The U.S. wine market continued its long-term growth streak in 2013, as a solid off-premise performance offset tougher conditions in the on-premise. The market added nearly 5 million cases over the past year, according to Impact Databank. Overall growth slowed slightly to 1.5% in 2013, from 1.7% a year earlier, with volume hitting 328.7 million nine-liter cases, compared with 323.9 million cases in 2012. That advance caps a decade in which the U.S. wine market expanded by more than 25% from a sizeable base, despite contending with the recession of 2008-2009 and its lingering impact.
The deceleration over the past two years (growth was at 3.5% as recently as 2011) appeared to stem mainly from a still-sluggish on-trade environment. On-premise research firm Guest Metrics has pegged total U.S. on-premise wine volume as declining 1% in calendar 2013, including a 2% decrease in the fourth quarter. Restaurant Sciences data, meanwhile, shows on-premise wine sales down an aggregate 2.6% from last May through October, with particular softness in the bar/nightclub segment, which fell 18%. An aggregate 0.7% increase in the full-service restaurant sector—including marked gains in the family dining, upscale casual and white tablecloth segments—wasn’t enough to offset bars’ and nightclubs’ considerable decline.
“Restaurants have been pruning down their wine lists,” J. Lohr CEO Steve Lohr told SND late last year, adding that while some parts of the country, mostly along the coasts, are seeing better economic conditions—with the white tablecloth segment in California again growing swiftly—others aren’t there yet.
While the on-premise continues to struggle, off-premise wine sales remain firmly on the rise. According to IRI scan data, total table wine enjoyed a 2.4% increase in off-premise volume and a 5.9% jump in dollar sales during 2013. Domestic table wines, up 3.4% by volume and 7.2% by value, far outperformed imports, which slipped 2.3% by volume and eked out a 1.2% value gain. Along with California, whose results mirrored the overall domestic market, Washington wines—up 6% by volume and 8.6% by value—were among table wine’s growth drivers. On the import side, New Zealand soared 21% by volume, while Argentina rose 5.5% and Spain increased 2.6%. Import leader Italy was roughly flat, while Australia (-6.5%), Chile (-4.5%), France (-1.5%) and Germany (-11%) lost ground.
Sparkling wine continued to be among the hottest segments of the drinks market in 2013. Its off-premise volume progressed by 9.4%, led by an 8% gain for domestic sparklers and a 16% leap for Italy, driven by the explosion of Prosecco.
“There’s a feeling that things are generally good in the wine industry, but no one is jumping for joy,” California negoçiant Cameron Hughes recently told SND. “The business is fine, it’s growing, but it hasn’t been a frothy, exciting time in the market. We’re hoping (2014) will be.”
The buying and selling of wine has two long traditions behind it: on the one hand, it is a rough-and-tumble game of selling as much mediocre wine and sheer plonk as possible to a customer base that looks first and only at price; on the other hand, it has for a century been an elitist business in which price is determined by supply and demand of the most hyped-up wines in the world.
These days, however, while the volume sales continue to tilt one way or the other in half-percentage points, the upscale wine market has gone through boom and bust periods right along with the economy in general.
Prior to 2008 California cult wines like Screaming Eagle Cabernet Sauvignon were selling for hundreds of dollars a bottle and the rarest of red Burgundies, like Romanee-Conti, sold for thousands, very often to people who had no intention of ever drinking them. The futures market, through which you pay for wines at a set price before they actually come into the market, seemed a good bet back then.
But the crash of 2008 put the wine market into turmoil, saved only by the opening of a Chinese market for fine wines that has rocked sales at auction for prestigious Bordeaux and Burgundy sold to China’s new millionaires. Then, in the past year, top Chinese officials directed such lavish excesses to be reigned in, so things began to get shaky in the fine wine market. The auction market went up and down in 2011 and 2012, but U.S. sales to consumers last year hit a new high of 360.1 million nine-liter cases for a value of $34.6 billion.
What to make of all this turmoil in 2014? First of all, those sky-high U.S. sales figures, as with the wine sales figures of all countries, is not based on premium bottles ($10 and above) but on cheap wines selling $5 to $10 a bottle, with chardonnay still the most popular varietal. And while sales may in fact rise in 2014 in the U.S., with 100 million Americans drinking the stuff, those sales are unlikely to be on the backs of $25 merlots and $100 cabernets. Even so, the U.S. is still behind Ireland, Canada and Iceland in per capita consumption.
