Davide Campari Milano NV

MIL:CPR

Earnings Call Analysis

Campari's Moderate Growth Amidst Market Challenges

In the first quarter of 2024, Campari reported a slight organic sales increase of 0.2%, reflecting temporary phasing effects and a tough comparison base from 2023. The company achieved a gross margin of 0.2%, with adjusted EBIT at -2.3% due to higher SG&A expenses. A key highlight was the completion of the Courvoisier acquisition, anticipated to positively impact future quarters. Despite market challenges, Campari maintained strong performance in Europe and the U.S., driven by Aperol and Espolòn. The company expects a more favorable margin in the second half, supported by positive trends in key growth categories like aperitifs and tequila.

Introduction and Overview

Campari's first-quarter 2024 results reveal steady growth despite a challenging environment. CEO Matteo Fantacchiotti reported a modest organic sales increase of 0.2%, with notable strength in aperitifs, particularly Campari Aperol. Even though the growth rate seems small, excluding temporary effects from the prior year's trade forward buying, the organic growth would have been around 6%. The company continues to outperform key geographical markets, particularly Europe and the US, suggesting robust brand strength in these regions.

Financial Performance

Gross margin for the quarter was flat at 0.2%, indicating that pricing strategies and positive sales mix successfully offset increased costs of goods sold (COGS). Adjusted EBIT dropped by 2.3%, with a margin of 22.8%, diluted by 60 basis points due to higher selling, general, and administrative (SG&A) expenses. If the temporary effects from Q1 2023 were excluded, the adjusted EBIT growth would be approximately 13%, demonstrating underlying strong operational performance. Adjusted EBITDA stood at EUR 181 million, impacted by a 2.4% negative value change due to foreign exchange effects, primarily from the revaluation of the Mexican peso against the dollar and euro.

Regional and Portfolio Performance

Campari's Americas and Europe regions performed in line with expectations. The US market showed resilient momentum, despite flat shipment performance due to a high comparison base from the previous year when shipment levels were up by 23%. There were positive growth figures for Espolòn and Aperol in the US, although SKYY Vodka faced some challenges. In the EMEA region, Germany, France, and the UK performed robustly, especially driven by aperitifs like Aperol and innovative brands like Crodino.

Strategic Moves and Outlook

Campari officially completed the acquisition of a historic cognac house, expanding its premium portfolio. Despite the acquisition expenses, the company maintained a positive outlook for the second half of 2024. Investments in marketing and route-to-market capabilities in China and India are expected to yield positive trends starting from the second half of Q2. The company remains confident in its high-growth categories, particularly aperitifs and tequila, and anticipates easier comparisons in the latter half of the year.

Challenges and Opportunities

The company faced certain challenges, including temporary supply shortages in Jamaica and competitive pressures in Australia's bourbon Ready-to-Drink (RTD) market. Nonetheless, positive consumption trends in these regions show potential for recovery. In Asia-Pacific, markets like Japan, New Zealand, and South Korea witnessed double-digit growth, reflecting successful market strategies and rising brand popularity.

Gross Margin and Cost Management

Campari highlighted several factors influencing its gross margin, including lingering effects of last year's inventory costs and ongoing investments in production capabilities. Tailwinds such as lower agave prices and reduced raw material costs are expected to contribute positively to gross margins in the latter part of the year. The management provided full-year gross margin guidance with a balanced view of potential tailwinds and headwinds, maintaining a cautiously optimistic outlook.

Conclusion

In conclusion, Campari's Q1 2024 performance indicates strong brand positioning and effective market strategies despite facing high comparative bases and some regional challenges. The company's solid financial management and strategic investments set a promising scene for the remainder of the year. With continued focus on high-growth categories and regions, Campari aims to sustain its growth trajectory and maintain its leadership in the global spirits market.

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining in the presentation of Campari's First Quarter 2024 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Matteo Fantacchiotti, CEO of Campari. Please go ahead, sir.

[Matteo Fantacchiotti, executive]

Thank you very much, and good morning, afternoon and evening, everyone, and thank you very much for joining us. Very pleased to lead this first 2024 performance update and first quarter results presentation together with Paolo, of course, and the Investor Relations team right here in the room with us.

So going straight into it. Organic sales were up plus 0.2% with solid underlying trends against a tough comparison base due to temporary phasing effect in Q1 2023 from trade forward buying ahead of price increases. As a reminder, we grew Q1 2023 around plus 20%. So overall, we observed continued strength in operatives led by Campari Aperol, despite the challenging comp base and largely thanks to core European markets and U.S. While it's prolonged, also in the U.S. continued to show very solid momentum.

If we exclude the temporary positive phasing effect in Q1 2023, which was mainly impact in the U.S. and Italy in operative [indiscernible], the organic growth come at approximately plus 6%. EBIT adjusted organic is at minus 2.3% and margin of 22.8%, which is a dilution of 60 basis points versus Q1 2023 with some dilutive effects of SG&A due to flattish net sales growth. Excluding the temporary positive phasing effect on Q1 '23, the EBIT adjusted organic growth will be at approximately plus 13%.

Gross margin is flat at plus 0.2%, neutral on margin with some carryover effect of last year price increases offsetting the expected COGS headwinds due to the carryforward production stock effect, we disclosed in our last call. A&P is minus 1.6% generating 20 bps accretion due to some A&P investment phasing and SG&A at plus 4.2%, generating 80 bps margin dilution due to a softer top line growth with ongoing investment, as you know, in route to market and commercial capabilities.

So our outlook remains unchanged. Since last time we spoke, which was only a couple of months ago, not much changed, indeed. So I would say that the key message is probably no news, which I guess, in our case, is good news as we continue to outperform the category in all key geographies and we progressively have easier comps as we go into second half of the year.

And probably the only one change, which was somehow expected, but it's now finally done is that we are now officially proud owners of a beautiful cognac Maison, which is urban.

So going to the next chart and looking at performance by regions and portfolio. Both America and Europe performed in line with expectations with very high comp base, and we are winning market share, mostly led by Aperitif and Tequila. Now important to explain the FC numbers. As a matter of fact, we are discounting a couple of important factors. Number one, our route-to-market change, both in China and India, which happened in Q1 in both cases, and we expect to start to see much more positive trends on both markets, starting from, I would say, second half of Q2.

And then a phasing effect in [ core ] where we had a material difference in opening stock this year, driven by a soft Q4 in 2022, driven by market macroeconomic and trade environment. Without those Asia Pacific would be still growing, and we're still positive for the full year outlook for the region to maintain a positive growth trajectory on a full year basis.

At the same time, it's great to see our global priority brands are growing even against the high comp base that demonstrates the momentum again on aperitif and Espolòn. So quickly deep diving into the regions in the next chart, looking at Americas. When it comes to U.S. flattish shipment performance against a tough comp base. So Q1 last year was up 23%. But again, positive growth for Espolòn, Aperol, and also Grand Marnier, although Grand Marnier, there was also a positive impact of low comp base last year coming from destocking. And some weakness in SKYY. But overall, I'm sure there will be questions. You will see that our share performance momentum in U.S. continue, especially driven by Aperol and Espolòn.

Jamaica is negative, but I will say Jamaica is more of a supply story, will be help to explain. Yes, we had a high comp base, but the number is negative because of some temporary shortages while the underlying consumption trends are positive and as you know, we are addressing supply shortages with the CapEx investments we did in Jamaica.

And some good numbers coming up from other markets, especially driven by Brazil, both from aperitif and the local Brazilian brands and Canada with, again, Aperol and Espolòn Folon doing particularly well.

