Campari voices concern over US tariffs and agave prices

Italy’s Campari Group reported a 5.9% organic sales increase for 2019, but said it would continue to be impacted by US tariffs and “increasingly elevated” agave prices in 2020.

Campari Group acquired a controlling share in mezcal brand Montelobos last October

On a reported basis, sales grew by 7.6% to €1.84 billion (US$1.98bn) after the exchange rate and perimeter effects.

Gross profit for the year increased by 7% organically and 9.1% reportedly to €1.12bn (US$1.21bn). Free cash flow sits at €258.5 million (US$279m).

Campari Group CEO Bob Kunze-Concewitz said: “In full-year 2019 the group continued to deliver on its long-term strategy, despite the negative effects of destocking ahead of route-to-market changes in selective markets as well as the negative agave purchase price effect.

“Nonetheless, we achieved a positive performance across all the key business indicators in terms of organic growth and margin expansion.”

Brand performance

Campari Group’s global priority brands increased by 7.3% organically, led by Aperol apéritif which grew by 20.5%. The brand witnessed double-digit growth in its three largest markets – Italy, Germany, and the US – and “positive growth” across “high potential and seeding markets”.

Skyy vodka registered a “low-single-digit decline” as a result of “persistent competitive pressure in the US market and destocking, which affected mainly the flavours”.

The Jamaican rums range – including Appleton Estate and Wray & Nephew Overproof – grew by 7.5%.

Campari liqueur increased by 4.6% as it built on “positive international trends of previous years, despite temporary softness in core Germany”.

Wild Turkey Bourbon was up 2.9% with “solid momentum” in its core US market, which partly offset a decline in Japan due to destocking ahead of a route-to-market change.

Grand Marnier liqueur was “flattish” with growth in the US “compensating temporary weakness” in global travel retail and certain European markets.

Campari’s ‘regional priority’ brands grew by 4.3% overall last year. Espolòn Tequila was up 32.4%, boosted by the US where it “continues to outpace category trends”.

The group’s ‘local priorities’ rose 1.8% with growth in ready-to-drink (RTD) apéritifs. Campari Soda was up 1.6%, non-alcoholic brand Crodino grew 2.4%, and Wild Turkey RTD was up 5%, which “more than offset weakness” in Brazilian brands.

Geographically, sales in the Americas grew organically by 5.8%, with the US growing by 5.3%.

Sales in Southern Europe, Middle East and Africa witnessed an organic growth of 5.3%.

North, Central and Eastern Europe sales saw an organic increase of 8.8%, and Asia Pacific experienced a 0.8% increase.

2020 outlook

For 2020, Kunze-Concewitz said the group’s outlook “remains balanced in terms of risks and opportunities as uncertainty around macroeconomic instability and currency volatility, particularly in emerging markets, remains”.

He continued: “We are confident to achieve a positive EBIT [earnings before interest and taxes] growth in value in 2020, driven by the key high-margin brand and market combinations.

“The tail-end effect of the destocking activities, linked to route-to-market changes, is expected to impact the first half of the year, on top of a tough comparison base.

“Moreover, the trend in marginality will continue to be affected by the increasingly elevated agave purchase price and the import tariffs imposed by the United States, the group’s largest market.

“Overall, we will also benefit from the recent acquisitions, as well as the expected future developments in the French market, thanks to the agreement for the acquisition of our local distributor, which is expected to be completed during the first part of the year.”

At the end of 2019, Campari signed an agreement for the acquisition of its French distributor, Baron Philippe de Rothschild France Distribution, for €60m (US$66m).

Campari Group said it will increase its share buyback programme to €350m (US$378m) in the next 12 months.

Netherlands move

At the same time as releasing its results, the group also said it will move its registered office to the Netherlands and would maintain its tax residence in Italy.

Campari Group added that the action will have “no impact on the organisation, management and business operations in Italy, including its production footprint, and on its relationships with employees in Italy and abroad”.

The firm has also introduced an “enhanced” voting rights system for its shareholders as it seeks “external growth opportunities such as acquisitions”.

In September last year, Campari Group signed an agreement with Chevrillon Group to buy French firm Rhumantilles, which owned the Trois Rivières and Maison la Mauny agricole rum brands, for €60m (US$66m).

This was followed a month later by Campari Group’s acquisition of a controlling stake in Montelobos mezcal and Ancho Reyes liqueur for US$35.7m.

The company also agreed to sell its 188-year-old mansion, Villa Les Cèdres, in France, for €200m (US$220.6m) as part of the firm’s divestment of non-core assets related to its Grand Marnier liqueur acquisition.