Davide Campari-Milano N.V.

Good evening. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the Campari Group 9 Month 2025 Financial 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, Chief Executive Officer, and Paolo Marchesini, Chief Financial and Operating Officer of Compare. Please go ahead, gentlemen.

Paolo Marchesini Fantastic. Thank you very much. Good evening, good afternoon to everyone. Thank you for joining us to go through our 2025 nine-month results and perspectives for the remainder of the year. Helloers here with me, our IR 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, just before I get going, as I think all of you already know, this is going to be Paolo's last call with us before he transitions to his new role as vice chairman. I'd like to thank him for all of his support, longstanding contribution to this group, and looking forward to continuing to work with him in his new role. And it's pretty rare these days. He has a CFO that has presided over more than 100 earnings calls. and holds the title of being the longest-serving CFOO in the Italian stock exchange and certainly across our industry by a long, long way. That is an amazing track record and an achievement. And on behalf of everyone in the company, me, my predecessors, and all of you here on the call and in our investment community, I'd like to say a big thank you. And for those of you who are joining us on the Strategy Day on the 6th and 7th of November, you have a chance to celebrate together with Paolo. Thank you again, Paolo. You're welcome. Now, a short summary of our results. As you can see, our performance is on track with what we told you last time. Clearly, the operating environment remains challenging. Despite this, we are continuing to outperform the industry in sellout, and this is exactly our aim. We're keeping our strong focus on commercial execution and continuing to invest behind our brands to ensure we are well positioned for when the market normalizes. In terms of profitability, we're making strong progress, and this is supported by gross margin accretion and visible savings in SG&A, more than offsetting the ongoing A&P investments, as I mentioned. And we're maintaining our guidance of moderate organic growth on the top line. While on EBIT adjusted margin, we continue to expect a flattish organic trend as a percentage of net sales, but now with the tariffs impact incorporated. and we'll dive into the details later on. We continue to make solid progress across all of our strategic priorities in line with our expectations. As highlighted in previous updates, our focus remains firmly on the areas we can control, and we are consistently advancing towards our goals. On brand building investments, as already shared, we're not making any compromises. On SG&A, as we already guided, The deceleration trend is evident, and we're also making progress on COGS efficiency. On CAPEX, we are on track to complete our extraordinary program for production capacity expansion. In terms of portfolio streamlining, the disposal of our 50% investment in Tanako in Q3 is another step towards simplification following the disposals of Cinzano and the Australian plant in the first half of the year. and we are maintaining our pause on M&A. On the balance sheet, our disciplined approach means that we have now been able to reduce our financial leverage in terms of net debt to EBITDA ratio by 0.7 times in the last 12 months, down to 2.9 times with further improvements to come. Our portfolio approach continues to bear fruit, and while we will discuss this more during our strategy day, I can say that we keep growing across geographies where we are continuing to gain share and prioritizing execution and pricing discipline in a challenging backdrop. Now let's look at our top-line performance and the drivers. In Q3, we recorded growth across all regions. I'll just say that again. We recorded growth across all regions and delivered a very resilient 4.4% organic growth overall. And this means as of nine months, our organic growth was plus 1.5% in line with our guidance. And yes, we are still growing even in this tough market. The peak season started positively in terms of weather, but we did see some variation across geographies in the latter part of the quarter. Plus, the impact of economic pressures on consumers played a role, especially in the on-premise and in the U.S. But despite this, we recorded solid growth. Regarding some of the technical impacts coming from the first half of the year, you'll remember that of the 11 million US logistics delay impact we flagged in Q1, most of that has now been recovered with a limited impact expected in the fourth quarter. The delisting we flagged in Q2 in Germany continues to impact with 3 million euros in Q3, leading to a total of 8 million in the nine months and an expectation to reach 11 million by the end of the year. Net-net, these two impacts balance each other out in the quarter, and over the nine months, the underlying performance broadly matches our reported organic growth. The perimeter impact is plus 1.1% on our top line, while the FX impact was negative 2.4, mainly driven by the U.S. dollar devaluation and Latin American currencies. Overall, our total reported top line growth is 0.2%. Now, looking at the sellout data, which is ultimately the main focus, how outperformance continued across almost all markets in a challenging backdrop, with overall shipments and sellout pretty much aligned across the U.S. and EMEA. In the U.S., our outperformance in the strategic on-premise channel and in NABCA is ongoing in Q3, with plus 5% growth year-to-date in the on-premise, indicating a 4 percentage point beat compared to the sector. and a two percentage point beat in NABCA. And this is driven by very resilient growth of plus 12% and plus 9%, respectively, in our tequila and aperitifs portfolio. Note that due to some data policy issues from the provider last night, we're only able to show a 52-week trend in the on-premise data, not the usual quarterly performance. But I'm sure that data will be corrected soon. On the off-premise, while our focus brands continue to show a resilient performance, the rest of our portfolio, which has a higher weight in this channel, impacted our total growth. And by the way, we should highlight that given its universe composition, Nielsen