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 First Half 2022 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Bob Kunze-Concewitz, CEO of Campari. Please go ahead, sir.

Thank you. Good afternoon everyone and welcome to our half year call and another strong set of results. If you follow me to Page # 2 our presentation, I'd like to kick off with the overview. Indeed the first half year was quite strong. Net sales that's EUR 1.257 billion grew by 19.2% on a half year basis and importantly if we stack that up versus the pre-pandemic era, it's an increase of 45%. Clearly we had strong momentum also in Q2 where we grew by 12.5% in this despite a very tough comp base, you recall that we were up by 54% in the same period last year. And also we need to take into account the favorable reversal of the Q1 2022 effects. Clearly, the great results were driven by very healthy brand momentum across the portfolio, but particularly by the aperitifs, which benefitted from very favorable weather conditions in Europe as well as the fully reopened on-premise. Moving on to EBIT, adjusted EBIT, the EUR 310.9 million also growing very strongly 28.2% on the half or 68.2% versus the first half of 2019. We also have nice margin expansion driven by the robust top line. We managed to limited the gross margin dilution to 10 basis points thanks to the positive sales mix by brand as well as in channel and in particular as I said earlier thanks to the outperformance of the high margin aperitif portfolio. Clearly pricing started to kick in as well in Q2. And all of the factors together were able to largely offset the accelerating, unfortunately accelerating input cost inflation. We had sustained investments behind both A&P and SG&A, but at the same time delivered margin accretion, thanks to the strong top line. On the ForEx side, very good news. Very positive ForEx effects, 6.9% on sales and even stronger 11.1% on the adjusted EBIT and [ this you would ] clearly expect driven by the very strong U.S. dollar. Net debt on EBITDA adjusted came in at 1.7x, so it's a slight increase of 0.1 due to obviously a series of factors including acquisitions. Moving on to Page #3. You see that strong growth is actually both across all the regions and the brand clusters, the Americas, SEMEA and North and Central Europe were all up double digit. APAC was only up high single digit because they were impacted clearly by the lockdowns in China and in a very poor weather as well significant logistical challenges due to importations in Australia. Looking at this from the cluster standpoint, very strong global priorities up 22.2%. Again, very strong regional priorities up 22.6% whereas the local priorities were impacted by our RTD business in Australia and only grew by 6.9%. Rising into the analysis by key markets U.S. was up 7.1%, continued nice growth across core brands with an acceleration in Q2 where we're up by 7.5%. And this despite the very, very tough comp base, clearly last year we outperformed significantly where we were up by 42.6% in Q2. Key drivers here is strength in the on-premise where we skew much more than our peers and nice and resilient home consumption for our brands. Core Wild Turkey bourbon grew by 26.1%, Espolon by 20.1%, Aperol 20.7% and Campari by 26%. So very good across the board. Grand Marnier unfortunately was penalized, it's negative in Q2 due both to very tough comp base as well as some volume constraints due to glass availability issues. SKYY also declined in H1, broadly flat in Q2 as it is basically going against the re-launch -- the setting of the re-launch in the first half of last year. Looking at organic growth on a 3-year stack in the U.S., we are up by 32.9% versus the first half 2019, which brings a 3-year CAGR of 10%, clearly outperforming the market. Canada up 4.5%, positive overall growth of Grand Marnier, Campari and SKYY. Q2 was flat against again a very tough comp base particularly for the large local Forty Creek business. Jamaica, continuing to go from strength to strength, up by 22.6%. The strong growth in Q1 continued in Q2 where we were up 25.4% and the key suspects here continue to be Wray & Nephew Overproof, Appleton Estate, the rest of the rums portfolio and Campari. The rest of the Americas region grew a very strong 35.7%, with consistent double-digit growth rates across all of our key markets, and to very positive consumption trends for our portfolio. Moving on to our second largest region, Southern Europe, Middle East and Africa, which was up by a whopping 28.1%, star performance here by Italy up 29.6% with clearly an outperformance in Q2 following Q1. We were up by 12% in Q2 despite a very tough comp base. And I'm very pleased to say that revenge conviviality is alive and kicking in this markets. And we were also, to be honest, helped by very good weather. Our aperitifs continue to outperform, Aperol up by more than 1/3, 35.4%; Campari almost by half, 48.1%; and also a very good