Davide Campari-Milano N.V. (CPR) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Campari Group Full Year 2020 Results Presentation Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Bob Kunze-Concewitz, CEO of the Campari Group. Please go ahead, sir.

Thank you very much. Good afternoon to all, and welcome to our call. Thanks for joining us. I hope you've all been well in these past few months. Clearly, this has been an interesting year. I think it's probably been the most intense and challenging for this generation of managers. So before jumping into the numbers, I'd like to focus at the beginning on more qualitative measures. And all of those, I think, can be summed up by the -- if we were to sum up the year is that despite a very, very challenging year, we continued with the consistent execution of our long-term growth strategy. We've continued strongly, focused on brand building, we've increased the focus significantly and had a huge step-up digital marketing as well as off-premise brand building and have driven home consumption occasions to really the next level, helping fuel double-digit off-premise sellout growth indicators across all of our key brand market combinations. We've also been able to proceed with selected innovation rollouts. We've elevated Appleton Estate image via super premium packaging and also a price repositioning. We've had new releases of Wild Turkey premium series as well as rolled out the new look and feel as well as packaging of Crodino across international markets. We strengthened business infrastructure and commercial capabilities particularly, we've really developed the digital capabilities across the organization via accelerated programs in digital transformation throughout the company as well as made a big step forward in e-commerce, and we'll go through those details later on. We've established a direct commercial presence in the strategic French market, which is very clearly 1 of our top 5 markets with a lot of potential. We've enhanced focus on Asia, which, to a certain extent, has been our Achilles heel. We've relocated the APAC regional headquarters to Singapore. We set up a joint venture in Japan as well as endeavored in other route-to-market initiatives, which kicked in at the beginning of this year. Last, but not least, we went ahead with the restructuring of the sugar business in Jamaica, which was quite a leader in previous years. We've confirmed M&A as a business priority. We've acquired Rothschild France Distribution and Champagne Lallier as well as a minority stake in Tannico, which is the leading e-commerce platform for premium Wines & Spirits and Italy. And last but not least, we completed the company's re-dom down to the Netherlands, enabling a capital structure which is much more supportive of our external growth strategy in the long run as well as capable of rewarding long-term oriented shareholders. We've maintained and built on our solid financial profile. We successfully issued a 7-year Eurobond for EUR 550 million at very attractive coupon. So -- and that enabled us to extend quite a bit the overall debt maturity profile. And last but not least, we continue, despite the financial difficulties with our focus on people and community. The safety and well-being of Camparistas worldwide has been a top priority for us, and we're happy to say that we've operated at probably more than 100% capability throughout the pandemic. And we've really kept the cases to a minimum and had not any losses. We've had also significant initiatives supporting our local communities and business partners, and that has been very consistent with our sustainability agenda. Now moving on to the numbers on Page #5 and the review of our net sales. Clearly, what you see is that our core brand health remains very strong, and it is confirmed by the very strong and resilient home consumption trends. If we start with net sales overall on an organic basis, they had only a decline of 4.1%, which is probably best-in-class in the industry. With our Q4, unfortunately, down 7%, largely due to the impact of the renewed lockdowns as well as the severe restrictive measures affecting key on-premise markets as well as global travel retail. On a full year basis, continued sustained growth in the off-premise led markets and really sustained growth in the U.S., Canada, Australia and Northern Europe, helped mitigate weakness in on-premise led markets, mainly Italy as we'll see throughout the presentation. On a geographic basis, resilient growth in core off-premise markets, as I said earlier, the U.S. was up 3.4% despite the destocking effect. Actually, if we look at our depletion numbers, they were up by 9.1%, so that's the underlying trend of our U.S. business. And that would have led to an overall group net sales performance of minus 2.5%. Germany was up a strong 8.6%; Canada, double digit, 12.5%; Australia as well, 20.2%. And these more than -- were unfortunately more than offset by the weakness in on-premise markets like Italy, which is our second largest market, and which was down 17.4%. South America as well as GTR contributed to the decline. Q4 was weak, and that was mainly driven by Southern Europe, Middle East and Africa, driven by Italy as well as North Central Eastern Europe, which were impacted by the restrictions reintroduced in the on-premise as well as the less pronounced stay-cation effect compared to the summer, given that our aperitifs have a lower seasonality in Q4. Obviously, the lack of winter tourism as well as the pipeline loading effects which we normally have with that not happening. It also impacted quite a few markets. Looking at it by brand, our global priorities declined by 3.8%. And this despite quite a positive performance from Wild Turkey as well as our Jamaican rum portfolio and was driven by the on-premise skewed brands, mostly our aperitifs, and impacted by the restrictions throughout the year across markets, which were amplified by opening and closing the renewed lockdowns, which created quite a bit of uncertainty for our customers. And obviously, the U.S. destocking had quite an impact, mostly on SKYY Vodka as well as European imports. Aperol was flattish, would have grown 11% if we exclude Italy and GTR and much more if we include Spain -- exclude Spain as well. Regional priorities were flattish overall. But here, clearly, there's 1 very, very strongly growing brand, Espolòn, up 29.9%, which helped compensate weakness across the rest of the portfolio. And local priorities were down 4.4%, largely due to the Italian on-premise skewed single-serve aperitifs, Campari Soda and Crodino. Meanwhile, sell-out trends in the off-premise continue to outperform shipments across all of our key brand market combinations. So on a reported basis, our net sales came in at minus 3.8%, and this reflects a positive perimeter effect of 3% and as well as a negative ForEx effect of 2.7%. Moving on to EBIT. On an adjusted basis, organic EBIT declined by 20.4%, which amounts to 380 basis points margin dilution. Driven by the negative sales mix by brand and market, sustained A&P investments as well as the lower absorption of fixed costs, given the top line decline. On a reported basis, EBIT declined by 40%, and this reflects negative operating adjustments of EUR 90.1 million, which are mostly brand impairment losses, restructuring costs as well as transaction fees. Net profit on an adjusted basis came in at EUR 202.1 million, down 24.4%. Group net profit reported came in at EUR 187.9 million, down 39.1% after total adjustments of negative EUR 14.2 million. So clearly, there are items compensating the EUR 90.1 million negative operating adjustments. Free cash flow was pretty good. It came in at EUR 168.6 million. Recurring free cash flow was a strong EUR 261.7 million or 65.4% of adjusted EBITDA up from 55.7% in 2019. It must be said though, that this was also helped by a temporary working capital reduction at year-end due to the phasing effects generated by the renewed restrictions impacting business performance. Net financial debt came in at EUR 1,103.8 billion, so up by EUR 326.4 million versus a year ago. As a good -- very good cash flow generation was absorbed by the M&A activities as well as financial commitments, particularly the share buyback and the dividend payment, which amounted to an overall amount of EUR 519.2 million. This leads us to a net debt-to-EBITDA adjusted ratio of 2.8x at the end of 2020. Having said all of this, I feel the company is in a very solid state. Our brands are very healthy, and we are proposing to maintain the full year dividend unchanged at EUR 0.055 per share. Moving on to Page #7. I'm not going to spend much time there. What you see on the left-hand side is that particularly with the exception of Southern Europe, Middle East and Africa, all of our regions had a pretty decent year given the circumstances. Whereas Southern Europe, Middle East and Africa, which is mostly prevalently on-premise markets, particularly Italy, obviously, was impacted. And you can see the impact of Italy on the different brand clusters given that Campari and Aperol in Italy impacted global priorities, Grand Marnier, the regionals and Campari Soda as well as Crodino the local priorities. But more important than that, I think it is key to focus on the underlying trend and on the brand health across our portfolio. On Chart #8, what you see, the really very strong off-premise sellout trends in our key brand market combinations. Actually, we took market share. We grew faster than our reference markets across all of our subsidiaries and took market share. Top left, you see in the U.S., we grew significantly faster than the market. And there's been also quite a divergent view between the growth of our off-premise sellout data, which is in dark blue versus our shipments, which are in yellow. And you see pretty much the same pattern in Germany, in Italy, in the U.K., and we could have added many more pages, but it's practically the same. Our brands are taking share are doing very well. And clearly, there's also been destocking at the retail level as retailers have used the opportunity to drive down stocks. The other element, which I would like to stress is really the big step forward we've done in e-commerce. We built in all of our key markets, dedicated teams already in the month of March dedicated resources against that, we've had significant growth. I mean, Campari U.S. grew its e-commerce by fivefold. We had the CEO of Drizly at our convention, U.S. convention last week, and he was mentioning that on a full year basis, Drizly grew by 325%, whereas Campari grew by 500%. Actually, we were the second fastest-growing company in e-commerce in the spirits industry in the U.S. last year. We -- in terms of ranking, we definitely played way above our weight, coming in as a fifth player on a value basis and sixth on a volume basis. And interestingly enough, if you look at the top 30 brands in e-commerce in the U.S., we are able to field 4 brands. So we're the second supplier after the industry leader. In the U.K. as well in the U.K., currently, e-commerce accounts for 10% of our sales. So that's quite significant. We've seen triple-digit growth rates across our brands and across our e-commerce customers. Again, clearly, we've been 1 of the winners. Moving on to Page #16. The only 2 things I'd like to attract your attention to is, clearly, the impact the pandemic has had on GTR, which has gone from 2% of our sales to 0.5%. And as on Italy, which has gone from 19.9% to 17.1%. Moving on to the following chart. I'm not going to go into the details, but it can be summarized by the fact that thanks to our very rapid pivot towards the off-premise our -- on a group level, our estimated share of the split between on-premise versus off-premise has moved from 40 to 60 to 30 to 70. So we've really made the most out of the opportunity. Moving on to Page #12 in the Americas. We'll focus first on the U.S. You'll recall from previous charts that the overall positive shipment performance of 3.4%. And this, despite the on-premise being mostly shut. As you know, for us, that represented a 30%, so a little bit more than the market average. We've also had restrictions impacting, in particular, our European imports from Grand Marnier, Campari, Aperol and the Italian bitters as well as an important destocking across the whole portfolio, which has now been fully completed. Our Italian portfolio, aperitifs and bitters were obviously also penalized by the import tariffs, which led to us increasing prices to partially compensate the tariffs. Now importantly, excluding the destocking effect, the U.S.'s organic growth would have been 9.1% last year, which is best-in-class performance and 1 of the strongest we've had in many, many years. And the good news is that the momentum is continuing. We've had a pretty good recovery in Q4 up by 13% as due to the low stock levels, shipments and depletions and consumption had to start converging. So we've had that -- started to have that realignment. Our aperitifs also grew in Q4, thanks to that gradual catch up. Continued very strong performance of Espolòn. I mean Espolòn sellout in the off-premise was 88%, so really impactful. I'm happy to say that the repositioning of our Jamaican rums has been a success as well as the continued premiumization of the Wild Turkey franchise as the higher-margin Longbranch and Russell's Reserve grew much faster than the remainder of the franchises. SKYY continued to be affected by the destocking at the wholesaler level, but clearly, that was also pushed by us because as we will present in a few charts, we are in the process of completely relaunching the whole franchise behind significantly improved positioning, packaging as well as liquid and cleanse. Brand momentum, as I said in the off-premise continues to be very strong across our whole portfolio. Our sellout on an infant basis grew in value by 32.3% over the full year, this is actually 1.5x faster than the overall market. And if we