Davide Campari-Milano N.V.

Good evening, this is the Coruscall conference operator. Welcome and thank you for joining the Campari Group first quarter 2025 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. Simon Hunt, CEO, and Mr. Paolo Marchesini, CFO of Campari. Please go ahead.

Great. Thank you very much. Good evening. Good afternoon to everyone. Thank you for joining us on this call, my second one. where we're going to review our Q1 results and give our perspectives on the remainder of the year. As always, Paolo is here with me and our IR team, Chiara and Gulce, are happy to connect after the call to further deep dive with all of you in the upcoming days as necessary. So now a short summary of how we see the environment and our positioning. It's been quite an exciting 10 weeks since our last call. And to summarize our performance, I can say that we continue to record our performance in sellout across most geographies with a strong bounce back in april in markets impacted by easter timing as expected this clearly shows the strength of our brands even in challenging times on the financial performance recognizing in our smallest and lowest seasonality quarter apart from the flagged easter timing impact we also had three things first the additional negative impact of the macroeconomic volatility that affected ordering patterns. Second, some logistic delays on some of our March shipments, of which several shipments went out in early April. And finally, the phasing of investment as previously guided on both A&P and SG&A. And we'll dive more into the drivers of the top line on the next page. What is most important is that we're taking a prudent approach in this backdrop with focus on long-term brand building and tight management of what we can control. This means protecting the present and positioning effectively for the future. On costs, we're on track with our cost containment program to release the benefits starting in H2 as previously guided. Business investments in terms of A&P are continuing as we ramp up for our most important seasons. And on CapEx, we're on track to complete our extraordinary program, primarily for production capacity expansion. At the same time, balance sheet discipline is critical with ongoing management of debt position to get our leverage to normalized levels, supported by no acquisitions and progress on portfolio streamlining. In terms of portfolio, we are focusing on geographic expansion of our brands to further increase our geographic diversification. And this will be done by utilizing our existing footprint, following investments in route to market made over the last couple of years. In Q1, in fact, we recorded significant double digit growth in more than 10 less developed markets globally. On the commercial front, our key priority is to ensure the quality of our execution and maintaining our pricing discipline. So let's move to the next page to deep dive the net sales drivers for this quarter. We recorded negative 4.2% organic net sales growth, which equates to a decrease of 28 million euros in absolute terms. Of this, 21 million is down to phasing, of which 10 million is ease to timing. And 11 million is temporary logistic delays in the US in terms of replenishing our stocks, which will reverse in the remainder of the year. And in fact, a lot has already been recovered in April. As a result, we are seeing encouraging trends in April on our priority brands, despite the ongoing volatility. This means that the underlying performance of the business was closer to 1.1% or 7 million euros down. And this was driven by three things. First, slightly higher than expected impact on the news flow from the US. Second, a decrease in bulk sales activity in the UK. On bulk, despite its small size in our portfolio at 1% of total sales, the impact for this quarter was significant at 4 million euros. So if you take this out, we're actually 3 million down on a full sales on a full year of over 3 billion. And apart from these impacts, 70% of our portfolio covering the rest of the world continue to grow with a plus 1% overall. So now moving on to the all important sellout data. Now looking at the sellout data, as I mentioned, how our performance continued across almost all markets, especially with a strong bounce back in April in markets impacted by Easter timings, as you will have seen. And we're being disciplined on our price mix, given the uncertain market backdrop. In the US, especially in the strategic, we continue to see solid trends driven by Aperol and by Espelon at plus 12% and plus 14% respectively. In Europe, again, our performance is continuing with plus 1% growth versus negative two in the sector in Q1. And looking at, especially at the year-to-date data as of April, which neutralizes the impact of Easter, there is a solid growth and a significant delta versus the sector. In Germany, we're plus 8 versus the sector of minus 1. In the UK, we are plus 13 versus the sector of minus 1. Italy, where we have a large market share, is trending almost in line with the sector, but we are growing. And with plus 4% on April, and we have a strong focus on activations ahead of the peak season ongoing at the moment, with launch of new campaigns on Aperol, Credino, and Campari Soda. I'll pass this page quickly as we've already commented on the overall trends in our net sales, and we'll deep dive one by one into the regions and houses in the upcoming pages. But overall, total net sales growth was 0.3% in