to roll over? And linked to that, are you reassessing your self-sufficiency ratios now that Agave prices have come down, and I guess the value of land is probably reflecting that?
Paolo Rinaldo Marchesini: Yes. On the -- yes, on the Agave price, we've originally guided the market towards potential tailend effect of EUR 20 million for year 2025 due to the Agave spot price coming down below -- well below the [indiscernible] per kilo. The point M&A is the phasing of that [benefit] that is more front-loaded than we thought, and we've seen that in the gross margin expansion of the second quarter of this year. But that said, we confirm the original guidance of that of those EUR 20 million with clearly, on the other hand, a risk, there is more than a risk due to the tariffs, which now seems being defined at 15% on EU imports and Mexico and Canada to be understood. And the thing is that clearly, the third quarter of the year is still a quarter that is extremely important for the aperitifs, which had opportunities and briefs sitting in that vis-a-vis the sales mix. So basically, the point is that there's no change in guidance vis-a-vis what we've announced 3 months ago. The Agave price stays very, very low, for coming years, there might be minor tailend effect of that, but we need to understand how the current negotiations with the local suppliers would end up. By year-end, we'll be more precise vis-a-vis 2026.
Unidentified Analyst: Okay. On the second part of the question on the self efficiency ratio.
Paolo Rinaldo Marchesini: On the line, we're in a good spot. I mean, it's -- I think it's a buyer's market. So it's a market where we have access to what we need.
Operator: Next question is from Laurence Whyatt, Barclays.
Laurence Bruce Whyatt: A couple from me, if that's okay. I remember historically, in Italy, whenever there was a sort of economic weakness in consumer somewhat weak -- it was often said that Aperol would benefit because people would use the sort of aperitifs moment to have [appeareth] moment to have tap and that was almost an affordable way to getting some food without having to go to our restaurants. I suppose at the moment, we don't seem to be seeing that effect with sales in Italy still relatively weak despite that economic circumstances. I'm just wondering if you think that's story still hold, do you think Aperol is a beneficiary in economic times for that reason? Or do you think that's probably perhaps a little bit old now? And then secondly, just on Cinzano just wondering your rationale of selling that brand and, of course, it can be used as an ingredient in one of your core cocktails. And just thinking about are there any other brands or how you're thinking about disposals going forward? What would the criteria be for any future disposals?
Simon Hunt: Sure, Laurence. I mean I think, look, in terms of Italy, I'm not sure I quite see the driving trend in terms of tougher economic environment in Aperol and [tapas]. So I think some people will do that without a doubt there'll be some people that would do it. But I don't think that's going to one 1 of the driving trends of the performance we're seeing on Aperol. But I'm sure there is some of that behavior going on. In terms of your question around Cinzano, Look, as I said upfront the priority on this is that we want to delever and we want to streamline the portfolio. So by going down the disposal route, allows us to do both things. And not only is it in terms of the cash contribution by streamlining, we can get our leverage down. It's also the sheer complexity that we have with a portfolio that most of the brands that we're looking at are significantly margin dilutive. In terms of having a brand that is one of the key ingredients in a Spritz, yes, but there are also a lot of other brands as well that we've worked with in different markets around the world. So we didn't see that as a key reason to keep the brand from a geographic expansion point of view, some core markets on it that didn't really help us with some of our other ambitions. And we found a great home for the brand with someone who will passionately build it and take it forward. So we think it's actually a really good fit. And ultimately, on this, while it's got an impact on the top line, it was significantly margin dilutive as well. So in terms of looking at the other brands, there are brands in our portfolio that would have similar roles. And unless we can see real global potential, margin accretion or development of margin accretion or a strategic role for the brand, then we're looking at it saying, okay, some of the brands that we've acquired in the past were bought for a particular reason to give us strength in route to market or something like that. And as the group is growing, it's just those have become less important in terms of the role that they play. And so that's really what we're looking at. Cinzano was absolutely an example of that, where we bought as a route-to-market enabler for the rest of the portfolio way back. And so really, it's looking at brands like that and saying, which ones potentially do better in someone else's portfolio.
Operator: Next question is from Chris Pitcher, Redburn.
Chris Pitcher: Just questions on Courvoisier how that's playing out through the business. If I look at the disclosure on the house of Cognac & Champagne. Courvoisier in the couple of months that you consolidated organically must have contributed EUR 14 million, EUR 15 million of organic sales growth as you're cycling what was a very disruptive period and a huge amount of destocking. I imagine you've probably got that in the second half to benefit you as well. In terms of the underlying, you touched on it, but in terms of the underlying health of the brand, it's probably too early to say, but can you just -- can I just confirm I've got those maths right. And then secondly, sorry, in terms of following on really from Trevor's question, I mean in terms of what's taking up most of your time, that house the house of Cognac & Champagne has probably got the most capital tied up in it of the business. And based on the numbers today, is the one that's probably performed some of the weakest. Is that taking up more of your time? I appreciate you've got a very well-equipped board to help around that as well. But can you just give us a bit of sense how you're addressing that house?
Simon Hunt: Yes. I think I'll hand over to Paolo in a second in terms of a specific question. But I think, look, ultimately on Courvoisier, we've got to recognize this is a brand that has not had a whole lot of attention in nearly 20 years. And so where we are starting to do stuff, we see a positive reaction to -- it's a brand that has got fantastic liquid. It's a got of great provenance and -- but a lot of the consumers don't know that much about it. And so we've got work to do on it. So Paolo, do you want to take the question around how much was in the first half and second half?
