Davide Campari-Milano N.V.

Good afternoon, this is the Chorus Call Conference Operator. Welcome and thank you for joining the Campari Group Half Year 2024 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Matteo Fantacchiotti, CEO of the Campari Group. Please go ahead, sir.

Thank you very much. So good morning, good afternoon and evening, everyone. And thank you very much for your interest in joining us for today's call. I'm here in the room with our CFO and CEO Paolo Marchesini and Chiara and our investor relations team. Look, to me, we announced today a positive set of results, especially considering the current challenging industry context and broader macro context, which is still, as you know, quite volatile. We are braving the elements, Iranian Q2 in Europe and tailwinds of inflation. And yet we still outperform the market. We have solid brand momentum and growing brands in healthy categories. So in a sea of flattish red negative signs, we post positive growth with organic net sales up 3.8%, with an acceleration as expected in Q2 of plus 6.9%. driven by solid performance across global priority brands and markets. We see continuing strength in aperitifs led by April and Campari, especially in America and Germany, but basically both for April and Campari in all markets except Italy, France and UK that were the market most affected with poor weather in Europe. AproSpritz is growing from strength to strength and has been selected recently as the most popular cocktail in the U.S. and is also topping drink trends in Germany. Espolon is literally on fire, I would say, with double-digit growth, incorporating further acceleration in Q2. So I will say we have a couple of brands that if you look at the size and the growth rate of those brands are probably two of the best performing brands in the whole industry. Now, if you look underneath the surface of these positive top line results, I think we had some temporary headwinds we need to be clear about. One is mixed. which, if you remember, was supposed to be the main gross margin drivers for us this year, where, given the high inflation environment, we had soft pricing, still positive, but soft to offset some residual COGS increases, and margin was going to be the driver. So far, margin has been obviously not going in the right direction, mainly due to weather conditions. And it's obviously temporary because it may clear as soon as weather finally reflects the summer season. And July started well so far, finger crossed. On top of mix, some COGS end-wins, head-wins, part of which will need to bear the consequences in H2. Why COGS end-wins? Number one, it's taking a bit longer than expected to deplete last year's higher COGS operative inventory. And number two, we'll gradually take advantage of the COGS benefit, but later in the year, in 2025. So Paolo will elaborate further on this, and I'm sure there will be questions. But why do I say temporary? Basically, I want to remind everyone that especially when it comes to the higher inventory of aperitif this year, this was a result of our CapEx investment in Novi production capacity expansion and the one-off extra productions we did ahead of the line opening. So we don't expect this to be an issue for next year. And our production stock is very much under control. So as a result of those headwinds, we still delivered a bit organic positive growth of 2.1%. with margin at 23.6%, 40 basis point negative versus H1 2023, and EBIT also accelerating due to a plus 5.6%, minus 30 basis point versus previous year with diluting effect of gross margin and some SG&A expansion. um so gross margin is uh indeed uh impacted entirely by negative mixed effects of fast growth at poland on one side which is still decreasing at gross margin level and poor weather affecting high margin apparatus in those three markets especially in europe Pricing is offsetting costs, and AAP is slightly accretive because, again, we couldn't activate our brands and especially aperitifs in Europe as much as we wanted due to a very poor May, but especially June summer weather with quite a lot of rain. The net debt to EBITDA adjusted is at 3.5 times on a reported basis, and Paolo will give more color about this again later in the call. So net-net, our medium-term outlook remains the same. I need to say we're pleased about our industry outperformance. confident about the momentum of our brands and our future growth ambition, we will need to discount some temporary margin headwinds. So going into the brands and the regions. So next chart. Growth has been driven mostly by global priority brands, which we see as a positive and primarily in America. And we consider Europe to be really resilient when it comes to the full weather we had, because as you can see, America is at plus 6.8% and Europe is still growing. despite the weather, which again, to raise the rate in some of the markets in Europe, affect aperitif because they are very much an on-premise consumption business. Asia Pacific is still negative on the half, at minus 10%, but with strong consequential improvements. In fact, Q2 was rather flattish, and we will expand later on on the outlook for the region. Global priority is growing at 6%, and regional and local priorities slightly declining. We will see why in a few charts. So, giving a bit more thought about performance in America, you can see U.S. solid growth, again, especially given the market context. with Q2 acceleration of 7.2%. First-half performance is obviously driven by double-digit growth in Espolon and growth in Aperol, and also positive performance in Grand Marnier, which we need to flag, though, had quite favorable comparison base in H1 last year due to some stocking. Wild card is stable and sky is going down together with vodka, which is one of the problematic categories in the U.S. But Q2 was positive. Overall, as was positive. And I want to flag also when it comes to U.S., April is still growing in a very healthy way and has still a lot of runway for growth. In fact, when you look at sellout data, it's growing double-digit. But we had a very high combate in h1 in us For a pro which is going to be much easier in h2 So we expect actually a pro performance in u.s. To be faster in the balance of figure Jamaica Quite a volatile performance in H1, I will say, because you remember Q1 was negative. Now Q2 is very positive, and this is largely due to stock availability and production. The underlying consumption trend in the market is still positive. Most of our brands in RAM and Magnum as well are growing well. uh still um we had some supply shortages into one which were offset then into two and then uh in july there was a thunderstorm as you know um a typhoon uh and uh we had risk of production stock in Q3 and Q4, which we're still assessing. It was better than expected, but still not everything was playing. Other markets in America are growing well, and I will flag Brazil as probably the highlight among the other smaller markets. with both local brands and aperitifs going very nicely across all quarter and months. Moving to Europe, like I said, Europe, to be honest, quite resilient because, you know, We have a business with aperitif, which especially places like Italy, where if it is sunny, people will start probably already at lunchtime, but definitely mid-afternoon to be out in the terraces and bars drinking Aperol Spritz. If it's rainy, they stay in their office and at home. And they drink very little. And in Italy, it's about socializing in on-premise. So we had a very rainy Q2 in Italy, France, UK, to an extent even in Germany. Italy is down 5.5%. And especially in the north, the weather was bad. So that has an impact. I also need to say Italy had a quite high con base in H1 last year, especially in aperitifs, because remember we discussed in Q1 call that H1 last year, first, we had big price increases in May, so there was a forward buying, especially in March, and a bit of April of aperitifs. Secondly, price increases across both April and Campari were high single digits. So obviously in May and June, you have the net sales boosted by that price increase that was passed to the trade. So net-net, we are still seeing that in a reasonably soft market in Italy, we keep share with aperitif and with apparel, we slightly gain share, very little share, which is still positive. Germany is doing really well. Both April and even our innovation start, Rosa, is a double-digit growth. I need to say the number you see in Germany, both in selling but also if you look at the sell-out data, is also boosted by the fact that in the comp base, if you remember, we had the leasing last year. So you will see a much better number than the underlying performance is especially now in Q2, and a softer number in Q3. But when we get to the year-to-date after Q3 and full year, I'm sure we will see a very positive, strong growth because our Germany business is doing really well. France, like I said, another... Poor weather story impacting Aperol, Ricadona, although Campari and Picon are growing. But again, to be clear, because you will wonder why Aperol is not growing, Campari is. Campari had an easy con base because there was some delisting last year in France. Those were all the delisting stories for two, three months around our high price increases that then were all resolved in Q3. uk software performance i think you can see it across the industry is a combination of full weather and and macro and we had also a very tough home base with h1 last year plus 21 i need to say though that outside of those three problematic weather markets in germany doing really well instead The other markets in Europe are all doing very well. Spain is growing. Greece, very strong results from our newly created IMC, also in terms of market share gain. Other smaller markets and the CWTO market, all growing. And GTI is growing as well. Moving to Asia. Asia is really a tale of three clusters, I would say. Australia, challenging environment, also challenging trading environment, consumer confidence not great, spirits category suffering. Probably the one category that is growing, doing really well are vodka-based, white spirit-based RTDs with basically one player doing well. Most companies are losing share. We are holding share and this is basically due to aperitif and particularly upper groin nicely. But barbon glass and barbon RTDs that are a big business for us have been struggling. Now, we've been seeing positive signs on bar-burner RTDs in Q4. We have seen sequential improvements. In fact, Q2 was very low single-digit negative, whereas if you look at the odds, it's double-digit, so Q2 was much better. And we also have some innovation kicking in in July. So Australia, we're a bit more confident about Q3 and Q4. The second cluster is our route to market changes that are also going a little bit at different speeds. China is done. China is positive. We have a lot of confidence in China. We see a lot of opportunities. The team demonstrated high capabilities in executing the market change as per plan, and we started to see growth already in Q2, also a depletion level. India is taking a bit longer, and it was due to timing of registration, delaying due to elections. And it will be completed in H2. And I think for India this year, as we said at the beginning, also due to some leadership changes and strategy resetting, it's going to be a transition year. To remind everyone, India for us is very, very, very small, less than 1% of our revenues. And the rest of Asia is the third part of the story, which is growing very nicely. Some of our recently launched, in the last three, four years, IMC are growing share every month. Japan is doing well. South Korea is doing well, except we had some Q1 phasing, if you remember. New Zealand is also growing nicely, especially with aperitifs, and some of the distributor markets are also growing. That's Asia. Q2 was difficult. Q1 was difficult. Q2 was better. We think H2 Asia will be back at the right trend that we need to see from that region, which is definitely WBC. Now, going to the brands and starting, of course, with April. Now, I just want to be very clear about Aperol. We're growing 5%, which is not the usual double-digit rate you will see with Aperol. This is really, first of all, growing despite the poor weather, but this is really driven by Italy and France performance and task comparison base we had H1 last year was up 32%. This means that with April, we have positive growth basically across each and every other market that hasn't been impacted by weather. And it's typically double-digit growth again, the growth you will be accustomed to see. And that is really in Brazil, in Mexico, in Canada, in Germany, Spain, in Greece, in Japan, New Zealand, Australia, GTR. You name it, all the key markets are going double-digit. And like I said, U.S. was low single digit in H1 with Aperol, which is mostly a phasing because you can see both in the Nissan and NAPCA number, Aperol in U.S. is going double digit. So it's important to give you confidence that Aperol is in a good place. And we're very pleased about the growth trend of this brand. And we will have a couple of... chart to share later on that will probably give you also that sense. Campari as well, growing nicely, is up 9%, accelerated growth in Q2, led by Americas, Brazil, Jamaica, Greece, GTR, France. Espolon also against a very high comp base last year of plus 43%. It's been growing 22% on the half and 30% on Q2. So it seems the brand is really unstoppable and growing US, but also in Australia, in Italy, and even GTR from a small base where we're really making sure through our GTR team that in line with this brand to be a global priority brand, in all your key airports internationally, you will see and find Espolon. White Shark is a bit milder. I think there is a positive trend in Q2, where it's definitely growing. And you know that Q1, we had some phasing, especially with some markets like Korea, which is now becoming one of the top five markets for the brand. And, you know, we look at this brand in through this transition phase where we reposition at the brand, we're really looking at value versus volume, and we're quite positive midterm about our barb on leg strategic category plan. When it comes to Jamaican room, Rams is basically reflecting a bit what I said about Jamaica. The performance is resilient. I think especially Appleton is a great brand with a lot of premium innovation we're launching and that is delivering really well. We had some... phasing in between Q1 and Q2 in terms of stock availability, and we flag some possible risk on this portfolio still to be validated with the supply team as they're looking into all the consequences of the hurricane. Grand