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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Campari Group's 2018 First Quarter Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Bob Kunze-Concewitz, CEO of Campari Group. Please go ahead, sir.
Thank you very much, and welcome to all of you for joining us this afternoon. If you have our presentation under your eyes, I'd ask you to move on to Page #3 so I can start with the summary.
As you can see from the summary chart, our profitability indicators continue to benefit from quite a positive sales mix across key brands and markets. However, the organic top line was impacted by emerging-market softness as well as some expected phasing effects which, put together, are magnified on a small quarter. You will recall that on average, Q1 for us is about 20% of sales. And in many emerging markets, it's actually much less than that. So obviously, things will get magnified.
Looking at the results in details. Organic growth came in at 2.2%. Our Global Priorities were up 3.8%, with very good performances by Aperol, up almost 23%; Campari, 6.6%; Grand Marnier, edging up to 4.2%; and Wild Turkey at 6.2%. But these were mostly offset by double-digit decline, which we expected in the SKYY portfolio as well as a decline in the Jamaican rums portfolio, but I'll explain that later on.
Our Regional Priorities were down 1.3%, and this is due to the double-digit decline in the low-margin Cinzano portfolio as well as some Local Priorities. What's important to underline, though, is that the sellout data actually remains quite positive for our key brand market combinations and we continue to maintain a pretty positive underlying trend. Obviously, the exception is SKYY, but also SKYY had started to basically stabilize its progression.
On a reported basis, net sales are down 8.2%, but clearly this reflects the negative [ parameter, ] which is down 2.9%. But most importantly, the already flagged Forex, which impacted us by negative 7.5%.
Moving on to EBIT. EBIT adjusted, we had very good organic growth of 8.9%, with 110 bps accretion on sales. Clearly, the strong organic gross margin expansion of 250 bps helps more than compensate the phasing effects as well as the increases in A&P and SG&A expenses.
On a reported basis, we're down 5.1%, but still show a 60 bps accretion, taking into account the negative effects of disposals and Forex. Our EBIT grew overall by 30.2% to EUR 82.7 million, and this takes into consideration positive operating adjustment of EUR 21.6 million, which are driven by the capital gain on business disposal, particularly our carbonated soft drinks, net of some provisions for restructuring costs.
Pretax profit on an adjusted basis came in at EUR 54.9 million, up 1%, and on a reported basis, by EUR 76.5 million, up 42.7%. Net debt came in at EUR 938.7 million, which means we generated EUR 42.8 million net cash. Clearly, this takes into the consideration both the sale of the soda business as well as the acquisition of Bisquit and the purchase of own shares. Nonetheless, our net debt-to-EBITDA ratio is now down to 1.8x.
Moving on to the Chart #7, because the previous one will be commented in detail by market and as well as by brand. You can see how our overall progression shows the impact of Forex, negative 7.5%, as the progressive strengthening of the euro in the quarter against the U.S. dollar, the real, the Jamaican dollar, Argentinean peso and British pound obviously had an impact.
Moving on to Chart #8, not much news here except that, clearly, with robust growth on developed markets and weakness and phasing effects in developing markets. That ratio shifted a little bit, and we're up to 83% developed versus 17% on emerging.
Moving more into the detail in the Americas. We see that the U.S. had good growth of 3.5%. And this, despite a pretty tough comp base, you remember that last year, we were up 7.5% in Q1. Now the positive performance is driven by continued solid growth of Grand Marnier, Wild Turkey, Espolòn and Cabo; our tequilas are quite hot, and continued double-digit growth in Aperol and Campari. Clearly, these results helped offset the negative performance of SKYY, which continued to decline due to the persistent competitive category issues, particularly weakness in flavored vodka. Importantly, though, these effects were amplified by the distribution transition we had in Q1 2017 when we moved 17 states to Southern Glazer's Wine & Spirits and obviously there was a pipeline effect which creates a comp base.