Moving to the next chart, going into EMEA. Again, a positive growth, 2.2%, and this is, I will say, share performance generally positive everywhere, and especially in the data available in the Easter readings also generally very positive, mostly driven by priorities across markets. And when it comes to the organic sales growth numbers, Italy in a small quarter, decline against a very high comp base. In fact, last year, Q1 was up 21.6%, which -- where we had price increases in early Easter which was also early this year. But obviously, in 2023 against '22 was way earlier and especially Aperol was Q1 up 33%.

Germany, very good growth, double digit, also against a comp base with Aperol, aperitif [indiscernible] , which is our innovation doing particularly well and also Crodino, which is nice to see. France is growing well. U.K. is a combination of again icon-based, but also is another market that is temporarily impacted by supply constraints in Jamaican rums. And other markets, generally speaking, doing well across Austria, Spain, Netherlands and Belgium. Again, mostly an Aperitif story, although some of the other brands are also growing. But as you know, in Europe, from a smaller comp base.

Moving to Asia Pacific. So Asia Pacific, actually, the story is twofold. On one side, we still continue to see a very positive trend across most APAC markets. It's part of our APAC growth story, where in markets like Japan, New Zealand, Korea, our depletions are growing double digits. We're doing well. We're winning market share.

As expected, we were planning to change route to market in China, and I think that's a positive news as it is the sign that we have real confidence in this market, and we believe that as we learned over the last 2, 3 years, we are ready to go on our own, even more now with the addition of cognac [indiscernible] in our portfolio. And also, we did change both management and route to market in India. So Q1 for India and China was almost close to very little sales ahead of the route-to-market changes and stop moving from all route-to-market partners to the new ones. So I will say Asia is positive.

The one market that is really struggling at the moment in Australia, where, first, the macro environment is challenging. From a macroeconomic standpoint in the country. And the competitive set, especially in terms of category mix, it's really not playing in our favor. And we're struggling a little bit in bourbon, especially RTDs, where wide spirit RTDs are growing much faster. And within bourbon RTDs, we took quite some price over the last couple of years, and we are, at the moment, seeing a lot of promo pressure going and we're losing a bit of share in Barbon and this is the only performance issue that I would call out on APAC. So for the full year, we remain positive that this region will still deliver growth as in line, especially in the key priority markets with previous trends.

Moving to brand global priorities. Like I said, very nice to see that both Aperol and Campari are still growing even against a very high comp base, Aperol both are plus 6%, which means actually the brands are doing really well across most of the key markets, be it Germany, U.S., France for April and most of the others also for Campari. Espolòn following a double-digit growth, again, besides a very high comp base, which shows the real momentum for this brand, which seems really unstoppable, both in U.S. and also in the international market that now we can finally activate as we are unconstrained.

While Turkey is a bit down, and I will call out 2 things here. Number one, also, we need to acknowledge that when it comes to why Turkey, [indiscernible] brands 71% bigger than it was in 2019. So this is a brand we really developed a lot. And number two, as we discussed in the past, our strategy on -- while Turkey is really value over volume and have to deep dive, but besides the high comp base, and I'm going to repeat this for most brands again.

There is some temporary phasing for some of the non-U.S. markets like South Korea and even Japan, but also our strategy in action of volume versus value. So the priority SKUs of Wild Turkey, the one we want to grow for the future, which is one-on-one and above are all growing and winning share, which is what we talk about.

Jamaica, as I said, is mostly a phasing problem, but it's nice to see that Appleton is in great shape and it's winning share also in U.S. Grand Marnier is growing, although you will see it later on. We're investing on the brand. We're doing well, but this number at plus 8% has also some easy comp base after the stocking last year in U.S. SKYY is the one that, as you know, Vodka is having a bit of a tough time in U.S. We keep share. Actually, we -- in the last quarter, we gained a little bit of share, but the category is under pressure in U.S. Although SKYY is growing in other international markets. which now account for a good proportion of the volumes, and we're pleased to see that positive trend especially after the new packaging launch some 12, 18 months ago.

Moving to regional lockup priorities. I will not dwell again on commenting on the high comp basis. But basically, we'll just summarize very quickly saying that sparkling wine and champagne is doing well, and this is obviously a reflection of sparkling wines. As you know, for us, it's very much linked with upper performance and champagne, we're building nicely our Lallier brand. whisky, especially when it comes to GlenGrant, it's more of a phasing. And to mention Crodino, which is something we are starting to invest outside of Italy to activate our nonalcoholic pit offering, and it's starting to perform really well.

And when it comes to local priorities, I will say everything is in line with our expectation and the one single thing to flag is Wild Turkey RTD, which we discussed already, but the rest is performing okay.

Before we go into the financials, a few snapshots of last quarter activations, which was, as always, quite active, and I think they represent again, I will say, our property beautiful marketing model in action. First of all, Aperol of Australian opened 2024 marked the return of Aperol as the official aperitif of Australian opened after a few years break due to COVID. And when you look at some of the bulk work, we always use in the industry like omnichannel and consumer or shopper journey.

I think our [ Tenis ] program was a clear example of those base real in action, like if you happen to be in member during the treatment open, you could get to the iconic growth labor arena via by our branded Aperol both, that you can see in the pictures you could walk and enjoy fishing Aperol Spritz walking along the Yarra River in some of our activation in the bars and Terrazza season the river, in the precinct around inside the arena. We had an immersive Aperol experience with 300 square meters Terrazza Aperol you call also this year, which was a novelty order Aperol Spritz at the bar inside the Tennis centers. So you could see an Aperol Spritz watching world class tennis.

And then we had activation also outside of the arena in on and off. So Uber activation with some approach in open partnership in Viking to build some of our on-premise activation. We had off-premise installation with limited editions for Australian open we had pop-up stores at the airport in Melbourne. And then a nice above-the-line campaign across digital, social, programmatic and liner TV with a dedicated campaign for Aperol, which was called [ Serba ] summer. So a beautiful 360 campaign, which delivered very strong results and Aperol is growing double digit in Australia.

Going to the next chart, while it was summer in Australia, it was winter on this side of the world, and we did our deseasonalization program with beautiful activations in key resorts alongside also World Cup key events. And for me, honestly, been back in Europe for Christmas this year, I was also excited myself to start to see Aperol Spritz which is popping up over launch time on the lots everywhere. So it is really good to see our activating Aperol also in winter time now in Europe.

Next page is Romania, which I think is also an interesting novelty because, as you know, we keep cementing the iconic and statusful brand positioning for Grand Marnier, winning in margarita and expanding also its consumption versatility and lately knowing the Black American consumers, which have high spending power. So our correct target for Grand Marnier and high cultural influence in the U.S. are moving in between cognac and tequila. And as you know, Grand Marnier is a cognac base before. We identified an opportunity to connect with these consumers by way of hip hop as an affinity territory. And February 2024 was the first time we set into the strategy. And so our resounding results at Grand Marnier took its place in the cultural conversation during [ Ramin, ] Super Bowl and NBA All-Star Weekend with incredible results.

I can just give you one, which is in one month, we earned over 1.7 billion PR impressions, which exceed total full year last year. So a very prominent start of this platform for Romania.

Next page, basically, we keep executing Campari association with cinema, and this February was in Spain, both at [indiscernible] work and with our partnership with [ PhotogramaDePlata, ] which is the Campari premier cinema magazine and sponsoring the Campari Cinema award at the event in February, which is a very nice anticipation of what we will do very shortly at the 2024 in Fin festival. Where we will also launch it was announced yesterday, our dedicated campaign, which is mostly digital we are Cinema for Campari.