Marnier is very positive. I need to flag here, though, that... As I said, for April, it's a positive story because we had some phasing in between Q1 and Q2. It's going to be better. And it's a double-digit. It's probably also reflecting some easy comp last year and restocking in the U.S. market, so easy comp base. Of course, you know, we have increased marketing focus, but we expect that, you know, H2 might not definitely grow at that pace. And we did comment about Sky already. When it comes to regional priorities and local priorities, Sparking Wine, Champagne, and Vermouth are growing nicely. When it comes to other whiskeys, it's mostly a phasing one-off issue. As you know, especially Ken Grant is very much used into Asia. We had a very high con base last year, plus 31. And obviously, some of the route to market changes and the phase in Korea affected the house. But we see client grants on a four-year basis would go back to very positive performance because in terms of market share, it's doing very well in Asia. Of a small base, but starting to really pop up, definitely in the top 10 or in some markets, even top five brands in single malls. Our specialty is that the decline is mainly driven by mining tonic. And to flag, although the minus 1% is not that positive, but on non-alcoholic is really a Cordino story, which is our non-alcoholic play on aperitif is our non-alcoholic spritz. And everywhere is growing double digit and we're really quite excited about the opportunity with this brand. We have very strong plans starting from Europe and then to expand possibly in other regions next year. The decline is mostly a combination of weather in Italy and then streamlining the range to really focus now on very focused gain on the non-alcoholic spritz variant. And we basically delisted some of the minor flavors which we have in the base in Italy. When it comes to local priorities, I would say Campari Soda is, again, about Italian weather, and I think worth mentioning White Archie RTDs, which, like I said before, ESQ1 was, if you recall, negative double digit, and Q2 is positive, so it's plus 2%. So there is ongoing pressure on the category, but at least we see that... the brand is responding to the activities that will be put in place. Now, before moving to some of the usual marketing highlights, just one page on Uproll, which is a number of consumer insights and studies we received recently. uh that are giving us uh quite some confidence uh that you know we knew already but it's always good when you have uh uh news that us that are confirming what we think uh first of all there was a study um in in u.s uh that found that april's priest is the most popular cocktail in the united states with 22 states ranking it as their favorite the source of this study was port magazine By the way, very interesting for us to see that coincidentally, or maybe not coincidentally, where Aperol is number one in the map, which is where you see the light green color, it's mostly overlapping to the places we always told you we were investing in feed activation for Aperol. But equally, we can see that then the opportunity we still have elsewhere to try to make the whole map light green is definitely there, and especially in the red central areas. Same with Nielsen in Germany. There was a study on the on-premise market recently that found that Apro is still gaining considerable traction among German consumers as the top gastronomic drink in 2024. uh it has emerged as the most on-trend green category with increasing of nine percent in consumer uh preference um then uh another article that was talking about april as the heat drink of the summer season uh this is happening every summer we see that um and then it is more across the portfolio but i i think something and again give us a very strong confidence in uh our team capabilities and impact in the U.S. As most of you know, recently there were the Spirited Awards at Tale of Cocktails in U.S. And within the Spirited Awards, they did a survey in the 135 venues that are subject of these awards that are typically the best bars in the U.S. or the ones that are voted as the best bars in the U.S. And they analyzed all the menus. which meant they analyzed more than 1,000 cocktails to understand what were the most utilized ingredients. And basically, Sampari Group was the number one supplier among the survey of all and the best place in terms of cocktail presence and our dream strategy executed in those accounts. So those are some highlights that are giving us, again, the usual strong confidence, especially on our aperitif portfolio in April. Now, when we move to some of the marketing highlights, we discussed last time about our Campari activations in 2024, marking the return of Campari to the Cannes Film Festival for the third year as an official partner. Now, this is the pinnacle of the many international street festivals that we're partnering on with this brand, trying to establish a mental link and associating the image of Campari with cinema. This year, we further announced our presence in Cannes with two locations, the Campari Lounge overlooking the red carpet at the Palais of the Festival and the Campari Beach, which was a new iconic space on Boulevard de la Poisette. where we hosted movie stars and guests with a rich program of events open throughout the whole day. And as we did for the Australian Open, you recall in Q1, we discussed about our 360 experience activation with integrated on and offline touchpoint activation through on and off-premise airport and digital, and also partnerships. uh with uh media and celebrities this is what we did in can uh including key movie partnership a strong focus on digital education and um media partnership with condena a lot of um cinema-related talents. You can see here in the picture some beautiful actresses where I actually forgot the name, but you can see I was enjoying the very entertaining company of one of our guests, Adrian Brody, in the picture, which if you recognize him, he did many movies, but I think what most of us know is the pianist. But long story short, those are people that are really amplifying through their channels our activations and really seeding in culture and in everyone that's interested in cinema and coveted events like Cannes, our brand into society. And the results, very good, Campari indeed ranked number one for earned share of engagement across all other sponsors. And I can tell you there were a lot of activation from other sponsors, so we're number one. We achieved millions, 3.6, of earned engagements, significantly higher versus last year, serving then in our venues more than 20,000 Campari cocktails, which is really in liquid to list to a very selected number of individuals. We did the same in Art Basel, which is another obviously very prestigious art fair. This year, we announced our presence with basically the team from Camparino bringing to life what I call the best of Italian hospitality, which means that under the flagship of Campari, we can also leverage the food portfolio. And again, with a lot of media partnership and talent to amplify our presence. Again, here, great results, 2 million impressions, We were ranked number one for earned share of mentions and engagement across all sponsors again. And we also had 7,000 guests in our lounge. What I also like to bring to light here is that our Camparino property really bringing to light the art of Italian hospitality and mythology is something that we can leverage really well in those events and in some prestigious locations. which is what you can see in the next chart, which is mostly an invite to go and visit for everyone that will be in Europe during summer. In the beautiful garden of Hotel Hermitage in Monte Carlo in Monaco, you will find the beautiful Campari Lounge, which is also showcasing some of our Camparino bartenders creating amazing drinks. So that's mostly about Campari. When it comes to another priority brand like H4Lone, first of all, this year it marks the 25th anniversary of this brand. I just want to remind everyone this is a brand that we grew 22 times since in the last 10 years. So it's really an anniversary that celebrates the great success of this brand, which is now a global priority brand. And as such, we launched the first global campaign. We just launched it, so we don't have results yet. But we're very proud of this campaign, which is called To The Bone, launched for us for now in the U.S. and Australia. A bit of a departure from the industry standards backdrop of Agavefields. This campaign is shot in the inspiring creative hub of Mexico City, really highlighting the contemporary onstage vibrance of Mexican culture, which is at the core of our brand. Moving into April, I'm going to go a bit faster here because we already presented a lot of details in previous calls, but just to give you some highlights and pictures and bring to life our presence in the big festivals across the world. And actually, I would say from big festivals to small events to Focused City, Orange Wave activations, So you can see Coachella and Primavera Sound, which are some of the biggest music festivals in US and Europe, Spain, namely, in the first chart. In the second part chart, you can see some of our 360 activation in Greece across beach bars, but also with a full 360 consumer journey, activating also visibility in transport, in stations, in digital, and then in on and off premise. Similarly in Germany, in UK. And then we have a city structure in Asia Pacific, and especially during the summer season, where we think we can also leverage the presence of a lot of tourists. In the seasonal hotspots, we start to activate, and this is what you see in this picture, places like Bali and Thailand. So that's April. And by the way, I'm not going to bore you with the details, but also with April, huge success in terms of our activation. I think we're becoming best in class in that respect. And I just want to mention one, at Coachella, we were the number three brand for social share of mentions this year. And Coachella is a brand that is activated by a large number of brands. You're not talking about... between brands is each and every brand is one of the biggest things that happen in US probably after a few others like Super Bowl and so on. So number three, and of course, number one in food and beverage. So being the second years we do it, we're really very happy about that result. Moving into White Turkey, I really like this chart because I think it visualized really well the journey of this brand. With two different elements. One is our visitor center. We just reopened on May 1st the renovated what we call Jimmy Russell White Sake Experience, which is our visitor center name in honor of the legendary master distiller. And I think this, you can see the quality of this destination is a must visit stop in the Barbon Trail with breathtaking views overlooking the Kentucky River. And the second one is Russell Reserve 15 years old, which we just launched. And you look at the quality of these liquid and end brand and SKU. And it has all the rights to compete with any other luxury brand in the whiskey space. And I will say, if you look at where we started with this brand, White Turkey, years ago, which was much more of a mainstream brand, And I've been told when we visited for the first time the visitor center and the factory, unlike where we were, we were not necessarily excited about the quality of what we've seen. Today, this is really becoming a brand that has all the ingredients to become a very premium brand in the whiskey space. And the direction that we see is very positive. Last but not least is a bit of, if you like, a new element versus the usual content we share. As you know, we're pretty single-minded in not being trapped in the temptation to launch too many RTDs and flavors across the globe. Our focus is very selectively on RTDs. RTD, premium profit pools, and very much in link with our drink strategy for any given brand that we decide to activate. So within that, we decided to launch in Australia Espolon RTDs, and this is in consistency with our Espolon drink strategy, De Paloma, and then the Margarita brand. And so far, we just launched in July. The trade reception has been incredibly positive. So we hope the consumer will follow right away. And then we launched in Japan, White Turkey highball. at premium price versus the competition. It was a pilot this year, and the results of the pilot were extremely positive, so we're going to make this also a permanent play from end of this year in Japan, possibly with some further announcement in the premiumness of the proposition. Just to say in something that, you know, As you know, a category that we consider not always in a totally positive light, but when it makes sense, we are also active and we believe we do good things. Before I pass on to Paolo, just a few words on Google ADS. Look, the integration is going well. It's going according to plan. From a supply chain, IT, admin, logistic, Everything has been completed and went really well. We're integrating the brand into commercial platform, and everything is also going well. We're live in all markets. We're selling and invoicing in all markets. We have now completed the global team that will look after this brand with some senior appointments. And we're very pleased about the people that are now part of that team. But we are also hiring and we're almost done with hiring also in the couple of markets, especially U.S. and China, where we say we wanted to hire some additional people focused specifically on either South of China or African-American U.S., And the new team is really looking at the brand in every possible way to understand how to really restart the growth for this brand starting from next year. And then in the medium long term, we beat this brand as a luxury brand in the cognac category as it deserves to be. As you know, H2 is going to be a transition period where we integrate the brand And we look at understanding as we go the full impact of H2. But medium term, I need to say that so far the team is really positive and we're all pretty excited about the opportunity that we see with this brand. And overall, I will say in the medium term with the category as well. I will pass to Paolo bridging with this picture, which is just something we also recently launched. which is the new line which we call the Garden of Splendor of Plain Grand with the 25 years old and 30 years old that are completing the range, which again is showing that the brand today is in a totally different place versus a few years ago. And I think this is going to be, in the medium term, another successful brand transformation story that we have up our sleeves.