Sellout trends though on SKYY are pretty stable at mid-single digits.
Jamaica did quite well, up 13.9% on an organic basis. The sustained performance is driven by Campari, which is growing at a high double-digit as well as Appleton Estate as well as some local brands. The [ off-setter ] in this case is Wray & Nephew Overproof, which in the comp base, discounts the fact that it was impacted by preloading in Q1 of '17 ahead of a price increase in Q2 '17. You will recall that in Q1 '17, White Overproof was up almost 37%.
Moving on to Brazil. Brazil is down 32.1%. Actually Q1 is smallest in Brazil, it's about 16% of the annual total. And it was impacted by both a comp base, last year we were up by close to 52%, 51.7% to be exact; as well as tightened credit policies on our part within the context of pretty challenging macro and political environment. We have temporary declines in SKYY, Sagatiba and Dreher but -- and we were not able to offset these by strength on Aperol, Bulldog and Cynar.
Argentina was down 5.2%. Again, here, key driver is macro weakness as well as our desire to tighten credit policies within the macroeconomic environment. Having said that, the underlying trends behind our brands are all pretty solid.
The rest of the region grew by 8.2%, with robust performance in Mexico, 8%; double-digit growth in Peru; whilst Canada was broadly flat.
Moving on to SEMEA, which was up 1.1%. Italy had a pretty good quarter, up 3.9%, very positive trends on Aperol and Campari as well as good trends on our single-serves. In this market, strangely, it was the only one in continental Europe which was positively impacted by the Easter shift. That helped as well.
If we look at the rest of the region, we're down 8.1%. The key driver here is actually South Africa. You remember that last year, we set up our new distribution platform in South Africa, and Q1 was a big pipeline-filling month. So if we look at the underlying depletions and actually consumption, we're actually growing very robustly, so we're not worried about that.
Other key markets, such as France, continued to grow nicely. Spain as well, Aperol and Campari, the usual suspects. And we're happy to note that Nigeria's back to growth, again driven by Campari as well as by SKYY.
GTR saw an overall flat performance, but that's on the back of a pretty tough comp base in Q1 of last year, where we've grown by 18.2%.
Moving on to North, Central and Eastern Europe, we're down 3.8% on an organic basis. Germany was down 2.6%. It was a weak start to the year. Aperol is growing very, very nicely, up 21% as well as Bulldog, SKYY, Grand Marnier and Wild Turkey, but from a lower base. But clearly, all those put together weren't enough to offset the negative performance of low-margin agency brands and sparkling wines.
Campari was also weak as we're putting more and more of an emphasis on the on-premise, and there's a channel mix effect here; whereas Averna was hampered by a significant price repositioning, which we took at the beginning of the year.
Russia was down 30.5%. Again, here, we have an unfavorable comp base. In the previous year, we grew by 86.5%. And added to that, we had the impact of price increase negotiations, which dragged on a little bit longer than we planned. Obviously, this is a market which remains volatile. Having said that, though, the sellout data remains positive across the portfolio.
Looking on to the rest of the region, we're up 6.9%, with robust performances across a majority of our markets and particularly the U.K., up 13%, again driven by Aperol, Bulldog, Campari and the Magnum Tonic Wine.
Running up the regions. Asia Pacific, which actually had a very strong quarter, up 17.8%. You remember last year, we had a weak quarter due to weather and competition-related issues. Having said that, we're continuing to take good market share across our portfolio, particularly very strong double-digit growth of Aperol, Campari; Wild Turkey is performing quite nicely; SKYY Vodka and Espolòn as well. Importantly, though, the Wild Turkey ready-to-drinks returned to growth, thanks to the pack size innovations introduced to the market. The rest of the region was up 44.8%, very positive performances in Japan driven across the portfolio. New Zealand also did very nicely. Clearly, here in the rest of the region, we're talking shipments, so these performances will even out during the rest of the year.
