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.

When you know it's right, don't change a damn thing.

Okay, I think I'm back, hopefully, if the technology is working properly. So before I hand over to Paolo for the P&L and balance sheet section, I'd like to give you an update on our key strategic priorities. We're really excited to welcome many of you in person to our first ever Strategy Day, coming up on the 6th and 7th of November in Milan. The agenda is going to be pretty packed, giving us the opportunity to review our future direction and priorities, while not forgetting to have a bit of fun, showcase our brands and our amazing production capabilities. So moving on to cost containment, you can see that in Q3, the declining trend we guided for in SG&A has started and will continue in Q4. Therefore, we are on track to achieve our target, the 50 bps benefit in sales in 2025 and 200 bps benefit by the end of 27. On portfolio streamlining, we continue to take the right steps. After disposal of Chinzano and our American plant in the first half, We've now divested our 50% stake in Tanico, the Italian online wine and spirits business. Although this has a limited impact on our results, it's another step in the right direction in terms of business simplification in line with our strategy to focus on fewer, bigger bets. Any additional potential disposal will be based on the optimization of potential proceeds, and I can say that more conversations are ongoing. Okay, with that said, I'm going to hand over to Paolo. Paolo.

Thank you, Simon. First and foremost, I wish to thank Simon for his kind words at the beginning of the presentation on my past contribution to the Campari success. It's been an incredible journey, a privilege to engage with such a thoughtful and committed community of analysts and investors over the years. I look forward to continue to support the group in my new role as the vice chair, and I hope to see many of you again at our Saturday day in November. For now, let's dive into the results and the outlook for the remainder of the year. Now, if you follow me to slide 17, let's start by looking at our EBIT margin dynamics for the last time together. I am happy to say that we have recorded solid results so far in 2025 with a flat EBIT adjusted margin supported by gross margin accretion and cost containment benefits offset by brand building investments as planned. In terms of gross margin, nine months went up by 90 basis points with an acceleration in Q3 of a positive 180 basis points. This was mainly due to the positive mix and ongoing benefits of input costs, especially agave, as well as the contained tariff impact of just 6 million in nine months. Tariff impact benefited, in fact, from some pre-tariff in-house inventory position we were holding. Accordingly, our full year impact has been revised down to 15 million euros for 2025. AMB2 sales reached 17.3% in nine months with an acceleration during peak season leading to a positive 9% organic yearly growth and a negative 110 basis point dilution impact on margins. As Simon mentioned before, we continue to invest behind our brands and our full year guidance of 17 to 17.5% is fully confirmed. As you all know, our cost containment efforts are becoming more and more visible. In Q3, we had a declining trend of a negative 4% in value and we are on track to reach a 50 basis points accretion guidance driven by ongoing value reduction in Q4. Accordingly, EBIT adjusted was realized at 517 million euros in nine months. Within this, there was a positive contribution from Perimeter of 1.1 million driven by Courvoisier until April, net of agency brands and co-packing. Foreign exchange impact was realized at a positive 9.8 million euros driven by devaluation of the Mexican pesos offsetting the negative impact of US dollar devaluation. Let's move on to look at our group pre-tax profit with a few comments. So far this year, operating adjustments total 41.9 million euros, and that includes the impact of planned disposal in Q1 and severance payment. Financial expenses came in at 80 million euros in nine months, This is on track with our expectations of 105 to 110 million euros for the full year. The increase versus nine months of 2024 was driven by higher average net debt, actually 2,365,000,000 this year versus 2,071,000,000 euros last year, mainly due to the base effect of PURWC closing on cash and debt. Average cost of net debt is now at 4.3% versus 3.7% in nine months 2024. As in previous quarters, we need to remember that last year's figure was artificially low, given cash at hand ahead of Courvoisier closing, coming from acquisition funding. Adjusted nine months 2024 figure would have been 3.8%. Overall, group pre-tax profit adjusted amounted to 440.4 million euros in the nine months, indicating a negative 2.6%. And group pre-tax profit came in at 398.8 million euros with a negative 5.7% decline. Moving on to look at the net debt, slide 19. Net financial debt was at 2 billion 241 million euros in nine months, improving by 136 million euros compared to 2024, thanks to positive cash generation. This is before the further benefit expected from the proceeds of Cinzano disposal after the closing, which is expected to occur before the end of the year and will further contribute. Cash and cash equivalents were at 509 million euros after versus first half due to cash generation. Compared to the end of 2024, it is down by 157 million euros due to 78 million euros of dividend payment, CapEx initiatives, loan repayments, and employee termination payments. Lastly, in line with our strategic priority of balance and discipline, our leverage ratio improved to 2.9 times in nine months, down from 3.6 times in nine months of 2024 following the acquisition of Courvoisier, and 3.2 times at the end of 2024. So in 12 months, as we said before, we have a leverage that is accounting for 0.7 times. Proforma, including Sano Disposal, the ratio is slightly better at 2.85 times. This is a testament to our capability of actively managing our balance sheet following acquisitions and bringing leverage ratio down, with further improvement expected going forward. Let me hand back to Simon to comment on our outlook.