So if you follow me to page 20, a few slides before we go back to conclusion and outlook and we open for the Q&A session. Page 20, you can see that the EBIT adjusted in organic terms in value by 2.1%, with a margin of 23.6% and 40 basis point organic dilutions. If you look at the second quarter in isolation, we had, you know, a sequential improvement of both net sales and EBIT, which showed an organic growth of 6.9% and 5.6%, respectively, with still a 30 basis point EBIT margin dilution in the second quarter on a standalone basis. Now, on a year-to-date basis, gross profit was up 3.4% with 30 basis points dilution and in the second quarter the gross profit organically was down in margin as a percentage of revenues by 60 basis points. The dilution of gross profit as a percentage of revenues was entirely due to the negative mixed effect coming from both The fast growth of Espolon, as we all know, comes with dilutive gross marginal revenues, as well as the impact of very poor weather conditions in EMEA negatively impacting the high-margin aperitifs in the second quarter. On the other hand, if you look at pricing in Cox, you know, the positive pricing impact, which was, as we said, skewed into the first quarter of the year, still on a year-to-date basis fully offset the tiny inflation, which is still there, which was largely driven by the negative carry-for-all effect of last year's high-cost stock that we've partly utilized in the first half of this year. Now, if you look at the AMP, it grew in value by 2.1% with 30 basis point margin accretion. In the second quarter, the accretion was consistent at 40 basis points due to The very poor weather condition that negatively impacted the second quarter and the start of the summer activations as a consequence of that. The SG&A were up 6% with the 40 basis point margin dilution. In the second quarter, the dilution was more minute at 10 basis point, reflecting the ongoing investments to ensure sustainable growth. On a reported basis, the EBIT adjusted grew by 0.1% with a negative perimeter effect of 0.5% in value and 40 basis point dilution due to the negative effect of agency brand, which were partly offset by the first-time consolidation of Urvoisier. Also, the effects were negative in value by 1.5% with 20 basis point dilution And again, this is the tail-end effect of the devaluation of the Mexican pesos versus both dollar and euro. A bid adjusted on a reported basis came in at 418.8 million euros with a value growth of 1.9%, which was driven by a healthy 3.5% organic growth, a negative 0.2% perimeter effect, and again, a negative 1.4% foreign exchange effect. If we move on to the following page, you know, segment analysis and review of EBIT by geography, Americas, which accounts for 44.9% of the overall group EBIT. The increase of EBIT organically in value accounted for 6.5%, with a tiny margin dilution of 10 basis points, which was driven by a gross margin accretion of 10 basis points, where the favorable pricing impact in both Brazil and Jamaica was more than offsetting the cost inflation and the negative mix effect due to the huge rise of Espolon bringing low gross profits on revenues. The AMP in America was accreted by 50 basis points due to phasing. And the SG&A in America were diluted by 70 basis points due to the ongoing investments in commercial and marketing infrastructure buildup. In the EMEA region, which accounts for 56.5% of the group profit, the EBIT organic growth accounted for 3.6% with the marginal accretion of 10 basis points. which was driven by gross margin dilution of 70 basis point due to less favorable seismics, as we said before, due to a softer performance of high margin aperitifs, which were impacted by very poor weather conditions, particularly in Italy and a few other European countries. The AMP was accreted by 30 basis points, mainly due to delay in start of summer activations. And the SG&A, on the contrary, were accreted by 50 basis points, driven by the phasing of build-up investments. In the APAC region, which accounts for a negative 1.5 percent of the group overall profit, we had a dilution of 960 basis points, which was driven by a dilution of the basis points at the level of gross profit with favorable seismics, more than offset by TASCOM based effects from H1 of last year. The AMP and SG&A were impacted by robust activation and phasing of investments in new route to market capabilities in the region to support the accelerated growth going forward. And those, you know, two cost lines, AMP and SG&A, create a dilution of 180 and 730 basis points. If you move on to page 22, other operating adjustments which were, you know, primarily related to the Courvoisier acquisition accounted for 24, the structuring of the Courvoisier acquisition accounted for 24.4 million euros in the first half. The total financial expenses came in at 33 million euros with a tiny increase versus a year ago of 0.6 million euros. The exchange gains accounted for 0.8 million euros versus exchange losses of the first half of last year of 10.5 million euros with significant benefits from low volatility in exchange rates. Now, if we excluded the tiny exchange gains of €0.8 million, the financial expenses came in at €33.8 million versus €21.9 million of last year, driven by higher average net debt amount, €1.9 billion this year versus €1.7 billion last year. due to the closing of the acquisition first half of this year, and the higher, and secondly, the higher average cost of funding following, on one hand, the redemption of mature bonds at low rates and the refinancing of those in a higher rate environment. Those, you know, were partly offset by the benefit of temporary high cash at hand ahead of closing and that repayment. The average cost of net debt, the coupon for the first half came in at 3.7%, so 1% higher than a year ago at 2.6%. Hyperinflation effects, this is Argentina, this is accounting and remeasurements driving 10.2 million euros of positive contribution to the bottom line. The adjusted pre-tax profit came in at 333.3 million euros, up 2.2%. And the pre-tax profit clean came in at 310.7 million euros flat versus a year ago. If we move on to the following page, 23, taxation came in at 94.1 million euros on a reported basis with recurring income taxes equal to 97.4 million euros. The net profit adjusted came in at 239 million euros, up 2.2%, where The recurring tax rate stood at 29.2% in first half, actually up 110 basis points versus a year ago due to the unfavorable country mix. The deferred taxes related to the amortization of brands for tax purposes amounted to 8.2 million euros in the first half of this year. down 2.7 million euros versus a year ago, and mainly due to the completion of the amortization of selected trademarks. Assuming the impact on non-cash component linked to deferred taxes, the recurring cash tax rate came in at 26.7% in H1, showing an increase of 200 basis points versus a year ago due to the combination of the two, you know, effects the increase in recovery tax rates and the decrease of deferred taxes, but this is in line with what we have already anticipated. The group net profit reported came in at €219.7 million, up 1.3%. Basic earnings per share adjusted at €0.2 per share, down 4.2%. Basic earnings per share at €0.18. If you move on to the following page, 24, we can see quite a remarkable improvement in recurring cash flow from operating activities before working capital changes. It came in at 395 million euros. In first half, up 54.8 million euros, or 16.1% versus a year ago. And that was due to an increase in EBITDA of 7.8 million euros and a reduction in tax paid due to mainly this is phasing, pure phasing of tax payment cycles across the year in the different jurisdictions. The recurring free cash flow, you know, excluding basically the extraordinary capex, was positive at 130.8 million euros. up 222.4 million euros versus a year ago when recurring cash flow came in at a negative 91.7 million euros. The increase of operating working capital in the first half accounted for 190.9 million euros, but that increase was significantly lower than the increase the group registered a year ago of 372.1 million euros. Net interest paid at 26 million euros, you know, marginally higher than a year ago, but, you know, 7.5 million euros due to the additional funding for the Courvoisier acquisitions. Excluding, you know, as said, the extraordinary capex, the maintenance capex came in at 47.5 million euros, 6 million euros ahead of last year. Now, if you look at the extraordinary capex, that is, you know, basically the difference between you know, total reported CAPEX of 290, 219, and the maintenance CAPEX. The extraordinary CAPEX in first half accounted for 171.5 million euros, and those were mainly related to the production capacity expansion project that we've announced, you know, remaining 550 million euros over 24 and 25, as well as the new headquarter building payment that accounted for 93 million euros in first half. um the investments in extraordinary capex are expected to continue as planned in the remainder of of this year as well as you know next year and and thereafter we're done with with extraordinary capex operating working capital page 25 as a percentage of net stale at the back end of june came in at 44.2 percent on a like for like basis so you know excluding courvoisier versus 37.9% of December last year, and 39.1% in June of last year. Operating working capital increase in the first half accounted for 648.5 million euros, of which the organic increase accounted for 190.9 million euros. Inventory growing by 53.8 million euros, and that was, you know, primarily driven by an increase of 40 million euros in aging liquid. But still, you know, the finished goods inventory increased by 10 million euros. driven by softer demand on aperitifs due to poor weather in Q2, limiting the envisaged reduction of finished goods. So, you know, this is, you know, we're in the Q&A, we may elaborate a little bit more, but, you know, this is where we're not exactly on track with the reduction of finished goods inventory that we will, you know, manage to achieve in second half of this year. Changes in receivable and payables accounting for 120 million euros and 16.8 million euros respectively are, you know, both in line with the seasonal trends. The perimeter effect is basically, you know, the first time consolidation of Courrovasier accounted for a step up in operating working capital of 439.9 million euros. with, you know, a prevailing component due to the maturing inventory, which accounts for 388 million euros. The foreign exchange impact accounted in the first half for 17.7 million euros, and it was mainly driven by the valuation of dollar and pounds. Move on to page 26. Net financial debt came in at €2,553,000,000 as at June end, up €699.7 million versus December and last year, reflecting the negative reported free cash flow of €60 million, a large due to cash absorption related to the extraordinary capital expenditures of €171.5 million, which I've just mentioned before. as well as, you know, the dividend payment of 78 million euros and the net impact of the Courvoisier acquisition, which was, you know, I said, a big cash outlay. Cash and cash equivalent at the back end of June stood at 555 million euros, marginally down versus December of last year. As you know, the financing for the Courvoisier acquisition has been Fully sorted out. The long-term Euro bonds and term loan amounted to 2.2 billion 375 million euros with an average coupon of 3.66%. On a reporting basis, that would be the ratio came in at 3.5 times. And this is including the earn house and put option for a total amount of €333.6 million. So, you know, the existing one as well as the ones related to the acquisition of Courvoisier. And that is about it on numbers. So, you know, I would happily hand back to Matteo for conclusion and outlook.