Moving on to the detailed review by brands. Aperol on Page #14, up 22.8%. Here, what continues to be very, very encouraging is the continued positive performance in core markets. Italy, Germany, Austria and Switzerland are growing high-single or double digits. And on the other hand, we had very, very robust growth across the rest of the markets and, in particular, we're happy to note in the U.S., which has now become our third largest market in value.
Campari, continuing to grow very nicely despite weakness in South America. You know that Brazil and Argentina are large markets for the brand. Despite that, we're up 6.6%, with very nice growth across markets.
SKYY, as I mentioned at the beginning, continues to be impacted by softness in the U.S., although the trends are stabilizing. And if we look at the latest NABCA, maybe there's some shimmer of hope. A little bit too early to say anything on that but, at least we've stabilized the trend. But clearly, SKYY was also impacted by the phasing as well as the weakness in emerging markets, as Argentina, South Africa and China are important markets for the brand.
Moving on to Grand Marnier, up 14.2% (sic) [ 4.2% ] . Here, the key driver is the core U.S. market. The brand is reacting well to our relaunch efforts. We're only at the beginning of them, so let's wait and see.
The American whiskey portfolio, doing nicely, up 6.2%, with practically strength across brands as well as markets.
The rum portfolio was down 4.5%. And here, it's a mix of things. Appleton Estate, doing okay. It's mostly Wray & Nephew Overproof, which is a sizeable brand in Jamaica. And clearly, the -- on a shipment basis, it is feeling the impact of the comp base. Nonetheless, from a pure consumption standpoint, the brand is trending very nicely.
Moving on to Espolòn on the following page, continued double-digit growth, up 28.8%. Very strong in the core U.S., growing at stronger pace, 35% and very nice trends across the markets. Obviously, this number would have been stronger hadn't we had the overall weakness in Russia, as Russia is quite an important market for the brand.
On the other whiskies, GlenGrant is being impacted from phasing as we're switching from unaged to aged variants, and we're allocation -- allocating available volumes. But it will recover during the year. Forty Creek is a tale of two differences, doing very well in Canada and poorly in the U.S., and that is something we're looking forward to fixing in the quarters to come.
The amari portfolio, relatively flat, with ups and downs across markets and brands. Clearly, the price repositioning on Averna, which -- in Germany, which is the second-largest market, impacted the overall portfolio. Whereas Frangelico is seeing nice growth in Spain and Australia, but is hit by temporary weakness -- actually more phasing, in the U.S. and German markets.
Moving on to round up the spirits portfolio, Bulldog Gin doing very nicely, growing 14%, with strength across markets.
Moving on to Cinzano. Now clearly, its 2 largest markets are Russia and Argentina, so this is impacting the brand. On sparkling wines, we have more of a mixed performance. But net and net, we will cycle this as we go through the year.
The rest of the sparkling wine portfolio was up 28%, with the Prosecco -- the interest in Prosecco in many markets in line with the growth of the Aperol Spritz helping drive the performance of these brands.
To round up the portfolio, Campari Soda, flattish, up 1.9%. We're seeing a flattening in Italy. We're just starting to pick up some momentum in seeding markets, particularly Germany and the U.K. And we're starting to see the same thing on Crodino. Italy, flattish, but very strong growth in international markets, where we're coming from a small base. But it's contributing nicely to the overall performance. It was a nice turnaround in our Wild Turkey RTD business in Australia behind innovation, whereas the Brazilian Local Priorities, Dreher and Sagatiba, are impacted by the overall environment as well as our tightness on credit.
Ouzo, relatively flattish, wouldn't read much into it as, in it's largest market, Germany, it turned around very quickly in April.
And Cabo is continuing to accelerate, benefiting from the tequila boom in the U.S., so net and net growing 27.2%.
This was it from a brand perspective. Now I'll let Paolo dissect the numbers.
