Davide Campari Milano NV

MIL:CPR

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome. And thank you for joining the Campari Group First Quarter 2020 Results Presentation. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Bob Kunze-Concewitz, Chief Executive Officer of the Campari Group. Please go ahead, sir.

[Robert Kunze-Concewitz, executive]

Thank you very much. Good afternoon. And welcome to our Q1 conference call.

If you can follow me on Page #4 of our presentation, I'll kick off with the highlights. As you'll see throughout the presentation, well, a combination of resilient pockets of growth in a very challenging environment. Net sales -- and this is sad to say because we started the year very positively in the first 2 months with strong growth. Net sales organically registered a decline of 5.3% in a small quarter, again, also against a tough comp base. You'll recall that last year, we had a very strong Q1 where we were up by 9.6%. This change in the performance throughout the quarter was largely due to the restrictive measures, which were imposed on the Italian market to combat the pandemic, and that offset resilient growth in Northern Europe, the U.S., Canada and Australia.

Looking at it by brand. Global Priorities declined by 4% with a flat performance of the aperitifs, Aperol and Campari, which is obviously due to the Italian market. Wild Turkey, Grand Marnier and SKYY Vodka declined, offsetting growth in the Jamaican rums. And we'll look more into detail by geography how these different brands have done.

Regional Priorities were down 7.9% with declines across the brand cluster, apart from growth in Espolòn as well as Forty Creek. Local Priorities, on the other hand, were down 7.2% overall due to double-digit decline, again, due to Italy with the single-serve aperitifs particularly hit.

By geography, resilient growth in Northern European markets and Australia, but this was offset by declines in SEMEA due to Italy, France, which is a one-off factor; and Global Travel Retail, which was impacted by COVID-19 as well. The Americas declined, mainly driven by Jamaica and South American countries despite quite positive performance in Canada as well as for the -- in the U.S.

The reported change of main sales came in at minus 2.7%, so it reflects also a positive perimeter effect of 1.9% and a positive ForEx effect of 0.7%.

Looking at adjusted EBIT, it declined organically by 35.3%, representing a 620 basis points margin dilution. This is due to 3 factors: On the one hand, a tough campaign. Again, last year, we were very strong up 15.4% and had 100 bps margin accretion in the first quarter. The second impact, obviously, is the COVID-19 impact, which hit, in particular, our higher-margin aperitif business in Italy. And last but not the least, the lower absorption of fixed costs throughout all cost lines given the top line decline, magnified in a small quarter. As we said also that the decline came in the last month of the quarter, so there wasn't that much time to react at that stage.

The reported change is 33.9% down, reflecting a positive ForEx effect of EUR 3 million and a negative perimeter effect of EUR 2 million.

Pretax profit on an adjusted basis reached EUR 34.7 million, down 45.7%. Group pretax profit on a reported basis reached EUR 30.6 million, down EUR 51.6 million (sic) [ 51.6% ].

Net debt at the end of the quarter stood at EUR 887.1 million, which is an increase of EUR 109.7 million, mainly due to the acquisition of Rothschild France Distribution as well as the share buyback. That leads us to a net debt-to-EBITDA adjusted ratio at 1.9x at the end of the quarter.

Moving on to Page #6, you can see graphically the impact of SEMEA on the overall group results. The Americas, overall flat. The core U.S., up 1.1%, which is quite encouraging based on quite a tough comp. SEMEA, down 24.4%. And here, it was compounded by the GTR decline as well as France and Spain. We've had some phasing effect in Nigeria, whereas South Africa's decline was programmed given the route-to-market change.

Very nice and resilient performance overall in North, Central and Eastern Europe driven by Russia and the U.K., while Austria also grew. Germany was flat from a shipment standpoint.

Asia Pacific, good growth in Australia, offsetting declines in both China and Japan: China, as it was the first market to be hit by COVID-19; and Japan because it's affected by the route-to-market change.

I will skip the priorities a bits and move quickly to Page #8 to underline 2 factors. You see the decline of Italy, which now in the first quarter represented 16% of our sales, that's an all-time low, whereas the U.S. reached an all-time high, reaching EUR 33.8 million (sic) [ 33.8% ].

And I think one piece of data, which is probably a very important and interesting to the audience, is our on-premise versus off-premise split. On a group basis, that amounted to 40% versus 60% in 2019. So that puts it into perspective. Obviously, markets like Italy has a higher skew to the on-premise.

Moving on to the following page, and the Americas. The U.S., as I said, quite positive, up 1.1%. Last year, we were up by 11.2%. And this performance despite having also the initial negative effect of COVID in the numbers. As you know, the on-premise, to a large extent, was also completely locked down in the U.S. And that, in the U.S. market are -- given our brand portfolio, represents roughly 30% of our net sales.

Espolòn, Aperol and Campari continued to grow, and SKYY Vodka had a very positive performance, up 8.5%. And these offset declines in Grand Marnier, largely due, on the one side, to a tough comparison base, also because the brand is skewed 50-50 between the 2 channels. Wild Turkey, on the other hand, was hit by destocking, which we were driving ahead of new packaging, which has been now postponed. I'm happy to say that if we look at sellout figures, we were actually up in the double digits across both Nielsen as well as NABCA.

Moving on to Jamaica. Jamaica is another market with a very heavy on-premise skew. 70% of sales are in the on-premise, so it declined by some 7.3%. Again, this effect was amplified by a very tough comp base with Jamaica having a sterling quarter in 2019, up by 22.9%.

Canada, which is largely an off-premise market, grew very nicely, up 9.3%. And this is driven by core Forty Creek as well as Appleton Estate, which is quite encouraging because we introduced at the beginning of the year the new range of Appleton with the new packaging, and it seems to have been very well received by consumers. Grand Marnier, Aperol and Campari also grew, and that offset some declines in SKYY Vodka, which was penalized by the delisting last year of the liter 75 size, which seems to be going for all the range in the vodka category at the moment.

Brazil, down 13.2%. Again, this is an even smaller quarter than most -- for most markets in Brazil because of the Carnival. And bear in mind that last year, we had a very, very tough comparison base where we were up by 41.8%.