Thank you, Paolo. So I think we gave quite a lot of details already. But again, to reiterate, we believe we have reason to be happy about our first half with a solid performance of about, you know, around 4% and 72%, which is very much outperforming the industry and is very much driven by Aperitif, Apro, and Espolon. So I will reiterate, really driven by Espolon, A couple of brands that are two of the best performing brands in the industry, which is giving us a lot of also confidence that for the remainder of the year, we can continue to outperform the industry, leveraging those strong brands in growing category. Obviously, the market is still volatile. There is a soft environment. Uh, these, uh, you know, can remain, uh, reasonably soft in us and, uh, hopefully we're going to be less dependent on whether, uh, for the balance of the year, um, after August in Europe. Um, but at the same time, uh, we keep seeing that we can outperform, uh, by a couple of points that the industry, and yet still, uh, still growing, uh, which is, which is great. On a full year basis, we need to flag that our opinions to a stand-growth margin might be impacted by the mix, which we hope is going to turn positive already from July. But, you know, let's be clear, unless something really exceptional happens, we're not going to recover the mixed dilution we had in May and June, which is also waiting on some higher cost inventory to deplete. on aperitif, and then Paolo will expand on some agave supply contract renewals hurdles, which we're now addressing. So, in a way, like I said at the beginning, we're breaking the elements, already due to some tailoring inflation, and yet we're doing, I believe, a great job. We're outperforming the industry, and... And we, for the medium term, we believe we can be really competent in underlying continual head brand momentum for our key brand market combination. We see the opportunity to deliver consistent operating margin expansion. And obviously, we just need to face some temporary headwinds into this year's impacted margins. but the medium-term outlook remain positive. So thank you very much, and I think we will open for questions now.

This is the Coruscall conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and 2. We kindly ask you to use the handset when asking questions. Anyone who has a question may press star and 1 at this time. We will pause for a moment as participants are joining the queue. The first question is from Simon Hales with CT. Please go ahead.

Thank you. Good afternoon, Matteo. Good afternoon, Paolo. So a couple of questions, perhaps not surprisingly. The first one is about the margin outlook, Paolo. What if you could just give a little bit more detail as to how you're thinking about that H2 gross margin development now compared to where we were earlier in the year when you gave guidance around those factors? I'm particularly keen to understand that. What's delaying the benefits of those lower agave prices? I think historically you'd said we should expect to see a 50 million euro benefit from lower agave, 30 million in 2024 and the remaining 20 million in 2025. How is that now phasing? And also related to the COGS development, can you update us on where we are on renegotiation of your glass supply contracts? So that was the first question. And then secondly, around, you know, sort of recent trading trends, clearly Q2 weather was headwind, you know, versus expectations. Can you elaborate a little bit more, Matteo, on what you've seen in July to date? I think the weather's been much better in Italy so far this month. and how you're thinking about lapping through what should be an easy, theoretically at least, Q3 weather comp from last year. What's built into your H2 gross margin guidance expectations right now for summer weather trends through July and August into September?