Great. Thanks very much, Paolo. I started this year by saying it was going to be a transition year, and in these nine months, we've showed a resilient performance despite the ongoing challenging backdrop that you all know. The environment is still one of the most complex any of us has gone through, but we continue to outperform in key markets. At the same time, we keep our focus on what we can control in order to manage our balance sheet and PLL effectively, and the result is clear, as you just heard from Paolo. For the full year, we continue to expect moderate organic top-line growth, assuming no worsening of consumer confidence in Europe or in the U.S., and especially in the on-trade. So far in the nine months, we recorded plus 1.5% organic growth, which confirms our targeted progression. On EBIT adjusted margin, we're maintaining our flattish organic guidance. Having this in guidance now includes the tariff impact. And the drivers behind this provision are as follows. First, lower than previously guided negative impact from tariffs of $15 million, as Paola mentioned before, due to the benefit of our pre-tariff in-house inventory position. Of course, this is assuming that the current tariff rates remain the same, which we hope they do, for now anyway, given the stability we've established. But just to consider, we will not have the same benefit next year. Second, the benefit of efficiency gains in COGS and SG&A, where we continue to make good progress. This is more than offsetting the reinvestments in A&P, which are critical for our brand building. And we believe investing now, while many others are cutting their budgets, helps to deliver strong long-term brand benefits. In terms of FX and perimeter, we expect limited overall impact in value terms. And regarding the medium long-term outlook, we confirm our previous guidance, and we are confident for the future. As I mentioned before, we'll come to the market with more details of how we're going to get there next week during our Campari Strategy Day. So to summarize, we keep our focus as planned in the key areas that we've mentioned before. We continued relative outperformance in sellout, which we are doing. Financial deleverage trend, which we are achieving. Deceleration and SGA growth driving operating leverage, which we are delivering. continued focus on commercial execution and pricing discipline, which we are controlling, and portfolio streamlining, which we are delivering. So let's close here and let's open up the floor for your questions. Thank you.

This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. To remove yourself from the question queue, please press star and two. we kindly ask you to use handsets when asking questions. The first question comes from Andrea Pistacchi of Bank of America.

Yeah. Hi, Simon. Hi, Paolo. So first of all, Paolo, thanks. I haven't been on all the 100-plus calls you've done, but many of them. So I really want to say a big thank you for the help, detailed answers, insights that you've consistently provided. And also, of course, congratulations for your appointment to vice chairman of the board. And all the best in your new chapter. And I look forward to seeing you in Milan next week. So I have two questions, please. First, I'll start with Paolo on gross margin. Gross margin being one of the key highlights, I think, of these results. Now, there are a lot of moving parts here, from the tariff impact to the input cost benefit, agave mainly, mixed effects, maybe other things. So it would be helpful, please, if we could go through these drivers in a little more detail, if that is okay. For example, how much of a benefit are you getting from input cost and agave, and is there more to go as we go into next year? And also, if you could say what is driving the mixed benefit, because I think your aperitif was a bit more subdued this quarter, growing below group average. Yeah, so putting all this together also on the margins, how you're thinking about, how these moving parts play out in Q4 and maybe going into next year. And then for Simon, please, I wanted to dig a little deeper on EMEA, which I think was very solid overall. Some markets are strong, others not, however. Various companies are calling out how affordability is weighing on consumer demand. Now, given that the affordability headwind probably won't go away in the short term, What are you doing to deal with this, to adapt with this? What does it mean for pricing in EMEA in the next 12, 18 months? And in Italy, stock levels, given that there's been a bit of a softer performance that you're calling out in the on-trade in the summer, how are wholesaler stock levels there? Thank you very much.