In France and Italy, wine consumption has dropped precipitously among young drinkers. In 1980, 51 percent of the French drank wine every day; in 2010 it was only 17 percent and 38 percent never drink wine at all. Italians’ wine consumption per capita has dropped by 50 percent.
It came as a laughable surprise, then, when a recent article in London’s Guardiannewspaper asserted there was now an actual scarcity of wine in the world, especially since the Chinese and Indians have entered the buyer’s market.
“There is no scarcity but with global consumption rising, supplies will be tighter,” says Scott Shellady, CEO of Bradford Capital Management, who advises on wine investments for clients. “All commodity markets have had to deal with China in their marketing plans. With more and more Chinese traveling and being introduced to Western products, supplies will be affected. It’s the same with beef and grain. While our hybrids and production capabilities have been growing at an arithmetic pace, the demand side of the equation has been growing at a geometric pace. Asia will have to be dealt with when it comes to Western production.”
Still, Shellady says he would steer clear of the Chinese wine market for the time being because there is so much faking and forgery of wines occurring there — mainly with the very top of the line wines from Bordeaux and Burgundy but also popular wines from Italy and Spain. “I was in Beijing recently,” a producer of a Grand Cru Burgundy told me, “and I was amazed to see that my wines were being counterfeited, but I was shocked to see how widespread it was.”
As for the auction market right now, it’s very much caveat emptor because of the increase in forged wines. Just last month wine seller Rudy Kurniawan, who in 2006 sold $24.7 worth of wine at an Acker, Merrall & Condit auction, was found guilty by a federal jury of selling counterfeit wines and defrauding a finance company — the first in U.S, such case in U.S. history. He may serve up to 100 years in jail.
“Everyone’s being much more careful in the auction market,” says Peter D. Meltzer, auction columnist for Wine Spectator and author of Keys to the Cellar: Strategies and Secrets of Wine Collecting. “The auction houses will be more diligent and the buyers will ask more questions as to where the wines have been all their lives. But overall I think the market will be calmer and prices won’t rise dramatically, largely because there was something of a glut with the 2009 and 2010 vintages.”
For the average wine drinker, however, I see far more good wine available at stable prices than ever in 2014. With so much competition now offered by quality South American wineries, especially Argentina, Chile, and, now, Uruguay, producers in Spain, Italy, Australia and New Zealand will be forced to keep prices down. France has already driven prices down for export wines below the grand cru rankings.
Also look for quality wines to come in from Portugal and eastern European countries like Greece, even Serbia, and, finally, good South African wines priced to sell. For everyday wines, 2014 will be a buyer’s market..
Having faced ever-increasing competition from the New World for decades, the European wine sector will eventually have to battle with China in the international wine market, a new just-drinks report has warned.
However, for the time being, according to the report, rising domestic consumption means China’s value as a market “offering huge export potential” outweighs the challenge the country’s expanding wine industry may pose on the world wine stage.
Wine consumption in China has grown by 57% over the past ten years to 17.8bn hectolitres in 2012, ‘The Post-Recessionary Face of the West European Wine Market’ states. “At the same time imports have grown exponentially.”
China only exports around 100,000 hectolitres of wine a year, but the country is now one of the top ten wine producers and consumers in the world. “The country presents little threat currently to the world wine trade but a time will come where production exceeds domestic needs thereby adding to the growing competition faced by Western Europe on the world stage.”
The prospect of competition from China represents a further challenge to the European wine sector which has seen its share of the world wine market decline steadily. According to the report, in 1995 France, Italy and Spain combined accounted for 52% of the global wine supply. By 2005, that contribution had dropped to 50% and now stands at 44%. “European viticulture is facing intensifying competition through a mix of increasing trade liberalization and the rise of the New World wine producers,” the report states.
Brown-Forman Corp. expects its growth to continue in 2014
June 6, 2013
Brown-Forman Corp. reported a rise in both revenue and net income for the fourth quarter and all of fiscal 2013, and the company said it expects the upward trend to continue in 2014.
The Louisville-based spirits and wine maker reported that fourth-quarter net income rose to $113 million, or 52 cents per share, diluted, from $105 million, or 49 cents per share, a year earlier. The company’s revenue for the quarter rose to $866 million from $801 million.