look at our own reference of 10 competitors, we were the fastest-growing one. We've had sellout in the off-premise, actually double-digit across core brands as well as the newly acquired Mexican jewels, Ancho Reyes and Montelobos. A little bit earlier on, I referred to our very strong growth from accounting our e-commerce business, which now accounts for 3% of net sales. Moving on to the rest of the Americas on Page #13. You see that Canada had a very, very strong year, up 12.5%, resilient growth. In a largely off-premise market, driven by core Forty Creek, which we've also been premiumizing as well as the Jamaican rums and Grand Marnier, Aperol, Campari and Espolòn. Actually, we could have grown faster on aperitifs, hadn't been for out of stocks in Ontario, where the forecast done by our key customer there. As you know, it's a monopoly, weren't actually in line with consumer demand. Jamaica, unfortunately, was down by 8.2%, and we've had this. Overall, this decline of withstanding really good momentum behind Wray&Nephew White Overproof as on-premise restrictions and sharp production and touristic flows, impacted the rest of the portfolio. Clearly, the tough comparison base, we were up close to 18% in the previous year didn't help either. The rest of the region was down close to 19%, 18.7%. And with the exception of Argentina, which on a real basis. So excluding inflationary effect, was up 4%, which is pretty amazing given the economic circumstances of the country. Moving on to Southern Europe, Middle East and Africa on Page 14. As you can see this is clearly where we have our largest pain point. The region was down 18.6%. Italy was down 17.4%. It's been a very volatile year. The market is -- has quite an on-premise skew, pre-COVID 70%, consumption happened outside of home. And clearly, this opening and closing, not only had an impact on consumers, but also on the trade and their insecurity, especially the wholesale level from stocking up. We had a very strong when the market reopened in Q3. We had a very strong quarter. Clearly, there's a very, very strong demand by consumers for confidentiality a desire to go out and enjoy our brands again. Unfortunately, we had the opposite effect in Q4 as new restrictions came out, and we were down 32.6%. So the entire portfolio declined, obviously, in these circumstances over the year, particularly Aperol, Campari and our single-serve aperitifs Campari Soda and Crodino. The only brand, which grew at a very strong sustainable level is actually line extension Aperol Spritz, which was up 36% or 38%, thanks to very strong performance in the off-premise. And talking about the off-premise sellout throughout our portfolio was quite strong in that channel, both Aperol and Campari tracked about 25%. And soda and Aperol Spritz, as I said, we're in strong double digits, even stronger. The rest of the -- excuse me, one second. The rest of the geography of the business unit was down 22%. Despite the fact that France grew double-digit overall and had a strong Q4, up 9.6%. The strength is across the heroes in our portfolio there, and we're very happy to have the highly performing French team onboard. As I said at the beginning, this is going to be quite important for us in the years to come. GTR, unfortunately, was down almost 70%, 68.9%, and we expect this remain highly challenged, clearly, at least in the first half of this year. Spain as well was strongly hit, down 47.7% due to its on-premise skew. Within Africa with Nigeria and South Africa declined, obviously, South Africa more than Nigeria as the restrictions were more severe there. Moving on to positive territory, North Central Eastern Europe on Page #15, very healthy, very strong overall growth of 6.8%. Germany did very, very well. It was up 8.6%. Clearly, very solid growth in the resilient off-premise market. We've had a slower growth pattern in Q4. Obviously, as there was less of a stay-cation effort and climatically, our portfolio it is not the best here in that season. However, overall, Aperol, Ouzo12, Campari, Cinzano Vermouth and Bulldog were really able to offset declines in our specialty bitters and agency brands, which are on-premise skewed. If we look at the sellout trends of our portfolio in the off-premise in Germany, we can see that we grew twice as fast as the market, so we continue taking significant share. As I mentioned earlier, Aperol grew by 30% and Campari by 15%. The U.K. had another strong year at 7.4%. And this, despite a weak Q4, where we're down by 20.4%. Now this is largely due to a tough comp base, we were up by 68% in the same period last year as well as significant promotional pressure from some leading players in that market. Key brands as Aperol, Campari, Wray&Nephew, Overproof and Magnum Tonic grew by very, very strong double-digit rates. If you look at our sell-out trends, we were the second fastest-growing company in the off-premise in the U.K. last year. Growing by 38.4% twice as fast as the local market. And also, we've been a top performer in the e-commerce channel, which has reached 10% of our sales by growing by 90% versus 2019. Russia also had a good year, double digit, 10.7% up. Overall, positive performance across the portfolio with very good ones by Aperol, Mondoro, Cinzano vermouth, Espolòn and Campari. Obviously, that helps the mix. The remainder of the region was only up 2.1%. We've had good growth in Switzerland and Belgium as well as Eastern European markets, again driven by the Aperol. But clearly, Austria, which is very dependent on tourism in flux was impacted. Last region, Asia Pac, up 4.6%. And here, it is tale of 2 stories. On the 1 hand, Australia, doing extremely well, growing 20.2%, a very positive performance in this off-premise skewed market. And importantly, the mix was also very good with Wild Turkey ready-to-drink, on Turkey Bourbon, American Honey as well as our European imports doing extremely, extremely well. Sell-out trends in the off-premise remained strong. We were up 22.6%. So -- and we're continuing to see good momentum in that market. The rest of the region was actually impacted not only by the restrictions of the pandemic, but also by destocking ahead of route to market changes. This impacted Japan during the year. But towards the end of the year, China, there we will be changing our distribution network on the March 1 this year as well as New Zealand. Moving on to Page #17, not much of a change. I think it's much more interesting to start focusing on the brands. Page #18, Aperol, our largest brand, was flattish. 19% of our net sales clearly, it was impacted by the weak results in our core on-premise skewed markets, which were impacted by the lockdown measures. Core Italian market, which accounts for 31% of our total Aperol sales. Spain and GTR had quite an impact, and they offset very, very positive performances in France and Argentina. As I said earlier, if we exclude Italy and GTR, Aperol would have grown double digits. And also, what is very nice to see is that the brand is continuing to grow double-digit in key off-premise markets, particularly Germany, up 31%; the U.S., 66.5%, and continued double-digit in Russia, Switzerland and U.K. And on the chart on the left, you can see really the big delta between sell-out as well as the shipment value. But what really encourages us most beyond the numbers is to see that there's unparalleled affection for our brand and its signature drink. Actually, Aperol Spritz is most mentioned cocktail online worldwide in 2020. And I think this is a great feat on which to build and continue growing the brand and recruit new consumers into the franchise going forward. Campari, 10% of group sales, down 4.5%, impacted similarly as Aperol. Clearly, Brazil and Jamaica, also added to the mix. Again, though very nice double-digit growth, showing consumer love for the brand in the U.S., the U.K., France and Australia as well as Germany and Switzerland. Net in net, we feel very good about the momentum of Campari as well as its signature drink in Negroni and we'll continue with our entertainment efforts, which seem to be working very, very well as well as our support of the arts, particularly film, which is doing quite a bit to build a brand equity. Moving on to Wild Turkey, 8% of sales, up 4.9%, and actually, the underlying numbers are much, much better. Clearly, in the U.S., we've had a difference between consumption, depletions and shipments. And last but not least, let's also not forget that Japan is the third largest market for this brand. So there was quite an impact from the destocking in that market. The premiumization of this brand is working the Russell's Reserve and Longbranch are growing at 50% clips in the off premise, double as much as 101. And we will continue with the premiumization of the brand, both via dedicated SKUs as well as the upgrading of the packaging of 101, which has tested extremely well and which will be launched in the second half of the year, and we'll continue that. Moving on to SKYY. SKYY, our fourth largest brand, 7% of sales, down 16.2%, heavily impacted by destocking in the U.S. As I mentioned earlier, we're going through right now, a complete brand relaunch. You can see it summarized in the page, a big, big improvement in premiumization of the packaging as well as for tuning of the liquid and a significant upgrading of the product claims, which we think will really help take the brand to the level it deserves. All of these elements have tested very well, and they've been very well received by our distribution network and now step-by-step by the trade. So we look forward to that. Grand Marnier, down 15%, part of the European imports, which was obviously penalized. We have an overall negative shipment performance, which doesn't correspond to the depletion, which were positive and consumption in the off-premise, which was quite positive. Grand Marnier grew by 38% on a full year basis in the off-premise in the U.S. and as the brand was formerly very on-premise skewed, this practically means that we're doing quite a good job now recruiting new consumers into the franchise. Again, here, as in the case of Wild Turkey, we'll continue with our premiumization journey. You can see below how the range is evolving. Last year, we launched the Cuvée Louis Alexandre and Cuvée du Centenaire. This year, we will launch Cuvée Révelation and Quintessence. The interesting thing is the prices go from Grand Cuvées at around $40 to above $1,200 under Grand Cuvées. So they're not going to be huge volume, but they're going to be high -- very high-value and very profitable for us. The premiumization story continues with our Jamaican rums. Overall, very nice performance, up 5.2%. It was a big bet relaunching Appleton Estate behind this significantly improved range as well as packaging behind a significant price increase across all markets. And it's nice to see that actually, the brand grew. The premiumization is also further strengthened by the limited edition. We launched this collection of single barrels unfiltered from the years of 1994, '95 and '99, selling at close to $500 range. And the whole collection actually was sold out in a few days' time. To close out the focus on individual brands. We could only do it with Espolòn growing by close to 30%. And again, here, quite a difference between depletions as well as the consumption off-premise and sell-out and this brand skews more off-premise at this stage in the U.S. was up by 87.4%, and it's also doing very, very well in many other markets. So we expect this to become clearly 1 of our key drivers of growth for many, many, many years. Closing up with the rest of the regional brands. Bulldog was unfortunately impacted by core GTR and Spain. So despite very nice performances in Central Europe, the brand was down 11.6%. And GlenGrant was impacted by GTR as well, mostly as we've premiumized the range and dedicated the SKUs to that channel. Forty Creek, on the other hand, responded very well to innovation and premiumization as well growing double digit. Unfortunately, the bitters went the other way as they're very much on-premise focused, both in it as well as quality focused in the U.S. The Cinzano broadband had a decent performance and nice performance on the vermouth, which only declined by 4.8% despite the fact that we've reformulated it and put a spirit-based formula that which required increasing pricing significantly. So in that context, it's actually a very good result. The issue is more on the sparkling wines, which are mid-tier from a pricing perspective and suffering because of that. If you look at our higher-priced Mondoro and Riccadonna, you'll see that we have a positive performance, up by 5.3%. To close it up with the local priorities. As we said earlier, the Italian 1 of those very deep suffered. They're very much skewed to the on-premise. And despite international expansion, they were down double digit. On the other hand, our RTDs in Australia were up by a whopping 22.5%. Double-digit growth as well on Ouzo12 and on Cabo. And for the first time, we're mentioning the brand X-Rated, which despite the closure of the high energy outlets in Korea were so extremely well ended up in positive territory as consumers in China and the rest of Asia seem to be taking quite a strong liking to this brand. So touchwood, may continue on par. Last and but not least, some are examples of brand and global campaign rollouts, the much more premium Crodino packaging. With regards to the Appleton range, we removed a Appleton special, so that it's only Appleton Estate at the high end, and we launched that line of Kingston 62. Very successful looking at consumption data, the relaunch of Averna in Italy and Central Europe behind the Open Sicily campaign. Very encouraging launch also of the unaged Arboralis on GlenGrant, which over time, will replace the major reserve. And last and but not least, we started rolling out Bisquit&Dubouché in international markets. So this is it on the brand side, and I pass it on to Paolo.