Thank you, Andrea. You know, I'll start with the gross margin question. you know, vis-a-vis, you know, key drivers, you know, on the COX, we have, you know, originally I liked the 20 million euro benefit from input cost, you know, most of it coming from Alrave, but also, you know, I have to say that, you know, many other commodities, you know, are, you know, the prices are coming down. The only exception to that is still remain logistic costs where we have still, you know, negative variances vis-a-vis, you know, a year ago. In terms of, you know, if you look at, you know, the upcoming quarter and, you know, more, you know, directionally into, you know, 2026, you know, for the upcoming quarter, you know, we think we will still benefit from, you know, positive contribution at the gross margin level, you know, as we've seen in the third quarter of the year. We will keep on, you know, benefiting from reduction in value of SG&A due to the restructuring initiative that is having, you know, an impact in the second half as we have, you know, originally, you know, guided. And more to come with a further 90 basis point in 2026 due to, you know, the full effect of the initiatives that have been, you know, implemented in the year 2025. Vis-a-vis the mix, you know, the very good news is that on Espolon, you know, originally the objective was to achieve, you know, parity vis-a-vis group average gross margin by Q4 of this year. Instead, you know, we managed to pull it forward to Q3. So, you know, Espolon in Q3 was no longer a bleeder and that contributed to, you know, a you know, positive mix. Clearly, you know, if we look at the, you know, composition of the margin gain in the third quarter, you know, giving, you know, the pricing pressure that we had, you know, most of the, you know, if not, you know, most of the gain is coming from cost benefits more than nicks. And so the very same dynamic, you know, we are expecting to see in Q4 with, you know, promo pressure, negative impacting the company ability to take, you know, net price gains. Cox will keep on being, you know, positive and Mix, you know, as we hope will positively, you know, contribute. So this is a little bit, you know, how we see, you know, the first quarter and next year. In terms of, you know, clearly, you know, perspective, you know, in the past, in the past years, our ability to drive gross margin expansion on based on sales mix improvement is linked to, you know, the performance of primarily aperitifs. But now also, you know, Tequila Espolon will be no longer a breeder. So, you know, we remain extremely positive vis-a-vis the possibility of expanding gross margin via sales mix. Commodities remain, you know, a tailwind in 2026, whilst at this stage we believe, you know, pricing, you know, the opportunities is minute and less evident given the current market conditions.

Great. Thank you.

Great. Hi, Andrea. How are you doing? Looking forward to seeing you next week. Look, Chris, I'm here. Look at me. Overall, it's tough, as you rightly said. But I'm really pleased with the performance that the team has delivered. And I think the call out on affordability, you're seeing consistently across categories and this whole cyclical structural debate. I think you're an example of cyclical and me as a great one where you're seeing it across every category. It's not just within our category, put it that way. I think, look, in terms of what we need to do on this, we are very good, I think, at positioning the brand as aspirational, yet affordables. So the space we play in, we've got to really create that value in the consumer's eyes. And so the best way to do that is execute brilliantly. And that's in the markets where we're carving out, we're gaining share or outperforming. It's where we're really doing that and the consumers are seeing the value in what we offer. So I think that's the first thing in terms we need to do. The second thing is then leveraging our portfolio. We have a collection of brands that allow us to compete very effectively in these markets. And you see that whether it be, you know, there may be a tougher performance on Apple in Germany, but the growth in Sarti or the growth in Cardino and other markets and leveraging our portfolio is key. I mean, more tactically, there are some opportunities I think we've got to focus on around revenue management, which you'll hear more about next week. And just generally in terms of our overall strategy, I'm not going to take away from what you're going to hear next week. So maybe by the end of Friday, you can let me know whether I've answered your question properly. Thank you. Thank you.

The next question is from Sanjit Ajla of UBS.