Thank you, Bob. If you follow me to Page 21, we have the first quarter EBIT-adjusted analysis and its key drivers. EBIT adjusted came in at EUR 61.1 million, down 5.1% on a reported basis, but up as a percentage of sales from 17.6% of last year to 18.2%.
Looking at the organic performance, EBIT adjusted was up in value by 8.9%, well ahead of the top line growth of 2.2%, thus leading to 110 basis point EBIT-adjusted margin expansion. The EBIT accretion was achieved on the back of significant organic gross margin expansion of 250 basis points, totally driven by favorable sales mix, which was partly compensated by higher A&P investments, which accounted for 50 basis points negative and a higher structure cost on the back of investments in distribution capabilities, which accounted for 90 basis points across margin dilution -- sorry, EBIT margin dilution.
With regards to [ perimeter, ] in value, it generated a negative impact of 5.4%, or EUR 3.5 million in the first quarter. And FX had a negative impact in value of 8.5% or EUR 5.5 million.
With regards to the clean EBIT, it came in at EUR 82.7 million, up 30.2% after positive operating adjustments of EUR 21.6 million, driven by the capital gain from the Lemonsoda disposal, which accounted for EUR 38 million, and net of the recognition of provision for restructuring costs in the U.S. and Brazil.
EBITDA adjusted came in at EUR 74.7 million, down 5% in value on a reported basis and at 22.2% on sales.
If we move on to the following page more in detail. We can see gross profit on a reported basis was down 3.6% in value, but up 290 basis points on sales to 59.5%. In existing business, organic growth of gross profit was 6.7% in value or 250 basis points margin expansion, which is quite a remarkable result considering the last year, Q1 delivered 140 basis points across margin expansion over prior year 2016. So it's 250 over 140. The organic growth of gross margin was well ahead of the top line, thanks to the favorable sales mix by brand and market, with over-performance of the key Global and Regional Priorities in developed markets, such as Italy and the U.S., but I would also add the Aperol and the aperitif portfolio in Germany. That's leading to a reduction of COGS as a percentage of sales.
Forex and perimeter had a negative impact, but a meaningful one in value, 10.3%, driving 40 basis points of margin expansion, following the disposal of low-margin businesses.
The A&P on a reported basis was down 3.4% in value but up 80 basis points on sales to 16.1%. In existing business, A&P grew by 5.4% in value, thus leading to 50 basis points of EBIT margin dilution, and this is purely driven by phasing effects of our investments, more skewed now into Q1 as well as Q2 we'll see later, reflecting major investments in global brands, such as Campari and Grand Marnier. On the other hand, Forex and perimeter had a combined negative impact of 8.8%, driving 30 basis points of EBIT margin dilution, and again this is the technical effect of the disposal and deconsolidation of low A&P-intensity businesses like Carolans and Lemonsoda.
SG&A on a reported basis was down 2.6% in value, but up 150 basis points on net sales to 25.2%. In existing business, the SG&A growth is under control at 5.9% in value. We have 90 basis points of margin dilution. That is primarily driven by the soft start to the year with regards to the top line. So we expect, as the time goes by, the dilution will normalize. And of course, the dilution is reflecting in the quarter the full year impact of group investments in distribution capabilities that were completed as well last year, coupled with the disproportionate [ incidence ] of fixed structure costs on sales in a small quarter that, as we saw before, accounted for just 20% of sales last year.
Forex and perimeter had a combined effect of minus 8.5% in value and drove 60 basis point margin dilution.
If we move on to the following page, Page 23. We have the analysis of the consolidated P&L through pretax profit. We can see net financial charges came in at EUR 5.8 million in the first quarter of this year, down by EUR 4.3 million, and it is driven by 2 drivers. Number one, we had a reduction in the average cost of net debt from 3.1% last year to 2.7% this year, thanks to the successful execution of liability management transactions. And secondly, the average indebtedness decreased from EUR 1,195,000,000 to EUR 960,000,000 in the first quarter of this year. Group pretax profit came in at EUR 76.5 million, up 42.7% year-on-year. But once we take into consideration the nonrecurring adjustments, pretax came in at EUR 54.9 million, up 1% versus last year.