The rest of the region was down 5.9%. Mexico, being penalized, down 14.1% due to the SKYY RTD. Encouragingly, though, Aperol remained positive, up double digits. And Argentina, again, this needs to be seen positive because they were rippled hit hard by the COVID pandemic as well as their own macroeconomic issues, down only 9.1%, was a nice and positive performance of Aperol of 20.8%.

Moving on to Slide #10, in Southern Europe, Middle East and Africa. As I underlined earlier on, Italy down 24.4%. It's quite a shame because we were growing double digit in the first 2 months of the year, but the progressive closing down on the on-trade with the full closure in March obviously impacted significantly the numbers. There were also limitations on customer traffic in the off-trade, with off-trade retailers mostly concentrating also on the grocery at the expense of spirits. The aperitifs declined clearly due to their high exposure to the on-premise outlets, where we were closed through March. And as you know, in Italy, we are the -- on-premise represents 70% of our consumption.

On the other hand, though, we've seen a double-digit growth in the Aperol Spritz ready-to-drink. This is actually a format we've had on the market for a few years, which, to be honest, we never included it in the overall Aperol numbers, but it's going to become a very nice business, significant business, actually. It's only available in Italy and a few selected European markets where the brand is not developed, but it's developing very, very nicely right now.

The rest of the region was down 18.6%. As I said earlier, France declined by 41.6%, but this was mainly impacted by a one-off sale of excessive cognac sales we did last year. When we bought Bisquit, we found the sellers with way too high number of [ VS ] barrels. So we sold them through the market, and that impacted the comp base. Spain declined 6.7% where modest growth in Aperol and Frangelico were offset by declines in Campari and Bulldog, Bulldog being very heavily focused to the on-premise in that market.

Within Africa, Nigeria grew mainly through shipment phasing in Campari, Wild Turkey and American Honey. And as we referred earlier, South Africa declined due to route-to-market change.

Global Travel Retail, on the other hand, reacted very sharply to the fall in shopper traffic, down by 18.9%, especially within the Asian market, which was the first one hit by COVID-19 in February. The channel registered some growth in Campari, Wild Turkey, Ouzo 12 and Campari Soda, but this unable to offset elsewhere, particularly in GlenGrant, which was the hero channel for the age range.

Moving on to a more positive picture. North, Central and Eastern Europe, up 6.6% organically. Germany flattish, a slight decline, but actually very positive sellout trends outpacing shipments in a predominantly off-premise market. In Germany, U.K., the opposite of Italy, 70% of the market is actually off-premise.

In fact, flattish shipments in Aperol despite strong double-digit sellout trends where we're trending at around 20%. And this was combined with modest growth in Ouzo 12 Cinzano sparkling wines, Campari and Bulldog, which helped to offset the declines in agency brands as well as those specialty brands we have with the particular on-premise skews such as Averna and Frangelico.

The U.K. continues very strongly, up 38.3%, very robust growth, driven by Wray & Nephew Overproof rum, Magnum Tonic Wine, Appleton Estate and Campari. This growth was able to offset declines in Bulldog and Cinzano vermouth as well as some slight declines in Aperol, which was heavily impacted by temporary out-of-stocks. Actually, Aperol is doing very, very well in the U.K. And it was interesting to see that in -- on amazon.com, it was the 12th high-selling grocery item and the second bestselling spirit item, it even surpassed the toilet papers. So this is pretty encouraging.

Russia, also a very nice quarter, up 30.4% despite a nice and tough comparison base last year. This is, again, a largely off-premise market. So you can see a pattern developing with Mondoro, Aperol and Cinzano sparkling wines doing very nicely and Espolòn, Wild Turkey and Campari continuing to grow.

The rest of the region was flattish. Austria and Switzerland grew nicely, up 7.1% in Austria, 6.1% in Switzerland, again, driven by Aperol, while Belgium declined by 17.1%, with growth in Bisquit Dubouché unable to offset the double-digit declines in Campari and Bulldog.

To close the regions, Asia Pacific, on Slide #12, up 3.5%. Australia, up a very strong 18.2%. And this, Australia had quite contrasted quarter with a weak start of the year due to the bushfires, which quite affected consumption. But the last part of the quarter, particularly the month of March, was very strong. And Australia continues to be strong where we saw strong sales in the off-premise channel, which, in the case of this market, represents 55% of our sales. Positive performance of Wild Turkey RTD, double digit,; Wild Turkey Bourbon, American Honey and Campari in a key quarter for the market.

The rest of the region was down 33.1%, clearly, here was impacted by China, which was mostly shut down during that period, and China is an on-premise market. And Japan, which declined by a little bit more than half as we program the destocking ahead of the route-to-market change, will start pushing through in the start of July this year.

Moving on, on net sales by brand. It's interesting to see that whilst Aperol is flat at minus 0.2%, most of the performance is driven by a double-digit decline in core Italy, which, in 2019, represented 35% of the brand sales. We're growing strongly in the off-premise with Aperol double digit, but it is so small that, obviously, cannot compensate for the on-premise decline.

On the other hand, though, should we -- if we exclude Italy, Aperol grew by 22.1%, so that is maintaining its historical growth trends with very positive performances in core markets, Germany, Austria, Switzerland, and particularly very encouraging in some markets like the U.S. In the U.S., if we look at the Nielsen for the middle -- up to the middle of April and those 6 weeks prior to that, Aperol grew somewhere around 120%, so a very nice growth trajectory.

And we see a similar performance on Campari. Campari was slightly up. Again, it was impacted by Italy. If we exclude Italy, it's growing by 9.3%, again, maintaining its historical growth rate or at least the growth rates for the past few years, with nice performances in the U.S. Very similar to outgrow, if you look at the last 6 weeks leading through middle of April, it's growing over 100%, like in Germany as well, Nigeria, but clearly impacted by the closure of the on-premise in Jamaica.

Grand Marnier, on the other hand, was impacted. It was down 10.8%. This is a combination of quite a tough comp base last year where the shipments were phased into the first half of the year and particularly in Q1 where we were up by 15.3%. And the fact that the sales in the U.S. are split 50-50 between both channels. Obviously, the brand was impacted by the GTR channel as well.