Paolo Rinaldo Marchesini: Yes. I mean the organic growth due to Courvoisier EUR 14 million, EUR 15 million. Clearly, built on a very low pace. As you know, last year, the first-time consolidation of Courvoisier led to a very soft start to year. In H2, I think we're not planning passive organic growth on Courvoisier. And there is, I think, a question vis-a-vis the business model of houses of Cognac, which is quite intensive in terms of capital needs. This is structural to the house. Clearly, we can finalize the strategy on Courvoisier and we will better define with long-term forecasting the needs for other brand. We will -- we took and adjust the liquid profile. That said, we do not envisage at this stage significant changes vis-a-vis aging inventory on Courvoisier brand.
Simon Hunt: As we say, Chris. I mean ultimately on this, this is a long-term play. This is going to take time. It has not had a whole lot of attention. And so on 1 side, you could see it getting a lift pretty quickly, but this is a category that is also pretty tricky at the moment, particularly given what's going on with some of the pricing in some of the key markets. And so I think I answer your question, what am I working on? Yes, that's part of it. A big area of focus for the last 3 months has been looking at the portfolio, understanding the interrelationship between the brands, working with the team to develop a new strategy, which we were keen to take you through more in November. Looking at the geographic expansion opportunities, the penetration opportunities in major markets. Now looking at the team and then also looking at the culture, which is, for me, one of the big things that really does make Campari unique. We have an amazing team of Camparistas who are passionate in a way I haven't seen any 4 other companies that have worked out in this industry. So what's taking my time at the moment putting all that together to say, right, how are we going to win? What does it look like? And where are we going?
Operator: Next question is from Gen Cross, BNP Paribas Exane.
Gen Philip Cross: Just one question from me. You just talked about your strong competitive performance in the U.S. But obviously, the industry is still quite challenging. So I just wonder if you could talk us through what you're seeing from competitive and promotional dynamic in the market? Have you seen any significant change sequentially versus Q1.
Simon Hunt: Sure. Gen, I think, look, ultimately on this it is a very competitive environment at the moment. As you know, as you all have heard from our competitors, where the market is not growing and it's flat or slightly declining, then everyone is having to -- it's a market share fight. And as a result, you're going to see people that are taking very short-term decisions around aggressively going after volume and people like us that are going to be more balanced in terms of saying we will promote when we need to promote for our consumers. But ultimately, on this, we don't want to simply try and hit the volume target. We want to keep the value in the brands that the team has successfully built up over many years. So I'll take an example of a tequila in the U.S. At the moment, we're seeing a pretty aggressive pricing going on in Blanco and you're seeing a number of people get very aggressive. We are not. We're dipping in where we need to in certain states, in certain channels. But we're also holding pricing discipline in repo, and we're still holding and we're still getting the volume growth. So with all these things, I think there's always a bit of a balance. But I think the thing that price separates what we're doing is I think the benefit of our shareholder structure is we take a long-term view. It's taken a long time for us to get to some of these price points. And we're not going to give it up just because it's a cyclical impact that's economically driven in the U.S.
Operator: Next question is from Paola Carboni, Equita SIM.
Paola Carboni: Yes. I have a couple of questions. The first one is about Crodino. If you can elaborate a little bit more on your expansion strategy, and in particular, the format you are proposing in the different market. I mean from an Italian base, let's say, I keep seeing the small format, but I was wondering what is in place in the other markets? And if anything is going to change in Italy as well? And also what's your strategy for the U.S. market? How have you positioned the brand and whether you're going to follow something similar to the 3 stages penetration of Aperol, for example, or focusing just on specific cities and so on? And the second question is instead on your encouraging messages about the start of the peak season with aperitif, especially in EMEA and in Italy, just I mean to have a bit more color of what you are seeing in terms of selling but also sellout and whether you feel trade is building up inventory because of good weather because of I mean, hopefully a better season than the last couple of years? Or is also, let's say, a good start of the season in terms of sellout.
Simon Hunt: Yes. I mean I think, look, with Cordino, what we're doing at this stage is we're learning. What we've seen is the fact that the brand has this amazing heritage longer than pretty much any other nonalcoholic product by a long way in 1965 and this amazing Italian heritage that we know is aspirational. So we've been building on that and learning what is the right way for us to take this out of the home markets and really start expanding it. So we've seen some positive trends in the U.K. We've also recently launched, as I said, this quarter into the U.S. It's a 17.5% size is what we've run with. And really, we're testing in small stages and we're learning. So we don't have a full growth model like we do on Aperol yet, but that's something that we're going to continue to learn from as we roll the brand out. The non-alcohol space generally is a learning curve for everyone. And as a result, we're seeing how this fits in, what are the occasions, which consumers and what we need to do to really leverage what is a truly unique equity within the non-alcohol space. No one has anything like this. And so we think it's got legs for the long term. I think the second question around peak season, sell-in versus sell-out. I mean, as I said earlier, the performance in Italy for Campari Group generally is plus 3% in a sector that was flat to declining. So we continue to outperform, and we're seeing that really pull through into the important on-premise. So I think for a sell- in, sell-out, we're seeing matching, I'm not going to comment on July. But certainly through June, they were the trends that we saw.
Operator: [Operator Instructions] Mr. Hunt, Mr. Marchesini there are no more questions registered at this time.
Simon Hunt: Okay. Fantastic. Well, thank you very much for your time. We hope that we'll be able to see many of you in November. But in the meantime, if there are any other follow-up questions, please, again, get us the IR team directly. But thank you for your time.
Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.