Last but not least, a quick mention of our tequila portfolio in the next chart because obviously, like I said, Espolòn is really shining is now part of the Global priority brand cluster, combining strong U.S. presence and unconstrained volumes for internationalization opportunities. And in Q1 2024, Espolòn has been growing share and value and volume double digit in most markets.

And by the way, this year, it's worth reminding that the brown is celebrating in 25 years since the introduction of its Signature Tequila Blanco. And we're launching a limited edition, which you can see in this chart, first of its kind for the brand created by Renault Mexican [indiscernible] edgar Santner florists and we will dip down in Q2 in terms of what we will do beyond the limited vision, both for this Maison anniversary with a series of underground events, partnership and experiences is always amplified through digital and through consumers doing application for us.

And our other Nexgens gems by the way, continue to shine and they just won several awards, as you can see in the chart, both in terms of tequila and mezcal with Montelobos at the San Francisco World Spirits Competition.

Last but not least, because it just came a few days ago is the cocktail report 2024 by Dreams International. Finally, out and we have a great news to share with you because for the third year in a row, Negroni is confirmed as the #1 best-selling coke globally and obviously, future in Campari because there is no Negroni without Campari and as you know, this is one of the most followed report by bartenders and trading to answers. Therefore, the #1 position for Negroni is an important recognition that we should continue to leverage with Campari.

This being said, Aperol Spritz is moving up one place from 9 to 8 position and is the one single branded coke filling in the world. I mean, you can argue Negroni is also branded, but with Aperol Spritz is even in the name of the cocktail. And the other thing we were very pleased to see is that, as you know, for us, the strategy with Espolòn was, of course, to participate in to Margarita. But from the very beginning to push a more seasonable drink, we believe, be the Paloma with our Espolòn and now the Paloma moves up 4 places and it's in the top 10.

So we believe we can also leverage this platform as we did since the very beginning, and now we can ride on this trend. So I think that summarizes our marketing activation and numbers, and I will let Paolo to bridge with some core information and financials.

[Paolo Marchesini, executive]

If you follow me to Page 15. As you can see on the 30th of April, we've announced the closing of the Courvoisier acquisition. After having successfully completed the various applicable regulatory processes, including the antitrust one. The upfront enterprise values confirmed at $1.2 billion including within the enterprise value for $110 million of maturing inventory. It should [indiscernible] not be paid in 2029, total enterprise value is therefore confirmed at $1.52 billion equivalent of EUR 1.22 billion.

The integration of the Courvoisier operations has been initiated, including supply chain, back office and distribution. We expect quite a smooth and turnover given the successful preclosing achievement of our clean team and the positive contribution of the sellers team. The brand strategic assessment is currently underway. Meanwhile, the commercial structure strengthening in core brands and regions, namely the U.S. and the U.K. is already started. The perimeter to start is expected to start reflecting the consolidation of Courvoisier from closing with a limited impact expect in the first transition year. So here, we confirm the EUR 10 million contribution from the acquisition.

If you follow me to Page 16. We can see that the EBITA adjusted organic change came in at a negative 2.3% with the margin, EBITA adjusted margin of 22.8%, showing a 60 basis point organic change, negative organic change. Organically, the gross profit was flattish, plus 0.2%, thus neutral on margin as pricing and positive sales mix fully offset as the expected first quarter COGS headwinds.

G&P in value was negative by 1.6%, generating 20 basis point margin accretion totally due to phasing of our NPE budget. The SG&A increased in value by 4.2%, generating 80 basis point margin dilution due to the softer top line growth with ongoing investments. If we excluded the temporary phasing effects of the first quarter, the EBITDA adjusted organic growth would be, as we said before, 13%, still with a flat gross margin. The EBIT adjusted on a reported basis came in with a negative value change of 4.9%, with a negative [indiscernible] effect of 0.2% due to the net effect of the changes in the agency brand portfolio.

The FX had a negative impact in value of 2.4%, and that was mainly driven by the revaluation of the Mexican pesos versus both the dollar and the euro. The EBITDA adjusted came in at EUR 181 million with a reported growth of a negative 1.7%, of which 0.6% is a positive organic growth, a negative 0.2% perimeter effect and again, a negative 2.1% FX effect.

If we move on to the following page, we can see that operating adjustments coming at EUR 2.2 million negative, mainly attributable to provisions linked to restructuring initiatives. The total financial expenses came in at EUR 11.9 million with a decrease of EUR 4.3 million versus a year ago. If we exclude the exchange rate effects, the net financial expenses, were down to EUR 12.1 million versus the EUR 12.9 million of first quarter of last year, within which we have EUR 25.8 million of interest expenses including the incremental interest on the convertible bond issued in the first quarter to finance Courvoisier acquisition. And those EUR 25.8 million were partly offset by EUR 13.8 million positive contribution from interest income on the resulting cash position ahead of the closing of the Cuvees acquisition.

The cost of net debt came in at 3.1% versus 3.3% of first quarter of last year. The exchange gain came in at EUR 0.2 million versus an exchange loss of EUR 3.3 million of first quarter of last year with benefits from low volatility in exchange rates. The hyperinflation effect in Argentina came in at a positive EUR 8.1 million. Pretax profit adjusted came in at EUR 146.5 million, up 3.7%. Pretax of EUR 144.3 million, up 6.4%. Post noncontrolling interest before taxation, the group pretax profit adjusted came in at EUR 147.3 million, up 5.8%, while the group pretax profit came in at EUR 145 million, up 8.6%.

Moving on to Page 18. As you can see, the net financial debt stood at EUR 1.153 billion with a decrease of EUR 538 million versus December last year, mainly driven by the cash injection from the equity raise and the convertible bond, which were carried out in January this year to finance the Courvoisier acquisition. Those positive effects were partly offset by an increase in gross debt to the convertible bond, which here we recognize net of the equity component. The net debt to EBITDA adjusted at March end came in at 1.8x versus 2.5x at the back end of last year. But if we factor in the negative effect of the payment of the Courvoisier consideration, the net debt-to-EBITDA ratio would be 5.5x, still excluding the positive P&L effect of the first-time consolidation of [indiscernible] the more prudent.

With that I think Matteo, this is it on numbers. I would hand back to you for conclusion and outlook.

[Matteo Fantacchiotti, executive]

Thank you, Paolo. So like I said, I would say, no news for us, I believe, is good news. We continue to grow, and we continue to outperform the industry, including the temporary phasing effect and if you like, even some of the APAC go-to-market changes our growth is still at mid-high single digits, both top line and bottom line. Our outlook remains unchanged. In fact, we delivered what we thought we needed to deliver for Q1, and we reiterate our confidence in high-growth performing categories like aperitif and tequila and our expectation of a more favorable margin context materializing in the second half.

When it comes to Q2 and Q3 results, both top line and mix will rather be dependent on seasonality. I'm pretty sure there will be questions on weather as well as our A&P investment and with reasonably easier comp, especially in Q3 as I'd like to remind you that Q2 last year was still pretty positive for us and brands like Aperol were still in very high growth. So good news on Courvoisier, which will start to reflect on the perimeter from May, but with unchanged view on first year impact. So look, steady as it goes, continuing to outperform reference market and primate for sustainable medium- to long-term growth that will be my summary, and I think I will now move to questions. Thank you very much.