off-premise doesn't sufficiently represent a full picture of Campari America's performance or momentum in the market as we continue to make good progress across the club channel. In EMEA, we also outperformed in each of our main markets with growth of plus 2% versus a market of negative 2% in the region, despite the pressurized context. Now let's start to look at our top-line growth by region, starting first with the Americas. And Americas grew by plus 1% in the nine months, with an acceleration in Q3 of plus 5%, driven by positive top-line across the regions. In the U.S., the nine-month performance was impacted by the destocking in Q1, while the last two quarters have both been positive, with plus 3% and plus 1% growth, respectively, in Q2 and Q3. The main drivers are Espelon, Courvoisier, and Ray & Nephew. And the imperatives record a stable trend with a positive Campari, offsetting inventory reduction post-tariff volatility in April in the third quarter. In line with the category trends, we continue to see persisting challenges on Sky. Jamaica recorded plus 11% growth in the nine months with a very strong quarter three due to the base effect of last year's hurricane, but also benefiting from very positive local market dynamics. And given the news at this stage, I think it's important just to update you with what we know about Jamaica. So at this stage, the team are evaluating the impact of the hurricane from last night. And our primary focus is the safety and well-being of our teams, which we are confirming diligently given the lack of communication available. After that, we have got teams on the ground at each of our sites to assess the impacts and next steps to get us up and running as quickly as we can, recognizing the infrastructure damages anticipated by the Jamaican government. Once we have clarity on the situation, we'll then be able to confirm our support for whatever those recovery plans are, and can provide more of an update once we receive it. In terms of the rest of the Americas, which makes up about 11% of our group sales, it continued its solid performance with plus 3% growth in the nine months. And quarter three was flat, impacted by trade disruption in Canada in connection with the tariffs. But on the positive side, Campari has now become the second largest premium spirits player in Brazil, driven by the strong performance of Campari and leading Brazilian brands. Now, moving on to EMEA, the plus 2% growth was broad-based across almost all countries. In Italy, the environment remains challenging, especially in the on-premise. We saw less willingness by consumers to spend and decreased numbers of visits. Regarding tourism traffic, even though accommodation occupancy rates were relatively solid during the summer, consumers were more selective about spending. There were also fewer Italians taking holidays during August, pressured by increased prices. In August, we saw all main beverage categories, that's all beverage categories, down 10%, including water, a mainstay of Italian consumption in both the on and the in and out of home, really reflecting the economic pressures that consumers are seeing. And all of this played a role in the performance of Aperol. At the same time, we see our portfolio approach in aperitifs bearing fruit, especially with solid trends in Campari, Codino, Sati Rosa, as well as the spirits portfolio. In Germany, the environment has become more challenging over the last few months across all categories and sectors, as I think you know. And consumer propensity to save versus spend has increased significantly. And we are still cycling the impact of the delisting at a retailer to hold our line on pricing. Despite this, we recorded positive top line growth in Q3, mainly driven by the success of Sati Rosa, which now accounts for more than 10% of our net sales and has become the second largest brand for Campari Group in Germany after Aperol. Again here, the benefit of our portfolio approach and Spirit's leadership is evident. In France, our solid performance is mainly driven by Aperol with plus 6% growth in Q3, and the UK performance remains strong, supported by our excellent execution during the peak season with the added benefit of some good weather too. The main drivers of the plus 22% growth in Q3 were Aperol and Aperol Spritz, as well as Courvoisier, benefiting from the ongoing marketing campaign. In the other countries in EMEA, which contributes 16% to our overall sales, we had a positive trend in all countries in the nine months, especially in GTR, Greece, and Belgium. And the bulk of the growth is coming from Aperitif and Courvoisier. Now moving on to APAC, growth was plus 5% in the nine months. In Australia, the growth of plus 6% in the nine months was driven by a 15% growth in Aperol, with ongoing focus on accelerating the on-premise activations, as well as a plus 12% growth on Esplan bottle and ready to drink, which keeps leading the tequila ready to drinks. In quarter three, which in any case is an off-season quarter for Australia, Performance was impacted by the phasing of shipments in Wild Turkey, leading into the key upcoming summer selling period. In the rest of APAC, we saw a positive momentum in Q3 with plus 14% growth, mainly driven by China, India, and South Korea. And Wild Turkey, Russell reserves, continued to perform well. And we've also seen some initial reorders on Kuvvazi following a clearing of the trade channels that we undertook following the acquisitions. Okay, so let's now move on and look at it a different way via the houses, starting first with the House of Apprentices. Here we recorded resilient growth of plus 1% in the nine months, primarily driven by Sati Rosa and Aperol Spritz. As I mentioned while talking about the regional performance, Aperol performance was impacted by a variety of factors during the quarter. And I'll deep dive a bit more on the next page. In Italy, the impact was the result of pressured on-premise, Germany due to the delisting and operating conditions, and in the U.S., we had an alignment of the inventory post-tariff volatility in the U.S. market, which impacted shipments. Excluding these three countries, all other countries remain on track with plus 4% growth in the nine months. For Campari, the main impact is coming from Brazil, where we had a very high comparison