Q1, with an organic change of negative 4.2, and organic CAGR versus 2019 of plus nine. On top of this, we record a perimeter impact of plus 4.3%, mainly driven by Courvoisier, and a minimal FX impact of plus 0.2%. Moving on to the Americas. The Americas organic change was negative 6. In the US, without the logistics delays I've already mentioned, performance was minus 5. Apart from this, there was the impact of a highly volatile operating environment, which also led to further destocking in Sky, Dramania, and Wild Turkey. Plus, Espelon was impacted by a tough comparison base and softness in the Blanco category trends. However, the underlying brand health remains solid. April remained resilient despite a high comparison base of plus 15% with a flat performance, but in sales out delivered nearly a 5% growth in the off-premise and a plus 12% in the on-premise. Jamaica recorded a plus 5% organic increase driven by Jamaican brands off a low base. Normalization of the local operating environment was supportive, following the impact of the hurricane last year. The Dunderwater treatment facility development is on track and will make us more resilient to future potential climatic shocks. The rest of America has continued its solid performance in Q1 with plus 7% growth, excluding Brazil, mainly driven by Aperol and Sky. Brazil was impacted by a high comp base of plus 77% last year. And if you look at the two-year stack, Brazil is growing plus 24. This continues to show that the potential of our brands is truly widespread across the Americas. Moving to EMEA, we recorded negative four organic change, mainly due to the Easter timing, primarily in the core markets of Italy and Germany. Focusing in on Italy, net sales would have been flat, excluding the Easter impact. Aperol grew plus 2%, supported by dedicated activations. The brand health and strength of the portfolio remained strong. And looking at the sellout for Aperol, nine out of 12 EMEA markets recorded growth in this period, and four of them were delivering double-digit growth. Germany was also impacted by Easter and would have been flat, excluding this impact, driven by the core aperitifs, despite a high comparison base of plus 25% last year. And in the UK, we had a technical impact of the decrease in bulk whiskey sales that I just mentioned, and excluding this growth, we would have delivered plus 10%, again, driven by the aperitifs. In the other countries in EMEA, which contribute about 15% of our overall sales, we continue to show solid aperitif growth, with plus 2% growth mainly driven by GTR and Greece. And this was offset in Q1 by softer performances in South Africa, on Bisky Cognac, and the Netherlands, mainly due to a high base effect. Moving on to APAC, we saw solid growth of plus 11%. Australia grew plus 16%, driven by excellent execution in aperitifs during a peak season at the Australian Open, with accelerated focus on on-premise 360-degree activations. And we'll comment more on those activations in the upcoming pages. Also, Espolon and Espolon RTD are gaining traction and growing rapidly. In fact, it became the number one tequila ready to drink in the country. In the rest of APAC, growth was plus 4%, with China contributing the most, benefiting from the prior route-to-market investment, as well as positive trends in South Korea. Now, as you know, most of the business has now moved to the House of Brands structure as of 2025, and as of Q1, we have now staffed all of the key positions within this model and are operating and reporting within this structure. So starting with the House of Apparenties, We had resilient performance even with the Easter timing, resulting in a negative 1% change. Aperol remained flat, supported by solid plus 8% growth in the Americas, offset by the Easter timing impact in EMEA. The U.S. was flat, as I said earlier, despite the high comparison base of plus 15%, with a two-year stack at plus 7%, but positive sellout data, as I've already commented on. The rest of EMEA remained resilient with plus 2% growth in Italy despite Easter timing and despite the high comparison base of plus 25% in Germany. For Campari, apart from the high con base in Brazil, Easter timing in Italy and some softness in the US, the rest of EMEA was positive at plus 8% driven by the acceleration in the Campari spritz trend. Credino, our non-out, continues to grow off a small base across EMEA, again excluding the impact of Easter. It grew in Italy as well. And the rest of our aperitifs are growing nicely, supporting our leadership position in the aperitif category globally. In whiskey, the soft performance continued, driven by a core U.S., offsetting solid growth in APAC and EMEA off a small base. And Russell's Reserve remains resilient in line with our premiumization strategy. Jamaican rums grew across all core markets off an easy comparison base on supply shortages last year. And here, the underlying trends in rums remain strong. In the House of Agave, Esplom was impacted by the decline in Blanco, mainly due to our discipline in promo and pricing in an uncertain environment ahead of tariffs. as well as the logistic delays that I mentioned before. Excluding logistic delays, Esplan would have been around negative 1%. Reposado, on the other hand, continues to grow very nicely. And the internationalization of the brand is gaining traction with a focused approach in key markets like GTR, Australia, and Canada. Within the House of Cognac and Champagne, Gros Marnier again was