Thank you, Bob. If you follow me to Page 32, we have the analysis of the EBIT by region, starting from the biggest region, the Americas. Net sales came in at EUR 733.9 million and EBIT at EUR 139.7 million. On a reported basis, including organic change, perimeter and FX, the top line declined by 5.8% in value and EBIT by 18.5%. Now focusing on the organic performance. EBIT adjusted organically declined in value by 21.6% with 4.2% dilution. But if we stripped out the effect of the U.S. destocking, the decline in EBIT adjusted in value would account for 10.5% and the margin dilution for 250 basis points. At gross profit level, we had a decline in value of 9.3%, which was stronger than the top line, leading to 450 basis points in margin dilution, primarily driven by negative brand and channel mix in the largest market of Americas, the U.S. market driven by basically 3 factors. The first 1 was the outperformance of the Espolòn brand with -- whose margin continued to be dampened by elevated agave purchase price. The second effect was a severe destocking in the high-margin brands, particularly SKYY Vodka and the European imports, Campari, Aperol and Grand Marnier as well as, as a third effect, a negative impact from the U.S. tariffs. Looking at the A&P, the A&P decreased in value by 8.3%, more than the top line, leading to 130 basis point margin accretion, driven by a combined effect of cost mitigation initiatives some shifts of investments from off-line to the less expensive online as well as a different phasing for key global priorities, namely SKYY Vodka, ahead of the complete brand relaunch, which will occur in 2021. The SG&A had a slight increase in value by 3.5%, but given the top line decline drove a margin dilution of 100 basis points and that was totally attributable to lower absorption of fixed structure costs. Now if we move on to Page 33, and the SEMEA region, net sales came in at EUR 463.6 million EBIT, EUR 32.5 million, on a reported basis, the decline accounted for 7% in net sales and 63.2% in EBITDA. Organically, adjusted show a strong organic decline, 58.8% in value. And to the right-hand side, you can see 870 basis point margin dilution. And was clearly heavily impacted the region by COVID within the high margin aperitif business in the biggest market, Italy. Gross profit level at the decline in value organically accounted for 20.1%, stronger than top line, leading to 130 basis point margin dilution due, as I said, to unfavorable sales mix, driven by the on-premise closure hitting, in particular, the high-margin aperitif business in Italy, combined with a lower absorption of fixed production costs. In the region, the A&P in value was broadly stable, up 0.4%, driving further 420 basis point margin dilution and reflecting the sustained marketing investments behind key brands. Key initiatives were the Venice Film Festival, which was sponsored by Aperol and the Averna new campaign launch, which occurred at the back end of last year and drove an uplift in A&P spend in the second part of the year. SG&A decreased in value by 10.1%, but remains significantly dilutive, 330 basis points as a consequence of lower absorption of fee structure cost, given the strong top line decline. That effect was partly mitigated by certain cost containment actions, which were basically aiming at reducing as much as the group variable costing, in particularly travel expensing -- expenses, the company hiring freeze increase and also bonuses had a positive impact on the SG&A trend. With regards to Page 34, Northern and Central and Eastern Europe. On a reported basis, net sales came in at EUR 403.7 million. EBIT, EUR 133.2 million, reported change, an increase in top line of 2.5%, and increase in bottom line of 0.3%. Organically, EBIT adjusted grew by 3.2% in value, lower than sales leading steel to some margin dilution accounting for 110 basis points. Gross profit level in value, the increase accounted for 5.4%, generating 80 basis points dilution, which was driven by unfavorable geographic sales mix particularly worthwhile calling out the outperformance of the Russian market, which is very dilutive to the regional and to the group margin performance. A&P increased by 10% in value, leading to 40 basis points dilution with sustained marketing investments behind key brands. And those investments accelerated in the second half of the year as it depend in the Italian -- in the SEMEA region. The SG&A increased 6.1% in value, slightly lower than net sales-generating 10 basis points accretion. Moving on to the fourth and last region, APAC. Page 35, net sales came in at EUR 130.8 million, EBIT, EUR 16.5 million, on a reported basis, top line increased by 1.8% and bottom line by 5.8%. Organically, EBITDA adjusted grew by 9.1%, faster than the top line, generating 50 basis points accretion. EBIT level. Gross profit in value was up 5.1%, ahead of sales, driving 20 basis points accretion, and that was driven by favorable sales mix. With improved profitability on local priorities in Australia, namely Wild Turkey ready-to-drink. A&P was slightly up in value, up 1.5%, generating 40 basis point margin accretion and SG&A increasing value in APAC by 5.1%, driving a dilution of 10 basis point that is attributable to 1 end, the new route-to-market initiatives. And on the other end, to the transfer of the regional offices from Sydney to Singapore. If you move on to Page 37, we have the analysis of the EBIT adjusted. Here, we have a very interesting wonderful chart where we basically go to the root causes of the EBIT decline from 2019, EUR 408 million to the 2020 EBIT of EUR 321.9 million. The key driving factors, as you can see, of the decline were, first and foremost, agave, which had a negative impact in value of EUR 6 million. And then clearly, the U.S. tariffs, which accounted for a negative EUR 19 million. That negative effect was partly offset by the price increase that we took in the U.S. market, which generated an EBIT uplift of EUR 12 million. So the net effect of the tariffs was EUR 7 million negative. And then destocking, which in the U.S. accounted for EUR 30 million top line and EUR 19 million in bottom line that you see here. And then we have the proper gross profit decline, excluding those external factors, which accounted for EUR 63.4 million, driving a net 130 basis point EBIT margin decline. We then had some tailwinds in A&P and SG&A for EUR 6.9 million and EUR 5.4 million, respectively. And then in aggregate a negative effect of FX and perimeter accounting for EUR 3.1 million in value and 20 basis points in margins. If you move on to Page 38, EBIT adjusted. Gross profit on a reported basis was down 8.5% in value with 300 basis point dilution. Organically, the gross profit decline accounted for 8.5% in value, leading to 280 basis point margin dilution. As we saw with the effect that we've already mentioned, the first and foremost, an unfavorable sales mix, driven by the overperformance of lower-margin Espolòn. The underperformance of the high-margin aperitif portfolio in core Italian market, destocking in the U.S. market. And again, of course, the impact of tariffs as well as the effects of the lower absorption of fixed production costs. A&P on a reported basis was down 3.1% in value, 10 basis point dilution. Organically, the decline in A&P accounted for 2.2% in value with a 30 basis point dilution. The SG&A on a reported basis were up basically 0.2% in value were flat with 90 basis point dilution. Organically, we had a decline in value of the SG&A line by 1.4%, with 60 basis point dilution as a consequence of lower absorption of fixed structure costs and notwithstanding the cost containment measures that have been taken. The EBIT adjusted on a reported basis was down 21.1% in value with a 400 basis point dilution. Organically, the EBITDA adjusted was down 20.4% in value with 380 basis point margin dilution, excluding the effect of the U.S. destocking, it clearly is not a recurring effect. The EBIT adjusted on an organic basis would have declined by 15.7% in value with a 300 basis point margin dilution. Now if we move on to Page 39, we have the analysis of operating adjustments, previously called one-offs. They totaled EUR 90.1 million, of which a EUR 35.4 million attributable to brand impairment losses, noncash EUR 16 million on Bulldog, EUR 15.5 million on GlenGrant and EUR 3.9 million on Rhum Agricole as a consequence of the negative impact of COVID-19 on those brand performance. And clearly, those brands are particularly skewed towards GTR and on trade channels, which were impacted at the most. We then had EUR 15.9 million in transaction fees connected to the transfer of the registered office to the Netherlands, EUR 9.9 million as well as