Thank you, Simon, for the question, which I was somehow expecting. So let's... Let's start from from the guidance so you know as with you know position the matter for this year we said you know we think that you know if look at you know pricing and cogs evolution for this year you know the two you know should be you know fairly balanced with you know potentially some you know a little bit of tailwind you know counting for roughly you know 20 million euros you know by and large at to be understood, to be better understood, depending on, you know, as you correctly pointed out, Agave and Glass contract renegotiation. Now, if you look at, you know, what has happened in the first half, and particularly, you know, in the second quarter. So if you look at, you know, the first half, you know, let's start from what is really working, you know, pricing and COGS. You know, luckily enough, you know, COPs are no longer, you know, the COPs increase is no longer outpacing, you know, our ability to take price. And even though, you know, for this year, we had given, you know, a moderate, you know, price increase guidance between 1% and 2%, and even taking into consideration the exacerbated, you know, discounts, you know, we're hitting our goal in terms of, you know, price increase. And, you know, eventually now, you know, COX, you know, are growing still, you know, in the low single digit, you know, if you look at, you know, the first half, but below price and we're not suffering any dilution in terms of margin from price and COX in the first half. now the problem comes you know in the second quarter on on mix which was clearly not evident in the first quarter and it is clearly due to the combination of you know i said you know very poor weather conditions you know negatively impacting our aperitifs in india region as well as you know the still you know strong growth trajectory of the espalon brand which, as we all know, you know, is generating, you know, still in year 2024 some dilution to the overall group gross margin. Now, this is why, you know, we think that if you look at, you know, the gross margin guidance, and then I will elaborate on agave contract renewal and glass contract renewal. If you look at the, you know, gross margin guidance for the full year, you know, we think we will not be able to see a to achieve a gross margin expansion, which means that basically we're, you know, at this moment our, you know, expectation is to reduce, you know, our gross margin by roughly, you know, call it between 20 and 25 million euros. This is, you know, our current best estimate of which, you know, you can see basically three, you know, components. One is a temporary effect and two are permanent. And all of the three, they account for one third, one third, one third, so call it eight. So the first one is the agave renegotiation. This is a negative impact, but this is phasing. So we don't see at this stage anything in terms of contract renegotiation. that is not leading to you know the landing that we were expecting for 2025. So it's more in a phasing between 1024 and 25. Why is the other two you know factors are to be seen as you know permanent and those are you know the the sales mix due to you know poor weather condition and the fact that you know due to you know performance of aperitifs, you know, below what expectations, you know, the fixed production cost absorption is below what we were know originally you know expecting this is another eight so you know we have you know the first one which is agave permanent seismics and fixed production cost absorption as well as you know limited absorption of the last year a very high cost inventory you know accounting for you know the remainder and the disease you know permanent vis-a-vis you know contrary which is your last point We think, you know, on Agave, as I said, it's stickier than expected, but, you know, we'll get it done. On the glass supply, you know, we managed to pocket, you know, some of the upside this year due to the early renegotiation of the contract, but, you know, we still believe there's more to come in year 2025 as we don't believe, you know, it's, you know, this is, you know, the maximum, you know, efficiency we can achieve on that front. So this is, you know, hope, you know, answers, you know, your question in terms of price costs and mix for, you know, past half and what we see for the remainder of the year.

Okay. So when it comes to July and outlook for H2, well, as you know, we won't give a precise guidance for H2. And by the way, it will be quite difficult at the moment anyway, but I'm going to give you possibly some information um headlines in what we think first of all uh july yes well what we can say in europe uh now we we can uh we can say we're literally at the end of the month uh the weather has been good um and obviously this is positive so uh we're not gonna complain about the weather um uh when it comes to july And performance-wise, we don't have yet sell-out numbers and things like that, but the feedback from the field is positive. The brands are moving, and especially in Italy, We see a lot of orange everywhere. Similarly, in London this weekend, we had news that it was good weather and a lot of orange in the city and so on and so forth. Trading condition, not easy. I mean, to be honest, everyone in the industry is under pressure. Everyone is promoting and activating light health. And especially in Europe, there is one category that is doing well, it's aperitifs. And everyone is trying to promote spritzes or aperitifs. Everyone is trying to be an aperitif. I also mentioned There is even a beer brand, which I'm not going to name, but you'll find it, that is now having an ad that is saying, what about this great, effective time with our brand? So, this being said, what we see is basically, by the way, in some cases, proliferation of menus with a lot of different offerings. and then a lot of approach which is consumed so thanks god there is a lot of brand call especially in italy um so overall if we're continue uh in europe we we expect to see better trends When it comes to sell out, again, just to notice, to manage expectation, we'll see a softening in Germany, and this is literally linked to re-piping field after the listing last year, which will pop up in our comp-based sell-out numbers, not selling, starting from July. U.S., look, it's the same. U.S. at the moment is soft. Even our industry partners are looking at H2, wondering how H2 shape is going to be. Everyone is expecting some sequential improvement due to a combination of interest rate cuts, elections, and things that can get consumer confidence and discretion tending to resume a bit. Now, we've been growing in H1 with a reasonably flat-ish market. I would say slightly negative volume-wise and probably flat-ish value-wise. If the market improves, we believe we can grow faster. We also have a slightly easier comp base, definitely for Afro, like I said, less for Grand Marnier, but overall slightly easier. And I need to say, When it comes to U.S., I was there for a number of days recently. Yes, also a lot of competition. But what I noticed is that unlike Europe, the softness of the market is making customers to focus even more on what is growing. So polarizing choices when it comes to choosing what to promote and activate. which overall can favor us. And then for what is worth, because, you know, it's still a small part of our business, I said before, we expect H2 to go back to positive in APAC. We discounted our route to market changes, and H2 should be positive. Brilliant.

Thank you ever so much.

The next question is from Andrea Pristachi with Bank of America. Please go ahead.

Yes. Hi, Matteo and Paolo. Two or three things, please, from me, a bit following up on some of the things we've just discussed. So on the US now, the market is obviously soft, which you're saying you're outperforming. Nielsen has been pointing to quite a slowdown in your business in recent months. I know it's far from being very representative Nielsen. But a lot of the softness in Nielsen is particularly with Wild Turkey, Russell Reserve. And you were talking before about the plans, a strong brand equity. But in the short term, are you seeing anything there? And when you strip out various phasing effects, comps, etc., What is your sense of sort of the underlying performance that your business is delivering in the U.S. now as we go into H2? And then maybe for Paolo, going back to the agave and the contracts that you're negotiating there, can you remind us of your agave purchases? How much is these long-term contracts versus spot versus your vertical integration? And what are you aiming for with these negotiations? I mean, agave prices have come, I mean, I think even well below 10. So what sort of price are you hoping to secure there? And if I may, just this is also a bit of a clarification, Matteo, on what you were saying earlier on the more intense promotional environment, particularly in Europe. How is this, I mean, is this impacting you because you're, how are you responding to this? Are you having to respond to some of these promotions or is it effectively you're losing a bit of business that you otherwise would have been getting? Sure, John there.

