Bob Kunze-Concewitz, Chief Executive Officer: 'As anticipated, the results in the first, and traditionally low season, quarter of 2013 were poor, due to the 'one-off' impact of destocking in Italy, generated by so called article 62 which introduced a binding time limit to the payment terms, which determined a significant deterioration of the sales mix, and further exacerbated the weak local consumption trends. Results were strong in the Americas, showing continued positive momentum in the US market and improvements in Latin America, and Eastern Europe (particularly Russia), offsetting continued weakness in Germany, exacerbated by very poor weather conditions, and softness in Australia.
Moreover, the integration and development activities of the Lascelles deMercado business are progressing in line with plan, and were marked by the transition of the international business into the Group network. Looking forward , the outlook for the current year remains unchanged. In particular, we expect the evolution in consumption trends and the potential persistence of poor weather conditions in Italy and in Eurozone markets to be the key challenges to the Group's ability to recover the Q1 'one-off' destocking impact over the next quarters.'.
In the first quarter of 2013 Group sales totalled € 315.2 million showing a reported growth of +12.9% and an organic change of -9.0% (€ 25.0 million in absolute terms). The exchange rates effect was negative by -1.6%. The perimeter effect was positive at +23.4%, driven by the newly-acquired Jamaican rum company Lascelles deMercado&Co. Ltd. ('LdM').
It should be noted that, as anticipated, the overall negative sales organic change was mainly attributable to a technical effect of so called article 62 (introducing a binding time limit to the payment terms that can be extended to the clientele) on the summer load program in Italy (a commercial initiative usually implemented in the first months of the year ahead of the summer seasonality consumption peak). The consequence was a 'one-off' destocking effect of € 25 million on sales in the first quarter of 2013, which determined a significant deterioration of the sales mix and, consequently, a negative impact on operating margins. Moreover, the impact of the new LdM business, although in line with plans both in absolute terms and marginality, generated a further dilution in the Group margins driven by the higher concentration of lower margin non-core sugar and merchandise businesses vs. low seasonality spirits&wines in the first quarter.
Gross margin was € 160.4 million, down by -0.8%, or 50.9% of sales.
Advertising and promotion spending (A&P) was up by +1.2% to € 45.3 million, or 14.4% of sales or 15.7% of sales excluding LdM (16.0% of sales in the first quarter of 2012).
Contribution after A&P (gross margin after A&P) was down by -1.6% to € 115.1 million (-13.8% organic change), or 36.5% of sales.
Structure costs, i.e. selling, general and administrative costs, increased by +26.9%, or 21.4% of sales, mainly as a result of the consolidation of LdM.
EBITDA pre one-offs was down by -20.0% (or € 14.3 million) to € 57.1 million (-26.6% organic change), or 18.1% of sales.
EBITDA reached € 61.0 million, a decrease of -13.0% (or € 9.2 million), or 19.3% of sales.
EBIT pre one-offs declined by -25.3% (or € 16.1 million) to € 47.6 million (-23.3% organic change), or 15.1% of sales.
EBIT reached € 51.5 million, a reduction of -17.6% (or € 11.0 million), or 16.3% of sales.
Group pre-tax profit was € 39.4 million, down by -25.4% (or € 13.4 million).
As of 31 March 2013, net financial debt stood at € 914.1 million (€ 869.7 million as of 31 December 2012).
CONSOLIDATED SALES OF THE FIRST QUARTER OF 2013
Looking at sales by region in the first quarter of 2013, the Americas (45.1% of total Group sales) posted an overall growth of +66.7%, with a strong organic increase of +10.8%, thanks to the sustained growth across all markets, a perimeter effect of +60.2% thanks to LdM, and an exchange rate effect of -4.4%. In the U.S. (19.6% of total Group sales) sales registered an organic increase of +7.6%, driven by double digit growth in the Wild Turkey franchise as well as the continued positive performances of the SKYY franchise, Espolón and Cabo Wabo tequilas and Campari, a perimeter effect of +0.4% (due to LdM) and an exchange rate effect of -0.7%.
Sales in Brazil (4.0% of total Group sales) registered an organic growth of +22.4%, thanks to accelerating performances of premium brands (SKYY, Campari, and Sagatiba) as well as a partial recovery of local brands (Dreher, Old Eight and Drury's), also due to an easy comparison base. Sales in the other Americas (21.5% of total Group sales) showed an organic growth of +14.0%, mainly thanks to a strong performance in Argentina (Cinzano, Old Smuggler and Campari). Perimeter change in the Other Americas was +320.4%, driven by the consolidation of LdM (Jamaica reaching 14.8% of Group sales in the first quarter 2013). Exchange rate effect was -9.9%.