performance of our nonalcoholic key brand Crodino up by 1/3. The amari portfolio also came back nicely up 38.9%, thanks to renewed strength in the on-premise. Looking again, making the comparison versus the first half 2019, Italy is up by 35%, generating a 3-year CAGR of 10.5%. France was up 4.9%. You've got to bear in mind that last year, France was up by 60.4% in Q2. So clearly, the comp base had an impact. But overall, quite positive, again, very nicely driven by Aperol and Riccadonna and the conquest of the Peninsula [indiscernible] spreads. Moving on to the rest of the Southern Europe, Middle East and Africa, very, very strong, up almost 55%. Spain was up 84.6%, South Africa, 7.3% and GTR was also performing very nicely, recovering the shortfall to the pre-pandemic level by growing by 110.7%. Moving on to North and Central Eastern Europe on Page #5. The whole region is up 24.8% with a star performance of Germany up by 34.8%, very strong performance in the half as well as in Q2, where we were up by 31.3%. And here, we're seeing very nice and resilient home consumption, combined with the very buoyant on-premise as well as favorable weather. The performance was largely led by the high-margin aperitifs business, which grew strongly, Aperol by 54.7% with the Aperol Spritz ready-to-enjoy by close to 130%, Campari by 11.9% and Crodino, which is making nice growth, by 43.8%. The organic growth versus 2019 was up 47.3%, leading to a 3-year CAGR of 13.7%. Moving on to the U.K., continued strong growth, double-digit growth in this key market now up 18.5% despite again a tough comp base, we were up by 37% last year, and it's mostly driven by Aperol as well as the Magnum Tonic. The rest of the region was also a strong double-digit, 19.2%, with very nice performances across markets, including Austria, Switzerland and Belgium, largely led by the aperitifs as well as Crodino, which is continuing to expand its international footprint. Moving on to APAC, which was negatively impacted, particularly Australia, only up 2.1%. This overall performance was driven by a slightly negative Q2 where we were very affected by poor weather conditions as well as significant ocean freight constraints, which impacted, in particular, the availability of the Wild Turkey ready-to-drink business. As you know, that's about 2/3 of our total Australian business. So clearly, that was quite meaningful. The growth, on the other hand, was driven by Campari in Wild Turkey bourbon. If we look back at the 3-year stack, again, up 34.6%, very nice a 3-year CAGR of 10.4%. If we look at the remainder of the APAC region, it's up double-digits, strong 19% despite obviously the negative performance in China. We're doing very well in South Korea up almost 125%, thanks to a pretty stark acceleration in Q2, driven by the high-end offerings of Wild Turkey, X-Rated, The GlenGrant and SKYY. China, as I said earlier, was negative due to the snap lockdowns in relation to the zero-COVID policy. And Japan was negative due to shipment phasing. In the rest of the continent, we have continued momentum everywhere across all of our key [indiscernible]. Moving on to the analysis by brands. Aperol, on a total basis, grew organically by 37.3%. Clearly, all the core markets up very strong double digits, Italy 35.4%, Germany 54.7%, France, 39.6%, Spain more than double, actually triple and the U.S., also strong double digits. And in all city markets growing at an even stronger rate. Clearly, we're back into major activation and consumer recruitment mode, and we will maximize this in the remainder of the year. Campari also doing very nicely, up 32%. Again, Italy is the hero here followed by the U.S., Brazil, where we doubled the business and Jamaica also going very nicely. Happy to say also that Germany, Nigeria and Spain are all key markets continuing to benefit from the at-home mixology trend. Clearly owning free proprietary cocktails as well as having a consumer-driven push for the Campari spritz augurs very well for the future. I'm also happy to say that the brand reacted very nicely to the price positioning. So all green. Wild Turkey, also doing very nicely, up 18.1%. The U.S. very strong, up 28.2%. Sorry, the Wild Turkey bourbon part of it grew by 28.2% once the U.S. grew by only 26.1%. Australia, up nicely 8.1% and South Korea having strong triple-digit growth rate. Our higher-end offerings Russell's Reserve grew also very nicely, 22.5%. SKYY is the only, let's say, negative mark in the global priorities brand. And this is due to overall negative shipments in the core U.S. and China. The U.S. due to the anniversary of the re-launch last year and China due to the lockdowns. However, the rest of the world is doing very nicely. It's up by 51.8%, mostly thanks to Canada, Argentina as well as Italy. Grand Marnier flattish after weak shipments in Q2 in the core U.S. as we have not only a tough comp base, but also glass constraints, which unfortunately will