Okay, so US first. Look, when you look at U.S., we always try to look at both Nissan and NAPCA. None of them is precise. Often we believe NAPCA from a channel standpoint is a more accurate coverage of our performance. But when you combine those, we continue to outperform. Largely thanks to Espolon, which keeps ensuring tequila and Apro that keeps growing with healthy double-digit momentum across both Nissan and Natka. You spotted rightly White Turkey, which performance is a bit soft at the moment. Although when you look at SKU by SKU, there are a few elements to consider that are also in a way affecting also value share. One is, as you know, we've been driving this transformation of the brand and we're definitely focusing on 101 and upwards, which means slightly higher price points. And that obviously can be part of a little bit of a slowdown of those price points across categories in the U.S. The second part is there is Definitely a lot of effort in building brand equity at the top, which I think in the medium run will give great equity to the brand and will benefit also 101 and even 81, which won't be forgotten, by the way. It's just a temporary refocus to rebuild the equity of the brand. But we will go back to 81 with stronger plans. um and and that is everything that is uh from um um all the the makers mark and ultra premium prestige price point of white turkey um at the same time uh if you look at the and by the way 101 is gaining share uh value share uh Then if you look at Russell, you will see instead share-wise, there is a bit of slowing down, actually declining. But it is also in line with the repositioning and also refocus on Russell in high-priced SKUs because we said it a number of times, we didn't have enough Russell to sell and to keep up with the demand in U.S. and outside of U.S. So we're trying to shift the focus on Russell in value versus volume, which is always on a short-term level might have – some impact, but we believe it's the right thing to do. So what I will say on bourbon, uh, I will not worry about the future. Uh, we're pretty confident our, uh, on our bourbon game for the future. Um, there is also a, uh, on the performance, a bit of a slow down from long branch, uh, which as you know, we exited the partnership with making my Coney, uh, last year. So now we're relooking into this brand, um, without Matthew. and we have also a very interesting plan. So on Wild Turkey and Bourbon, I will say stay tuned, but we believe we are on the right track, although we have a bit of a flat momentum on this brand. Maybe before I pass to Paolo, I'll cover Europe. Look, Europe... I'm going to sound a bit like a broken record, but it's what we always say, especially when it comes to aperitifs. We don't believe to have a lot of price elasticity, and this has been proven by a couple of years of high single-digit price increases in a row that compounded double-digit price increases, and we didn't see any slowdown. But obviously, the more you have competition and aggressiveness, and the more it's coming from all sides, being fake, me too, jeans, beer, going into the territory, the more you really need to make sure your brand is staying very visible and top of mind. So what we did is, number one, we reported some of the AMP we had on some of the minor brands in field activation. So we're doing even more small micro events across both north-south center and now even south of Italy for upper especially to make sure that it's really staying top of mind and the liquid to lift and the orange wave continue. And we are probably slightly increasing the frequency of promo not the intensity and when i say increasing by the way it means also to go back to pre-pandemic periods right because in doing pandemic we we really slow down all promos because it wasn't necessary so for now this is what we're doing what that means net net is that obviously we had soft price increases in europe for the year around one two percent and probably what we're gonna deliver is gonna be

more skewed into uh you know very low single digit more to one than to two because we're offsetting some of that with some uh incremental chroma frequency okay vis-a-vis you know the the agave contract renegotiation basically you know it's it's a little bit you know complex but you know i'll try to to explain what we're trying to pursue basically you have three types of different types of contracts you have the long-term agreements you have the short-term agreements, and then you have the co-investments with different structures. So the long-term agreements are the ones which have been negotiated when there was a very severe scarcity of agave plants in the period of time when there was a huge imbalance between supply and demand, and demand was outstripping supply. So those contracts have been negotiated at significantly higher prices vis-a-vis the current 10 pesos per kilo spot price. Then you have the second class, the short-term contract agreement, and those have spot prices by definition. And then you have the co-investments that are contracts where you basically, you know, take some of the risks of the agricultural, you know, operation management. And those contracts, they are basically, you know, on average, you know, the price for the agave is in line, if not, you know, marginally below the spot price. Now, the point is, you know, the conundrum is, you know, as we're renegotiating the long-term agreement, to make sure that with the strategic, you know, suppliers, the one who can really, you know, and have been, you know, loyal to the company in the past, you know, providing, you know, the agave plants at prices where, you know, below the back-end spot price, you know, we remain in business, we extend the contract at prices that are, you know, as close as possible to the current spot price with you know, some color structures where, you know, basically we recognize a portion of the potential future increase in spot price, but to to to a certain limit. Because, of course, you know, sooner or later, you know, the price of academy will come back on the spot, stays a spot and co-investment is co-investment. So the point of the year, you know, 2024, even the fact that, you know, we are still confident of renegotiating the long term agreement to the price that they have, you know, price structure that they have just defined is in terms of quantities, how much of the quantities coming from spot loan term agreement and co-investments we pull to produce, you know, this year products. So it's more, you know, the weight of one versus the other. So, you know, at the beginning of the year, we said, if you look at, you know, last year, you know, average, you know, cost per kilo, you know, 24, 25 pesos this year, In terms of procurement, what goes into the P&L, we're targeting 15, which is 10% reduction, primarily coming from long-term agreements. That is where we have a little bit of delay, so we will not be able to target and target this year. leaving the 20 next year is more the bit you know uh eight moving into into next year but in terms of you know negotiation and everything i think you know we're in a good spot and then of course you know demand plays role because the more we we ship we we sell you know espalon the more we absorb you know last year high you know uh cost uh liquid that has been you know distilled and stored in 2020 uh in 2023 at you know 24 pesos and so you know the sooner we get rid of that stock the better it is for us because we would have you know in the pnr a cost of the aggregate is as close as possible to the 10 pesos per kilo that is the current spot price i hope the answer is really complicated but it's you know marginally higher than the 15 pesos per kilo that I have, you know, mentioned, you know, before.

Yeah, yeah, very clear. Thanks, Paolo. Grazie.

The next question is from Cedric Lecasbu with Stifo. Please go ahead.

Yes, good afternoon. Just a follow-up on the consequence of the weak start of the imperative season in Europe on your Q3 development. Could you maybe explain the potential spillover impact, the start of season engagement, how fast you replenish, and how we should look at the phasing of Q2 and Q3. You mentioned weather conditions to explain softer potential margin in Q3. As it's the start, the weak start of the season would have a spillover impact on Q3. So any color on this would be very useful. Thank you.

I think, you know, on the weather conditions, you know, the comment we made were relating to second quarter, not the third quarter of this year, you know, which, you know, negatively impacted the sales mix. Now, clearly, you know, in order to achieve, you know, the flat, you know, gross margin that we've alluded, we need to, you know, to have, you know, a good, you know, third quarter with, you know, positive weather conditions and which can deliver a little bit of gross margin in mix. So this is the base case scenario that we have in mind at this stage.

Sorry to interrupt, but the comps were pretty weak last year, especially in Italy. The weather conditions are pretty good since the beginning of July, so if you have very frequent replenishment, you shouldn't have too much impact on top line and top line would drive the mix. So should we understand that you still have the cost of the elevated carg prices that you couldn't get rid of in your cargs, in the products of finished goods in Q2 that you will sell in Q3 and that you will have this bite on the gross margin?

If I understand well, your question is more relating to the finished goods stock on hand that we have at the back end of June vis-a-vis our expectation to absorb the excessive stock that we built last year ahead of the change, the go-live of the investments of the new bottling lines in So this is the question. So yes, it's confirmed. So basically, you know, we're, you know, planning, you know, even the fact that, you know, we've given, you know, an indication vis-a-vis the possibility of, you know, fully absorbing the 150 million euros finished increase that we had last year in year 2024. We planned production, counting on a stronger pickup of volumes in the aperitif business in the second quarter of this year, which was negatively affected by poor weather conditions. So we are not in a position yet of having, you know, done, you know, fully, you know, the job of, you know, reducing the operating working capital that will be, you know, implemented in the second half of this year, probably not to the extent of absorbing entirely the 150 million euros, which is probably more now, you know, between, you know, second half of this year and first half of next year. But, you know, talking to the third quarter, you know, it's still, you know, big season for aperitifs. So the point is that in order to achieve the flat gross margin guidance, independently from the element of stocks we need to have on hand, we need to have good weather condition to deliver in the third quarter of this year, positive sales mix effect in our gross margin. If that is achieved, then we're in a good spot to hit, you know, the FedRoss margin guidance that we've given. And so I think, you know, yeah, I think, you know, the stock on end, you know, clearly is higher than what we hoped, but of course, you know, the stock of last year has been mainly depleted in first half. It's still high, but it's high with costs that have been the 2024 costs.

Thank you very much.

The next question is from Sanjit Awila with UBS. Please go ahead.

Hi, Matteo, Paolo. A couple from me, please. Firstly, I think in the past, Matteo, you've spoken about Your belief that the business is capable of doing high single digit growth when the industry is weak, when the industry is back to normal, you can do low double digit. And I just wanted to gauge, just given the weaker Q2 from a weather perspective, whether you still think that high single digit is a reasonable way to think about growth. Fiscal 24 from an organic revenue standpoint at the group level. That's my first question. And then I just wanted to delve a little bit deeper into the pricing and promotional environment in the US. I think it's a topic we discussed in Q1. I just wanted to get a sense sequentially if you've seen a further escalation at all. And if so, in which categories would you call out? My final question is just on Cavazier, please. Do you have a sense of when you put together all of the noise around sell out, sell in, what sort of annualized net sales run rate would that brand be contributing in your P&L this year? Thank you.