Hi, Simon, Paolo. I'd also like to echo my congratulations on your new role and many thanks for all of the help over the years and the conversations. So also two questions from me. Simon, I just want to come back to the consumer demand environment in the US and Europe. Would you highlight there's been a deterioration between Q3 and Q2? And in particular, how have you seen the evolution of the competitive and pricing environment? Would you say that's further intensified over the summer months? And that's my first question. And then just coming back to stock levels, I think Andrea asked a question, but can you just give us a flavour for where stock levels are, particularly in the US and Italy and anywhere else that might be noteworthy?

Sure, absolutely. So I think in terms of the performance between Q3 and Q2, it is really mixed. And as you know, looking at this data from a national point of view, it kind of blurs what's going on. If you look at the Nielsen data, and it seems very kind of doom and gloom across the industry in many cases, but we have pockets of growth really coming through quite nicely. I mean, a good example that's not picked up is in our 11 cities that we're really focusing on building up role, we have 10 of them in double-digit growth. So when you talk about the deceleration, it really depends where and on what. And I think that's where we've got to be a bit careful to read too many conclusions simply because of the negativity in the off-premise. We are still growing. We're growing in the on-premise. We're growing in NAPCA. And we're growing really successfully on the brands that we're focusing on, that we're prioritizing. So I think for me, it's It's more about what we're doing and where we're doing it than actually what's happening in the marketplace. As I've said before, we have the benefit of being a smaller operator in the US and therefore we've got to go after opportunities that maybe some of the other companies don't have. I think your second point on the pricing environment, I think you're saying you see the same data we see, which is from a mixed point of view. Again, it depends on which category. I think you're starting to see a bit more price competition coming through in Blanco, as we've seen within the tequila sector. Repo is dipping down a bit. But if you look at the overall price mix, Actually, the tier that most of it is coming from is the tier above where we play with Espelon. It's up at the super premium price point where you've got a mix from memory at 2.6% negative as consumers are now trying to, or brands are trying to capture that consumer affordability in that end. And that's actually creating a good opportunity for us and people on the down trade. So look, we're going to have to carry on soon. I think it's going to be a pretty aggressive festive period. I think everyone is going to be out trying to close out the calendar year strongly. So we'll have to wait and see. But I'm very confident in terms of the plans that the team's got. In terms of the stock levels, just quickly, in the US, I'm very happy, as I said before, with the levels of stock we've got. We've managed to take down some of the pre-tariff stock that we put in, which, on the flip side of that, allowed us to not get hit by the tariffs quite as much as we were originally forecasting. So that's impacted some of the shipment numbers that you've seen in Q3. In Europe, again, very happy. We see the stock levels we've seen in Italy. perfectly normal with what we were seeing in terms of sell-out. I'm not concerned about excess stock anywhere. I'm not concerned about heavy pushing through to land Q3. I feel pretty confident and, you know, without getting into the performance in Q4, but I'm not seeing any hangovers running from Q3, put it that way.

Very helpful. Thank you.

The next question is from Simon Hales of Citi.

Thank you. Hi, Simon. Hi, Paolo. Can I echo the congratulations to you, Paolo, and look forward to celebrating properly with you when we see you next week at the Strategy Day. So just a couple of quick ones from me as well, please. I wonder, Simon, can I just go back to the US sort of briefly? And I wonder if you could just talk about whether you've seen a deteriorating underlying trend in the industry through Q3. I appreciate your outperforming that and some of your comments earlier in terms of you're still winning where you're investing. I wonder what you're seeing as we've come into the early parts of Q4, obviously an important festive season to come. Has that deterioration in trend fed through to just sort of, do you think, weaker ordering by wholesalers in the US? I mean, any comments in colour there would be interesting. And then secondly, just coming back to Jamaica, I appreciate it's very early days given the hurricane only hit last night and your focus is rightly on the safety of your people. But you're obviously confirming at this stage your full year 25 guidance for group moderate organic sales growth. I think consensus is looking for around about 2% to be moderate for the year. I just wonder, you know, is that deliverable, that moderate sales growth, even if the disruption in Jamaica ends up being pretty significant given the hurricane?