For the year ended April 30, the company’s net income rose to $591 million, or $2.75 per share, diluted, from $513 million, or $2.37 per share, for fiscal 2012. Annual revenue rose to $3.78 billion from $3.61 billion a year ago.
In the release, the company reported that sales in the Jack Daniel’s family of brands rose 11 percent, and sales of super and ultra-premium whiskey brands rose 19 percent. Sales in the Casa Herradura family of tequila brands rose 9 percent, and Finlandia brands reported a 6 percent increase in sales.
Brown-Forman (NYSE: BFB) also noted large year-over-year sales increases for several international markets, including Turkey (38 percent), Russia (36 percent), France (14 percent) and Germany (13 percent).
“We are pleased to have delivered another year of top-tier industry results, with underlying sales growth of 8 percent and underlying operating income growth of 13 percent,” Brown-Forman CEO Paul Varga said in a news release. “The company achieved solid price increases, which helped drive margin expansion. Due to continued global interest in North American whiskey and favorable trends in premiumization, we remain cautiously optimistic that Brown-Forman’s strong and balanced organic growth will continue in fiscal 2014.”
For fiscal 2014, the company forecasts earnings in the range of $2.80 to $3 per share.
Louisville, KY, June 5, 2013 – Brown-Forman Corporation (NYSE:BFA, BFB) today reported financial results for its fourth quarter and fiscal year ended April 30, 2013. For the quarter, reported net sales1 increased 8% to $866 million (+7% on an underlying basis2) and reported operating income increased 18% to $177 million (+15% on an underlying basis). Diluted earnings per share in the quarter increased 8% to $0.52, compared to $0.49 in the prior year period, including approximately $0.07 cents of benefits due to the timing of shipments and discrete tax items.
For the full year, reported net sales increased 5% to $3,784 million (+8% on an underlying basis), reported operating income increased 14% to $898 million (+13% on an underlying basis), and diluted earnings per share increased 16% to $2.75 compared to $2.37 in the prior year period. Reported earnings per share were negatively impacted by the absence of Hopland-based wines and adverse foreign exchange, but benefited from the aforementioned items in the fourth quarter of 2013.
Paul Varga, the company’s chief executive officer, said, “We are pleased to have delivered another year of top-tier industry results, with underlying sales growth of 8% and underlying operating income growth of 13%. The company achieved solid price increases, which helped drive margin expansion. Due to continued global interest in North American whiskey and favorable trends in premiumization, we remain cautiously optimistic that Brown-Forman’s strong and balanced organic growth will continue in fiscal 2014.”
Fiscal 2013 Highlights
• Underlying net sales increased 8%, driven by broad-based geographic gains and brand strength, with constant currency net sales3 up 6%
o Price/mix contributed over three points to net sales growth
o Jack Daniel’s family of brands grew net sales 11%
o The company’s super and ultra-premium whiskey brands grew net sales 19%
o Casa Herradura’s family of tequila brands grew net sales 9%
o Finlandia’s family of brands grew net sales 6%
• Underlying operating income increased 13%, driven by top-line growth, gross margin expansion, and operating expense leverage
• As of April 30, 2013, Brown-Forman generated an industry-leading ROIC4 of 22%
Fiscal 2013 Performance
The company’s underlying sales growth of 8% was driven by strong brand performance from its focused portfolio. The company’s outperformance was also fueled by the strength of the North American whiskey category, continued growth of Jack Daniel’s Tennessee Honey, and growth from premium and above brands. Company-wide price/mix contributed approximately three points to full year sales growth and drove the company’s global value share, while depletions grew at a mid single-digit rate. This balanced revenue growth helped deliver gross margin expansion of 200bps. Approximately half of the increase was driven by improved price/mix and reductions in costs associated with value-added packaging, while the other half was due to the absence of Hopland-based wines.
The company enjoyed broad-based geographic gains, driven by strong results in both the emerging markets and the developed world.