transaction fees linked to the new route-to-market initiatives as well as M&A initiatives totaling EUR 6 million. We then have EUR 21.4 million of restructuring costs. The biggest component is the restructuring of the Jamaican sugar business, which accounted for EUR 13.5 million. And then we had a multitude of other smaller reorganization activities, both at central level as well as in the market, accounting in total for EUR 7.9 million. In closing, we have EUR 17.4 million of other costs related to donations made by the group to fight pandemic, some special projects, few legal disputes and also cost connected to the IT restoring operations following the malware attack in November, the last -- the IT restoring accounted for just EUR 2 million. Page 40, profit before tax. Net financial charges came in at EUR 38.9 million, EUR 5.9 million higher than in '19 due to a negative variance from FX. We incurred in EUR 4.1 million losses this year, whilst we benefited from EUR 2.8 million gain in 2019. If we exclude the negative variance on FX, the net financial charges showed a saving of EUR 1 million, despite the higher average net debt in 2020 versus '19. And that was due to a lower average cost of net debt. The average cost of debt is coming down from 4.1% to a 3.5%. This was due, the decrease was due to the reduced average coupon on existing gross debt, thanks to the liability management transactions, which were implemented last year as well as thanks to the bond issue, EUR 500 million bond issue that was completed in October last year, which led to a decrease in the average cost of nominal coupon on bonds and long-term loans from 2.1% -- 2.15% to 1.4%. The reduction of earn out liabilities, draw a positive effect of EUR 18.1 million. The biggest chunk of it is the write-off of the earn out on Bulldog acquisition, accounting for EUR 19.4 million. We then have some small losses on JVs, EUR 2.8 million in Japan, which was negatively impacted by the lower absorption of fixed costs in a context of low sales level. Bottom line, profit before tax was down -- was down by 40.9%, achieving EUR 209.6 million, but the PBT adjusted came in at EUR 278.9 million, down 24.7%. Group net profit adjusted. The taxation totaled EUR 22.7 million on a reported basis. But if we stripped out the positive tax adjustment, which totaled EUR 55.1 million, the recurring income taxes equal to EUR 77.9 million. Worthwhile noting that the positive tax adjustments that have mentioned, the EUR 55.1 million includes a one-off benefit of EUR 29.9 million relating to the remeasurement of deferred tax availabilities as a result of the step-up of the fiscal variance of certain brand and goodwill to their corresponding book values. This is a very interesting new law in Italy which we were in another exploiting, which will drive some significant positive cash effect. It is a positive EUR 120 million cash effect in 18 years, which would reduce the recurring cash tax rate from 23.2% that you see here in 2020 to 22.2% in coming years with deferred taxes on goodwill and trademark that you see here reported at EUR 13 million. They will grow to the level of EUR 19 million in coming years. So after the expiry of patent box, as you know, drove about EUR 100 million of cash savings. We have this new law, which will drive EUR 120 million in the coming 18 years. Page 33. We have the cash flow, the free cash flow analysis. And as always, cash is king. Free cash flow came in at EUR 168.6 million, down EUR 89.8 million. But if you look at what is important, the recurring free cash flow, it came in at EUR 261.7 million, very much in line with 2019 at EUR 167.3 million. So against a lot, the free cash flow generation on a recurrent basis was quite strong and unchanged. Looking at the -- and I will comment, you know that the recurring more than anything else. The key drivers of the free cash flow -- recurring free cash flow performance. We have a decrease in the EBITDA adjusted that accounted for, as you can see to the right-hand side, EUR 79.9 million. From 2019 EBITDA adjusted of EUR 479.8 million to 2020 EBITDA adjusted of EUR 399.9 million. Clearly, the total EBITDA negatively impacted by the already mentioned EUR 90 million operating adjustments. Then with regards to taxes, the -- on a recurring basis, taxes paid came in at EUR 84.8 million. So broadly unchanged versus last year, EUR 81.1 million. With regards to changing working capital. Here, we find the offset to the EBITDA reduction, where in 2019, we had an increase in operating working capital that is a negative in the cash flow for EUR 29.6 million. And this year, we had an operating working capital compression of EUR 43.4 million, so we have a positive variance on the change in working capital of EUR 73 million. That basically leaves the cash flow from operating activities in 2020 to EUR 351.5 million versus EUR 356.3 million of 2019. So even there, at the level of cash flow from operating activities, we have a very stable results. With regards to financial expenses, EUR 25.3 million recurring in 2020 versus EUR 27.9 million, so a tiny reduction. With regards to CapEx in recurring, you see the maintenance cut that remained almost unchanged, 64.4% versus 61%. And this is why we achieved a free cash flow on a recurring basis of EUR 261.7 million. The current free cash flow and EBITDA adjusted clearly jumps up from 55.7% in 2019 to 65.4% in 2020. If we move on to Page 44. The analysis of working capital. Overall, as we saw before, operating working capital decreased in value by EUR 64 million. But if you look at the organic performance, the decline accounted for EUR 43.4 million that we saw before in the cash flow. The increase in inventory accounted for EUR 47.7 million, with aging with a step-up of EUR 20.1 million, mostly linked to GlenGrant and Bisquit cognac maturing inventory uplift. And then the other inventory increased as a consequence of the weaker demand in the last quarter of 2020. Flip side of the coin, the business slowdown in Q4 drove a decrease in receivable of EUR 42 million. We then have an increase in payable of EUR 49 million that is due to phasing. Operating working capital as a percentage of sales came in at 34.8%, clearly down from 2019 by 200 basis points. Going forward, we're expecting that the level of 2019, that was 37.7% operating working capital will not be the level for 2021, but we believe more 1% reduction at 36.7% is what we are currently envisaging for next year on working capital as a percentage of sales. If you follow me to Page 45, we have the analysis of CapEx. They totaled EUR 79.8 million in 2020, of which EUR 64.6 million of maintenance CapEx basically in line with the guidance that you see to the left-hand side, while we had EUR 15.1 million extraordinary CapEx versus guidance of EUR 30 million due to shift of certain projects into 2021. The new guidance for 2021 on CapEx is an overall amount of EUR 100 million with maintenance CapEx broadly unchanged at EUR 60 million and an uplift in extraordinary CapEx at EUR 40 million due on 1 hand to the carryforward effect of CapEx from 2020. On top of that, we had new investments on extra projects, including brand houses and a few other projects. If you move on to Page 46. We have the analysis of net debt. Net indebtedness came in at EUR 1,103.8 million, up EUR 326.4 million over 2019. Positive cash flow, free cash flow, EUR 261 million on a recurring basis, 168.6% on a reported basis. We call out substantial payment commitment for an overall amount of EUR 459.1 million, of which EUR 125 million attributable to acquisition. We then have EUR 62.9 million of dividends and EUR 271.2 million purchase of own shares. This is a portion of the overall share buyback program that you may remember, accounts for EUR 350 million. So we still have EUR 80 million to buy in 2021. Worthwhile highlighting the fact that the amount of EUR 271.2 million does include the investments on the share buyback of withdrawn shares in the context of the re-domiciliation that accounted for EUR 64.7 million. And I would like to call out footnote #4 where we're saying that considering the spot price per share at the back end of this year, i.e., 9.34%, we have a theoretical gain on the share buyback program at year-end of EUR 45.3 million tier that is recognized in equity and not in the P&L as it should be. Page 47, the debt maturity profile is sound and strong. We have long-term euro bonds and term loan that account for the whole amount of the debt, EUR 1,150 million, with a very compelling nominal coupon, 1.42% and a very good interest rate hedging with fixed interest rate accounting for 78% of the overall gross debt. I think, Bob, this is it on numbers. I would add to you.