Moving on to Wild Turkey. If you look at it on the shipment side, as I said, we were driving the -- some destocking on 101 as we were due to launch the new packaging in the middle of the year. Unfortunately, due to COVID and the technical issues that imposes sometimes on suppliers, that has been pushed back. So the -- our shipments were down 12.7%. But I'm happy to say that Wild Turkey franchise actually grew double digit in terms of off-premise sellouts in that time period. If you look at the full quarter Q1, it was up 15.2% in Nielsen and 16.6% in NABCA. So again, very solid fundamentals on the brand.

SKYY Vodka, down 4.7% and despite very nice growth in the U.S., up 5.3%, with consumers returning to brands they know, brands that are established and that gives them comfort. So we're seeing a nice trend in the U.S. with SKYY right now. On the other hand, it was impacted by declines in the international markets, Germany, South Africa, with the route-to-market change, China, Canada and Brazil due to COVID.

Our rum business was up 3.7%. Wray & Nephew Overproof had very strong growth, 10.1%, very solid trends in core markets of the U.S. Again, it's 1 of our 4 brands, which, in the U.S., looking for the last 6 weeks leading to middle of March, grew over 100%, actually, to 114%. Nice performance in the U.K. as well, and so these export markets were able to offset the decline in Jamaica.

Appleton Estate overall was impacted by the transition to the new packaging and the new range, overall down 1.8%. But again, positive trends in the U.S., the U.K. and Canada, which were offset by flattish performance in core Jamaica as well as declines in GTR, Mexico and New Zealand.

Moving on to Espolòn. Espolòn on a shipment basis was up 10% driven by the core U.S. Again, if we look at both depletions and consumption, they are running way ahead of that number. Depletions were up 28%, and our consumption data is up 48%. So it's a very nice underlying performance on the brand and nice trends continuing in key international markets.

Bulldog, impacted by the on-premise shutdown, down 17.5%, as well as by the lack of traffic in GTR, which is a key channel for the brand.

GTR is also a key channel for GlenGrant, which was down by 33.1%, and it was impacted by a -- our change route-to-market in France and South Africa. On the other hand, happy to say that in France, the underlying nuances are again positive from a consumption standpoint.

Forty Creek was up by 6.5%, very nice overall performance with core Canada compensating weakness elsewhere.

[ Grand Marnier ] penalized by Italy, down double digit, 14.2%. Clearly, they're skewed to the on-premise, and that continue to impact them. And we can say the same thing about them in key Central European markets.

Moving on to Cinzano, down 7.7%. Vermouth declined by double digit despite very positive growth in Russia and Australia. These were offset by strong declines in Germany where we -- if we launched the whole franchise behind a Vermouth formula, which meant significantly increasing pricing, so that led delisting at the end of last year at a very large retailer in Germany. So we will have to go through this cycle. On the other hand, it doesn't impact the bottom line.

The rest of the sparkling wines were down 13.2%. Very good performance in Mondoro, up double digit, and that's important in Russia, which has nice margins, whereas Riccadonna was impacted negatively, mostly to strong shipment declines in France with the destocking ahead of the route-to-market change.

To close it off with the local brands. Obviously, Campari Soda and Crodino pretty hit by the closure in Italy. Campari Soda down almost 20%, Crodino, that's 15.5%, with positive results in Switzerland and Germany, both during its trajectory. On the other hand, the RTD in Australia continues to do very nicely, up double digit, 14%.

Moving on to the local Brazilian brands. Dreher is actually performing nicely in a weak market, so it's helping mitigate the overall negative trends we have discussed our brands. Ouzo 12, which is mostly an off-premise brand in Germany and Greece, also doing nicely, up 5.6%. And Cabo, again, who is mostly an off-premise brand, growing strongly, 25.3% in the U.S.

This is it on the brands update and business update, I pass it on to Paolo.

[Paolo Marchesini, executive]

Thank you, Bob.

If you follow me to Page 21, where we have the analysis of the good performance at the level of EBIT adjusted.

EBIT adjusted on a reported basis declined by 33.9% in value from 19.6% on net sales to 13.3% in this year. In existing business, the decline in value was worse at 35.3%, showing 620 basis point margin dilution in the first quarter.

We highlight 3 key factors of the negative performance in value, the decline in marginality. The first one is a very tough comp base in first quarter of this year, when last year, group grew EBIT in value by 15.4% and margins were up by 100 basis point. Secondly, we have a categorized negative sales mix effect as COVID-19, particularly impacted at the high-margin operative business in Italy. And thirdly, we have the absorption -- a lower absorption of fixed costs in a very tiny quarter throughout all the cost lines that I will comment in a second. With the lockdown coinciding with the end of the quarter, thus, limiting our ability to implement the mitigation actions that, of course, we're implementing as we speak.

ForEx and perimeter combined effect accounted for 1.4% in value, corresponding to 10 basis point margin dilution. The perimeter effect, actually, in the first quarter was negative by EUR 2 million, and this is due to basically 2 factors. On one hand, the termination of tiny distribution agreements; and secondly, the effect of the first-time consolidation of France on RFD recently acquired, which was negatively impacted by both the destocking that you have whenever you buy a distributor; and secondly, the COVID-19 effect, which also was negative here in France.

EBIT adjusted on a reported basis was down by 24.7% in value to 18.7% of net sales with EBIT adjusted organic decline of 27.2% in value and 560 basis point margin dilution.

If we move on to Page 22, we have the analysis of the EBIT through the different level of profitability. At gross profit level, on a reported basis, the gross profit was down by 6.6% in value to 58% on net sales with 150 (sic) [ 250 ] basis point margin dilution. The organic change of gross profit accounted for a negative 9.2% in value and 250 basis points in terms of margins, which was driven by the combination of unfavorable sales mix, as we said before, and secondly, the impact of fixed costs.

Worth calling out, the impact on a full year basis of fixed cost at the level of COGS, cost of goods sold is 25%. So 25% of our yearly cost of goods sold is to be seen as fixed and compressible.

A&P on a reported basis was down by 2.8% in value to 15.9% on sales and broadly flattish and margin neutral versus a year ago. Organic change of A&P accounted for a negative 5% in value, again, neutral on margin, due to revised phasing of some marketing -- the marketing initiatives due to COVID, particularly on the shift of certain investments in the on-trade, which was not a viable channel for us. ForEx and perimeter combined effect was a positive 2.2% in value and again, neutral on margin. Again, with regards to the weight of the fixed costs within the A&P line, on a full year basis, it's about 10% of the A&P spend.