Yeah, Simon, good questions. I mean, I think, look, in terms of the underlying Q3 and heading into Q4, We're certainly living in a dynamic environment as the way I describe it. So I think ultimately we're not seeing any real pressure from our relationships going through on the wholesaler side, but that's also probably because we're actually in a reasonably healthy stock position already. Healthy as in not too high is what I mean by that and appropriate for what we need going forward. So I think, as I've said on previous calls, the cost of capital, both in on-premise retailers and wholesalers, is clearly, people are now asking about what are people do stocking further. For us, we feel pretty confident in terms of the flow. We're very confident in terms of the stock levels at each level. So we don't really see too much of that coming through. I think what will be interesting is whether or not retailers are willing to take in the holiday stock that they normally take in. And I think that's something we don't know yet. We've had no indication they're not going to. But again, things are changing quite quickly in the marketplace. And we'll see. Maybe they're taking half as much through the holiday to wait and see what the consumer does. So that may impact. Again, for us, it comes back to a big chunk of our business is in the on-premises as well. So we've got to make sure we're executing really well in the on-premises. The team is doing a good job on, but also making sure that we can respond to those changes if they come through in the purchase patterns. So the first question, again, it's difficult to predict what's going to happen, as you know, but we feel pretty confident with the plans that we've got. On your second question on Jamaica, you're obviously right. Look, it's all about the team and making sure everyone's safe at the moment. I've got calls later tonight with the team to find out where we are. In terms of for this year, I want to be clear that we've already shipped a vast majority of the stuff that we need to close out the year out of Jamaica. And we're sitting on healthy inventory positions to meet the demand. So I don't see that being an impact into this fiscal or impacting our ambitions to close out the year strongly. I think until I see or until I hear really what the team has found, once they've established everyone's okay, then I'll be in a better position to give them maybe a bit more of an update next week in terms of what we found out. But at this stage, it's very hard to get the communication. I think, you know, electricity is out. Phones are out. A lot of the roads are blocked. We're getting kind of piecemeal information. I've got a call later tonight and I'll know a bit more, but I probably won't have the full picture tonight either. But in terms of four-year impact, I don't think it's a significant impact.

Brilliant. Really helpful. Thank you.

The next question is from Mitch Collett of Deutsche Bank.

Thanks. And I'd also like to say thank you very much, Paolo, for all your help and patience over the years and good luck with the future. Two questions from me, please. So the first one, It's a little bit similar to what we've had before, but you've obviously reiterated this year's guidance, but you've added this line about assuming no further worsening of consumer confidence in Europe, especially impacting the on-trade and in the US. I appreciate the importance of OND, but maybe just a bit of color on why you felt that additional line was necessary, given how far we are into 2025. And then I wouldn't want to take anything away from next week, But clearly you've confirmed your medium term outlook and I appreciate visibility is low. It's still early to ask for a read on 2026. But the question I want to ask is, do you think that next year you'll be in that mid to high single digit organic growth range? And I guess if not, what do you need to see to get there? Thank you.

Okay. Hi, Mitch. Yeah, in terms of the guidance, the reason we put that in is, as I said on the first call, I think I came on with it, we're controlling what we can control. And so the team is working through that. And so, yes, we've only got a couple of months to go to close out the year, but this has probably been a year with higher volatility than I've seen in 31 years. We've had tariffs, we've had economic pressures, geopolitical changes, and as a result, we're seeing consumer behavior really change quite quickly and certainly a lot quicker in terms of purchase behavior. And that was the only reason we put it in. We want to be prudent. We want to make sure that we land a year in line with what we've told you, each one of these calls of what we're going to do. So I think we're just kind of being a bit prudent there. I'm confident we can get where we need to get to. But I think it's also recognizing there are some things outside of our control. And therefore, yeah, we want to make sure that we've kind of covered that off in terms of our guidance. I think in terms of your question on 26, yeah, you're right. I'm not going to give you an answer yet in terms of where we are. But I think The reason we've set our medium-term outlook, and we'll talk more about this next Thursday and Friday, is really about our confidence in that longer-term outlook, medium-term outlook. What we anticipate 26 will be will be a step on that journey. Exactly what step? We need to confirm we want to close out this year and we'll be able to give more guidance once we see how we finish out the year. But it would be a positive step in that direction. Again, the only caveat on that is there's a bunch of stuff outside of our control and volatility at levels we haven't seen before. So again, what I want to be able to do is be prudent, make sure we can deliver what we tell you we're going to deliver.

Okay, that's helpful. Thank you.