Yes. Thanks, Paolo. I know most of their listeners are dying to ask their questions. I'd like to take some time to reemphasize some key corporate initiatives, which will be continuing this year and then close up with the outlook. As we said at the beginning of this presentation, digital transformation has really become fundamental for us. We've made a big, big step forward next year, and we're going to continue driving that at speed this year. So it's not going to be impacting only marketing and sales, but the whole company throughout all of the functions. We're going to drive this forward. And clearly, we're also going to strengthen our security as well in a significant manner. Moving on to business development. We are focused -- continuing to focus on Asia. A quick update on the Aperol micro battles. The micro battles unfortunately started half a year later due to the lockdown of China in the first half of last year. But they've given us quite a bit of satisfaction. We've had very good consumer and trade feedback from western style restaurants and bars, which could really end up being a meaningful volume on itself. And currently, we're also in field with micro battles in Asian Socials, karaoke bars, et cetera, and we're learning a lot on how best to position the brand and the drink in that channel. So on the basis of that, we're going to have a scale-up of those tests in the first half of this year and then really go out into the market in the second half of next year. Encouraged by these very nice results in the Chinese consumer and trade appeal for the brand. We've also decided to make a big change in our route to market we've had a fantastic relationship with our previous distributor who are a class-act company, but we felt we needed much more feet on the ground and expertise in the on-premise to satisfy our ambition on Aperol and the rest of the portfolio. So as of March 1, the distribution and the trade marketing of our brands will move on to a company called Telford, which has been very successful with a few western brands in recent years in the on-premise. So that gets us quite excited. With regards to South Korea, we've anticipated the controlling interest in the joint venture. The team is a great team that will remain with us. But we've extended our controlling interest of 51% as that geography starts becoming more important for us. Last and, but not least, we'll be also moving part of our portfolio to a new distribution setup in New Zealand. In terms of major initiatives, we're really formalizing and becoming much more communicative with regards to our sustainability road map. Historically, Campari has always done the right thing from a safety and ability perspective. But probably, we weren't very good at communicating what we do. And certainly not doing it in an organized fashion. So we're starting to do that both internally and externally. And the blocks are -- which we identified are quite clear. It starts with people, which are our most important assets. You'll see we run regular internal surveys with the Great Place to Work. And you can see how we've been really improving our trust index over the years as well as the overall rating. And we've been gaining a Great Place to Work accolades in many, many markets. And this fuels, obviously a virtuous cycle as we keep on improving things going forward. Our commitment with a big focus and rollout this year is on our inclusion equity and diversity program, which will make quite a difference, not that much in -- from an operational standpoint, but I think it will really clarify that the true culture within the company from a performance standpoint. We're driving forward our learning project by the learning distillery. This will become almost a in-house university for all Camparistas. And we're also rolling out an employee a ownership plan, which will impact all Camparistas irrespective of the level and where they work. So clearly, beyond those, which were already heavily exposed to the -- to our LTI programs. Now everybody else will be aligned and that will reinforce even more, I think, our performance and meritocracy based culture. In terms of responsible practices, this is probably an area where we've communicated on a regular basis in the past. We will continue doing that and take it to the next level. With regards to the environment, we're formally committing to significant reductions in greenhouses, water and waste management between now and 2025, we aim to reduce greenhouse gas emissions by 20%. Water use by 25% and move on to a 0 waste landfill position by the end of 2025. And on community, this, again, is something which has been in the DNA of the company since its founding in 1860. We will continue our culture and education program as well as our charitable activities, which are significant. So this brings us to our outlook. I think it can be summed up very simply by saying that looking forward, we have cautious confidence in the short-term and are quite optimistic about the buoyant long-term business momentum, fueled by very healthy brands and strong consumer pool. 2020 performance showed we believe very strong business resilience and brand momentum and key off-premise brand market combinations, clearly underlining consumers' love for our brands and our cocktails. And these trends are really sustained and continuing into this year. Looking into this year and beyond on an organic basis, as I said earlier, our brands are quite healthy and have a strong consumer pull. So we feel good about that. I can comment [indiscernible], it is normal that we remain cautious, at least for the first half of the year due to the uncertainty related to the ongoing restrictions as well as the vaccine rollout, particularly in Europe and how that will be affecting the on-premise channel across our geographies as well as global travel retail. We have no doubts that home consumption remain very sustained, and we will view this by continuous marketing investments as well as initiatives, our advertainment efforts and digital activities are really paying off. With regards to destocking activities, we're happy to say that we've completed them in the U.S. So our shipments are expected to progressively align with consumption trends. And we will continue to leverage, if not take to the next level, all digital and online investments, which are, again, being very, very rewarding for us. And we would strengthen our online channel approach to sales. Net in net, we're adapting very well and very quickly to the new normal, particularly e-commerce and will bear the benefits of that in the years to come. Lastly, we remain quite confident about the long-term consumption trends and growth opportunities as well as the strength and resilience of our brands, especially in an environment where we believe that [indiscernible] will make a big return once the large majority of populations have been vaccine. The 1 call out, though, is that with regards to perimeter and ForEx, we expect to be negatively impacted this year. So the group's EBIT adjusted in 2021 will be impacted by a EUR 9 million hit on [indiscernible] mostly due to the termination of agency brands, particularly 1 large agency in Germany, which will also enable us to concentrate much, much more on our own portfolio and brands. And lastly, a 13 million hit in ForEx monthly arising from the weak U.S. dollar as well as some emerging market currencies. So this is it on our side. I see there are a lot of questions, so let's open the session to your questions.