The SG&A on a reported basis were up 12.2% in value to 28.9% of net sales, driving 380 basis points margin dilution. In existing business, SG&A were up 8.7% in value, driving 370 basis point margin dilution, mainly driven by the initiatives which were already planned to strengthen our commercial and distribution capabilities in Asia, in particular, as well as the relocation of our head office, Asian head office -- officer from Sydney to Singapore. And secondly, to a -- this was due to a lower absorption of fixed costs in a quite a small quarter, negatively impacted by significant top line decline. Again, with regards to SG&A, worthwhile calling out that on a yearly basis, the fixed component of our SG&A line accounts for 80% of the SG&A spend.

If we move on to Page 23, you can see negative operating adjustments, the one-offs, accounting for EUR 5.6 million, including restructuring initiatives, tail-end effect of the restructuring initiatives that were implemented last year, as well as EUR 2 million of donations made to combat the COVID-19 emergency.

Net financial charges came in higher than expected at EUR 12.8 million despite the lower average indebtedness, and that was due to a negative charge of EUR 4.5 million, primarily attributable to negative exchange rate differences as well negative effects on the current valuation of certain financial assets. The increase of -- excluding those nonrecurring costs, the increase of the average cost of net debt is worth 1%, from 3.7% to 4.7%, reflecting the increase in the already significant negative carry.

Group pretax profit came in at EUR 30.6 million, down 51.6%. And the group pretax profit adjusted came in at EUR 34.7 million, down by 45.7% on a comparable basis.

If you move to Page 25, the analysis of net financial position. Net financial position at the back end of March came in at EUR 857 million after EUR 109.7 million versus end of last year due to, first and foremost, the acquisition of our French distributor, RFD, accounting for a sum of EUR 54.6 million; and secondly, the partial completion of the already announced EUR 350 million share buyback program for a consideration of EUR 41.1 million at the end of March.

The leverage ratio, net debt-to-EBITDA came in at 1.9x at the back end of March. We want to highlight that the group at the moment relies on EUR 500 million of existing credit lines. As we've already announced, we finalized an additional term loan facility for an amount of EUR 650 million (sic) [ EUR 750 million ]. And then, of course, we can also rely on existing excess cash, accounting for EUR 693 million, as you can see in the table of the net financial position. So the combined amount of the available liquidity credit lines and new loans is in excess of EUR 1.9 billion.

And last but not least, we highlight the absence of any financial covenants on our outstanding debts.

I think this is it on the numbers. I would hand back to Bob for...

[Robert Kunze-Concewitz, executive]

Yes. Thanks, Paolo.

Before moving on to the Q&A, a brief overview of our marketing initiatives as well as conclusions and outlook.

Page #27. You see that as soon as the pandemic hit, we were pretty active on a corporate basis, making donations to the health sector in Italy and a few other markets as well, as well as to the on-premise in the U.S. We were also quite active throughout all of our communities, either producing sanitizing gel or donating alcohol or doing a combination of both, as well as leveraging our brands to raise money for charity. For instance, on Aperol, we had a concert, which brought 1,200 musicians to participate in a live Zoom session called Together We Can, which raised over EUR 100,000, again, for the health care system in Italy.

We're also very happy to say that our brands are continuing to receive their well-deserved accolades. Espolòn continues to go from strength to strength. Fourth year in a row, it is awarded Impact Hot Brand of the year award. And clearly, that makes a lot of sense. This is the brand which has a lot of momentum. As I said earlier on, if we look at its sellout rates, that's growing at around 48% right now. So very nice performance.

Our Forty Creek brand in Canada also keeps on scooping all of the awards every year. And again, we can see the quality of the liquids of the brand reflected in the performance in the markets.

We were able to proceed with some relaunches and new expressions. These have been finalized before the lockdowns brought by COVID. We introduced a new premium unaged on GlenGrant, which, depending on the market, increases the pricing of the unaged offering from 30% to 50%, so quite nice going forward. We completely restaged the Appleton Estate brand, both from a packaging standpoint as well as partially a liquid standpoint, introducing an 8-year-old. And at the same time, started delisting in all the markets the Appleton Special and White, the mixing rums, so that Appleton Estate remains a pristine superpremium brand, and we replaced that with a new brand called Kingston 62, honoring the date of independence of Jamaica.

Clearly, the pandemic had big impact on the landscape for our marketeers and our salespeople. There have been channel shifts to online and e-commerce; online for marketing. E-commerce from sales standpoint accelerated quite a bit. Clearly, an occasion shift in consumption, moving from out-of-home consumption to at-home consumption, impacting also offerings in terms of combo packs. So clearly, our marketeers and our sales force have to work very, very quickly, be very agile and reformulate, rework all of our marketing and sales activities. And they managed to do that within the space of a few intense weeks, and I'm pretty proud about that.

And I think this will have a big impact also on marketing and sales going forward. Clearly, one side benefit of this pandemic is the very rapid digitalization of our activities. We had to reassess and adapt media plans due to, obviously, the new consumer media diets. That meant shifting to digital experiences with digital PR support, sharpening the at-home location and social media campaigns, from Aperol at 6 in Australia to cocktail hour in other markets, Aperol at home. We reviewed the tonality as well as the messaging on the global campaign, delivered completely new digital assets and started very intensively working on advocacy programs with local bartenders, obviously trying to contribute also to the local bartending community, at the same time trying to increase the knowledge of our consumers at home on how to do our hero cocktails. So many entertainment with their self-tutorials. Some were really top-end bartenders. And we also associated ourselves quite a bit with cooking classes, which seemed to be one of the biggest hits during the lockdown period.

In the off-premise, again, we looked at approaching promotions in a different way and have more centralization, accelerate our e-commerce agenda as well as offer where possible combo packs. So Aperol and Prosecco plus glassware for the Aperol Spritz, Campari Soda and Cinzano for the Negroni.