Moving on a couple of slides, Page 25, we have the analysis of group net financial debt, which decreased by, as we saw before, EUR 42.8 million versus December of last year to EUR 938.7 million. That number fully factors in the positive impact of the disposal of Lemonsoda business, which generated a influx of cash of EUR 81.5 million as well as the sale of the Bisquit business, which generated a cash outlay of EUR 59.4 million.
The long-term gross debt is still EUR 1,300,000,000, and that is currently paying an average coupon of 2.4%. The net debt-to-EBITDA ratio on a pro forma basis came down quite solidly from 2% to 1.8% (sic) [ 2x to 1.8x ], and that puts us in a very good spot to leverage our capital structure if we need it for future M&A activities. This is it on numbers.
Bob, I will hand it back to you for the new marketing initiatives section.
Thank you, Paolo. I'll quickly go through the initiatives and then we'll open it up to your questions.
Just to highlight, I'll kick off with Grand Marnier, where we staged the very premium event in New York for the relaunch of the new campaign and to set the standard for the look and feel for the brand going forward. It was very successful. We got a lot of social media coverage, and the campaign is on air right now. So, so far, so good.
Moving on to Campari. I think everybody's familiar with our short films now. What's important for the brand equity, we've regained control of the Camparino brand in the historic Vittorio Emanuele Galleria in Milan, and we will restructure this going forward and will become an important brand house for us, as Milan has become quite a tourist magnet in the last few years.
Last but not least, continuing to build brand equity, we've launched a very limited edition but highly sought after, by mixologists, called Campari Cask Tales, which is aged Campari in bourbon barrels. These went off like hot cakes. I think there's almost a black market for them at the moment. It is doing the brand a lot of good and there's more to come in following years.
The most important piece of news, though, is the launch a few weeks ago of our cooperation also on the brand and product and liquid side with Matthew McConaughey, where he spent quite a while collaborating very closely with our Master Distiller, Eddie Russell, and his signature -- the new cosign, let's say, bourbon Longbranch has been launched to very strong reviews, both from the trade press as well as bloggers and specialists. It was launched, interestingly, live on social media. Very interesting as a marketing exercise and very successful as well. And we've been overwhelmed by customer orders now. In the months to come, the jury will be in the consumers' court, but we're pretty confident.
So before opening up to your questions, just to summarize the overall Q1. As discussed, Q1 sales organic results were impacted by emerging market softness as well as some expected phasings which, put together, were magnified in the small quarter. On the other hand though, and more importantly, profitability indicators continue to benefit from a very positive sales mix by brand and market. On a reported basis, the positive underlying trends were impacted by the expected perimeter as well as Forex effects.
Looking into the rest of 2018, our outlook remains unchanged, both in terms of organic growth drivers as well as perimeter and Forex impacts. On the organic side, we expect our sales to be driven by the continued outperformance of our key high-margin Global and Regional Priorities brands in our core developed markets. We expect gross margin expansion to be driven by the favorable sales mix, helping to overcome adverse agave price impact as well as A&P and SG&A. The latter, though, we expect to remain stable in organic terms as a percentage of sales.
Looking at perimeter and Forex. On the perimeter side, we have an estimated negative impact of EUR 70 million in sales and EUR 16 million in EBIT adjusted on a full year basis. This reflects the portfolio streamlining as well as discontinuation of some agency brands. Clearly, with a broadly neutral effect on adjusted EBIT margin on sales.
On the Forex front, we're expecting an estimated negative impact of EUR 90 million in sales and EUR 24 million in EBIT adjusted on a full year basis, reflecting, obviously, the devaluation of the U.S. dollar versus the euro.
Nonetheless, putting all of this together, we feel pretty confident in delivering a positive performance across all of our key underlying business indicators in 2018 as well.