[Operator Instructions] The first question is from Simon Hales with Citi.

I've got 3 questions, please. Bob, could I just start and just pick up on your very final comments there around the perimeter impacts in 2021. Are you able to share a little bit more detail there? What's the top line impact perhaps of those changes as well as that EUR 9 million EBIT impact? And are there other agency brands that you perhaps would be looking to exit relationships with in future perhaps on 2021? That's the first question. Secondly, you obviously talked about the strong growth you're seeing in the e-commerce sort of business. I wonder if you could just comment a little bit about the margin structure of your different businesses in different markets that you're seeing there? And how does it really compare to the margins you enjoy in the more traditional trade channels? And then thirdly, maybe one for Paolo around just the moving parts of the margin in 2021. I know a lot of it will be dependent on the speed of recovery in the top line. But if we think about some of the things that you can control, obviously, the absence of USD stock this year, how do we think about the right level of A&P spend? And any comments perhaps around agave and raw material cost there? So lots of questions.

Thank you, Simon. It's always good to have them. Let me start with the first 2. The perimeter impact from the discontinuation of the agency brands is EUR 33 million at the top line, EUR 9 million from the bottom line. And most of it is due to a very large agency, which we've had for the past 5, 6 years in Germany. It has been a very good partnership, but both sides decided it will be better to part ways because we want to really focused on the great opportunities we have across our extended portfolio. And I think the other party wanted more focus. So net in net, I think this is going to really improve both our relationship with customers and the dedication we give to our complete portfolio, not just the aperitif in Germany. Now with regarding to e-commerce, it's become very -- quite important for us, and we'll be driving that forward nicely going forward. Frankly, on marginality and trading terms standpoint, there isn't much of a difference versus our existing off-premise customers. The only difference, though, I would say, is that the mix is actually richer because we tend to sell more premium brands there. So because of that, it tends to be slightly more profitable than our regular off-premise.

Yes. With regards to the margin trend in 2021, well, clearly, Simon as you correctly pointed out, there is a lot of volatility and many moving parts around. So it's very difficult to give at this stage a clear guidance. But if we go back for a second on Slide 37, where we have the waterfall showing the big effect. So the first 1 is agave. Agave was a negative EUR 6 million last year. For 2021, we're not expecting any impact from agave. So we're at the moment on wait and see, but our base case for the time being is neutral agave impact, which means that if there will be any increase in agave, we will offset it via price increase. And potentially, there might be some opportunities, but it's still neutral at this stage. With regards to the second building block of the waterfall, the U.S. tariffs, it's a big, big opportunity. It's a EUR 19 million opportunity, if the U.S. administration decided to discontinue tariff. Clearly, the price increase that accounted for in value, EUR 12 million is testing to stay. So this is an opportunity of EUR 19 million if and when. Sorry, going back to agave, we're expecting to be neutral, but we always remind investors that the overall effect, negative effect of agave at year-end, if we look at agave price where it should be in a normal market condition, the overall opportunity is EUR 30 million. So it's a second big bucket of opportunity. With regards to destocking, clearly, we said market has been fully stopped. We're not expecting any restock at all. So no positive. If anything, marginally positive, but for sure, no negative effects. With regards to gross margin, then organically, we believe there are very good chances of achieving gross margin expansion next year. So we will start recovering the loss of gross margin that we saw last year. And with regards to A&P and SG&A, we're not expecting any meaningful impact. So broadly in line with top line. So that's the current stance will be clearly more precise as the time goes by, presumably, H1 we'll be in a position of once we have at least Q2 under our belt to give a guidance for the full year.