impacted by the logistics delays, as well as some destocking. And we're also maintaining a tight focus on pricing to protect our brand equity in a highly competitive market. Courvoisier, as you know, is still in perimeter and will be included in our organic growth in May this year. We've started to build the brand strategy, especially in the U.S. and U.K., On APAC, the definition of the plan is ongoing, given the challenging backdrop. As I said before, this is an acquisition for the long term in a category that we believe in. And while it will take time to turn around, we have strong experience in the team and the board, and we are confident in its potential. For the rest, I won't comment too much. Just to note that 22% of our overall portfolio is currently classified as local brands, given their geographic concentrations. The main driver of the decline in other local brands was due to the reduction in non-core bulk and co-packing activities that I commented on before. And Sky remains an important part of our portfolio, and there are some bright signs of growth in regions like the Americas and APAC. Now, taking a step back from the quarter results, we also want to share with you what is happening internally in this period. As you can imagine, it's been a very busy period where I've been out with the teams across all of our regions and across many of our production facilities, listening to our campereasters to better understand our brands and our business for the future. And this has been a truly inspiring period for me where I was able to understand even more clearly the strong culture, the dedication our teams have to the business and to the brands. And moving on to the next page, I'll give you an update on the strategic priorities we've been focusing on. Firstly, on our strategy definition, this period, apart from traveling and meeting the teams, we've also been actively working on building our strategic roadmap ahead, recognizing that it's been a pretty bumpy start to the year for everyone with the elevated flow of news. And in this process, our newly formed houses have been focusing on building our strategy in terms of consumers and brands, while the regions are focusing on the execution with our customers and our in-market activations. All of this is coming together to define our portfolio strategy and brand ambition for the long term, with focus on our key brand market combinations. And once this is defined, it will allow us to more effectively decide on our investment needs and allocations. And this process is fully grounded in our areas of key competitive advantage. On cost containment, we are progressing and on track to achieve our target of 50 bps benefit in sales in 2024 and 200 bps benefit by 2027, leading to operating leverage and a margin accreted profile in structure costs. In fact, we have already started more than 70% of the actions to achieve these goals, with benefits to be visible from H2 onwards, as previously guided. As you can see from this chart, the SG&A growth has already slowed as of Q1, despite the low base from last year. And this will progressively continue to benefit in the remainder of the year. On portfolio streamlining, we've already started to take some steps, including the divestment of our local bottling plant in Australia, with closing expected in mid-25. We're also taking steps to streamline our agency brand agreements. And for the rest, the process is ongoing. with timing of potential additional disposals to be determined based on optimization of potential proceeds. But I can say that conversations are progressing. Now, before I hand over to Paolo to go through the financial review, let's have a quick look at some of the activations. For April, we had two major initiatives in Q1. The first was an enlarged effort as part of our Australian Open Sponsorship, and we executed 360-degree activations. not only in and around the event, but also across the city in many on- and off-premise locations. In fact, you saw the results in our sales growth. In addition, the cocktails sold during the event increased plus 25% compared to last year, and it became the most sold drink during the event. Going forward, the on-premise focus with Afrol will, of course, continue in Australia. Secondly, we accelerated our de-seasonalization efforts with our ounce takeovers that I mentioned on our last call. And as part of this, we activated more than 100 on-premise accounts in 24 ski results. Overall, more than half a million Aperol Spritz were sold. And the activation was enhanced with multiple weekend experiences for influencers, journalists, and on-premise customers, and further amplified by out-of-home and digital media, reaching more than 8 million consumers. Again, as part of our de-seasonization effort, we partnered with the ICE event in St. Moritz, showcasing some of our brands like Apro, Campari, and L'Allier. The big interest in our brands is a clear indication that the spritz trend works very effectively, both in the winter as well as in the summer. For Campari, the link with cinema continued to be enhanced with dedicated activations across multiple film-related events. including the continuation of the Ben and Ali Partnership in Berlin, the Ostend Film Festival in Belgium. In addition, we had the SAG Awards in LA for the fourth time as the official Spirits sponsor. So that gives you a flavor of some of the activation, and now I'm going to hand it over to Paolo for the financial review. Paolo.