also continue in the second half of the year. Our Jamaican Rum portfolio up by 15.6%, Appleton Estate up 12.5%, Wray & Nephew Overproof 12.7%, and we're continuing to do very nicely across all key markets. Moving on to Page #7 and our regional priorities. Espolon continues to do very, very well, up 20.3%. Bear in mind that in Q2 2021, we were up by 52%. So on the basis of such a tough comp base to grow double-digit 20.3% is clearly a fantastic result. And it's mostly driven by the U.S. as we're quite constrained on this brand, and we're dedicating all available volumes to its largest and most profitable market, the U.S. The Italian visitors portfolio up 28%, nicely boosted by the on-premise skewed Italy, particularly for Averna and Braulio. Frangelico responding very well to the Espresso Martini in the U.S. as well as Spain and Germany. If we look at our Sparkling Wines, up 26.3%, France clearly boosting -- continuing to boost Riccadonna and Italy doing very well on Cinzano. And these numbers obviously also includes our self, let's say, driven move of reducing shipments in Russia. Crodino growing very, very nicely, 44.6%, doing very well in its core market Italy as well as in all of its seeding markets. GlenGrant continued to respond very well to premiumization, up by 34%. And here Asia is making -- is being the protagonist. Aperol Spritz up by 37%, mostly driven by Germany as well as the limited rollout in some international markets. Magnum, unfortunately, is down by 6.3%. And here, we were impacted clearly by raw material availability issues, and we've been obliged to actually ensure continuity of shipments in the U.K., which is a higher margin market at the expense of the home market of Jamaica. The other brands also doing very nicely to the portfolio. Moving on to Local Priorities. Campari Soda consistently performing very nicely, up 7.2%, mostly driven by Italy. Unfortunately, due to product availability issues and out of stocks RTDs in -- Wild Turkey RTDs in Australia only grew by 1.8%, and X-Rated was impacted by the lockdowns in China and it's down 8.7%. SKYY Blue continuing to do very well in core Mexico, up 24.6% as well as Cabo Wabo doing very nice in its core U.S. market, up by 21.7%. This is it so far on the top line, and now Paolo will take you through the intricacies of what happens below.

Thank you very much, Bob. If you follow me to Page 10, we have the financial reduce action. As you can see there, the net sales organic change in the first half accounted for 19.2% and the net sales value growth in the second quarter on a stand-alone basis accounted for 12.5%. Looking at EBIT adjusted organic performance in the first half. EBIT was up in value by 28.2% with a very robust margin accretion of 170 basis points versus a year ago. If you look at the second quarter in isolation, EBIT was up in value by 14.8%, actually stronger than top line with 100 basis point EBIT margin expansion in the second quarter. Looking at the first half, the margin expansion of EBITDA was driven by a combination of factors, gross margin. At gross margin level the dilution has been contained at 10 basis points, thanks to the strong sales mix, which as we saw before was driven by the outperformance of the aperitifs as well as the significant positive effect of price increases in the first half, which combined largely offset the accelerating input costs inflation that we've seen in the second quarter. We then had an increase of 18.7% in value, reflecting sustained investment behind the key brands showing 10 basis point margin accretion, thanks to the robust top line that we've previously commented. The accelerated investment in the second quarter led to a 17.7% increase in value of the A&P spend with 80 basis point margin dilution. The SG&A line increased by 9.8% in value in the first half, but lower than top line, generating in so far 170 basis point margin accretion. On a reported basis, EBIT adjusted grew by 39.3% in value with a 140 basis point margin accretion, where perimeter effects were actually negligible as the combined effect of agency brand termination offset the first time consolidation of the Picon acquisition. On the other hand, ForEx was highly positive at EBIT level with an 11.1% increase and 60 basis point margin accretion due to clearly the transaction effect of U.S. dollar revaluation versus the euro on imports in the U.S. market. EBITDA on a reported basis was up in value by 34.9%, of which a very healthy 24.7% was driven by the organic performance of the business in the first half. If we move on to the following page, we have the segment reporting. Looking at the EBIT, organic margin performance in the Americas region, EBIT accounted for 43.1% of the overall group EBIT with an increase of 8.8%, but on the other hand, margin dilution of 80 basis points, which was driven by a gross margin dilution of 90 basis points, mainly driven by unfavorable geographic sales mix, the outperformance