Hi, Sanjit. Okay, both very tricky questions, which I'm going to try to answer without giving you too much, because, of course, it's also not easy at this point, and we know we don't give guidance. But when it comes to high single digit, low double digit, I will say this is the case. Of course, we always say it. We believe with normal market context or a soft market context, we are able to deliver high single digit. And when the market is good, we're going to deliver low double digit. Now, I think the open question is how the market is going to be in H2. I would say especially in U.S. Now, do I believe we're going to be in between mid and high single digits for the full year? Personally, yes, I do. But to what extent we're going to be closer to the bottom end of mid-single digits and more towards the high single digits, I think it depends very much on the market, which, like I said, is very unpredictable. If you remember, in January, we said that we knew that Q1 in the U.S., well, for us also in Europe, but talking about staying in the U.S., in the U.S. was going to be very soft Q2 was going to still be problematic. And then there was a sentiment that Q3 will possibly improve, especially driven by pre-elections. And Q4 entering with momentum this season will be good. Now, this is not totally true anymore when we talk to the team and our partners. There is some still positive hope, but probably more of an expectation that things can get better from September going into Q4. We will see. So I think the... The equation still stays, but I think we're still looking at H2 for U.S. to understand to what extent the single digit is going to be mid or a bit higher. When it comes to Courvoisier, that's tricky because we started to manage the brand very recently. There are markets where we are taking over the brand from the previous distributor, for instance, UK, as we speak. There are markets that are pretty complex, like U.S. and China, and understanding not stock in the distributor, but stock in trade take a little bit of time. So to be honest with you, something that we're trying to understand, also given the category volatility, especially in U.S. and China in the recent, let me say, 18 to 24 months, also ourselves, is what is the right baseline to build our ambition. And look, one message that I want to give about Courvoisier is that while we're pretty confident, both about the short term and even more about the medium-long-term, shorter, more tactically, because we believe we have opportunities into next year in terms of mixed pricing, and we believe also the category is probably now hitting the floor. We've seen some very soft, positive initial data in July, especially in the U.S., on the category. This is a brand where we're going to do the right things. We're all about building a luxury brand in cognac, aiming to be at the top in cognac, and this is going to take patience. Now, do we have already all the luxury and cognac capabilities in the company? No, but what we have and we historically had is patience and discipline that are two key ingredients to be a luxury brand. And I think we'll get there. So possibly by end of the year, we're going to be, or going more towards the end of the year, we're going to be more precise in terms of the baseline, but not yet at the moment.

Very good. Thank you.

The next question is from Edward Mundy with Jefferies. Please go ahead.

I've got a couple of questions on AppRoll in the U.S. I think you demonstrated in the slide deck that it's seeing really good momentum and a lot of popularity. I'd really like to double-click on that. So, I mean, clearly a big chunk of that is your execution activation activity. in creating very strong consumer demand. But are you able to put your finger on why it's so popular and why it's really captured the imagination? Is it the color? Is it the sort of connotation of a sort of party drink? Is it the sessionability? I mean, what do you think that's really driving that popularity is the first part. The second part is how's the brand being built differently relative to Europe? And then third of all, can you just remind us whether you've got enough Prosecco or whether there's enough Prosecco in the market to continue to fuel the demand? You know, for our prospects.

Look, the line was a bit on and off. So I think I got the first question, which is US Apple is doing well. Why do we think this is the case? I didn't catch the second part of the question, if you can repeat, please. Sure.

So, yeah, why is it doing so well? Let me just change this. Is that better? So, first question is, why is it doing well? Maybe you could provide some insights into it over and above your execution. You know, second of all, how is it being built differently relative to Europe? And third of all, is there enough Prosecco to go around to fuel that demand?

Yeah. Look, I think it's one answer that probably covers both questions, because why it's so popular? We believe it's so popular because, as everywhere else, we execute according to our playbook, which is very clear. We are single-mindedly focused on one drink, which is Apro Spritz, and the drink has some unique characteristics of Apro. image in a wine glass uh orange uh captivating um image uh session ability uh is refreshing it's sparkling it's bittersweet uh and it has a special taste um and we start in the on-premise a liquid delete event and when people see other people drinking apparel they copy and we activate through digital we amplify and this is where the orange waves start and we have our growth model This is a drink that in that respect also has equal in U.S. quite a different consumption pattern and velocity versus other spirits, because unlike, well, in the U.S., maybe they would drink two or three, maybe literally one, but unlike other cocktails, it's not two or three or one. It's more sessionable. It's closer to beer in terms of repeated consumption and number of drinks than to, you know, another cocktail or a Negroni or whatever. or whatever. And when it comes to U.S., equally as we did in Italy, we're really focusing on city strategy. We started, you know, being focused with particular focus from on the coast initially in 2016, focused in New York, New Jersey, Florida, California, Vegas, Chicago, Boston. Those are the places where we're seeing the green dots in the map. And now, slowly, we're expanding into other places. Although, I need to say, even in California, I was there recently, we still have a lot of runway. And we haven't yet started in other places. So I don't think there is a lot of differences, both in... In the model, in the execution, and in why successful, maybe the one single difference could be price. Typically, in places like Italy, it's quite cheaper, and it's offered often in combos with food and stuff, whereas in places like the U.S., it's more sold cheaper. see it at an affordable price, but more like a drink, not in a combo with food. But other than that, the basically algorithm we see is basically the same, which is why we're pretty bullish about future of Apple in the U.S., because we believe that we have all the similar partners we've seen in Europe, which means that not only does it have a big runway for growth in certain places like For instance, I just mentioned California, but also then we have all the remaining states, state by state, city by city, to activate, putting more people on the ground, more investment.

And Prosecco? There's enough Prosecco to go around for that growth?

Yes. Yes, very much so. Actually, There is a bit of a joke, if I need to be honest with you, in the company, because Prosecco for us is dilutive, as you know, and it keeps growing double digits. And we will prefer Prosecco not to grow that fast, but actually it is growing. But with the investments we did in Novi across the board, across the factory, it wasn't an investment for Prosecco, it was an investment for aperitif. But we have as much as capacity as we want. So I think there is no problem with Prosecco yet. Great, thank you.

The next question is from Mitch Collett with Deutsche Bank. Please go ahead.

Hi, I'd like to ask two questions, please. The first one for Paolo, can you, sorry to labour the point, but can you come back to the £25 million of gross margin headwind. Is that an absolute number? And how should we think about gross margin in percentage terms for the second half? I appreciate probably depends a bit on sales, but can you help us with that one? And do you expect therefore EBIT margin for the year to be down based on what you're seeing right now? And then my second question is on the competition in spritzes. It sort of feels like it's nothing new. I remember a decade ago, the success of the Hugo was cited as an issue. Is there anything different about the competition you're seeing within the aperitif space? Is there any reason why right now potentially your competition for aperitifs might be taking share from either Aperol or Campari? Thank you.

So, you know, vis-a-vis, you know, your first question on the, you know, 25 million, you know, headwinds, you know, is, you know, the reference point where there is the misunderstanding. So to be clear, we are, you know, targeting a flat gross margin as a percentage of sales for the full year. So at this stage, we're not envisaging, you know, 25 million euros dilution in terms of gross margin, which means that we count on, you know, solid delivery in in third quarter to offset you know the first half 30 basis point margin dilution that we have at june so that's uh that's uh that's the target yes thank you so and sorry on the ebit margin point i don't know if you can add color on that as well yeah in ebit margin uh clearly we we count on you know um Strong delivery of Q3 in peak season for the aperitif to reboot, you know, the AMP. You know, there is, you know, a step up in AMP in second half. And we're currently expecting, you know, SG&A to come, you know, slightly to the percentage of revenues on the back of, you know, strong set of, you know, results in top line.

Hi, Mitch. Listen, when it comes to aperitifs, I think number one, APRO is not losing share anywhere, which is great for us, despite the craze of sprees and competition, which means in a nutshell that the pie is growing. The sprees pie is growing, and APRO as a leader is taking more than fair share, I would say. Now, to be honest, also, so far, we're not extremely anxious because all the rest is very fragmented. We can see a clear competitor coming up. It's a lot of, like I said, me too. A lot of fake, unfortunately, as well in some markets like Italy and Germany. Now, there are a few markets like Germany. As you know, in Germany, Lille started to grow really nicely a couple of years ago. Then at some point, we realized also in that case, it was not really affecting apparel growth, but it was more increasing the buy of that sort of occasion. which is why we decided to launch Sarky Rosa, targeting that profit pool, which was a similar profit pool to Ugo, so a sweeter, a street safe. So all in all, I think the street location is enlarging. Apple is not losing share in any markets, keep growing. And when it comes to how do we respond to the fact that maybe even the spritz share of throats in drink is increasing, we believe we have a great range we can leverage that goes, by the way, across all flavor palates. So Apro spritz will always be the spritz and our flagship. And like I said, we still believe we have a lot of growth coming from that brand. But then in Italy, we saw organically that Campari spritz started to drink, to grow pretty fast with a more mature bitterness level, you know, for slightly older people more into day and evening and also associated with food. We recently seen in the northeast of Italy, a brand that we have in the portfolio, which was in a way a little bit forgotten, which is Chinar. Chinar is growing really well. Basically, it is today what most of the locals choose to drink, especially younger people, younger crowd, which is why we just announced a couple of weeks ago, well, no, actually last week, a sponsorship of the Venezia soccer team with Chinar, because we think there is a lot of young crowd following the The team and Chinari is really doing well. So it's regional at the moment. And this is even more bitter for more discerned choices. Then we have Prodino, which is a non-alcoholic squeeze, which is going to be a big play for us in the future. I spoke about Sarti with a sweeter, more female-orientated play, which is more going into the Lille and Hugo taste profile. and then uh not to forget we have become yeah which is doing very nicely in france since we bought the brand and we're piloting now uh this drink um into a couple of other markets in europe because we we believe that there could be an opportunity to to expand beyond france and and belgium Um, so, um, like I said, do we mean we're going to dilute our, um, basically, uh, focus, uh, into a lot of brands on, on, um, on these occasions, no. Apple is going to remain, uh, the flagship and the focus, but we have a lot of tools, uh, to respond and to also benefit beyond apparel of the apparel spritz, uh, sorry, of the spritz, uh, buy to, to grow.

