Gruppo Campari hails double digit H1 growth

Italian drinks group Gruppo Campari has hailed “very good results” for the first half of 2017, at the same time as announcing the disposal of the Grand Marnier headquarters in Paris for €35.3 million (US$41.8m).

Gruppo Campari delivered “very good results” in the first half of 2017

Sales reached €844.7 million, up by 13.5% on a reported basis and 6.8% organically. Uplift was driven by the Gruppo Campari’s global priorities portfolio, which includes Aperol, Campari, Skyy Vodka, Wild Turkey and the Jamaican rum; and regional priorities, such as Cynar, Averna and Glen Grant Scotch, which saw  9.2% and 11.5% organic growth respectively.

The firm also benefited from a positive exchange rate effect, with many currencies increasing in valuation compared to the previous year, such as the Brazilian Real, US Dollar, Russian Rouble and the Australian Dollar.

In July, the group signed an agreement to sell the Grand Marnier headquarters building in Paris for €35.3m. The site was acquired as part of its friendly takeover of the brand’s parent company Société des Produits Marnier Lapostolle (SPML).

The agreement, which forms part of its ongoing strategy to streamline ‘non-core’ businesses, follows the sale of former SPML-owned wineries in Chile and France, as well as the disposal of Carolans and Irish Mist to Heaven Hill Brands through the complete sale of its subsidiary TJ Carolan & Son Ltd.

Performance by brand

Within the global priorities Aperol continued to outperform, up by 22% driven by “sustained growth” in the brand’s core markets of Italy and Germany, as well as “robust” results from high-potential markets including France, the US, Switzerland, the UK, Australia, Spain, Czech Republic, Chile, Brazil, Russia, and Global Travel Retail.

Skyy vodka’s sales declined organically by -3.6%, with the brand performing “negatively” in its core US market, impacted by the “very competitive” environment and “persisting weakness” in the flavours category. However the brand witnessed “very good” results in Brazil, Canada, Argentina and China.

Campari continued its “positive momentum”, growing by 7.7% organically, driven by “very good” performances in the US, France, Austria, Brazil, Japan and Jamaica, along with strong growth in Italy. However in Germany and Argentina the brand was hit by shipment phasing, while Nigeria “continues to remain a difficult market”.

Bourbon brand Wild Turkey, including its American Honey variant, enjoyed double-digit growth of 12.9%, driven by trading in Japan and “strong results” in the core US market – attributed to the success of a recent marketing campaign.

Gruppo Campari’s Jamaican rum portfolio, which includes Appleton Estate, J.Wray and Wray & Nephew Overproof, grew by 3.4% thanks to a “positive performance” in Jamaica, the US and the UK.

Within the group’s regional priorities stable Tequila brand Espolòn grew by 48.7%, benefiting from solid double-digit growth in the US of 48.5), as well as having “good results” within new markets including Russia, Italy, Canada and Australia.

Scotch whisky brand Glen Grant grew by 2.3% driven by South Africa, Australia, China, the UK and Switzerland, while Canadian whisky brand Forty Creek enjoyed a good performance in its core Canadian market despite posting a marginal -0.3% decline.

The group’s Italian bitters portfolio, which comprises Averna, Braulio and Cynar, grew by 2.3%, driven by “good results” from Braulio in Italy and Switzerland, strong double-digit growth of Averna in the US and Germany, and the strong growth of Cynar in the US. Liqueur brand Frangelico registered a “slight decline”, due to a temporary slow-down in the US market.

Gin brand Bulldog entered the ‘regional’ brand portfolio in the first half of 2017, posting double-digit gains after a “good” performance in Spain, Belgium, the US, the UK and Global Travel Retail.

The Cinzano franchise was up by 5.9% organically; “more than compensating” the negative performance of Cinzano vermouth in Argentina due to a “particularly unfavourable” comparison base in the first half of 2016.

Performance by region

The Americas posted overall growth of 26.1%, benefiting from an exchange rate impact of +2.8%. The US – the group’s largest market – accounted for 27.6% of total sales, registering positive organic growth of 5%, driven by the Wild Turkey portfolio and Italian specialties.

Sales in Southern Europe, Middle East and Africa were flat in comparison to H1 2016. An organic sales up by 2.8% was “entirely offset” by a “slightly positive exchange rate impact” and a perimeter effect of -3.0%.

However, its performance in Italy improved o last year, growing by 1.4% thanks to a recovery in the second quarter that benefitted from the Easter shift.

Global Travel Retail net sales declined by 5.8%, with “one-off’s” in the second quarter negatively impacting results despite the strong performances of Aperol, Bulldog and Glen Grant.

Sales in North, Central and Eastern Europe increased by 12.6% on a reported basis, with sales in Russia growing organically by a whopping 111.7% thanks to triple-digit growth in Mondoro and Cinzano sparkling wines, and double-digit growth in Cinzano vermouth.

Sales in Asia Pacific increased by 11.0% overall, with “very positive results” from Aperol, Espolòn and Glen Grant in Australia despite weakness in the Wild Turkey ready-drink portfolio and Wild Turkey Bourbon.

The group saw a “very good performance” in both China and Japan, the latter benefitting from a recovery against the previous year’s delays.

‘Sustained growth’

“We delivered very good results in the first half of 2017, delivering sustained growth, both in organic and reported terms, across all performance indicators,” Bob Kunze-Concewitz, chief executive officer of Gruppo Campari.

“The solid organic growth was achieved after an acceleration in the second quarter of both sales and profitability. The sustained gross margin expansion, which benefitted from the continuous improvement of our sales mix by brand and region and also from a gradual recovery in the sugar business, helped contain the adverse phasing of A&P investments, skewed into the first half of this year. This effect, combined with investments in enhanced distribution capabilities, lead to the expected margin dilution in operating margin in the first half.

“Looking into the second half of the year, our outlook remains fairly balanced and unchanged. Macroeconomic environments in some emerging markets remain uncertain whilst the political uncertainty persisting in some regions might continue fuelling the volatility of major currencies against the Euro.

“Moreover, we believe that the progressive strengthening of the Euro against the US Dollar may have a more adverse impact in the second half of the year. Nevertheless, we remain confident in achieving a positive performance across key indicators for the year, driven by the outperformance of the high-margin global and regional priorities.”

“Nevertheless, we remain confident in achieving a positive performance across key indicators for the year, driven by the outperformance of the high-margin global and regional priorities. We expect the gross margin to continue benefitting from the favourable sales mix despite being penalized by inflationary effects on material costs in emerging markets as well as rising prices in some raw materials such as agave.

“Meanwhile, the group’s operating margin will benefit in the second half of the year from the gradual normalisation of A&P investments and structure costs, the latter also benefitting from the expected efficiencies generated by the Grand Marnier integration.

“The perimeter effect will reflect our exit from some non-core businesses, particularly the recently announced Carolans and Irish Mist disposal, which will result in an increased focus on the premium high-margin brands in core markets.

“Such disposals which, combined with the sale of some real estate assets, amounted to a total of approximately €228 million year to date, will contribute to a further acceleration in the reduction of our financial indebtedness, alongside the continuous healthy cash flow generated by our business.”