of Espolon, with high aggregate cost as well as input cost inflation. Those 3 factors that were only partially offset by the pricing measures we've taken in the first half. A&P was diluted by 50 basis points due to the accelerated market investments behind our key Americas brand. The SG&A was accretive by 60 basis points, thanks to the sustained net sales growth in the first half. Moving on to the SEMEA region, its EBIT accounted for 24% of the overall group EBIT and showed a remarkable increase of 87% in value. The business last year was heavily hit by pandemic, given its strong exposure to the on-premise and the GTR channel. And then in the first half of this year, largely improved EBIT weight on 2022 due to the business recovery in the -- as said, in the on-trade channel. EBIT adjusted margin improvement accounted for 630 basis points that was driven by the combined effect of gross margin expansion, which accounted for 90 basis points driven by mix improvement with the performance, obviously, of the high-margin aperitifs business as well as the pricing measures we've taken in SEMEA, which the 2 factors more than offset input cost inflation, which as said accelerating in the second quarter. A&P was accretive by 80 basis points, thanks to the strong topline growth, despite sustained investment behind our key brands to benefit also from the on-premise full reopening primary in onshore markets like Italy. SG&A line was accretive by 470 basis points, with strong top line driving operating leverage. In Northern and Central European region the EBITDA accounted for 30% of the overall group EBITDA. And even here, it showed a very healthy 26.5% increase in value with -- combined with a margin improvement of 50 basis points, which was driven on one hand by a gross margin dilution of 130 basis points, with input cost inflation only partly offset by pricing. But on the other hand, A&P was accretive by 10 basis points despite the accelerated investments behind key brands, thanks to the top -- the strong top line sales performance. And on the other hand, the SG&A growth has been contained. And so far, SG&A were accreted by 180 basis points driven by significant efficiencies on the back of the strong top line growth. APAC region. In the APAC region, EBITDA accounted for just 2.6% of the overall group profit. EBIT was down in [indiscernible] by 4.1% and showed a dilution of 120 basis points total attributable to gross margin dilution of 120 basis points due to unfavorable sales mix as well as input cost inflation. On the other hand, A&P and SG&A [indiscernible] with A&P with an accretive effect of 50 basis points was due to offset by the dilutive effect on the SG&A line due to the continued investment in commercial and marketing structures in the region. If you move on to page 12. In the first half, we record EUR 32 million of operating adjustments that are mainly attributable to provisions linked to the Russia-Ukraine conflict as well as certain restructuring initiatives that we've taken and the long-term retention scheme. The total financial charges accounted for EUR 4.7 million, with a reduction of EUR 4.1 million versus a year ago. If we carve out the exchange effect, the financial expenses came in at EUR 10 million versus EUR 13 million of a year ago, showing a decrease of EUR 3 million, thanks to the lower level of average net debt. But also thanks to the reduction of the average cost of net debt to 2.2% with a 0.2% comparison versus a year ago. The exchange gain accounted for EUR 5.3 million in the first half versus EUR 4.2 million of last year. Profit losses, sorry, from related to associates and joint ventures were tiny and accounted for EUR 1.6 million. Profit before tax, adjusted was then up 42.8% versus a year ago, and it stood at EUR 304.3 million. Moving on to the following page. As you can see, taxation totaled EUR 82.7 million on a reported basis with recurring income taxes that accounted for EUR 83.8 million. The group net profit adjusted came in at EUR 220 million and was up 40% -- 40.4% actually. The recurring tax rate came in at 27.5% in the first half, 100 basis points higher in comparison to first half of last year due to the unfavorable accounting mix with a higher weight of profit sitting in Italy. Deferred tax relating to the amortization of goodwill and brands for tax purposes accounted for EUR 8.1 million, lower than the first half of last year due to lower tax benefit generated by the definition of the tax law for brands and goodwill step up value in Italy, which was, the lowest revised this year. Excluding the impact of the noncash component linked to deferred taxes, recurring cash tax rate stood at 24.9% higher than first half of last year, and that was largely due to the country mix, which I've alluded to before. The group net profit reported came in at EUR 199 million and was up in value by 24.8% versus the first half of last year. If we move on to the following page. Free