And this has led to, I think, quite satisfactory engagement at the consumer level. We've had very good returns. Consumer sentiment is actually increasing significantly as well as mentions. Just in the past week, mentions increased by 55%, and they were overwhelmingly positive. And I'm also happy to say that we're seeing that in the trending of our brands in all key brand market combinations where they're growing double digit from a Nielsen or IRI standpoint and growing much faster than their relevant markets. So that's testimony both for a consumer's love to our brands as well as the impact of the action we undertook very, very rapidly.

And on Page 34, you can see also that we brought that thinking to the point of sale. We're, again, moving to entertainment and offering combo packages as well as entertainment.

So in terms of conclusion and outlook. I think it is quite clear that we are leveraging the norms. We took very rapid action with a key strategic focus on our strength. We have a very strong financial profile, a very solid balance sheet. The recently successfully secured additional financing further strengthens the group's traditional very solid financial structure as well as our flexibility.

Moving into Q1, we -- Q2, we clearly started working very fast on cost containment and cash management tasks. Actively taking all necessary actions to manage costs as well as preserve liquidity, including postponing or canceling discretionary spending. We're accelerating our programs in digital transformation and e-commerce. Some of the -- we're doing very well in the likes of Drizly in the U.S. or Amazon in the U.K. And we're further strengthening our digital capabilities across the organization, most particularly across marketing. And we're driving focus and selected innovation to adapt to fast changes across our markets. So we're looking at size changes and RTD formats where applicable. So we're combining flexibility with a high-quality and continued execution.

From an M&A standpoint, we're continuing with our focused M&A strategy. Effectively, today, we announced the signing of the acquisition of Champagne Lallier. The consideration to be paid is EUR 21.8 million. That's for 80% of the share capital of the target, and obviously, subject to customary price adjustments. The consideration will be financed through available resources and will be paid to using cash. The net financial position of the target is a negative EUR 21.2 million. And with this acquisition, we continue on enhancing the premiumness of our portfolio as well as building critical mass in the on-premise as well as in the strategic French market.

Some quick update on the integration of RFD. Despite that nobody can travel and we're all locked down and working remote from home, the integration is proceeding very, very well. We're maintaining all the timing objectives we set ourselves. So we will get the benefits in the mid- to long-term of that very important asset for us.

Looking forward, I think it's fair to say that there is uncertainty in the short term, but high confidence for the long term. In the short term, the pandemic, as we can expect, is generating a high level of uncertainties, including on its progression and duration, which is varying by country as well as the scale and the impact of the measures taken by governments as well as the impacts on consumer habits. So this is quite a complex puzzle, which meets our visibility.

And talking about visibility, for those reasons, the group's financial performance for the current year really cannot be precisely assessed at this stage. However, with most of its key markets being affected by COVID-19, we expect our business performance to be more impacted, as you could expect, in the second quarter and the beginning of the third quarter, which happened to be the peak season for the high margin and highly on-premise skewed aperitif business. And with the gradual lifting of the restrictive measures across markets, the negative impact is expected to lessen throughout the remainder of the year based on our current visibility.

Longer term, though, the group remains confident of the long-term consumption trends and growth opportunities. We will continue to leverage the strength and resilience of our brands, and we can see the strength and resilience by a strong double-digit growth rate in the off-premise. And that's a testimony to our business model and our strategy, ensuring that we're strongly positioned and ready to accelerate the growth as soon as consumer demand returns to normal.

We are committed and long-term brand builder. We will remain focused and highly engaged in the on-premise opportunity with our very distinctive brand portfolio. We are effectively firmly convinced that the out-of-home social experience and conviviality will remain essential to consumers' lifestyles. And I think, honestly, in a few years' time, we look back at this period, we'll realize that 2020 was a transition year or the year where we paused a little bit. But thanks to the strength of our brands and our agility in adapting to new situations and nice and significant rebound in 2021. So that is our current outlook at this stage.

And we're very happy to take your questions. We assume there'll be quite a few.

[Operator]

[Operator Instructions]

The first question is from Mr. Trevor Stirling of Bernstein.

[Trevor Stirling, analyst]

Bob and Paolo, actually, few questions from my side. So the first one, I appreciate it's really impossible to predict what the shape of the easing of the lockdown will be, and hence, what the Q2 trajectory of top line might be. But could you give us some indication of what the sales trends have been in April so far?

Second question, I suppose linked to that, in the U.S., we've seen the Nielsen numbers, very, very strong in the off-trade. I doubt if some of that was showed up in March. But is that showing up for your portfolio as we go through April as well?

The third question, again, I appreciate very difficult one to answer. We saw the -- just over 600 bps of negative margin in Q1. Looking into Q2, we've got the cost mitigation, which should be positive, but on the negative, we have possibly a full quarter of on-trade lockdown, certainly a longer on-trade lockdown than we had in Q1. Any sense of whether we're likely looking at more margin pressure, net margin pressure in Q2 or less?

[Robert Kunze-Concewitz, executive]

I'll take the first questions, Trevor. Now what we saw was essentially at the beginning when the lockdown came in, there was a period of consumers going crazy and loading themselves up and pantry stuffing. And after that, a lull. But then we saw a very nice return and reaction to our marketing actions across all markets. We actually moved to buying weekly consumption data as opposed to monthly or bimonthly. And we've been able to verify this, with a very nice trend continuing in the second half of March as well through the month of April. I mean in Anglo-Saxon markets, which are mostly off-premise skewed, we've had fantastic performance. I mean just a case in point, in the U.S., those famous last 6 weeks ending 18th of April, where total spirits were up 37.9%, we were up 55.1%. In that same period, we were the second fastest growing supplier in the U.S. market after Fifth Generation with Tito's.

So very good momentum, spread really across all of the brands. With the exception of Bulldog, all of them growing double digits. And as I said, with some highlights, with Campari growing by 117%, Aperol 122%, Espolòn, 113%, Wray & Nephew Overproof, 115%, SKYY in that period grew by 33%, in line with the category. So very nice trends there. And we can see similar things in the off-premise across the market. Obviously, the on-premise softness continues. I mean in those markets where there's a lockdown, there is a lockdown, there's not much we can do about that. And having said that, in the off-premise, certain markets, our wholesalers as well as our -- as the retail trade have been slow at reacting to the very strong growth, which probably for them was unexpected in our brands.