Next question is from Lawrence Wyatt of Barclays.

Thanks very much for the questions, Simon and Paolo. Can I echo all the comments to Paolo and thank you for all your hard work and help over the years and look forward to seeing you next week at the Capital Markets Day. A couple of questions for me there, please. Just on the tariff impact, you mentioned you've managed to get around some of the tariffs by using some of your stock. Presumably that means that some of the impact will be felt next year. I was wondering if you could quantify what sort of tariff impact you would expect next year once you no longer have the benefit of the stock, and whether you think you have to take any price in order to overcome some of those tariffs, and if so, on what brands do you think that would be taken on? And then secondly, with regard to Esplanade, of course, the expectations of tequila over the past few years have been guess pretty pretty heroic the growth has been enormous and of course that's slowed down somewhat in in recent uh months and quarters just wondering on your sort of contracted agave supply whether you've had to adjust uh how much agave you've uh you're buying in from from mexico and whether that's benefit giving you some of the benefits on the the margin on uh esplan recently thank you very much uh yeah um

On the tariff, you know, we confirm, you know, although, you know, this year we are benefiting from, you know, already existing, you know, in-house stocks, you know, for next year, unfortunately, if nothing changes, you know, the 37 million euro guidance that we've, you know, highlighted before stays. So, you know, it's completely unchanged. You know, you alluded to opportunity of taking price. Of course, there's always the opportunity to pass and mitigate impact, but We also, uh, we also have to recognize the fact that, uh, you know, the, you know, the us, uh, uh, you know, environment is particularly competitive at the moment. Therefore, you know, wouldn't, uh, you know, uh, bank on it at this stage. Um, why is it on the second question with a V, you know, the, the, uh, you know, the brand, uh, uh, you know, we've, uh, managed to tweak down, uh, you know, the, the prices and the commitments. Um, and so this is why, you know, we're, uh, we're benefiting from, uh, from, uh, the decline of, uh, of the Agave price, you know, for next year, there will be still a, you know, a, you know, a tail end opportunity sitting in the, um, in the, in the current trend, uh, you know, we have, you know, they're actually, I liked it in the past, uh, you know, 5 million euros, uh, which is, uh, you know, I think, uh, you know, make sense is confirmed for now for next year. So we have a little bit of a tailwind also on that on input costs for next year.

We're in a good spot on agave suppliers. Super. Thank you very much. Look forward to seeing you next week.

Next question is from Trevor Sterling of Bernstein.

Hi, Simon and Paolo. Let me add to the cue, Paolo, and look forward to really having a proper drink and celebrating next week. Sorry, probably one question for you. If you look at the Espelon shipment data, it looked kind of weak around minus one. And so the sellout data we see in NAMCA is much stronger than that. I think you alluded to shipment phasing. Maybe could you just give me some sense of where you think Espelon is on an underlying basis?

Hi, Trevor. Yeah, you're right. I mean, in terms of shipments down one and then you see the performance on the sellout, Well, basically, there are two drivers to this. One was actually just destocking the stock that we brought in ahead of the tariff. We were still unsure as to what was going to happen there. And so we've just been working that through, which is where, ultimately, the shipments will catch up with the sellout performance. It's the first thing. The second thing on that is just there's a mix around the different states as well where we're shipping stuff as well. So in terms of... Whether Repo or whether it's Blanco, again, there's just some different phasing in terms of that. So I don't think either of them are big drivers. It's more just about, I think you'll see some catch up on that as we close out the year and head into Q1.

And then if you just want to follow up, the strengths of both Jamaica and the Jamaican Rum portfolio seems really strong. I mean, I think Jamaica and Jamaican Rum was done about 1920 this time last year, and you're up 45-50. which would imply you've got underlying growth as you're probably in some of the region of 20% at least. Does that sound about right?

Hello?

Gentlemen, do you have your phone on mute?

Sorry about that. Trevor, I thought I'd hit it. In terms of the Jamaican run performance, really a couple of drivers on that. One is the performance in Jamaica. So we're cycling the disruption of the hurricane last year, which now it looks like we might be doing the same this year. So that's one of the drivers. But the brand is incredibly powerful on the island, and the team has done an excellent job of continuing to drive the execution. So that's been one area. The second area has been the fact that we were out of stock in the U.S., And so now that we've got stock back in, that's allowed us to give us a very positive performance there as well. So put those two things together, that's really why.