This is it with regards the results, and looking forward to your questions.
[Operator Instructions] The first question is from Olivier Nicolai with Morgan Stanley.
I've got 3 questions, please. The first 2 actually on gross margins; the last one is on Italy. So on the gross margin improvement, you had 250 bps in Q1. You said, Paolo, that it was due to sales mix, which was positive. Now, could you just quantify the gross margin impact from the Aperol brand only? Because obviously, the brand grew at like 23%, and I assume the gross margin would be much higher than the rest of the group. So that would be great if you could give us a bit more color. Second question is again on gross margin. On a full year basis, obviously, 250 bps in Q1 is a lot, so how should we think about your gross margin improvement on a full year basis? And lastly, on Italy. Aperol has been showing exceptional growth for now a number of years in Italy. Could you just remind us what is your primary source of growth? Are you gaining mostly share from hard spirits or is it wine or is it actually beer?
Let me take the last one. It's the easiest one to respond to. I mean, Aperol is continuing to grow depending on the month either high-single or low double-digit on a consumption basis in Italy. I mean, all of the data we have tells us that reliably, over time, about 2/3 of that consumption comes from beer and 1/3 from sparkling wine and wine. Clearly, this might increase a little bit as we continue to move into new drinking occasions, such as informal meals.
With regards to the disproportionate increase of gross margin in the first quarter, which accounted in existing business for 250 basis points, of course, Aperol takes the lion's share. But it's not just Aperol. With a very moderate top line growth of 2.2%, also brands like Campari growing 6.6%; Grand Marnier, 4.2%; Wild Turkey, 6.2%; Espolòn, 29%; and Bulldog, 14%, they all contribute to the gross margin expansion. And on the other hand, clearly, geographies like Russia, Brazil and Argentina, which went south, further contributed to the gross margin expansion. As we -- yes, and also the single-serve aperitifs in Italy, which are relatively big brands. They do fetch a nice gross margin on sales, and also they were on the positive side. Looking at the Aperol brand percent, that's your question. In the first quarter, the group delivered 59% gross margin on sales. This is a brand that, as we said, all our Global Priorities deliver more than 70% gross margin on sales, so 22%, you can run the math, but it's quite a meaningful impact. With regard to the second question, which is gross margin on a full year basis, so far, we're not changing our guidance. We believe the business is naturally running with 120 basis points gross margin expansion, of which 60 basis points are [ dented ] by the price increase on the agave. So net of the agave effect, this will be visible for the whole 2018, and will ease in 2019 onwards. The gross margin expansion is expected to come in at 60 basis points. Clearly, we need to understand how Q2 and Q3 will unfold. But to change guidance -- but for the timing, you have also to recognize the fact that in the first quarter in EBIT terms is just 17% of the last year EBIT. So it's a very preliminary quarter for us, the first one.
The next question is from Alicia Forry with Investec.
Just a couple of questions. One, you mentioned shipments phasing a number of times, and it sounds like that was behind some of the very steep declines in a number of the brands. It also seems to be a feature across a few different markets. So I'm just curious if we can just dig into it a bit more. Is this all Easter timing and the U.S. distribution changes? Or are there other factors at play in Q1 that caused this phasing, which seems to be a bit more than usual in the quarter? And then secondly, the Appleton Estate brand, I think was a bit weak, but seemed to be strong in Jamaica. I didn't quite get the explanation as to where the weakness was coming from with that brand. So maybe if we can just talk a little bit about that, too.
Let me take the overall phasing question. I mean, obviously we're impacted by what happened prior year. Last year, in Q1, was a year of important changes. On the one hand, South Africa, where there are new route-to-market and partially -- or a large part of, actually, the route-to-market is with third-party distributors, and there was the pipeline effect into these distributors. The same was -- held true for the 17 states in the U.S., which we moved to Southern Wine & Spirits. And if you look at Brazil and Russia, they were also impacted by a very, very high comp basis last year. So these are the ones we're taking mostly into consideration. There are some other things as we move now, minor changes to route-to-market on certain brands in certain areas, where we've held up shipments. But overall, it's more the comp base on those 4 big ones which made the difference.