[Paolo Marchesini, executive]

So with regards to the third question, probably I've missed the second one. The third question is around, Trevor, the margin trends in the second quarter. It's -- as you said, it's very difficult to predict. We have a very low visibility. Just to give you a sense of things, we've moved from a monthly forecasting cycle to a weekly forecasting cycle to make sure that, first and foremost, outside of financial visibility, we keep the market in sync with our supply chain. This is the primary purpose of what we're trying to achieve in the current environment.

So in a nutshell, I can't give you a precise answer. What I can tell you is that, clearly, Q2 is a peak season for the aperitif portfolio. And therefore, consider that aperitifs have higher-than-average gross margin, directionally, I would rather say that the evaluation is expected to increase in the second quarter. Whilst, I think, I would say that is expected to decline in Q3 and Q4 as the business started to balance.

[Operator]

The next question is from Edward Mundy of Jefferies.

[Edward Mundy, analyst]

Two questions, please. Just following from Trevor's question on margins, I appreciate that, at this stage, there's very limited visibility. But I was wondering whether you're able to provide any rule of thumb as to what 1% on top line might mean for organic EBIT growth, i.e., what would be the drop-through from top line into operating leverage?

Second question is, on the Slides 31 to 35, I think segment -- second half strong. You've been activating brand such as Aperol on Amazon. Bob, I'd be interested in any sort of early indications on brand health and the ability to keep momentum and the approaches to different occasion?

And then the third is on Italy, understanding it's a far distance, that's going to be opening up in the 1st of June, albeit with some social distancing I'm not really expecting any guidance, but we'd love to get any color from what you're hearing on the ground from customers, wholesalers, bar owners on what they'd expect as some of these containment measures get lifted?

[Robert Kunze-Concewitz, executive]

Yes. I'll take the second question which is on the Aperol brand health. I mean we're monitoring this constantly, we're monitoring consumer sentiment. And it's very, very positive actually across all of our markets. We are seeing more and more retailers actually asking to list the brand, including in the U.K. We had 1 major listing confirmed today. We're running also online survey. And again, seeing consumers giving us very, very positive feedback. But the most important feedback is to see how they react to it, and we see a lot of posts in Instagram, et cetera, virtual activities across countries, regions, continents. And people are voting with their wallets. I mean if you exclude Italy, you see the brand growing double-digit in the rest of the world, with actually the -- our shipment numbers not reflecting the underlying consumption growth.

With regards to Italy, yes, the on-premise is due to open in June, but we were still not sure under what format is going to be and how tough the restrictions are going to be. We don't know if it's going to be one size suits all across the different regions in Italy, which is -- sounds a little bit crazy. But I mean in Southern Italy, there are many regions where you don't have any COVID cases right now. So we don't understand why the government isn't opening those any earlier. And we don't know exactly what it's going to mean in terms of them allowing on-premise outlets to have bigger tariffs. So really, there are a lot of question marks on this. We'll see how it is. Actually, I've been asked to give my input to one of the committees researching into that. So you can understand that it's not exactly top of the list at this stage.

[Paolo Marchesini, executive]

With regards to margin trends again and sensitivity, it is very difficult to say exactly 1% net sales part which impact can have on the bottom line. The way I would approach it is more informal. I would speak with P&L is fixed and variable costs. As I've tried to say during the presentation, I'm being aware that about 25% of costs, 10% of A&P and 80% of SG&A are fixed. So you will basically end up based on 2019 numbers with about 37% of costs that are not compressible at all. And you end up with 63% of costs that are actually really variable.

And then when it comes to assessing the sensitivity, I would rather look into the brands. Clearly, the brands that are more exposed to the on-trade, which, in my point of view, in the end, is a big strength, but in the short term, is a point of weakness for this quite half year. And clearly, those brands are Campari, Aperol, Campari Soda and Crodino in Italy and Grand Marnier. These are probably the Brazilian brand, but in terms of its profitability, they are negligible. So those brands are the ones that can really make a difference depending on the different scenarios of lockdown and reduction of consumption in the on-trade.

[Operator]

The next question is from Laurence Whyatt of Barclays.

[Laurence Whyatt, analyst]

Regarding the on-trade, actually, first, could you let us know what you think the current stock levels are in the on-trade, whether the people pick up a lot of stock ahead of lockdown going in already relatively in the health?

And then secondly, how would the on-trade with the current situation could cause some economic problem for a number of your customers? Could you let us maybe what you think the current health levels are and whether you've been helping out financially?

And then with that shift from on-trade to off-trade, what does that mean for the process of the products you've been selling? Has there been a significant shift up trading or down-trading, and whether that's changed throughout the lockdown situations? I understand countries like Italy have been in lockdown for a very long time. Have you seen any shift from, say, cheaper products to more expensive products [indiscernible].

[Robert Kunze-Concewitz, executive]

No. On-trade stock levels, I would say they're pretty normal or probably just trending towards the life side because we've had very good sell-out across markets even in the on-trade, and well, much more over the years moved into a pull mode as opposed to push mode. So not such a big issue there. The health of the on-trade is probably potentially look forward an issue. I mean we would expect a number of on-premise outlets not to reopen, both in the U.S. as well as in Italy. Everybody has some sort of an estimate for that. I wouldn't know what it would be, but I wouldn't be surprised if a sizable number of outlets do not open. Obviously, in the U.S., they can then be replaced by new openings. I wouldn't expect that to open -- to happen in Italy.

Having said that, we are very strict on credit policy. And we work in all of our markets where the intermediary are very solid and long-term wholesale partners, be it in the U.S., Italy or anywhere else, so we're not expecting any negative surprises from there.

In terms of shift, I mean we're not seeing a huge shift in terms of the make-up of the brand, with the exception of an acceleration in SKYY Vodka in the U.S. with its consumers positively rediscovering that brand. So I think that will be positive for us going us forward. Obviously, with the growth in vodka, we see a stronger growth in the larger sizes in the liter 75 of this world and a little bit of that also across the rest of the portfolio. But bear in mind, it's very limited, and we're very disciplined on that.

[Laurence Whyatt, analyst]

And just to follow-up on the last one. Has there been any shifts throughout the sort of 4 to 6 week period? Or has it been largely similar? Or was it too early to see any changes?