The Italian market (23.8% of total Group sales) recorded an overall decline of -26.2%, attributable to an organic performance of -26.3% and a positive perimeter effect of +0.1%. The negative organic performance was driven by the expected destocking effect, linked to the introduction of the above mentioned article 62 which has further exacerbated the local weak consumption trend.
The organic change excluding the 'one-off' destocking effect would have been negative by low/mid single digits. The key brands (Campari, Campari Soda and SKYY Vodka) recorded a strong decline in shipments; the wine portfolio declined, suffering from a slowdown in the restaurant channel. Soft drinks were also heavily affected by the above mentioned trade destocking as well as by the overall slowdown in consumption in the traditional day-bars channel.
Sales in the rest of Europe (19.2% of total Group sales) declined by -2.8%, driven by a negative organic change of -8.8%, a positive perimeter effect of +6.5%, thanks to a new distribution agreement in Germany as well as LdM, and a negative exchange rate effect of -0.5%. The organic performance was driven by continued softness of Aperol and Cinzano sparkling wine in Germany, exacerbated by very poor weather conditions. Russia on the contrary was up +52.9% showing strong results across the key Cinzano and Mondoro brands. Other European markets registered mixed results with Austria and Switzerland positive trends more than offset by decrease in France, Spain and Greece.
Sales in the rest of the world (including Global Travel Retail), which accounted for 11.9% of total Group sales, grew by +24.5% overall, with a negative organic change of -6.9% and a negative exchange rate effect of -1.5%. and a perimeter effect of +32.9% thanks to LdM. The organic sales decline was driven by weak shipments of the Wild Turkey franchise and Riccadonna sparkling wines, due to tough comps (+41.7% in 1Q 2012) and heightened competitive pressure on core bourbon and RTD's in Australia. A positive development was also achieved in the region's other key markets, including China, Nigeria and GTR.
Looking at sales by the key brands, regarding spirits (71.1% of Group sales) Campari declined by -12.4% impacted by weak shipments in Italy, due to so called article 62 introduction, in part offset by a good performance in Brazil and continued traction in international markets, in particular in U.S., Argentina and Nigeria.
Aperol registered a negative organic performance of -15.3%, affected by continued weakness in Germany which was exacerbated by bad weather, in part offset by a positive performance in Italy (despite destocking) and other international markets. Overall organic growth excluding Germany was +4.8%. SKYY sales achieved an organic growth of +1.9%, driven by a positive performance in the US thanks to SKYY Infusions' continued success and positive momentum behind core. Good results continued in key international markets, particularly Brazil. The Wild Turkey franchise registered an organic change of -0.3%, due to the mixed effect of strong growth in US offset by softness in Australia and Japan, as well as a tough comparison base (+24.0% in 1Q 2012).
The Tequila portfolio registered a strong organic growth of +35.3%, driven by both Espolón and Cabo Wabo in the key U.S. market. Campari Soda declined by -28.3%, affected by so called article 62 and weak consumption trend and trading conditions in day bars channel and off trade in Italy. The Brazilian brands posted a good recovery in first quarter 2013, up +15.9%, thanks also to easy comps. GlenGrant registered a negative organic performance of-11.8%, as the positive performance in Germany, GTR and Japan was not able to offset weak performance in the core Italian market.
In terms of wines, which accounted for 13.1% of total sales, Cinzano vermouths registered an organic growth of +7.8%, driven by positive performances in Russia, Germany and Argentina. Cinzano sparkling wines sales registered a negative organic performance of -10.5%, driven by a strong performance of Russia, which was not able to compensate soft sales in Germany and Italy. Other sparkling wines (including Riccadonna, Odessa and Mondoro) grew organically by +49.9% driven by a strong trend of Mondoro in Russia, whilst still wines (mainly Sella&Mosca, Enrico Serafino and Teruzzi&Puthod) declined due to continued weakness in the Italian on premise channel.
In terms of soft drinks (5.3% of total sales), Crodino declined by -45.0% driven by destocking in connection with so called article 62 as well as weak trading conditions and consumption trend.