[Operator]

[Operator Instructions] The first question is from Andrea Pistacchi, Bank of America.

[Andrea Pistacchi, analyst]

Yes. I have a question for you, Matteo and one for Paolo, please. The first one on the U.S. whether you'd be able to give a bit more color on your performance in the U.S. Now the market is quite challenging at the moment, for sure. But at the same time, your performance was held back by phasing. So really, what are you seeing in the market? What do you reckon your underlying growth is in the U.S. in Q1, basically, your depletions, if possible, and whether you're seeing much difference for your brands on-trade versus off-trade. We clearly see all the Nielsen data, but we have a limited visibility on the on-trade from our side.

And then for Paolo, please. I wanted to dig a little deeper on the COGS gross margin dynamics. So in Q4, gross margin was up, I think, 150 basis points organic. It was flat in Q1. So what are the main factors holding back gross margin compared to Q4? Is it -- I mean, the less favorable mix? And the back at full year, you referred to the lower absorption of fixed costs. Was that a factor, which is now behind. And I was wondering whether, Paolo, you have better visibility on glass costs for the year now. I mean whether lower energy costs in January, February, March, whether this has triggered or will trigger contractual reduction in what you pay for glass?

And more broadly, what you expect -- what do you expect gross margin to improve in the remainder of the year?

[Matteo Fantacchiotti, executive]

Okay. So well, first of all, Andrea, I hope you're aware. So on U.S., our underlying growth remained positive, and we expect full year market to grow. So that's the simple answer. Now why is that. First of all, I think 2 factors. One, you can see in some of the commentary of many of our competitors. One recurring team is the destocking and how much that will last and -- lasting longer than expected and so on and so forth. Thanks, God. We don't have this team in our company at the moment.

Our level of stock, we're happy where we are. And I will say, especially now we go to a situation where across all brands, we don't have any either over or under stock position.

The second element is depletions. If you look at the numbers, we're still outperforming and bid across category and peers. And I will say on that, especially 2 brands, which thankfully are quite large for us in U.S. are doing extremely well and on a very positive trend, which is Espolòn and Aperol. And if you look at channels, I will say when you look at NAPCA versus Nielsen or whenever you look at data that includes also on-premise, our performance is always a little bit better. And this is again because, as you know, this is where our strength is and where brands like Aperol for, but even Espolòn are playing and doing well. And if there is one softness that is SKYY, which is more exposed to off-premise, which is why maybe on the news and you will see a slightly worse data.

So within this context, yes, we're positive on U.S., and we believe at the moment, we're lucky twice in U.S., first, not exposed to stocking or destocking issues. And secondly, we believe we play in the right categories at the right price points.

[Paolo Marchesini, executive]

With regards to the question on gross margin trends for the full year. Clearly, here, we're basically confirming the full year guidance at this stage were basically, as we have highlighted, there are a number of tailwinds. The biggest one being agave with at this stage, potential full positive contribution across '24 and '25 for about EUR 50 million with EUR 30 million in this year plus we have other raw material and packaging material tailwinds amounting to EUR 50 million. So for this year, we have about EUR 80 million potential tailwind.

But on the other hand, as we're signaled during the previous call, there are also some headwinds, namely the safety stock that has been built up last year accounting at higher cost, but that generates a carryforward effect of inflation in this year of EUR 15 million, this year and absorb fixed cost due to the slowdown of production at our plant because of the ramp-up of last year that is generating another EUR 15 million of unabsorbed fixed production costs.

We have higher depreciation due to the extraordinary CapEx program of last year accounting to EUR 180 million with EUR 15 million, again, negative impact of the P&L of this year. And the higher cost of aging liquid and now we're dumping into our brown spirits bottles. So -- and total the headwinds of EUR 16 million. So tailwinds and headwinds this year are fairly balanced. There is a little bit of upside on tailwind by EUR 30 million, but having said that, as we have anticipated this year, it will be primarily a sales mix play with potentially positive comp in vis-a-vis consumption, and then we'll talk through shipment is a different story in Q2 and Q3 due to poor weather conditions of last year.

Now if you look into the other question, the region first quarter and phasing of things. If this is overarching picture within that in first quarter, clearly, we signal still -- for the full year, pricing, we said we're expecting between 1% and 2% positive pricing even after having factored in the higher promintensity category that we see happening in mature markets, Europe mainly and parts in the U.S. So call it 1.5% for the full year. Now clearly, the first quarter in terms of phasing is much higher as it does benefit of the carryforward effect of last year, high single-digit price increase that we've achieved as -- you may remember, 8.3% last year.

So this year, we have in first quarter, a positive contribution that as the time goes by, it gets smaller and smaller in Q2, Q3 and Q4, with Q4 with basically no price increase on average versus a year ago.

Now if you look at COGS, then the picture is quite the opposite. Clearly, in a small quarter like the first quarter, the carryforward effect of last year inventory buildup is quite meaningful. So the inflation effect in the first quarter. is proportionately high in comparison to the inflation effect that we see for the full year. So the timing goes by the carryforward effect as we utilize the excess stock internal stock gets thinner and thinner through Q2, Q3 and Q4.

Now the mix, clearly in the first quarter was marginally positive, also taking into consideration the fact that last year due to the huge price increase of the second quarter, there was anticipation of shipments of high-margin brands. But then if we look into second quarter, we have to signal the fact that on an end, of course, weather condition in the second quarter were particularly negative. But on the other hand, as you cannot forecast the weather conditions and precise trim logistics the second quarter of last year in terms of mix, in terms of shipment was strong and with positive sales mix.

So if I look at sales mix in the second quarter, I would not necessarily come to the conclusion that is a strong contribution to our gross margin expansion in the second quarter. Clearly, if you look at the comps, the third quarter of last year was relatively poor in terms of volumes and mix and its where we think there is the opportunity vis-a-vis the product team of negotiations with suppliers that you've mentioned from the glass, which is the other component on top of the agave, whether they have specifically call out, we remain positive.

Clearly, on the commodity indexes are playing in our favor. We're currently clearly discussing contracts and terms. So we think back end of second quarter, we'll have better visibility, and we'll be in a position of sharing further lights on that. But overall, I think the picture I've described is mostly confirmed at this stage.

[Operator]

The next question is from Simon Hales of Citi.

[Simon Hales, analyst]

So 2 questions for me. So why don't you just talk a little bit more about your A&P plans. Clearly, you had a phasing benefit again in Q1 this year from slightly lower A&P. Obviously, you had a phasing benefit back at the Q4 stage when you announced the full year results in February. So I think we were expecting a bit of a catch-up coming into the first quarter. Has that just been delayed now into Q2 and Q3? And how should we think about A&P spend for the full year now?

And then a second question, if I can, around Courvoisier. Obviously, the deal completed a little bit earlier than expected. Paolo, you just said in your opening remarks, you expect around about EUR 10 million contribution to EBIT for the full year this year. I think that's in line with what you were guiding for back in February. But at that stage, I think the assumption was the deal was going to complete midway through Q3. It looks like it's completed 4 months earlier. Why aren't we seeing any more incremental profit this year? Is there some destocking going on in the U.S. and other markets for Courvoisier or is there something else that we should be aware of?

[Paolo Marchesini, executive]

Well, vis-a-vis the A&P phasing by quarter, clearly, on the first quarter is a very small quarter. So a few million euros of fear may see big changes reality, there's nothing to read behind that. Clearly, there is an intent to achieve a catch-up in A&P as a percentage of sales by 60 basis points in 2 years, from 15.9% to 17.5% in '24 to '25, depending on weather conditions of second and third quarter.