[Robert Kunze-Concewitz, executive]

No. No. We see pretty steady. I mean we've seen that the growth rates actually across the portfolio accelerate once we came out of that mid-March lull.

[Operator]

The next question is from Chris Pitcher of Redburn.

[Chris Pitcher, analyst]

A couple of questions. On the cash flow side of the business, can you give us an update on what you're expecting in terms of capital investments in maturing stocks? And what you're doing with regard to operating working capital in terms of payment days and receivables?

And then on the bulk cognac sale that you disclosed, it was at about EUR 3 million. And can you say what sort of margin impact that was?

And then finally, thank you very much for the really detailed run through how you're changing the A&P plans for Aperol as you sort of shift to more of a uptime consumption. What should we think of in terms of A&P over the summer? You mentioned I think 90% of it is variable. Is it a direct transfer of the same level of expenditure? Or can you save quite a bit on A&P marketing at home rather than festivals and so forth?

[Paolo Marchesini, executive]

I'll take the -- on the cash flow side, starting from CapEx, which was your first question. As we've announced, the guidance for current year was -- the total amount of CapEx of EUR 94 million, of which EUR 64 million were meant to be maintenance CapEx. And then those were topped up by extraordinary CapEx accounting for EUR 30 million, total EUR 94 million. So basically, we cut versus this EUR 94 million, about EUR 10 of CapEx. But on the other hand, given the recent acquisitions of the change in perimeter, we have an additional EUR 6 million of CapEx attributable to perimeter, which, at this stage, we cannot confirm these are approved, but we're not sure we'll be able to finalize those perimeter CapEx by year-end. But if that happens, we will land at EUR 90 million net CapEx, including maintenance and extraordinary perimeter.

With regarding to -- the other one was maturing inventory. So if we take last year as a reference, landing of last year, operating working capital came in at EUR 695 million, of which aging liquid was EUR 365 million, fixed and not compressible. So we're not on purpose selling aging liquid because we think that fundamentally the business is solid. And the short-term dip will be recovered over the years. So we're not foreseeing any meaningful or any reduction in aging liquid. Whilst the rest is EUR 330 million based on last year, this is pure variable CapEx. At this stage, we're not considering any drift in that variable component of our operating working capital. But clearly, we'll see -- we -- it's a long way to go through year-end. And for sure, there's tension on the receivable front because customer are trying to extend payment terms. Of course, we're very disciplined, and we maintain our tight policy because we don't believe that in terms of timing, it's appropriate to extend credit lines and take the unnecessary credit.

So I think -- and then the other one was on the A&P line.

[Robert Kunze-Concewitz, executive]

I can take that. I mean on A&P, only about 10% of the annual budgets are fixed. I think that's mostly royalties, et cetera, research, agency fees. And the rest is variable. I mean what we've done is we've really reworked very much in-depth very quickly all of the budgets across all of the brands and in the market. We've canceled offline media, on-premise activities, big events. And then moved everything into variable digital very quickly, and we're monitoring it really week by week. So I can't give you much of a, I think, indication for a full year basis. But we are reacting very quickly. We're putting something on air, seeing how people react to it. If it's very positive, we invest more behind it. If it's not, we move on to the next thing, so on and so forth. So it's very, very dynamic at the moment.

[Operator]

The next question is from Simon Hales of Citi.

[Simon Hales, analyst]

Just a couple for me, please. Bob, you've talked a lot about the strength of the recent Nielsen data that we've seen across your business, particularly in the U.S. And I think we've seen this across a number of other spirits businesses as well, but perhaps not quite as strong as some of the numbers you quoted on your brands. When I talk to some of the companies, they're saying that, that data that you're seeing in terms of sellout trends is not a complete representation of what you're selling in at, and that perhaps there is a little bit of a retailer destocking going on. Is that what you're seeing as well? Or do you actually think the Nielsen growth rates that you're reporting and have seen over last few weeks are a real idea of the run rate that you're seeing from your shipment standpoint?

And then just secondly, just back on costs. I mean you flagged in the presentation, Paolo, around the SG&A being increased in the first quarter due to the shift of the HQ from Sydney to Singapore. What's the full year cost implication of that, or was it already felt in the first quarter?

[Robert Kunze-Concewitz, executive]

Let me talk about the -- our depletion versus Nielsen numbers. I mean, Nielsen are -- if you take the full Q1, from January to end of March, are -- on a company basis, we were up 13% on Nielsen, 12.9% on NABCA. So pretty consistent between the 2. And our depletions were up 5.5%. And so clearly, you're seeing -- I think it's -- there are some supply chain inefficiencies there. And probably, some customers are taking the opportunity to destock and to generate more cash for themselves. So that's a fair view. And it's pretty much what we're seeing in many markets. But for us, the most important thing is to see really the underlying consumption growth trends as well as the very positive consumer sentiment.

[Paolo Marchesini, executive]

Yes. With regards to the SG&A trend, the transfer of the corporate -- division headquarter from Sydney to Singapore has occurred. Most of the costs have already been incurred. So in Q2, there might be a tiny tail end, not big. But overall, the tiny tail end of those costs will be more than offset by the cost-cutting initiatives. So starting from Q2, SG&A will start moving into negative territory.

[Operator]

[Operator Instructions] The next question comes from Paola Carboni of Equita.

[Paola Carboni, analyst]

I have 3 questions actually. The first one is on your fixed costs. You quantified the portion of fixed costs on your different cost lines, but already indicating that in Q2, for example, SG&A may turn to a negative trend. So can you share with us how much degree of flexibility do you think to be able to achieve in this particular year also on fixed costs? So how much are you ready to reduce? Also, what is usually your fixed cost base on the different lines?

Second point is on the off-trade channel. If you can comment a bit on the current -- I mean the perception you have clearly on how resilient this channel is improving, in particular -- sorry, about the -- I mean probably you give here and there -- you gave here and there some indications, but to focus in particular on the off-trade channel in the last few weeks, if you have any sense in this respect. And what do you imagine how this can evolve?

And last point, in the recent interview, Bob, you mentioned, if I got it right, that you were fast in anticipating some stock. So I was wondering what were you referring to with that. And what was that about?

