Davide Campari-Milano N.V.

Good evening, this is the Conosco Conference Operator. Welcome and thank you for joining the Campari Group First Half 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 Simon Hunt, CEO, and Paolo Marchesini, CFO of Campari. Please go ahead.

Thank you very much. Good evening, good afternoon to everyone. Thank you for joining us to go through our 2025 half-year results and the perspectives for the remainder of the year. As always, Paolo is here with me, along with our AI team. Chiara and Gulsi are happy to connect after the call to further deep dive with all of you in the upcoming days as necessary. Now, a short summary of our results. You can see that the progress is in line with what we told you last time. Our outperformance in sellout is continuing on track across most geographies with further improvements in Q2, supported by a positive start to the peak season. The better weather has played a role, but at the same time, our increased focus on execution and brand building investments are also starting to pay off. Top-line trend is on track with growth in Q2 as guided, and we'll dive into details later on. Profitability is on track, driven by initial savings in SG&A and gross margin accretion, while A&P remains diluted due to the front-loading of peak season investments as expected. Cash generation is on track with positive free cash flow despite the continuation of our extraordinary CapEx program. And a few details on our key focus areas where we are progressing in line with our expectations. On cost, there's a visible deceleration in SG&A trend. As we previously guided, the majority of the benefits will be released in the second half to reach our 50-bit secretion target on a like-for-like basis in 2025. On brand building investments, we're not making any compromises. Instead, we're using this period where the sector is under pressure to accelerate investments with a focus on effective spend. On CapEx, we're on track to complete our extraordinary program for production capacity expansion by the end of this year. As I've already mentioned in the past, balance sheet discipline is critical for us, and the improvement in our leverage ratio is on track. The closing of the Chinzano disposal, which represents a significant advancement in portfolio streamlining, will lead to further reduction of net debt and additional slight improvement in the ratio. And at the same time, we are maintaining our pause on M&A. In terms of portfolio, geographic expansion of our brands is on track. Utilizing our existing footprint of 27 in-market companies, we keep growing. For example, in Q2, more than 13 of our markets recorded double-digit growth. While growing, we continue to focus on the quality of our commercial execution and maintaining pricing discipline despite the challenging backdrop. Our aim is to ensure consistency, and these set of results are a testament to this. Now let's look at our top-line performance and drivers. In H1, we delivered a resilient performance with flattish organic top line growth. There was a marked improvement in Q2 across almost all houses and main regions with a total organic growth of plus 3.5%, of which plus 2% was underlying. The main drivers of Q2 top line were due to a positive start to the peak season, despite the ongoing challenging backdrop as seen in our sellout data outperformance. We had the recovery of the 10 million Easter timing impact from Q1. We had the recovery of a portion of the 11 million US logistics delay impact from Q1, with the rest to be recovered in the remainder of the year. We also had the inclusion of Corvoisier into organic as of May. And we had the negative impact of one German retailer delisting because we would not move on price. impacting us by 5 million euros in the first half and expected to be another 6 million in the second half. Perimeter and FX impact largely offset each other in the first half to lead to a total reported top-line growth of plus 0.3%. Now, moving on to sell-out data, which is ultimately the main focus, our outperformance continued across almost all markets with acceleration at the start of peak season in Q2. In the U.S., our outperformance accelerated in the strategic on-premise channel in Q2 with plus 5% growth versus the sector of negative 2. In NABCA, Q2 was plus 1 compared to negative 3 in the sector. On the off-premise, while our brands continue to grow positively, the rest of the portfolio, which has a higher weight in this channel, impacted our total growth. In general, across channels, our key focus brands, Espelon and the Aperites, drove solid growth ahead of the market. In EMEA, we also outperformed or were in line across all markets, with our total performance plus 1% versus a market of negative 2, again with acceleration in Q2. The UK, France, and Italy all saw accelerations. In Germany, where the overall market is under pressure, we also have the impact of the delisting that I mentioned earlier. But we have some brands like Sati