Now talking to weather conditions in the first quarter, clearly, I don't know whether you have the data, but actually, on average, we had marginally better temperatures vis-a-vis until April of last year, but with higher rainfall. So clearly, in terms of activation of the brand as the fact that the first quarter is not the quarter where you are active with the parties, but that's clearly not a positive tailwind. Vis-a-vis Courvoisier in first quarter -- vis-a-vis Courvoisier on the other hand, no, I wouldn't read too much into the guidance of EUR 10 million. It's clearly very preliminary we need clearly to assess the level of inventory sitting at marketplace. As always, whenever we acquire a brand, we tend to clean up as much as we can. Also the channels as well as the offering because we need to start off a clean sheet of paper and have a brand revamp that doesn't discount the impact of previous actions.

So this is -- so -- we are in the process of assessing the overall just on the closing. We were not in a position of sharing data with the sellers ahead of closing. So it's the very beginning of it. So that's the situation. No new news, no positive, no negatives on that one.

[Simon Hales, analyst]

And so just to check on the Courvoisier inventory levels, to Matteo's point around you being happy with stock levels everywhere, not overstock, not understocked. That's for the existing business, not necessarily for Courvoisier at this stage.

[Matteo Fantacchiotti, executive]

Well, Simon. So like Paolo said, we really don't have visibility at this stage, especially on stock in trade. And if you like, we try to accelerate as much as we could, the closing because we knew that, on one hand, the seller will start to prioritize and focus on other brands. And on the other hand, we wanted to avoid any abnormal sales push. What we believe at the moment is that we will get into the market and see what's happening.

Anecdotally, we think not to have any very bad surprises outside of possibly one market, which will be China, where you know the cognac stocking trade, I don't think it's a Courvoisier issue. It's a bit of a general category issue. But we will discover more in the next few months. Like Paolo say, at the moment, the focus is integrating the brand commercially from a supply standpoint, and we were really ready for that. We did a lot of work. I think this is happening really fast. But in terms of starting to work for the strategy we launch and putting our hands into and marketing brands into the brand. This is going to start now equally up market level, we will have over the next few weeks, a better part of stocking price situation.

[Operator]

Next question is from Sanjeet Aujla with UBS.

[Sanjeet Aujla, analyst]

Two questions from me as well, please. Matteo, please can you comment on the promotional environment in the U.S. as you see across the industry. We've heard from other companies about a step change in the last few months. Just love to get your perspective that and how that is potentially impacting certain parts of your portfolio, namely Wild Turkey as well.

And my second question is just on the Jamaica supply issue. Can you just give us a sense of when you expect that be resolved, please.

[Matteo Fantacchiotti, executive]

Sure. Thanks a lot. So look, when it comes to from environment in U.S., I will say that where we see more aggressive promos at the moment are basically 3 categories, which is bourbon, tequila and cognac. Now I will leave cognac aside for now because, like I said, we still need to make up our promo and pricing strategy, obviously, we have some assumptions, but we'll do that very fast. But at the very beginning, will be more taking over in line of continuity before to create any disruption.

When it comes to tequila, I think we're pretty lucky in that respect. If you look at the promos that are happening more aggressively has higher price points, which is a super premium, which is the one that is suffering and we believe with Espolòn to have a real sweet spot in between price positioning and brand equity.

So far, we don't feel we need to promote and actually with the current brand equity and price point, we believe we're able both to trade up from cheaper tequilas for a consumer that understand now as they move away from short and mix, so that they can trade up to a better quality product, which is still coming up at reasonably affordable price because it is typically between USD 28 and USD 29, but equally, consumers trading down because they want to spend a little bit less. And obviously, Espolòn is a great, again, combination of quality and price.

When it comes to bourbon, yes, that's the other one, and you are right. And maybe this where in the short term, were suffering a little bit. But if you like, it is part of our strategy. So when you look at Wild Turkey, 101 is growing and 101 is growing share against the main competitor -- against all of them actually our super premium variances, MK and with [ Appleton ] generation. So the really high-value SKUs are doing phenomenally well. And the one that is suffering a bit is probably the main -- which is not the main one, the base SKU in U.S., which is 82. And if you like, that's part of our strategy to also restrict a bit volumes to create more value out of the current volumes that we have as we put our CapEx investment to work, and we expect in the next 2, 3 years to finally have much more unconstrained volumes across on the price range.

So there is more problem in U.S., but I think we are reasonably so far insulated, including the fact that with aperitif, again, we feel the need to activate more and more Aperol rather than discounted. Not part of your question, but if there is one place where the promo pressure is something that is happening, and we might need to be a bit more careful and respond, that is Europe, but not necessarily U.S.

For Appleton, I think it's more of a supply story and CapEx investments. So maybe I will leave to Paolo.

[Paolo Marchesini, executive]

Yes. You know that our ability to supplying full the demand on the existing -- strong demand on [ RAM ] highly depends on our ability to run the distillery at its full potential. And this is linked to the waste management process that is the one which we've recently invested on to fix and close the waste management look, so the matter has been addressed and fixed. And we think in the second half of the year, we'll be in a position of having a smooth supply of our runs to the Jamaican market to the international market.

[Operator]

The next question is from Edward Mundy with Jefferies.

[Edward Mundy, analyst]

Three questions for me, please. The first Matteo, I think from a strategic standpoint, it sounds like it's very steady as it goes. But are there any parts of the strategy that you want to double down on either by brand or by region or anything on the philosophy that you think might change over time at Campari with the change of leadership.

The second and the policy, if I might have missed this, but the bridge from the organic growth you printed in the first quarter to the 6% underlying. I appreciate you called out Asia, but perhaps you can sort of call out what is the bridge from the 0 to 6. And when all is said and done, given that you're highlighting the macro and some pricing normalization within your outlook statement, do you think 6% is a reasonable proxy for fiscal '24 organic sales growth.

And then my third question, just coming back to some of the great pictures you showed in the slide deck on Slide 9 and 10. It's kind of interesting that on Slide 9 for Australia, the activation Aperol is being done in sort of plastic cups, whereas on 10 within Europe, you're doing it in the nice glassware plastic glassware. Do you -- does it need the glassware to travel as you see and grow Aperol at some of these events globally?

[Matteo Fantacchiotti, executive]

Okay. I'll try to answer the first one. Sorry, the first one -- yes, about strategy. We might need to ask you to repeat the last one, I guess, but on Aperol. But let me start with the first one. Look, as we position the change is a change in continuity, as you rightly say. What I always say is not a boring continuity because it's a continuity on a transformational journey, as you know, the company was very different 10 years ago, and it's going to be very different in 10 years from now, I'm sure. So now as we evolve towards the next stage of growth, I think what I'm very determined to make sure it's going to stay the same is our long-term vision, our culture, and I would say our growth strategy and growth mindset and to grow the company organically and inorganically.

Now when it comes to, say, is there any where you think you can accelerate? I think it's again probably in continuity. But if you like, I wish we can accelerate even further. That is definitely U.S. and it will be also APAC, Asia Pacific. When it comes to market, I think we discussed a lot about categories, which is obviously a lot of aperitif and tequila. But obviously, now Espolòn -- sorry, Courvoisier coming up and is a good opportunity in the medium term as well in our view. And I guess also there is something that we started, but I feel we can also accelerate, which is our overall digitalization, which can also enable greater returns on our investment and commercial capabilities, which include also in the areas of marketing, using more data and analytics and going much more into performance and precision marketing.