Now with regards to Appleton Estate, its largest market is in Canada, and we were actually flat in Canada. That's what impacted the overall number.
The next question is from James Edwardes Jones with RBC.
You said that the Global Priority brands deliver -- all deliver over 70% gross margins. And just for the record, I presume that includes SKYY. And can you give us any quantification of how SKYY's gross margin compares with the other Global Priority brands? And secondly, could you give us an idea of how the 2.2% splits between volume and value?
Yes, with regards to the first quarter -- to the first question, we do not disclose gross margin by brand. So we gave you an average number, which enables you to appreciate what is the gross margin impact.
Can I just check I've got this right, then. I think you said all Global Priorities deliver over 70% gross margin, is that correct?
Yes.
Okay. So that will include SKYY?
Yes.
The next question is from Marion Boucheron with Raymond James.
First question on the phasing impact. Where would you expect to recover some of this phasing? I mean, when would be the newer routes-to-market implemented and...
Could you speak up a little bit louder, please?
Yes. Can you hear?
Yes.
Yes, so I was asking, on the phasing impact, when do you expect to get all the benefits from the route-to-market changes? And so we should get the early [indiscernible] back on the brands? And then, on emerging markets, could you give us maybe some flavor on what you expect during the year, maybe in Brazil, Russia or Argentina? And if you could talk about also inflation there?
Well, we would expect to recover the phasing in combination of Q2 and Q3, with the bulk of it coming in Q2. Moving on to emerging markets, I mean, if you look at them, we were pretty straightforward when we released our full year results and gave a guidance and said we expect them to be volatile this year, and that's what we're seeing. We're seeing very different things in different markets. Now in Russia, there's ups and downs. We don't see that changing over time. Underlying consumption is there, but customers are pretty moody. With regards to Brazil, unemployment is increasing. They have elections this year. So we wouldn't really expect anything positive coming out of that market, unfortunately, this year. Whereas, Argentina, we all know what happened last week with the Central Bank intervening and strong inflation being fueled. Obviously, in all those markets we recover inflation via pricing. Consumer demand is there, but there's no confidence really to lay out. And they're all in a wait-and-see sort of approach. So I think, a prudent outlook for those 3 markets would be for them to be flattish this year, with potentially better performance in Russia and Argentina going forward.
The next question is from Virginie Roumage with Bryan Garnier.
Could you please give your guidance for Germany for this year?
Yes. We would expect Germany to grow somewhere in the mid-single digits on a full year basis.
[Operator Instructions] The next question is from Paola Carboni with Equita.
I have a couple of questions. The first one is about the Grand Marnier. If can you elaborate and comment on its organic growth by volumes rather than pricing or price-mix better? Secondly, in terms of gross margin, should we assume the impact of agave accounted for about 60 basis point in this quarter as well? Or should we be aware of any seasonality in the overall impact? Do you have guidance for it on a full year basis? And my third question is instead on SG&A, which actually accelerated in this quarter with a plus 5.9% year-on-year growth, was a bit stronger than the growth that we saw in Q4. Actually, I was expecting to see still some benefit this year from the savings in the French headquarters of Grand Marnier, which I assume we should keep seeing at least in the first part of this year. So basically, what should take this growth in SG&A lower during the next few quarters?
Yes. Let me take Grand Marnier progression question. Here, we have the world split in 2. We have some slight volume gains in the U.S. and some more accentuated declines in the rest of the world, I mean, outside of North America, as we've discontinued our aggressive discounting and have cut all sorts of low-priced line extension. So put them all together, I would say, it's more of a price-mix issue driver at this stage.