Brown-Forman Corporation – Top Ten Countries
Supplemental Information (Unaudited)
Twelve Months Ended April 30, 2013
[lightTable][/lightTable]
Country
% of Net Sales
% Growth in Constant Currency Net Sales
United States5
41%
8%
Australia
13%
6%
United Kingdom
9%
4%
Mexico
6%
8%
Germany
5%
13%
Poland
5%
5%
France
2%
14%
Russia
2%
36%
Japan
1%
18%
Turkey
1%
38%
In the emerging markets, net sales growth was widespread. Turkey’s net sales jumped 38% as route-to-market changes implemented two years ago have dramatically improved distribution as well as accelerated the success of brand-building efforts among consumers in a rapidly growing distilled spirits market. Russia enjoyed similarly strong year-over-year growth, increasing net sales by 36%. Brazil, the company’s fourteenth largest market outside of the United States, enjoyed a 23% increase in net sales. Ukraine, Kazakhstan, and Georgia grew net sales by 29% to almost 300,000 cases in the aggregate. Southeast Asia’s net sales grew 16% to 300,000 cases, driven by Thailand’s 19% jump, India’s 26% increase, and Indonesia’s 29% growth. Emerging Africa surpassed the 100,000 case mark with net sales growth of 12%.
Net sales continued to grow at a mid to high single-digit rate in most of the developed markets, including a strong performance in the United States, where net sales, adjusted for Hopland-based wines, grew by 8%. Australia and the United Kingdom also continued to grow net sales in the mid single-digits, while France grew by 14%, roughly in-line with its five and ten year rates of growth. Not surprisingly, net sales growth in Italy and Spain remained under pressure given the weak economic conditions, but the company’s portfolio gained share in these challenging markets. Japan’s 18% net sales growth included some inventory build related to the new agency relationship with Asahi.
The company’s Global Travel Retail business delivered 12% net sales growth, driven by price increases, successful innovation, and new product launches, including the successful rollout of Jack Daniel’s Tennessee Honey and Jack Daniel’s Sinatra Select.
The majority of the company’s brands delivered net sales growth in the year, led by the Jack Daniel’s trademark. Jack Daniel’s Tennessee Whiskey grew net sales by 7%, with markets outside of the United States modestly outpacing the strong growth in the United States.
Jack Daniel’s Tennessee Honey’s global net sales nearly doubled in the second full year in the marketplace. Sales in the United States grew by 37%, as brand awareness has grown and velocity has increased in the off-premise. Sales outside of the United States were driven by the successful rollout of the brand to several key markets including the United Kingdom, Australia, Poland, and South Africa. The company expects to bring this great product into other important markets for Jack Daniel’s in fiscal 2014. Jack Daniel’s Tennessee Honey, along with other innovations, contributed roughly 25% of the company’s net sales growth in Fiscal 2013.
Brown-Forman’s portfolio of super and ultra-premium whiskey brands, including Woodford Reserve and Woodford Reserve Double Oaked, Jack Daniel’s Single Barrel, Gentleman Jack, and Collingwood, grew net sales almost 20% in the year and depleted over 825,000 cases. Woodford’s performance was exceptional, up 28%, and the company believes there is a long global runway ahead for this brand, including markets outside of the United States given only 14% of the brand’s sales are currently generated in non-U.S. markets. Additionally, the company intends to ramp up spending behind its Gentleman Jack brand in fiscal 2014 with the recent launch of the ‘Order of Gentlemen’ marketing campaign, and believes this super-premium line extension is also well-positioned for global growth. Markets outside of the United States grew net sales 30% in fiscal 2013 and drove almost two-thirds of Gentleman Jack’s incremental sales.
Finlandia vodka’s family of brands grew net sales by 6%, reaching record levels, with depletions of almost 3.3 million cases. Sales growth was driven by strong demand in Russia.
The Casa Herradura family of tequila brands grew net sales by 9%. Herradura grew global net sales 15%, fueled by 20% growth in the United States. New Mix RTDs grew 13% and el Jimador grew net sales by 11% in the United States, offset by a 2% decline in non-U.S. markets.
Southern Comfort’s family of brands net sales grew 1% in the United States, but declined 4% globally, an improvement from the 7% decline in Fiscal 2012. While Southern Comfort continued to experience sales declines in markets outside of the United States, the company believes that fiscal 2013 marked the first step towards returning the brand to global growth.
Underlying SG&A increased by 8% and underlying A&P spend grew by 6% in fiscal 2013, as the company continued to invest in its brands and the infrastructure that will support the company’s goal of delivering long-term growth.
Dividends and Other
As of April 30, 2013, total debt was $1,002 million, compared with $510 million as of April 30, 2012. On February 25, 2013, Brown-Forman completed the redemption of its outstanding $250 million 5% notes due 2014 and recorded a pre-tax expense of $9 million.