Rosa, Credino, and Apoel Spritz, which continue to grow strongly and bring in new consumers into our franchise, especially in new occasions. Let's now look at the top-line growth by region, starting with the Americas. The organic change in the Americas was minus 1% in the first half, with an improving trend of Q2 of plus 4%, driven by the U.S. and across other countries. In the U.S., following the impacts in Q1, we had a positive performance in Q2 of plus 3% growth on steady days of inventory. Q2 was driven by double-digit growth in both Espelon at plus 11% and the Aperites at plus 10%. And this was partially offset by persisting challenges in Skye and a high base in Grand Marnier. Jamaica recorded negative 2 change in the first half with a negative 8 in Q2, impacted by a high comparison base of plus 32% last year. At the same time, the local market dynamics are very positive and supportive of the core Ray and Nephew overproof rum and Magnum tonic wines. And thanks to the completion of the Dunderwater treatment facility within 2025, we expect to have increased capacity and increased resilience against potential weather events starting from 2026. The rest of the Americas, which makes up about 11% of our group sales, continued its solid performance, especially in Q2, with plus 12% growth mainly driven by Aperol, Sky, and the Brazilian brand. Now, moving on to EMEA, we recorded plus 1% growth outperforming the market, mainly driven by our core aperitif business in the UK, France, and the rest of EMEA. In Italy, we had a resilient performance with a negative 1% change in Q2, outperforming the challenging market, with consumers remaining conservative in terms of discretionary spend. Aperol and Campari had a flat trend, while Crudino, Aperol Spritz, and Satyrosa grew, benefiting from convenience trends and our portfolio approach. The brand health of our portfolio remains strong, and we continue to reinforce the franchise in Italy with increased activations, as we'll show you in the rest of the presentation. In Germany, we saw a moderation in the performance with Q2 change of minus 2%. Here, we recognize the market backdrop is challenging. We have a high comparison base as well. Plus, as I said, during the European alliance negotiations, while overall very successful, we did have to forego one retailer to hold the line on pricing. Excluding this impact, Q2 growth would have been plus 4% and the first half negative one, with most of the impact coming from Aperol. On a positive note, Satyarosa is now contributing 9% of sales, and it continues to grow very strongly. This brand, which has only been in Germany until this year, is now being rolled out to other countries like Italy, following strong pilot tests, and we'll share more about this in the future as part of our broader Aperites play. In France, the environment remains subdued, but our performance is accelerating, with plus 3% growth in Q2, mainly driven by Aperites. The UK performance remains solid. We registered double-digit underlying growth, driven mainly by Aperol and Aperol Spritz, as well as Courvoisier benefiting from a new marketing campaign that I'm sure many of you will have seen in London. In the other countries in EMEA, which contribute 16% of our overall sales, there's an acceleration to double-digit growth in Q2, driven by almost all countries, especially global travel retail, Greece, and Belgium. And the bulk of growth is coming from Aperitif and Courvoisier. Moving on to APAC, our growth was plus 4% in the first half. In Australia, we had a plus 10% growth in the first half, and it was driven by market outperformance in Aperitif with ongoing focus on accelerating on-premise activations, as well as the Esplanade bottle and RTD, which is now the number one among tequila RTDs. While Turkey, Bottle and RCD also contributed off an easy comparison base. And you don't see it on the page, but also the sellout data confirms the trends with solid growth, especially driven by Aperol, which grew 24% in the first half. In the rest of APAC, we saw resilient trends in Japan, South Korea, China and New Zealand, benefiting from increased focus on direct markets. offset by negative trends in other markets where we don't have a direct presence. This is a region where we've recently made route-to-market investments, as you know, and we will progressively see the benefits in the upcoming periods. Okay, so let's move to looking at the houses, and let's start with the house of properties. Here we recorded a plus 2% growth in the first half with an improving trend heading into the peak seasons. Apple recorded an improving trend in Q2, supported by growth in both the Americas and EMEA. And if we look at H1 growth, it was mainly driven by the Americas at plus 8%, with a small positive in the U.S., and strong trend in the rest of the region. In EMEA, there was a stable trend. Italy was flat, while Germany got impacted by the delisting. The rest of EMEA recorded plus 3% growth, mainly due to the U.K., Greece, and other