Yes. With -- Paola, with regards to your first question, the phasing effect of the negative impact on agave on our P&L across the 4 quarters. Overall, being -- I confirm it's 60 basis points. It accounts for EUR 10 million to EUR 12 million of the [ phases ]. Clearly, these are more skewed toward the second part of the year, and this is -- let's say, that we're still using liquid that has been aged and stored at a historical cost that is lower than the current spot price. As time goes by, by the end of the year, and in 2019, we're expecting -- I mean, we -- market is expecting that agave progressively come down. So the negative impact will -- if expectations are confirmed, will ease in 2019 onwards. So on top of the EUR 10 million, EUR 12 million, [indiscernible] thinking of the opportunities midterm, we have the sugar business in Jamaica, which also this year is delivering EUR 7 million of losses as last year. So this is an opportunity sitting in 2019. So 60 basis points is the overall impact of agave. So the gross margin expansion for the full year for the time being is confirmed at 60 basis point, with a gross margin expansion at -- from 250 basis point will decelerate in coming quarters. With regards to the third question, which was the SG&A trend, for this year, we're not expecting to extract any operational leverage in SG&A lines. So we're expecting SG&A to grow in line with top line. So in the first quarter, SG&A grew in value by 5.9%. So we think, more or less, this is the trend that SG&A will keep on having in coming quarters.
Okay. Just a follow-up, if I may. You said the business before -- one comment on gross margin, the business is set to deliver a 120 basis point gross margin expansion, which this year, would be dented by agave. But in general, should we take this 120 basis point gross margin expansion as a normalized cruise speed for your business and also for the following year?
Yes.
Okay. I have something different. I was wrong.
Yes, on the other hand, the comments I made before on SG&A are clearly related to existing business, to organic performance. You also have to consider that we've sold some brand that obviously absorbed the SG&A costs. So if you bundle together perimeter and FX, we have a negative impact on the EBIT line of about 40 basis points of dilution, driven by, clearly, dilutive effect on the SG&A and dilutive effect on the A&P in perimeter, partly compensated by gross margin accretion from perimeter. And on the other hand, Forex, so you have a minimal transactional effect due to the U.S. dollar trend that is basically denting the profitability of European brands and particularly the Grand Marnier one, where most of the costs are sitting in France and are euro denominated.
The next question is a follow-up from Olivier Nicolai with Morgan Stanley.
Two quick ones, please. Just to follow up, first of all, on Aperol in Italy. Could you just remind us of the key demographics in terms of age group drinking Aperol? And essentially, I know one of your competitors is in town today, are you concerned that if the beer category was to bounce back, you could see a slowdown in Aperol growth? And how are you monitoring that? That's the first question. I know it's multiple, but that's the first question. The second one is much quicker, on Grand Marnier in the U.S., have you increased the headline prices for Grand Marnier Cordon Rouge?
Yes. No, we haven't increased headline prices on Cordon Rouge. We've basically stopped discounting it. We're waiting for the new campaign to strengthen brand equity before we do that. But we think within a reasonable horizon, it will be doable. Now moving into Aperol in Italy, our consumption per capita is a little bit [ north of ] 0.2 liters per person, whereas beer is closer to 30 liters per person. So I think there is quite a bit of room for growth there for us. Clearly, there are a lot of players in beer trying to get into the aperitifs moment, some more successfully than others. And we think it's good because it keeps us on our toes and helps us to continue innovating and strengthening our marketing efforts as we go forward. With regards to the age skews, we don't really have any skew. I mean, at this stage, I would say that we pretty much represent the demographics both in terms of gender as well as in terms of age, obviously with a certain cap.
[Operator Instructions] Mr. Kunze-Concewitz, there are no more questions registered at this time.
Thank you. I guess, most of you have to reimmerse yourself in the beer world.
Enjoy.
Enjoy it. We'll move on to an Aperol Spritz. Thanks for joining us. Bye-bye.
Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.