Thank you both. Just quickly, Paolo, sorry to follow up, but gross margins flat, SG&A flat as a percentage of sales. Was it A&P flat as a percentage of sales, therefore EBIT margin broadly flat? Did I catch that right?

Yes.

Thank you.

The next question is from Trevor Sterling with Bernstein. Please go ahead.

Hi, Matthew. I'm Peter Paolo. Two questions on my side, please. Looking forward to 2025, if we have the delayed benefit of the old stock, which would be close to fully used up in 2024, we have, again, the delayed benefit of the agave and the renegotiation of the agave, and that's starting to come through, and potentially some upside from glass. I'm not looking for guidance about 2025, but that does seem a very favorable setup for 2025 gross margins. And the second question is, with reference specifically with Esplan, when all of your renegotiations are finished on the agave, do you think Esplan gross margins will be in line with group average, or will it continue to be dilutive?

You know, vis-à-vis, you know, the expectation for gross margin 2025, yes, it's confirmed we expect, you know, an accretion of gross margins. of revenues, you know, all the elements are clearly there. Vis-a-vis Escolon, yes, you know, we think, you know, the goal still remains, you know, the one of achieving at least, you know, parity vis-a-vis group average gross margin for the brand. So it's a long way to go. You know, we were targeting, you know, as an exit, you know, point back end of this year. But, you know, from what I've said, you know, we're not yet there. And, of course, you know, currencies and the Mexican pesos versus dollar effects, you know, plays a big role there, which, you know, in the past, you know, years, a couple of years has been, you know, negative. But yes, so we think we will get there sometime in 2025.

Super. Thank you very much, Paolo.

You're welcome.

The next question is from Alessandro Tortora with Mediobanca. Please go ahead.

Yes, good afternoon to everybody. I have two questions. The first one relates to the working capital, trade working capital and sales evolution, considering that it's the second part of the era. Can you give us an idea of which kind of normalization, considering the 44% level on sales we saw in the first half? So just an idea of the trajectory we can assume for the second part. And then the second question is just the clarification on the perimeter effect. I remember in the last conference call you mentioned that roughly Can you confirm to us that this is still valid?

Yeah, with regards to the evolution of operating working capital as a percentage of states, given the fact that the traction in second quarter was not as strong as we hoped, we were not able to fully achieve the target. The target was, if you take year 2023, landing 37.9% of revenues the last 12 months, You know, we say that we should be in a position of, you know, reducing the operating working capital and bringing, you know, the ratio back to about 33% in December 24. Now, probably, you know, it's a delicate balance because, of course, we need to slow down production at plants. It is something you may want to do, but not to the full extent because on one end, you have lower absorption of these production costs, and on the other end, you create friction with the unions. So, you know, most likely, you know, we will end up somewhere in between the 37.9% of last year and the target 33%, and the remainder will be achieved in the first half of next year.

Okay, thanks.

The next question is from, oh, sorry.

Yeah, okay. Go ahead.

The next question is from Paola Carboni with Equita. Please go ahead.

Yes, hello, hi, good afternoon, everybody. Hi, Paolo and Matteo. I have a few questions. The first one is, again, on gross margin, so to follow up on that. Can you give us a bit more of color of what are you implying in the flat margin guidance in terms of savings from The other input cost, you had mentioned the potential profit pool of about 15 million euros back in February, so I was wondering if that's still all implied in your flat margin guidance. Secondly, as far as your comments about July are concerned, just a clarification here, have you experienced an improvement only in Europe or also across the board and namely in the U.S.? ? A third question, if I may, is instead on Courvoisier. I understand it's tricky at this point to forecast contribution in terms of revenues, but at least based on what you might possibly invest behind the brand, both in terms of organization and marketing. Can you give us a sense of where margin for the brand can land hopefully at the end of next year? Maybe we had in mind a contribution of around 25%, 27%. I don't know if this is something valuable also for next year or we should be aware of any contribution. more short-term effect. And sorry, very quickly, if you can share with us any update on your folic guidance given the weakening of the Mexican peso in the last few weeks. Thank you.

So on the first question, which is saving from other input costs, aside of what I have just mentioned, the rest, the other factors that we have disclosed with ample details as we announce the full year results, They, you know, unchanged. So we've, you know, overall said that we had, you know, for this year, roughly, you know, 80 million euro tailwinds and 60 million euros, you know, headwinds, which Agave, you know, I said was, you know, 30 million euros this year and 20 million euros next year, which now is saying there is a phasing. And there is, you know, another, you know, this is eight and there is another, you know, 16, you know, Including, you know, worse than expected, unabsorbed, you know, fixed cost that was, you know, costing us 15 million euros. You know, the safety stock, you know, absorption, this is, you know, phasing, negatively impacting 24%. first half, but not second half. You know, the higher depreciations are there to stay, 15 million euros, and the aging liquid is there to stay. And then the other one is the negative mix that is there to stay, which is the 8 million. So the other components are not destined to change. So, you know, it's all about, you know, it's all in line with our, you know, previous, you know, expectations. I've just, you know, mentioned, you know, the elements that have to be seen as a point of difference vis-a-vis you know, the original indications. You want to cover FX? You know, the FX guidance for the full year is at the moment, you know, minute. You know, in our numbers, we have, you know, a tiny, you know, positive contribution to the top line, 0.3%, and, you know, a tiny contribution to the bottom line, a positive 1.2%, within which, you know, we have, you know, the, you know, the Mexican pesos were, you know, a significant, you know, portion of the devaluation of the pesos, of course, you know, last year, the beginning of this year, which is then offset by, you know, other currencies, you know, moving, you know, our directions.

So, Ciao, Paolo. Look, when it comes to Courvoisier, I'm sorry not to answer, but I said it before. I mean, the brand strategic assessment is underway. We're going to be ready at the end of 2024 for the relaunch and rollout in 2025. We need to have a better grasp of the numbers, so I will just reiterate directionally the numbers we shared already at the beginning, so you might cover offline with Chiara if you If you have questions about what we said in the past, but we're not going to change anything so far because it will be premature. The managing director for the brand and for Cognac. Just joined basically beginning of June. He's someone very senior, Augustin Depardon. He joined us from, he did a couple of years in Moet, but then 27 years in Remy Cointreau, always working on cognac. He managed to do it first globally. He was head of comms globally for Remy Martin, He managed some cluster of markets like UK, Ireland as a managing director. So we're very confident about the leadership of Augustin for the brand. And through his stewardship, we'll get clarity as we go in the balance of the year. When it comes to July days, you got it correctly. You know, weather has been good. We don't have yet the patient data for Europe, but the feedback from the teams on the ground is that Europe was finally better and it's positive. Depletions in US, you know, last time I spoke to the team was two or three days ago, so every day counts in US, but The outlook for the month was positive, depletion-wise. So, yes, July seems to go well. Also, in APAC Australia, it's finding a good month, growing double digits versus last year. So, also some positive news coming from Australia, which is the more, if you like, structured market, so we can see data when it comes to Asia Pacific. So July has been a good month. We believe it's going to be a month, let's say, according to our expectation for the balance of the year. Yeah. And by the way, I can see this is the last question. So something that I really forgot in my intro and, you know, I wanted to say that, you know, it is definitely a challenging context. You know, we have volatile macro environment and still industry headwinds. And again, we're outperforming and growing, so I just want to thank all our companies because I know they are typically joining this call and are also typically anxious about our share price because we think we deserve more. But you guys are doing a great job, so I wanted to thank everyone.

Thank you for the answers.

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Okay. Thank you very much, then. Thanks for joining the call, and see you all soon. Thank you. Bye-bye.

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