So I guess this is the bulk of it. And I guess as well, you will hear more about this as we go into the next quarters and we keep evolving our next phase of growth. I guess I will leave to Paolo to cover the bridge. I would just like to clarify because maybe I created a confusion myself that the plastic doesn't include any APAC. We didn't want to include APAC because that, yes, it's something we're doing, the route to market change. So I will just mention it to explain the APAC story, but the plus 6% is something that Paolo will explain.

[Paolo Marchesini, executive]

So the adjustments were referring -- we're alluding to is the adjustment of the first quarter of last year, where we had big one-off effect. The first one was the anticipation of the shipments ahead of significant price increases that will be implemented basically in 2 geographies in European countries, particularly in Italy and the U.S. So that's the first one.

And the second one is the restocking we had last year. particularly in the Espolòn brand on the back of 2022 landing with a very, very low inventory days at our distributors. So if you carve out the effect of those anticipated shipments in Q1, and you normalize the true comp base than would end up without adjusting first quarter 2024, which is as it is and it doesn't take into consideration from any of the Asian effect that we've mentioned, you have an organic growth of 6%.

[Matteo Fantacchiotti, executive]

And if you don't mind to just repeat the question on Aperol, I thought you are alluding to some glass.

[Edward Mundy, analyst]

No. So on Slide 10, where you're doing your winter activation it's pretty clear that your -- you've got the perfect serve with the nice glassware, nice branded for the orange. But when you look at Slide 9, just drill an open, people on the boat and people sort of drinking on the Terrazza. It's like a normal plastic cup, which is not the perfect serve. Do we need the perfect serve or actually is the brand struggling off the channel now in just a normal ordinary cup?

[Matteo Fantacchiotti, executive]

Okay. I really like your question because it means you know us very well, and you know how obsessed we are about this. And I can tell you that I had personally in my previous job, a very long discussion with the team in Australia about those glasses. And the reality is that in some cases, and that including, in fact, the Australian Open precinct, we cannot use real glass, is forbidden. So we then thought about creating our balloon glass in plastic, but then it's not stackable. It's more difficult to reuse. So there was an environmental, let's say, concern from our team. So net-net, we're -- it's about the personal serves.

We do it every time as much as we can, even when it comes to bringing plastic into the [indiscernible], but sometimes that is limited by local regulation or the environment we're activating, and that's where we need to what we can and still try to do a personal serve but in, let's say, a balloon shape glass would have the stand.

[Edward Mundy, analyst]

[indiscernible] on Slide 9.

[Matteo Fantacchiotti, executive]

Yes. exactly.

[Operator]

The next question is from Celine Pannuti of JPMorgan.

[Celine Pannuti, analyst]

My first question is on the pricing. So you said that pricing will be off from Q2. Am I right to think that in the first quarter, you had like high single benefit -- single-digit benefit from pricing. And then we'll be looking at 1-ish in the coming quarters to get to the 1 to 2 things for the year. And I mean, on the follow-up on that, can you comment on what you said about Europe and the promotional environment where you said you may need to step up?

And my second question would be on the phasing of gross margin. Did I understand correctly that there will still be some headwinds in the second quarter, and therefore, all of the phasing will be in the second half of the year. And maybe just last one, if I may. You mentioned that Q2 was a tough comp when I look at Q2 last year, the U.S. was quite weak. So could you elaborate on that?

[Matteo Fantacchiotti, executive]

Okay. Maybe I'll start with promo effectiveness in Europe, and then I will leave Paolo to comment on price and gross margin.

Look, when it comes to Europe, is quite simple. Number one, we honestly observe that some of our competitors that are very much under pressure in other parts of the world, namely U.S. and a bit of China, are obviously trying to catch up in Europe and promoting very aggressively and very heavily.

And in some case, even if not in our categories, like for instance, Gin and [indiscernible] Gin trying to promote very heavily and attach into our aperitif space. So given we know that in Europe in Q2 and Q3, the numbers are extremely important for us. And if a good season comes, we really want to bank on the current positive brand health and momentum and make sure that we get as much as we can consumers to drink our brands. If we need to respond, we will.

I'm not saying we have a super aggressive promo pricing, but we are monitoring very carefully what's happening and the team is flagging that health. It's becoming very intense, and we need to be ready to respond, if need to. That's the promotional environment in Europe.

[Paolo Marchesini, executive]

Yes. With regards to pricing COGS and mix, which I think is the essence of your question, pricing, as I said in the first quarter is positive. It's well above the 1.5% target for the full year. And say that positive contribution of first quarter in our point of view is meant to be offset by very poor price contribution in the fourth quarter of this year. And in between Q2 and Q3 where on average, the target average price increase is in line with full year price increase.

So we have a positive comp, positive contribution in first quarter, neutral, more or less in the second and third quarter vis-a-vis target 1.5% price increase and negative contribution in terms of pricing, still not negative price, but no contribution from pricing in Q4. So that's how we see pricing.

On the other hand, COGS, as said, we have the carryforward effect of last year high cost inventory EBITDA that is dating in the first quarter in terms of negative impact from COGS that more than offset the price increase that we've achieved this year. But then in the remaining part of the year, this is testing to become a tailwind from Q2 onwards -- from Q3 onwards, sorry, as the commodity price deflation materializes.

On the mix, and this is the point that I wanted to make on second quarter, I was not alluding to poor volume performance in the second quarter. I was alluding to neutral mix effect in the second quarter. What I was highlighting is that if you look at the aperitif portfolio, particularly exposed to weather conditions, the second quarter has not been of last year negatively impacted by poor weather conditions because we clearly preloaded that the market as we normally do ahead of the spring/summer peak season. And then clearly, consumption was below expectation in second and third quarter due to poor weather conditions.

So there was last year still a strong shipment of aperitif in a relatively strong shipment in the second quarter, which then reversed back. So mix, not volumes will be, in our point of view, depending on many faces, but broadly new in the second quarter wise, we expect a positive mix contribution in the third quarter of the year. As you know, in this year, we would have a closer alignment of shipments to depletion to consumption data across the quarter, missing the negative surprise of bad weather condition, which we were not expecting hopefully. I hope I answer your question.

[Operator]

The next question is from Chris Pitcher, Redburn Atlantic.

[Chris Pitcher, analyst]

Couple of questions. Firstly, on Grand Marnier. Obviously, the brand was back into growth and had a very strong performance in the U.S. but internationally, it looks like it's quite a bit weaker and versus 2019, the brand in the quarter looks still way below those sorts of levels. Are you comfortable that Grand Marnier is now on a sort of steady base to start growing again? And is there more work to be done on that brand?

And then secondly, on the Courvoisier acquisition, just in terms of high-level stuff, forgive me if I've missed it, but are you able to now give us a sales and gross margin figure for 2023? And also the ODV looks to have increased significantly since October. Is this due to higher investment or lower-than-expected depletions? And do you think you've got enough stock for your plans at these levels?

[Matteo Fantacchiotti, executive]

Okay. So I will do Grand Marnier. And yes, look, Grand Marnier no surprise, it's a priority for us. And like I mentioned, especially in U.S., we are putting a big focus on the brand. We started to activate more into the space of also Af-American and Hispanic community with some association with hiphop and debt territory, and this is working well.