Thank you, Simon. If you follow me to page 19, we can see that the EBIT adjusted in value declined by 17.2% organically. with a margin dilution of 310 basis points. Cross-margin came in flat and was mainly driven by positive COGS evolution from supportive aggregate costs and other input costs, and that was offset by negative mix due to lower share of the U.S. profit with minimal contribution from pricing in the first quarter of this year. As for long gross margin, it's now nearing group average gross margin in the first quarter. Notwithstanding, you know, the phasing of the top line with, you know, negative 4.2% organic growth of net sales, AMP has been stepped up in value by 2.4% with 90 basis point margin dilution effect, mainly due to The accelerated on-premise activation for aperitifs, including disanalysation efforts in EMEA, and the investment to support the peak season in Australia. AMP to sales came in at 13.8% versus 12.9% in 2024. On a full year, we're still expected to have AMP as a percentage of net sales within the range of 17% to 17.5%. So probably with a step up that is 50% of what we've seen in first half. The SG&A, you know, grew by 5.1% in value and generated a dilution of 200 basis points as a percentage of sales. And that was impacted by low base in Q1. We've seen before Q1 SG&A went up in value by 4%. Secondly, the bigger carryover effect from Q3 and Q4 of last year, when SG&A grew in value by 11%. And thirdly, the muted top line with a negative 4.2% had an impact on the overall dilution in such a small quarter. On the other hand, as Simon has just said, the cost containment efforts are all on track. and we're expecting to deliver positive impact in the second half of this year. EBIT adjusted on a reporting basis was then down by 10.2% with positive perimeter effect of 2.5%, including the tail-end effect of the first-time consolidation of Courvoisier. The effects was positive by 4.6%, primarily driven by the devaluation of the Mexican basis. If we move on to the following slide, Tiny operational operating adjustment of 7 million euros, primarily attributable to the impairment of assets in connection with the disposal of the Australian plant. Total financial expenses came in at 21.8 million euros, including exchange gains of 3.4 million euros and financial expenses of 25.1 million euros aligned to the expected fully run rate. Last year, financial expenses were much lower, 12.1 million euros in Q1 of last year, but those included the benefit of interest income on higher cash position ahead of the closing of the Courvoisier acquisition, which was made. The average cost of net debt in the first quarter of 2025 is 4.2% versus 3.1% of last year. But if we normalize, you know, last year coupon of the benefits on excess cash, which I've just, you know, mentioned, last year coupon would have been 4.2%, therefore, you know, comparable and stable vis-a-vis, you know, this year. Pre-tax profit adjusted, came in at 113.7 million euros, down in value by 22.4%, and pre-tax profit reported came in at 106.7 million euros. Net financial debt stood at 2 billion, 460 million euros, relatively stable, you know, up 83 million euros versus December and last year. Still with the cash and cash equivalents accounting for 587 million euros, down 80 million euros, mainly due to CapEx initiatives and other commitments. Leverage ratio, net debt to EBITDA came in at 3.4%. times marginally higher vis-a-vis December end, 3.2 times. But here, you know, clearly, you know, the leverage will materialize in the back end of the year. I think, you know, Simon, this is it on the numbers. The floor is yours for the output.