So that's really helpful. And can I just check, Paolo, that you're still expecting about a EUR 6 million benefit in terms of the restructuring of the Jamaican sugar business this year?

Yes. Thank you for reminding me that. Yes, it's confirmed.

The next question is from Mitch Collett with Deutsche Bank.

I guess the first question I'd like to ask is on A&P where you held the ratio broadly flat despite the on-trade clearly being very challenged. I guess that means you've pivoted your investment towards off-trade pretty quickly when lots of other alcohol players have ended up reducing A&P due to the on-trade weakness. I'd love it if you could comment on how you're able to pivot that quickly? And then secondly, on the SKYY brand relaunch, I guess, you show in the slide how you've changed the bottle. I'd love to know broadly what are you doing differently? How will the relaunch affect your pricing strategy, if at all? And what would you see as a successful outcome of the relaunch of that brand?

Thanks for your questions. Yes. I mean, effectively, we've been very, very agile last year. I mean when the first lockdown occurred, we pivoted within 2 weeks across the globe, across all of our brands. And we've put a big focus on the off trade on e-commerce and move from off-line marketing to digital marketing. This was centrally driven, and we very quickly develop new assets for all of the markets. And we've really benefited from that. At 17.5%, we've moved a lot of money from off-line to online into entertainment efforts into storytelling efforts in the e-commerce into really creating almost on-premise opportunities in the consumer's home, it goes through all sorts of activities as well as events. So the additional benefit, though, is that whereas we've maintained spending overall, the ROI we've got under spending has been far, far superior. I mean, the efficiency, the targeting and you see that in the acceleration and the big leap, which we've had in off-premise growth and taking market share versus competition. Moving on to SKYY. I mean, SKYY is a complete relaunch. I mean you have a fine-tuned liquid, you have a completely new positioning, packaging. We're not going to touch pricing. I mean, pricing is not really the area to go in U.S. vodka. Potentially, we'll be able to reduce, I think, promotionality. We have to see how it goes. And we would look at improving size mix as well and sell more of the smaller sizes, which are more profitable. I mean success for us means starting to take market share in U.S. vodka. The tests were very, very positive across all the blocks. But obviously, the proof will be in the pudding.

Next question is from Laurence Whyatt with Barclays.

Two questions for me. Firstly, on the slides you focused a lot about how you've gained share and improved your performance in the off trade. Given Campari has traditionally been quite an on trade business, how much of that would you expect to maintain as we start to return to the on trade, hopefully with the benefit of the vaccine? Or do you see Campari in the future being more skewed towards the off-trade than it was pre-pandemic? And then secondly, it's great to see that you're going to be disclosing more of your environmental credentials. Can I just ask a small 1 about your water usage? A lot of your competitors have got targets around where they use and return water in water-stressed areas. I was wondering as well as the targets you have around water use, do you have any internal targets around returning water in water-stressed areas?

Yes. Let me take the second 1 first. I mean, we have really the benefit of not having any plants in any water-stressed area. So that's why we haven't put any targets against that. I mean, we're -- all of our plants in distilleries in areas where there's plenty of water. But obviously, also there, clearly, we're releasing clean waters back into the system. So we feel very good about that. Now with regards to the offers on debate, we estimate that throughout 2020, we had a 10% shift on a group level of our sales from the on-premise to the off-premise. We would expect that at least in the next 2 to 3 years, consumers will continue to consume quite a bit of spirits at home. I mean, having gone through overcoming, let's say, their hang ups with regards to producing high-quality cocktails at home, we think that, that trend is here to stay, at least for the short to mid-term and we would expect to continue taking market share and growing over proportionately there. Because as we said, the of off-premise, which is a combination of bricks-and-mortar as well as e-commerce has really revealed itself as a very interesting channel to do brand building. And it's been very rewarding for us, and we'll continue doing that. So we would expect that momentum to continue. And we look forward to when we'll be able to continue to start again to spoil cocktail lovers in the on-premise because we see that every time that on-premise opens irrespective of the country, we've got a very, very big return to the reality, which is on top of what is happening in the off premise. So it's a good position to be in.

The next question is from Edward Mundy with Jefferies.

Three brand questions, please. The first on Aperol, you talked about unparalleled affection with incredibly strong off-trade growth in certain markets, Germany, U.S. Russian and U.K.? And you also talked about creating this on-premise opportunity in consumers' homes. Do you have any sense as to whether the greatest from increased frequency of existing consumers? Or have you been able to recruit new consumers into the brand franchise? The second 1 is on Espolòn as a brand. It's now 5% of net sales just below Grand Marnier. I think you talked about some better performance in Canada, Russia, Australia, at what stage are you ready to make this a regional priority to a global priority? Or another way, do you think you can leverage your distribution platform to grow tequila meaningfully outside of the U.S. into the rest of the world? And then the third is on Grand Marnier. As you've seen, Cognac had incredibly strong growth in the U.S. in 2020. I appreciate that it's been quite trickly getting momentum given the destock in the U.S. as well as the brand is more exposed to the on-trade. But to what extent do you think you can get consumers into the brand as a sort of orange flavored cognac?

Thanks, Ed. With regards to Aperol, I'm pleased to say that we've been able to actually attract new consumers into the franchise. I mean the data is showing that because what we've done is both in the regular off-premise as well as in the on premise, we've offered them ready kits. So you would have your Aperol with the prosecco as well as glasses. It made it as easy as possible for them and very entertaining by our entertainment efforts, and they have paid off. We've received many compliments, particularly in the e-commerce arena from our customers on that. And we've done the same, to be honest, also on the Campari franchise, obviously, at another rate. So Aperol is responding very well to our digital efforts and our efforts to recreate as much as possible an experience for consumers back at home. With regards to Espolòn, I think we're very, very close to upgrading the brand into another cluster. It's a great brand. It's resonating across all consumer segments in whichever country we go into at this moment in time, we're trying to reserve as much volume possible for the U.S., which is our #1 priority. That might slow down some international rollouts. But there is no question that this is going to become quite a meaningful brand for us. And that we believe there's an opportunity for tequila outside of the U.S. which doesn't necessarily have to grow through the Margarita. Actually, what we're really pushing internationally is the Paloma which is Espolòn Blanco with fruit juice, and that's resonating very, very strongly. With regards to Grand Marnier actually, if you consider the Grand Marnier in the U.S. was overly skewed to the on-premise the fact that we were able to grow by 38% in the off-premise shows that we've been attracting new consumers into the franchise. And that is also validated by the data we get. So new consumers stuck at home, wanting to have margaritas and we've done a big margarita push. And again, here, we were able to create virtual kits around our brand and offering ready-made solutions to the consumers, have really brought younger consumers into the franchise. So we look very forward to that. At the same time, what's going to be very important is also the premiumization we're growing through. And that is a difference if you like type of consumption of the brand, it's much more closer to cognac consumption, and that seems to be resonating also very nicely.

The next question is from Andrea Pistacchi with Bank of America.