You might have not notice. I didn't myself because unfortunately, I'm not that young more. When you were listening to the music ahead of the call, that was an artist called 2 chain, which you will also see in the closing page, which is a collaboration we just signed up in U.S. is a very, very famous artist, at least my kids are telling me that and it's really popular, and that's another step into the direction of really putting Grand Marnier into that space while keeping basing on the margarita and liquid versatility strategy, especially enhancing the cognac credential, which we need to play more aggressively as obviously not a simple triple circle liquor. That's why its premium, also in pricing and that's why it's so much of a choice in a cocktail market like U.S. when it comes to the ground cocktail strategy and grand Margarita.

So feel pretty good about the plans and the investment we have in the U.S. When it comes to rest of the world, you're right. I mean, the reality is that in the rest of the world, and Margarita has always been less of a phenomenon . I think what we see is that number 1 is tequila keep growing also abroad. And one of the things is always Margarita we will reinvest more and insist more on our grand Margarita strategy.

On the other hand, also we are starting to see very interesting success in places like Asia in our rare division for the Grand Marnier, as we call them high marks, which is all the super premium SKUs, which are going up to 80% or 90% of cognac content, which has really very nice appreciation for high network individual consumer when it comes to collecting our [indiscernible] and those on a very small base and volumes, but are doing very well. And typically, those will help -- they will help also generate some halo effect for the brand.

So the last thing that I would say about Grand Marnier is that as we take a little bit more into the cognac space, we don't exclude some of the route-to-market strengthening we're going to do for cognac. It's going to enable us also to have a positive effect for Grand Marnier as well. Certainly in the U.S., but it might be also selectively in some of the other markets.

[Chris Pitcher, analyst]

So on that point, it was mentioned on the last call, you're looking to hire a dedicated marketing team for cognac. Would Grand Marnier move into that marketing team and therefore have a much more focused. I worried slightly would get less focus. It sounds like it might get more focused.

[Matteo Fantacchiotti, executive]

Yes. It will. It's going to be definitely a cognac team, which would include Grand Marnier and we think that will enable more focus and greater synergies of [ tracing ] thinking overall.

[Paolo Marchesini, executive]

With regards to Courvoisier, I'm referring to your 2022 numbers. As you know, 2023 numbers have been just released to us a few days ago to the ban on exchange of information because of the anti-trust procedures. So I would not comment on '23, which has been, by the way, I expect negatively impacted by destocking in key markets. So in 2022, basically, the business achieved about $250 million of revenues to $48,8 million precisely. And a contribution after A&P of EUR 78 million with a gross margin of about 49% and A&P of 17.5%, broadly in line with group average A&P on revenues. So now on the point of gross margin you made is we see gross margin expansion on Courvoisier is a big opportunity per looking forward.

And the biggest opportunity sits on the price -- on the positioning of the brand, which has been over the years, brought down disproportionately. So we think there is an interesting catch up to be done in terms of pricing, which would clearly positively benefit the gross margin, gross profit and the contribution after A&P.

The other one is on COGS. Clearly, [indiscernible], the cost of the [indiscernible] grew in prior years. And then as the cognac market declined, the price over the weekend down. So we see COGS for Courvoisier going forward as potentially short-term a little bit of headwind as we dump the other EBITDA has been laid down in prior years, but that after it becomes a key tailwind to help us further expand the gross margin as a percentage of revenues. So directionally, if you look in cognac, the competition is about 60% to 70% gross margin on revenue. So there is a big catch-up to be achieved here.

[Chris Pitcher, analyst]

And just on the [indiscernible], it went up a lot. And I just wonder whether you've got enough of your plans or whether we need to see more play down.

[Matteo Fantacchiotti, executive]

No. We have a loss of liquid $410 million of aging liquid. And so it's enough in quantities. But the very good news is that top notch in terms of quality, so that's another very positive feature that makes us confident to be able to reposition the brand at a higher price point because we can rely on a very an incredible value of liquids, aging liquids.

[Operator]

Next question is from Alessandro Tortora, Mediobanca.

[Alessandro Tortora, analyst]

Yes, I have, let's say, 3 questions. The first one is -- sorry, just a follow-up on Courvoisier, I understood your point on disclosing the last year data, but there will be like a sort of a press release in order to have, let's say, the full year and the contribution of because otherwise, we would wait, I don't know, the last official location that would be the first half results. So just to understand if at a certain point, you can share this data.

The second question is a follow-up on the glass. Can I understood the combination of cost tailwinds and headwinds that you mentioned before. Can you remind me, in event, you're able to renegotiate your glass contracts today, which kind of incremental cost advantage you will get this year? That's the second question.

And the last one is on the financial charges line. Can you remind me your guidance, also considering that the closing of Courvoisier occurred some months before the [indiscernible] tax.

[Paolo Marchesini, executive]

Yes, I take the last 2 questions. I've lost the first one. So on the financial charges, basically, we're shooting for about EUR 85 million of interest charges for this year and including the positive effect of the interest yield on short-term deposits that we made in the first quarter of last year, given the excess cash that we had following the equity raise and the convertible bond issuance. So EUR 85 million for this year and about EUR 105 for next year. So we're going to have 3 quarters, in Q3 and Q4 of this year with about shy of EUR 25 million of interest charges going forward.

Vis-a-vis the glass negotiation we're still -- they are still ongoing. We're in process. So we have no new news on that. So the potential benefit is, at this stage, fully reflected in the guidance that we've given so far. And I'm sorry, but I lost the first question.

[Matteo Fantacchiotti, executive]

I will take that one, I mean thanks, Alessandro. And I don't think I want to give you a lot of satisfaction in my answer, but the reality is, I hope you don't mind. Obviously, we did the announcement less than a week ago. And in between the first of May, week and everything. Until then, there was a clean team, and none of us will be exposed to data and everything. And I think for now, we really stick to the indication of perimeter effect of about EUR 10 million EBIT in 2024. And I think it's good enough as an indication for the impact that we assume it can have this year is a rough estimation. But again, it could be enough and the variance either upwards or downwards will not be meaningful to our full year numbers anyway.

[Operator]

Next question is from Trevor Stirling, Bernstein.

[Trevor Stirling, analyst]

Two interrelated questions from my side. Paolo, I think if my math is right, you mentioned that Q1 would have been 6% organic growth and 13% EBIT without the comp effect in North America and Europe. I think it comes out to about 160 basis points of margin expansion. So if that's right, what's driving that? Is that mainly would that be operating leverage on the SG&A and if that number is right, 160 bps, is that what we should be expecting for Q2, which is a much more normalized quarter? And then in Q3 and Q4, we get the benefits of the agave prices falling coming through.

[Paolo Marchesini, executive]

Yes. vis-a-vis the first quarter EBIT margin expansion of 160 basis points, yes, that is confirmed, but is coming from stable gross margin in first quarter even on an adjusted basis. Whilst we have positive accretion in A&P, which is the bulk of the gain and a slight accretive impact on the SG&A line. So that's the first quarter.

Now when we enter into the second quarter, clearly on the A&P, there will be a ramp-up of A&P spend on the SG&A the second quarter will also reflect the additional investments for the buildup of the new-to-market increase. And so that's not necessarily a positive. So it's -- the second quarter, we see that still as a transition quarter as the first quarter, whilst most of the benefits on cost mix will materialize in the second half of the year.

[Operator]

The next question is from Richard Withagen, Kepler Cheuvreux.

[Richard Withagen, analyst]

Matteo, Paolo, two questions from me, please. First of all, on the U.S., you did some major Aperol campaigns in '23. What activation are you planning for '24? And is that across the U.S.? Or do you focus on specific states in the country?