During fiscal 2013, the company returned almost $1.1 billion to shareholders through its recurring quarterly dividends as well as the $4 special dividend paid during the third quarter of fiscal 2013. Brown-Forman has paid regular cash dividends for 67 consecutive years and increased them for each of the last 29 years, making Brown-Forman a member of the Standard and Poor’s 500 Dividend Aristocrats Index. The company also produced what it believes to be an industry-leading return on invested capital of 22%.
Fiscal Year 2014 Outlook
Despite the uncertainty in the global macroeconomic environment, the company is anticipating that the strong trends experienced in fiscal 2013 will continue into fiscal 2014. Accordingly, the company currently expects high single-digit growth in both reported and underlying sales, driven by the continued global expansion of the Jack Daniel’s trademark, including both Tennessee Whiskey and Tennessee Honey. The company’s focus on super-premium brands including Herradura, Woodford Reserve, Gentleman Jack, and Jack Daniel’s Single Barrel, along with continued growth in Finlandia and an improvement in Southern Comfort’s results, should also drive sales growth. Sales growth includes expected price increases in the low single-digit range, which should help offset inflationary pressures.
Modest operating leverage through the SG&A line would result in underlying operating income growth of approximately 9-11% and diluted earnings per share of $2.80 to $3.00. Reported earnings per share include the anticipated negative impact of $0.06 per share related primarily to the buyback of inventory in France as the company transitions to an owned distribution model on January 1, 2014, as well as a $0.02 negative impact from adverse foreign exchange moves. The following table summarizes the current fiscal 2014 outlook, including the items that are expected to negatively impact reported rates of growth:
EPS Roll Forward
Fiscal 2013 Reported EPS $2.75
Fiscal 2013 Adjustments:
Shipments in excess of depletions -0.05
Discrete tax items -0.02
Bond redemption fees +0.03
Adjusted 2013 Baseline EPS6 $2.71
Expected incremental EPS growth +0.17 to +0.37
Anticipated impact from France buyback and foreign exchange in fiscal 2014 -0.08
Fiscal 2014 EPS Outlook $2.80 to $3.00
Brown-Forman will host a conference call to discuss the results at 10:00 a.m. (EDT) this morning. All interested parties in the U.S. are invited to join the conference call by dialing 888-624-9285 and asking for the Brown-Forman call. International callers should dial 706-679-3410. The company suggests that participants dial in ten minutes in advance of the 10:00 a.m. start of the conference call.
A live audio broadcast of the conference call will also be available via Brown-Forman’s Internet website, https://www.brown-forman.com/, through a link to “Investor Relations.” For those unable to participate in the live call, a replay will be available by calling 855-859-2056 (U.S.) or 404-537-3406 (international). The identification code is 68352658. A digital audio recording of the conference call will also be available on the website approximately one hour after the conclusion of the conference call. The replay will be available for at least 30 days following the conference call.
For more than 140 years, Brown-Forman Corporation has enriched the experience of life by responsibly building fine quality beverage alcohol brands, including Jack Daniel’s Tennessee Whiskey, Southern Comfort, Finlandia, Jack Daniel’s & Cola, Canadian Mist, Korbel, Gentleman Jack, el Jimador, Herradura, Sonoma-Cutrer, Chambord, New Mix, Tuaca, and Woodford Reserve. Brown-Forman’s brands are supported by nearly 4,000 employees and sold in approximately 160 countries worldwide. For more information about the Company, please visit https://www.brown-forman.com/.
Footnotes:
1 Percentage growth rates are compared to prior year periods, unless otherwise noted.
2 Underlying change represents the percentage increase or decrease in reported financial results in accordance with generally accepted accounting principles (GAAP) in the United States, adjusted for certain items. A reconciliation from reported to underlying net sales, gross profit, advertising expense, SG&A, and operating income (non-GAAP measures) increases or decreases for the three-month and twelve-month periods ended April 30, 2013, and the reasons why management believes these adjustments to be useful to the reader, are included in Schedule A and the note to this press release.
3 All ‘net sales’ references are on a constant currency basis, unless otherwise noted. Constant currency represents reported net sales with the cost/benefit of currency movements removed. Management uses the measure to understand the growth of the business on a constant dollar basis, as fluctuations in exchange rates can distort the underlying growth of the business both positively and negatively.
4 Return on invested capital is defined as the sum of net income (excluding extraordinary items) and after-tax interest expense, divided by average invested capital. Invested capital equals assets less liabilities, excluding interest-bearing debt.