based from last year, I think near on 50%. due to the rapid growth as well as price increases. And excluding this impact, the performance remains solid with a plus 2% growth in Q3 and a plus 1% in the nine months led by the US, Italy, and the rest of the Americas. The remainder of the Aperiti's portfolio is showing positive trends across the regions. Satyarosa continues its solid growth in its core German market, and it started to benefit from the rollout into other European markets as well. Aperol Spritz is performing nicely, driven by the convenience trends. And Credino, our non-alcoholic Spritz, is growing double-digit across all seeding European markets. As I said, let's have a closer look at Aperol. The geographic expansion is fully on track across all seeding markets. More than 10 countries, representing 12% of the brand's total sales, are delivering outstanding double-digit growth. reinforcing the strength of our approach and the excitement in these markets. And this really is a testament to the fact that Apple's desirability and consumer trends continue to support its growth. On sellout, our outperformance is continuing in the strategic on-premise and in NABCA in the U.S. European markets are facing some pressure, and it's evident especially in the on-premise data. In Italy, despite this, stock levels remain healthy in the trade. In Germany, given the operating backdrop, Aperol has been impacted, especially in the on-premise. But if you include also Sati Rosa, in fact, we continue to perform better than the market. In France and the UK, the performance is very robust, particularly benefiting from favorable weather conditions and excellent execution. This is all to say we are very confident in the trajectory of Aperol. It's a tough market without a doubt, and the quarterly performance can get impacted by various factors, but the long-term opportunity remains fully intact. Okay, looking at the house of whiskey and rum. In whiskey, we recorded strong growth in Q3, with wild turkey benefiting from the stock availability in its core U.S. market. And you'll see it later in this session, but we also launched a new campaign, which we expect to support more going forward, with initial encouraging results. South Korea and China are also supporting off a small base. Jamaican runs showed a solid growth of plus 16% with Q3 driven by an easy comp from the hurricane last year, as well as strong underlying trends in the U.S. and in Jamaica. In the House of Agave, Esplon grew plus 3% in the nine months. Growth was supported especially by Reposado at plus 11%, while Blanco remained broadly flat due to our focus on pricing. And Q3 was impacted by the phasing of shipments. Key seeding markets also continue to grow off a small base in line with our international expansion strategy. Within the House of Cognac and Champagne, Gros Marnier recorded a stabilized performance in Q3, also supported off an easy comp from last year. Courvoisier recorded 99 million euros of sales in the nine months and was included into our organic growth as of May. As we already highlighted in our H1 call, we are piloting some brand marketing in the US and UK, which is showing initial positive results. And above all, I'm very proud to say that Covoisier took top honor as best cognac for its 30-year XO Royale in the 2025 Beverage Tasting Institute Awards. In fact, out of a total of eight categories awarded during the event, Covoisier was on the podium in four of them. with its XO Royale winning the top prize with XO, VSOP, and the VS Expressions. And this clearly reinforces the quality of our liquid in our bottles. For the rest, I won't comment too much, just to note that 21% of our overall portfolio is currently classified as local brands, given their geographic concentrations. Sky remains an important part of the portfolio and showed a positive performance in Q3, driven by Argentina, China, and Brazil, more than offsetting the ongoing softness in the core U.S., in line with other major players in the category. Okay, I'd also like to share some of the highlights of our activations from last time, and given that we're in our peak season, the key focus for us has been aperitifs in this period. So let's start with Aperol. Music festivals are and will continue to be at the heart of our activation strategy for Aperol. This summer has been our biggest and boldest yet, with over 130 festivals in EMEA alone, reaching more than 10 million consumers and selling, yes selling, over 2.5 million Aperol serves. We're also once again at the U.S. Open, where Aperol engaged with more than 90,000 attendees, driving 26 million influencer impressions. For Campari, the main highlights of the quarter were the strong partnerships with the major film festivals. Venice for the eighth, Locarno for the fifth, and Toronto for the second year. We're also very active during Negroni week, because as you all know, there is no Negroni without Campari. And this link with art, cinema, and the Negroni are critical for the positioning of Campari, and we'll continue to strengthen this further in the upcoming period. And moving from aperitifs to tequila, Esplom is also very active during the summer with its Marg Days of Summer campaign. Media impressions increased by more than 28% compared to last year. Social impressions reached millions, leading to additional coverage in Forbes and Vogue. And all of this culminated in a widely publicized drone show over New York. And lastly, we're going to have a look at our new Wild Turkey campaign, which was launched at the beginning of September, focused on our legendary master distiller, Jimmy Russell. This initiative represents the brand's largest ever investment, with immediate spend planned up to $12 million through 2026. And this campaign is rolling out across the U.S. and Japan in 2025, expanding to Australia, South Korea, and other markets in 2026. And the pre-launch testing ranked the campaign in the top 1% to 5% of benchmarks, showing strong purchase intent, brand saliency across the key markets. So let's have a look at the video.

Change is inevitable, unless you decide it isn't. For over 70 years, Wild Turkey master distiller Jimmy Russell has known where to draw the line. He never changed the original recipe. Aged longer, never watered down for bold flavor. They may call it stubborn. Let them.