And the second question is on France. Now you added a number of brands via acquisitions and partnerships over the last couple of years. So where are you now on France? Are there still some gaps that you'd like to fill in the portfolio or in terms of channel exposure.

[Matteo Fantacchiotti, executive]

So let me start with Aperol. So yes, look, as you know, we like to -- we're all about the long term, and we don't like to change strategy every other year. So when we take some initiative, we try to build on it. And we do that also because we believe that as you do it year-on-year, you take the learnings and you basically generate greater returns out of what you do.

So in a nutshell, in fact, we did Coachella last year, and we did it again this year. And this year, it was definitely better than last year in terms of PR and earned media. We expanded our on-site presence with 4 branded locations, which was one more than the previous year. We did a VIP [indiscernible], a pretty large one. And we also, again, at Coachella, did a 360 activation which included programming in e-commerce across Uber Eats and [indiscernible] and we've seen depletion in the area, almost doubling versus last year. Same is going to happen for U.S. Open. So we're going to be there this year, hopefully, bigger and better activation.

And those for Aperol, are going to be the 2 main, let's say, nationwide initiative, if you can call it that way. But at the same time, to your point, yes, our focus we always say was mostly on 7 states, New York, Florida, Texas, [ Las Vegas, ] you name it. But as we ramp up our investment, we feel we have a very attractive runway for growth for Aperol in U.S. exactly because we can activate slowly more and more places. And I know the team is planning for H2 this year to expand into some new areas, the Aperol activation.

The second question part was...

[Richard Withagen, analyst]

Capital fees in the pre portfolio and acquisitions, I believe.

[Matteo Fantacchiotti, executive]

And your gap to be filled in the portfolio was just typicaly on U.S. or broadly speaking.

[Richard Withagen, analyst]

In France specifically because that market has grown quite nicely in the last couple of years.

[Matteo Fantacchiotti, executive]

Yes. No, no, absolutely. Look, first of all, we feel very good about France. To your point, is doing well. I think it was the right call to make that investment and to build our own route to market. Aperol is growing very nicely. But again, when we look at upper runway, even with the current exponential growth when it comes to first consumption per capita versus Italy that is sitting at 20% of what is the consumption per capita and Italy, which indicates for us that we still have quite some space to grow the brand.

The other positive news about France is that [ icon ] is also growing nicely. And this is basically since we took the brand it started to grow and is still growing. And also we have a truck for the brand because in a way, we feel the brand is still somehow regional. So it's growing in the strongholds, I would call them, but we can still expand [indiscernible] geographically in France.

This being said, when it comes to M&A, as you know, generally speaking, we always look at how can we strengthen our portfolio, especially when it comes to strengthening our portfolio to compete and accelerate U.S. and Asia Pacific in the premium space. But equally, if we see opportunities to strengthen our portfolio to get even more scale in one of our strategic markets, that is something that we also do, especially in the premium space, which is why, by the way, we did [indiscernible] in France. And so I would not exclude further place of that kind for France or other markets in the future.

[Operator]

The next question is from Paola Carboni, Equita SIM.

[Paola Carboni, analyst]

I have a few questions on aperitif strong performance in Q1, which has surprised me actually consider a tough comp. So I was wondering if you can elaborate on what the performance of aperitif has been in your plus 6% organic growth restated that we can say. And however, on the other side, would be a bit strange to me that gross margin would have been flat even in that case where I assume the mix impact in your restated plus 6% organic growth would be even more material. So if you can elaborate a little bit on this. So what would be your ablative performance on an adjusted basis and what is the mix effect implied on that, which maybe we can take as a proxy going forward.

And moving forward, actually, my question has been on a [indiscernible] more on the impact of the event sponsoring might have had in Q1 2024 versus the previous year. And if we might expect any specific push in this respect from the next short event like the European championship or the Olympics in this case, not new sponsoring, but if you think that this might have a possible impact on consumption based also on your historical path.

And the last question, instead, if you can have any comments on -- not much value-added question probably, but just on the start of Q2, which in the short term might eventually have been impacted by the [indiscernible] weather, if anything, in some countries.

[Paolo Marchesini, executive]

Well, unfortunately, the line was extremely poor, so we'll try to guess. So your first question is around gross margin guidance of flat gross margin in Q1, even after taking into consideration the anticipated shipments of our aperitif portfolio in Europe and in the U.S. And what is the underlying trend of Aperol and Campari, if you factor in this phasing effect that leads to a 6% organic growth in Q1 on an adjusted basis. So they are both double-digit growth rate, Aperol 22% and Campari 15%, but you have also to take into consideration that the restocking in the U.S., which was particularly strong on Espolòn, that in year 2022, in December landed at single-digit inventory days number where to restock it was 37% with significant dilutive effect.

So it's a wash -- the 2 effects. So this is why even on an adjusted basis, the first quarter is gross margin flat.

[Matteo Fantacchiotti, executive]

Maybe as you try to just I go on the second one. Look, Paolo, when it comes to events, yes, we'll have more events to have an impact on brand performance. Our guess is they do. As you know, our marketing model is very much grounded on experiential events and digital amplification. We try to think and ask, I will say, like an editor looking at the cash flow calendar and trying to understand what are going to be the key moments in the Campari calendar in the key geographies and how do we tap into those conversations. When it comes specifically for the summer for something like the Olympics, obviously, we're not an official sponsor. So legally, we cannot really do anything related to the Olympics or use logos or whatever. But whatever event that is increasing the opportunity for people to get together to socialize.

And in a way, whatever event is also something that we will activate. And as you know, Olympics typically will be, we believe it's an opportunity for Aperol and some in short term, yes, the French team has been obviously planning to increase a little bit our presence and visibility across the city, although I'm sure that many others will. But as always, we'll take our fair share of consumption. The last question, I think, we didn't get it.

[Paola Carboni, analyst]

Yes, I apologize for -- I had some problem with the phone. I am in the mobile now. Yes, the question was on the current trading, should you have experience or you are anticipating any possible impact at the start of Q2 from the rainy weather we are experiencing there nowadays?

[Paolo Marchesini, executive]

Matteo [indiscernible] ending Q2 given the weather conditions.

[Matteo Fantacchiotti, executive]

Well, look, we are optimistic on our share and performance momentum overall. I think, like I said in the call, we believe we're still selling through rough fees, but we have 2 powerful engines that are Aperol and Espolòn. And if you like, our bulk see structurally more weather resilient versus some of the industry challenges like U.S. and China. So we feel good about our performance momentum.

When it comes specifically to Europe and weather, we know last year was not particularly good, especially second half of Q2 and beginning of Q3. This year, like Paolo said, so far, temperatures one decreases is about average across key markets in Europe and U.S., but rain was around 30%, 40% more than last year, which is obviously very negative, especially for on-premise. But so far, we've been somehow resilient. But again, it's fair to put it on weather, but that is going to obviously player all.

So we feel good. We just need to hope we will have okay, decent weather so that we can have people in their on-premise spend our marketing money on activations and events and experiential. And I think then there will be no doubt the numbers will come.

[Operator]

[Operator Instructions] Mr. Fantacchiotti, there are no more questions registered at this time.

[Matteo Fantacchiotti, executive]

Okay. Thank you very much. So thanks again for joining, and will speak in the next quarter. And I hope you're going to keep your finger across for the weather, like we say, for the next one, and you feel pleased about today's performance.

[Paolo Marchesini, executive]

Bye-bye.

[Matteo Fantacchiotti, executive]

Bye.

[Operator]

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