[Robert Kunze-Concewitz, executive]

Okay. Let me take the last question. Now what I was referring to in the interview is that, when the first cases hit Italy, we've reacted very quickly. We focused clearly first on the safety of our people, made sure that everybody went smart working 2 weeks before the government made that a law. At the same time, we introduced new safety protocols in our plants. But to be on the safe side, we had our plan to work build inventory in all of our key brands and make sure that we actually shift them out to all of our key markets because we do want to run not having any visibility on the intensity of the lockdown and whether it will impact our plants or not, we built inventory, which I think was very good that we did because, obviously, in some markets, we're seeing very, very nice trends in the off-premise. But at the same time, any inventory we built, there is not anything we cannot manage over a full year period.

Now referring to our performance in the off-premise, I mean, as I said earlier, I mean what is really reassuring is that we actually have double-digit growth rates consistently across our brands, across our market. Obviously, some are even stronger, for instance, the U.S. numbers. But what we're seeing is a pattern where in those markets where you have established consumer tradition of consuming at home, so it's mostly the Anglo-Saxon markets: U.S., Canada, Australia, the U.K., Northern Europe, as well as Eastern Europe. We're seeing very sustained growth in the off-premise in those channels. And in certain cases, like you saw in Canada, was able to more than compensate in Canada, as well in Australia, more than able to compensate for weakness in the on-premise. Having said that, even initially, we're seeing strong growth rates in the off-premise, but obviously, we'll never be able to compensate what we're losing in the on.

[Paolo Marchesini, executive]

With regards to the fixed cost component and what we intend to do, they are, basically -- nothing is the answer because we believe 2020 is a transition year. But fundamentally, we don't need to structurally downside the -- downsize the business because of what's happening. And we believe in 2021, we'll be back up. So the measures that we're taking are primarily the very typical ones, the hiring freeze where you on a force moat for a while. You contain the G&A. There clearly are impacts coming from reduction of STI, MTI payouts. And then we started prioritizing and streamlining all the development projects that were scheduled for this year. So typical things that you can do without hurting the strength of the company per se, which is not what we intend to do, not in structural costs and not in the A&P. So we believe it's a way to bridge a couple of quarters and then will be recovering.

[Paola Carboni, analyst]

Okay. Sorry, I forgot just one. Can you give us any kind of update on the withdrawal right and your path to move towards the Dutch land?

[Robert Kunze-Concewitz, executive]

Well, we're still accounting the withdrawals. So we're not in a position of giving any update. I believe possibly a week or so, we should be in a position of confirming the precise number. And then after, there is the whole process that we have already highlighted, starting from the offering option [indiscernible], that is required by law, and that lasted for a month, and that would drive a further uptake. So you need to have a little bit of patience, but it's not depending on us. We rely on the very poor level of service from carriers. And so we're still seeing better results after 3 weeks from the expiry date. We need to take everything into consideration to give a clear and correct picture of the amount of withdrawn shares prior to making the announcement.

[Operator]

The next question is from Ryan Fintan of JPMorgan.

[Fintan Ryan, analyst]

It's Fintan Ryan here from JPMorgan. And just 2 questions, please, in terms of your gross margin. Just in terms of your global priority brands, I know that you said, historically, you'd make over 70% gross margin on those products. Even within -- I appreciate the mix in terms of the weakness in the priority portfolio, even within some of your brands like Campari and Aperol, is there much of the differential in the gross margin achieved between the on-trade and the off-trade typically? How does that lead to EBIT margins for those global priority brands?

And then secondly, just in terms of the raw material outlook. Has there been any change in terms of what you've seen before in terms of inflation for agave and other input costs in the year?

[Robert Kunze-Concewitz, executive]

With regards to gross margin, global priority brands has higher-than-average gross margin. Within those brands, clearly, Campari, Aperol and Grand Marnier, you have higher-than-average gross margin within the global priority brands bucket. But with regards to on and off, the difference in marginality is not meaningful. What can it make -- really make the difference is the brand mix and the geographic mix as opposed to channel mix. Although in a period that might be tiny differences with the on-trade marginally more profitable than the off,, but not a very bigger expense.

With regards to raw materials, so no change in guidance. It's -- for sure, over time, I would expect that on certain materials, we will see less pressure, over time. For example, glass, there is a key component of our bill of material is indexed to cost of energy. So that's potentially an opportunity. The other one is, agave, where -- at the moment, spot price is still where it used to be. But we cannot exclude the current negative environment, might accelerate the decline in the agave price. But so far, we cannot confirm that because we've not seen it. But no major -- in a nutshell, no major changes in guidance on input costs for current year. We need to see how long the current situation will last, which, on one end, with potentially negative impact the net revenues and the company profitability, but on the other end, would be more benign on cost expectations.

[Fintan Ryan, analyst]

And just following on. Specifically around agave point on the Mexican markets. Mexican sales declined mid-teens in Q1. How would you expect those to trend for the rest of the year? And is this just a stock-destock effect? Or are you seeing fundamental market weakness there?

[Robert Kunze-Concewitz, executive]

Well, currently, the Mexican market is in full lockdown. So -- and we don't have much visibility and how long it's going to last. But clearly, I mean it's a large tequila market. That's the second largest in the world, so that potentially could have an impact.

[Operator]

The next question is from Sanjeet Aujla of Crédit Suisse.

[Sanjeet Aujla, analyst]

So your balance sheet is quite strong going into this downturn. Do you anticipate a material step-up in industry consolidation through the downturn? And how ready are you to participate in that? Or is the immediate focus just on really shoring up the balance sheet?

[Robert Kunze-Concewitz, executive]

Well, I think we're ready to participate. The question is nobody has a crystal ball. I mean probably mid- to smaller sized players will be more impacted by the prices than the larger players. So there might be opportunities at that end of the range.

[Operator]

[Operator Instructions] Mr. Kunze-Concewitz, there are no questions.

[Robert Kunze-Concewitz, executive]

Well, thanks for joining us. And our recommendation of this day is Boulevardier with Wild Turkey 101, Campari and Cinzano 1757. Enjoy it. Talk to you soon. Thank you. Bye-bye.

[Paolo Marchesini, executive]

Bye-bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.