5 Net sales growth in the United States is adjusted for Fiscal 2012’s $79 million in Hopland-based wine sales.
6 We believe that excluding specific items which are not anticipated to impact fiscal 2014 earnings provides helpful information in forecasting and planning the growth expectations of the company.
Important Information on Forward-Looking Statements:
This report contains statements, estimates, and projections that are “forward-looking statements” as defined under U.S. federal securities laws. Words such as “aim,” “anticipate,” “aspire,” “believe,” “continue,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,” “plan,” “potential,” “project,” “pursue,” “see,” “seek,” “should,” “will,” and similar words identify forward-looking statements, which speak only as of the date we make them. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. By their nature, forward-looking statements involve risks, uncertainties and other factors (many beyond our control) that could cause our actual results to differ materially from our historical experience or from our current expectations or projections. These risks and other factors include, but are not limited to:
• Dependence upon the continued growth and profitability of the Jack Daniel’s family of brands
• Unfavorable global or regional economic conditions, and related low consumer confidence, high unemployment, weak credit or capital markets, sovereign debt defaults, sequestrations, austerity measures, higher interest rates, political instability, higher inflation, deflation, or lower returns or discount rates on pension assets
• Risks associated with being a U.S-based company with global operations, including political or civil unrest; local labor policies and conditions; protectionist trade policies; compliance with local trade practices and other regulations, including anti-corruption laws; terrorism; and health pandemics
• Fluctuations in foreign currency exchange rates
• Changes in laws, regulations or policies – especially those that affect the production, importation, marketing, sale or consumption of our beverage alcohol products
• Tax rate changes (including excise, sales, VAT, tariffs, duties, corporate, individual income, dividends, capital gains) or in related reserves, changes in tax rules (e.g., LIFO, foreign income deferral, U.S. manufacturing and other deductions) or accounting standards, and the unpredictability and suddenness with which they can occur
• Changes in consumer preferences, consumption or purchase patterns – particularly away from brown spirits, our premium products, or spirits generally, and our ability to anticipate and react to them; decline in the social acceptability of beverage alcohol products in significant markets; bar, restaurant, travel or other on-premise declines
• Production facility, aging warehouse or supply chain disruption; imprecision in supply/demand forecasting
• Higher costs, lower quality or unavailability of energy, input materials or finished goods
• Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in implementation-related or higher fixed costs
• Inventory fluctuations in our products by distributors, wholesalers, or retailers
• Competitors’ consolidation or other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing or free goods), marketing, category expansion, product introductions, entry or expansion in our geographic markets or distribution networks
• Risks associated with acquisitions, dispositions, business partnerships or investments – such as acquisition integration, or termination difficulties or costs, or impairment in recorded value
• Insufficient protection of our intellectual property rights
• Product counterfeiting, tampering, or recall, or product quality issues
• Significant legal disputes and proceedings; government investigations (particularly of industry or company business, trade or marketing practices)
• Failure or breach of key information technology systems
• Negative publicity related to our company, brands, marketing, personnel, operations, business performance or prospects
• Business disruption, decline or costs related to organizational changes, reductions in workforce or other cost-cutting measures, or our failure to attract or retain key executive or employee talent
For further information on these and other risks, please refer to the “Risk Factors” section of our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC.
Use of Non-GAAP Financial Information This press release includes measures not derived in accordance with generally accepted accounting principles (“GAAP”), including underlying net sales and underlying operating income. These measures should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP, and also may be inconsistent with similar measures presented by other companies. Reconciliations of these measures to the most closely comparable GAAP measures, and reasons for the company’s use of these measures, are presented on Schedule A attached hereto.
Poor results in small first quarter 2013 mainly due to the ‘one-off’ destocking in Italy
” Contribution after A&P: € 115.1 million (-1.6%, organic change -13.8%, 36.5% of sales)
” EBITDA pre one-offs: € 57.1 million (-20.0%, organic change -26.6%, 18.1% of sales)
” EBIT pre one-offs: € 47.6 million (-25.3%, organic change -23.3%, 15.1% of sales)
” Net financial debt at € 914.1 million as of 31 March 2013 (€ 869.7 million as of 31 December 2012)
Milan, May 13, 2013 – The Board of Directors of Davide Campari-Milano S.p.A. (Reuters CPRI.MI – Bloomberg CPR IM) approved today the consolidated results for the quarter ending 31 March 2013.
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.