markets. For Campari, the trend was impacted by the high comparison base in Brazil, despite a plus 8% growth in the U.S. and plus 1% in EMEA. Italy remained flat with recovery in Q2, while Germany again was impacted, but the rest of EMEA trended positively with plus 6% growth driven by acceleration of the Spritz trend. For the remainder of the Aperitif portfolio, there was solid acceleration in Credino, with resilient performances across EMEA, including Italy. Aperol Spritz has also started to gain traction on the back of the convenience trends, as consumers expand their consumption into new occasions. Other Aperitif brands, especially Satirosa, continue to grow nicely and support our leadership position in the Aperitif category. We also wanted to quickly share the sell-out performance of Aperol in this period. In the US, the strong trajectory is continuing in the strategic on-premise as well as in NABCA. Also in the UK and France, we had a strong outperformance with plus 13% and plus 17% growth respectively in Q2 in a muted market backdrop. Italy is growing in line with the category of a higher base and with encouraging performance in the early peak season. In Germany, the decline is higher than the category but off a very high comparison base for the prior year and for the reasons I've already explained. Overall, we're encouraged by the improving trend in early peak season. The weather has been far more supportive this year, and it seems to be continuing in Q3 so far. As I mentioned before, we continue to see double-digit growth in smaller markets across the world, giving us confidence in the geographic expansion opportunities. OK, in whiskey, the ongoing soft trend in the core US offset the resilient performance in APAC, especially in core Australia and South Korea, as well as EMEA off a small base. Russell's Reserve has been impacted by product shortages due to the strong demand on selected premium variants in this period as its popularity continues. The positive trend in Jamaican rums continued in Q2 with plus 5% growth despite the high comparison base as we cycle the volatility that the hurricane caused last year. This is driven especially by Ray and Nephew Overproof with ongoing strong underlying momentum. Having just seen the business on the ground in Jamaica and talked to many counterparts in government and in the trade, it's clear that this brand is truly part of the DNA of the country. In the House of Agave, there was an improving trend in Espelon in its core US market. including recovery of the Q1 logistics delay impact, leading to solid plus 12% growth in Q2. Growth was supported by Blanco, plus four, and especially by Repo, a plus 14 in the first half. And key seeding markets also continued to grow off a small base, in line with our international expansion plan. Within the House of Cognac and Champagne, the ongoing negative performance in Grand Marnier was driven by the core U.S. market of a high comparison base. We were plus 20% for the first half last year. And it was impacted by Q1D stocking and our focus on pricing in a highly competitive market to protect brand equity. The on-premise, which is core for the brand, has been especially challenging with increased competition. Courvoisier recorded 62 million euro sales in the first half and was included in our organic growth as of May. We've started to support the brand in key markets like the UK and the US with interim marketing campaigns, as I mentioned before. These are being done with a test and learn approach in a challenging category backdrop. On APAC, the brand strategy is still underway given the volatile external environment. And let me reiterate that this is important to consider this acquisition for the long term. as the category is still witnessing challenges, including the impact of significant pricing and promotional competition. For the rest, I won't comment too much, just to note that 21% of our overall portfolio is classified as local brands, given their geographic concentration. Sky remains an important part of our portfolio, and Q2 trends are encouraging, with ongoing growth in regions like the Americas and APAC. As always, I want to also share some of the highlights of our activations. And given the fact we're entering the peak season, the key focus for us has been in this period. So let's start with APROL. Some of you will have already seen this, I'm sure. But in mid-May, we launched a new APROL global campaign. And I wanted to show you the short video here. It was one of our biggest over the last few years with a launch across 30 countries. and a media budget of over 27 million euros, of which about 60% has been spent so far in the season. Despite the short time since its launch in key markets such as Italy and Germany, we see positive initial signals of consumer traction and impact on brand image. So we haven't tried this before. We're going to see if this works, so please bear with us, but let's see if we can run the app roll video.

Okay, hopefully that worked.