I have 3 questions, please. The first 1 on Italy to understand a bit the situation there. Q4 was clearly impacted by the lockdowns. So what is the situation with wholesaler stock levels in Italy, you referred, I think, to the fact that this year, there wasn't a normal pipeline filled there. And I know it's very early days now, but the restrictions have been eased in Italy a few weeks ago. Have you seen a clear improvement there? And what you think about Italy this year? I appreciate visibility is low. Then more broadly, on the on trade, if you sort of think of your main markets, now the -- I mean, a lot of accounts have obviously been hit hard by the situation. What percentage of on trade do you think won't reopen, unfortunately, over -- in your main markets? And my last question, please, is on China. If I could just get a little bit more detail on some of the things you were saying on your plans for China. So based on what you've learned with your test and with the micro battles, will the positioning, do you think the positioning of apparel there in terms of price, in terms of where you serve it? Will it be different from other markets? And also, could you give a sense of the breadth and the distribution reach that you'll be able to achieve with Telford in terms of cities or feed on the ground or something like that?

All right. Andrea, thank you. Now with regards to Italy, I mean, the situation in Italy is pretty simple. It's a little bit of a shop and go situation. At the moment, the regions turn into yellow and the on-premise is allowed to open during daytime, there's a huge boom. I mean we see -- we also own outlets, and we see people queuing up to get in there. So there's a very, very strong demand for conviviality and the ability to sit around a table and sip an Aperol Spritz or a Negroni or an Americano. So the pent-up demand is there. Currently, we're in a positive phase. Frankly, we really don't have any visibility as to what's going to happen in the next 6 months. As you know, in Continental Europe, we're behind the U.K. with regards to the rollout of the vaccines. So we'll have to wait and see when the opening of the markets become permanent. But if they do, we know that we're going to have a very nice boost, let's keep our fingers crossed. With regards to wholesalers and as well as the on-premise outlets, with this stop-and-go situation, they've been very, very careful is to not build any stocks. So it really is a time touch-and-go situations. So we've come into very, very low stocks in the wholesale segment globally, but particularly also in Western Europe. If the market is open, let's see what happens. Certainly will have an impact on our supply chain, but we're ready for that. I don't have any precise data on the percentage of on trade, which will not reopen or hasn't reopened, but I would estimate depending on the market, it's going to be anywhere between 10% and 25%. And this is also what I'm hearing from our key distributors as well as key wholesalers. In terms of learning in China, I mean, the good thing is that we found out that actually the global Aperol model works 80-20 in China. The drink doesn't have to be changed. It is the Aperol Spritz with our proportion. In Western style, restaurants and in bars, it is the signature serve in the wine glass and with training, we see that the staff is able to deliver the right drink. The pricing is slightly more premium versus beer than what we would have in other markets. If you look at just that opportunity, I mean, somewhere in 3 to 5 years, we believe we can have a business as big as the ones we have in France. And this is only in that limited channel. The big difference is going to be cracking the Chinese on-premise outlets, particularly the informal restaurants so-called Asian Socials, the karaoke places. There, it seems as if the ready-to-drink proposition is more meaningful, works a lot easier. And we can deliver a much better drink. So we're still going through that, but it shows us a potential in that area. It takes a lot more explanation to do to the end consumer. But then again, with our new partner, which is about, I would say, close to 10x as many feet on the ground as our previous partner in the on-premise and particularly very targeted into both this -- the western part of the market as well as the modern Chinese, I think that will do us a lot of good. We've kicked off of the training already a month before. So the ready in the starting blocks as of the month of March. And as I said, we'll use the first half of the year to scale up the tests we've done last year and then roll out in key cities in a broader way in the second half of the year.

The next question is from Trevor Stirling with Bernstein.

I guess most of the questions have been answered. But 1 question, Bob, coming back to the U.S. reopening. The spirits category has been a big beneficiary of COVID in terms of the increased penetration at home. Where are you seeing states like, let's say, Florida or Texas, which has started to reopen owner and others, are you see people bringing those habits with them back to the on trade?

That's a very good question, Trevor. What we're saying is that currently, this in-home consumption seems to be building momentum. Also in states which are opening because I think to a large extent, climatically in quite a few states. I mean, if you take Texas, it's probably not the best time to go outdoors. And at the same time, consumers have grown confidence. They've seen that there is -- they get more out of their dollar in in-home consumption. And we're seeing that penetration grow. . And with the arrival of e-commerce, much more of an exploratory mode. It is much easier to explore the virtual aisle, which is also richer in terms of experience because there's a lot of storytelling and entertainment happening there, which then gives them the incentive to be a little bit more courageous and try new things. So we would expect that trend to continue for a while.

And I guess a follow-up, combined with something you said earlier. It sounds as if you're definitely reexamining your model about how to build Aperol for the off-trade to have a much bigger role than that?

Yes, definitely. I mean the Aperol model has been built on the on premise. We've been very, very successful on that. But now that we're seeing that we're also successful with the off-premise clearly, this brings us to modify our approach in many markets.

The next question is from Fintan Ryan with JPMorgan.

Just 2 questions for me, please. And then just 1 clarification. Firstly, could you give us some update on the inventory IT systems due to the malware attack, the call back in autumn, seem to be quite dramatic situation. So -- and now you have quite a small charge in the P&L from that. But are you sort of rethinking our approach towards your digital infrastructure '19 investments? I guess I right with where you're talking about the gains in e-commerce? Secondly, just could you clarify the impact on the tax rates. I appreciate the new recognition of goodwill, you said it's going to have a lower impact in terms of the cash tax rates going forward. But just in terms of the adjusted tax rate in the P&L, is that still going to be around sort of 27%, 28%? And then finally, I think just going back to your point around [indiscernible] occasion for the Espolòn brand. Do you have any particular partners for that? Particularly thinking of some U.K. listed mixes company who've made a big push behind that great free so the on location. So do you think you can push that yourself? Or you would be looking to go partner with other sort of soft drink brands to help that expansion?

I'll take that last question. I mean, with regards to the, we work with different partners, print markets, including the U.K. listed company. So we're pretty agnostic there. We believe that the focus needs to be more on the tequila than on the type of soft drink you're using.

Yes. With regards to your first question, the impact on IT from the malware attack, all systems have been fully restored. We're back to normality since the beginning of January. So basically, we went to suffer a little bit for a couple of months. The costs are, I would say, contained a couple of million euros, not more than that. With regards to future costs, we have a plan of further lifting our cybersecurity measures. And the cost of that plan is as well as the investments that will be made to support the digital transformation are fully reflected in our CapEx guidance as well as your leading the OpEx, we do not have a guidance, but still, there is nothing that will be seen as a better surprise going forward from a CapEx and OpEx perspective. So I think it was quite a tough period of time for us, but I think we're definitely touching were part of it. With regards to the second question, that is the tax rate impact, so basically, just to give you a little bit of color, basically, in Italy, the government allowed Italian corporates to realign to their book value, the fiscal values of intangibles, both trademark and -- trademarks and goodwill. So basically, we took the -- being the key tax contributor in Italy, we have strong interest in exploiting that opportunity. So basically, what happens, we will pay a 3% tax to uplift the fiscal value of the tax of the tangibles. The cost of that tax is about EUR 15 million. And in doing so, we would achieve tax savings over the EUR 18 horizon of EUR 135 million, which means that we have a net positive effect of about EUR 120 million. How does that reflect into our P&L and cash flow? So basically, you have a cash flow compression of about EUR 6 million from 2021 onwards. And that cash flow -- sorry, cash flow compression, a cash flow increase of EUR 6 million per annum from 2021 onwards corresponding to the total amount of EUR 120 million. So basically, this is to say that in the P&L, on the contrary, the tax saving is then offset by the accrual of deferred taxes on goodwill and trademark amortization, other EUR 6 million that I'm mentioning. So basically, in that sense, the recurring effective tax rate will stay unchanged at the current level of 27.9%, while what really matters is the recurring cash tax rate will drop from 22.2% to -- from 23.2% to 22.2%, 1% below the current level, with positive effect on cash flow of EUR 6 million.