Super. Thanks very much, Simon. Thank you, Paolo.

The next question is from Chris Pitcher of Rothschild & Company.

Good evening, all, and, yeah, another round of thanks for Paolo, from me, for all the support over the years. And also... Congratulations on the Glen Grant sale, which you highlight in there, the annex, which has gone to raise some good money for charity. So good work there. One question on Corvoisier again. Are we through the last really disrupted period for Corvoisier? Because if my numbers are right, you've probably done 13, 14 million euros of organic sales through on Corvoisier. And should that be normalising into the fourth quarter or should we still expect to see you know, continued strong momentum as that brand comes back. Because certainly the 99 million was a bit ahead of what I was forecasting for the nine months.

Thanks.

I think, you know, as we progress further into the upcoming quarters, you know, the shipment performance of Vase will, you know, basically, you know, mirror, you know, the depletion and the sellout trend. So, you know, at the beginning, we benefited from the first-hand consolidation of what was there. So, you know, I think most of that is behind us.

The destocking phase, so it's on a more normal comp in the fourth quarter. Yes. And are you still expecting to continue to release cash from the inventories, given the levels they were at?

On the inventory side, you know, as we said, you know, we have a lot of aging, you know, aging liquid. You know, over time, we will order, you know, selling liquid, you know, contain, you know, the intake of aging new ODPs. So, yes, it's directionally positive. It will take time to absorb the stock we've taken on board as we bought the brand. It was more than €440 million. Thank you very much.

The next question is from Alessandro Tortora of Mediobanca.

Yes, good evening to everybody. I have two questions. The first one, if you can comment a little bit on the debt BDA trajectory, considering the leverage ratio you already got in the nine months. If we can assume, let's say, that you're going to stay below the three times by year end, or if we need to think about any seasonality or any, let's say, factor that should bring this ratio, let's say, again, above the three times. This is the first question. The second one is just a follow-up on cognac. If you can comment a little bit, let's say the recent change on the duty-free side and if you expect also on curvasia side a significant impact on the reorder on the duty-free. Thanks.

On the leverage ratio target, we're not giving any guidance. We have also to take into consideration the fact that in Q4, we still have a significant tail of extraordinary capex. The total amount of capex is 100 million euros. And in the first nine months, we've already spent 120 million euros. So there is 80 million euro cash outlay coming from extraordinary capex in Q4. Uh, yeah, but that actually, you're right in saying that the company generates, uh, you know, a lot of free cash flow. Uh, one of the highest, uh, you know, uh, free cash flow to be the conversion in, uh, in, uh, in the sector average for the last five years, uh, you know, at about 60%. Uh, so, you know, we, you know, you can easily calculate the leverage potential in the incoming years. Okay.

Okay, and Alessandro, sorry, I couldn't quite hear the question. We've got the recent change on GD3 on Corvoisier and others, but we weren't sure what the question was.

Yeah, it was related to China. I know it's not so big for you, but if we look at, let's say, the GTR and the restock that is now possible, according to the recent tariff agreement, if you see, let's say, any restock for Courvoisier in the coming months.

Ah, right. Sorry, yeah. So I couldn't hear you. Yeah, look, for us, as you know, look, China is very small for Courvoisier, and so is the Asian duty-free at this stage. So it's not a big driver for us. I think China represents less than 2% of Courvoisier's sales. The key thing we want to look at in GTR as part of our relaunch plan of Kawazia across the region is the strategic role that GTR plays as a shop window for the consumer. So I think that's more where we'll see it as part of the new strategy. But, yeah, we're not looking at a restock. It would be negligible in our case anyway.

Okay. Thanks.

As a reminder, if you wish to register for a question, please press star N1 on your touchtone telephone. any further questions, please press star and one on your telephone. No more questions registered. Would you like to make any closing remarks?

Yeah, I would just very quickly. Thanks very much and look forward to seeing many of you next week. Just to reiterate, all of your thanks to Paolo again. A remarkable run and a remarkable set of earnings reports and we'll toast a glass to him next week. So thank you again, Paolo. And we'll see you next week. Thanks for your time.

Bye.

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