cash flow generation. Recurring free cash flow came in at EUR 98.4 million, actually down EUR 43 million versus the first half of last year. Actually, if you see different components. In terms of EBITDA, we on a recurring basis, we recognized an increase of EUR 91.3 million. Taxes paid actually increased by EUR 51.3 million at EUR 74.6 million mark. And this is due to the stronger business performance but also due to different phasing of payment cycles. We then had a step up in operating working capital, which generated a negative cash effect of EUR 108.9 million in first half of '22, which was slightly higher than last year, EUR 98.7 million. These are very attributable to the phasing of the sales through the quarter with peak season for operative in Q3. The effects from the hyperinflation accounting in Argentina had a positive effect of €3.5 million. And then among accruals and other changes from operating activities we recognized a negative cash effect of €32.8 million versus a positive impact of EUR 33.5 million of last year, and the negative cash effect was primarily attributable to the payout of incentive plans, which were accrued in 2021. Interest paid accounted for almost EUR 5 million versus EUR 3.4 million of last year. Maintenance CapEx came in at EUR 37 million, they were up EUR 11.7 million versus a year ago. And on the other hand, extraordinary CapEx came in at EUR 26 million, and those were primarily related to tequila production capacity expansion in Mexico and office renovation in London. Free cash flow on EBITDA adjusted on a recurring basis came in at 27.9% below last year with 54%. Moving on to page 15, where we have the waterfall for the operating working capital increase. Operating working capital increased in value by EUR 144.7 million in the first half, primarily attributable to organic increase of operating working capital that accounted for EUR 108.9 million. Looking at the 3 components, the back of the step-up in organic working capital increase was attributable to inventory buildup, which accounted for EUR 103 million, with a tiny component of ageing liquid accounting for EUR 14 million, primarily Grand Marnier and Bisquit, Jamaican Rums and Espolon. But on the other hand, the significant step-up of other inventory excluding ageing liquid, as said before, it's mainly due to the business seasonality ahead of the peak summer period for the aperitifs. The increase in receivables and payables was [indiscernible] with the former increasing by EUR 49.9 million and the latter increasing by EUR 44.9 million. Perimeter was tiny and ForEx accounted for EUR 35 million due to the appreciation of the U.S. dollar. Operating working capital as a percentage of the last 12 months. Net sales came in at 32.4%, up 280 basis points versus December end. But on a like-for-like basis versus June 2021, it actually was down by 410 basis points. In closing, looking at the leverage. The net financial debt came at EUR 1.5 billion up EUR 174 million, notwithstanding the positive free cash flow. But on a recurring basis accounted for EUR 98.4 million. Clearly, the biggest component was acquisitions, accounting for EUR 124 million. Then second large effect was the net purchase of own shares with EUR 69 million. And then clearly, the dividend payment of EUR 67.6 million. Cash and cash equivalent position is still extremely healthy at 500 positive EUR 533 million, down at EUR 258 million for the reasons that I've mentioned. But on the other hand, we rely on long-term Eurobonds and term loan that but total accounts for EUR 1.100 billion with an average nominal coupon of 1.4%. Net debt-to-EBITDA ratio, quite healthy at 1.7x with a slight increase versus December of when it was 1.6x. But a clear improvement vis-a-vis the like-for-like comp base of June 2021, which showed a leverage ratio of 2.2x. I think on the numbers, I'm done. I would hand back to Bob to comment on marketing initiatives and recent business developments.

Thanks, Paolo. We are actually firing on all cylinders marketing-wise, starting off of the Campari brand, we have the cinema as a platform for the brand, which has really helped us drive the premiumization and with the strong growth of the brand. And we've been able to add the Cannes Film Festival as a further sponsorship, and we had a very successful presence there this year. So we are clearly the partner in Venice and New York as well as Cannes of the 3 main film festivals. On Aperol, we're really continuing to paint the world orange. We're having very large scale activations. I hope those of you based in London were able to go to the Covent Garden Takeover that was quite spectacular. But we're doing exactly the same thing across the Mediterranean, across all of our markets, including global travel retail. So we're back into France only for our recruitment mode. Wild Turkey continuing to benefit from a strong association with Matthew McConaughey. SKYY continuing on its very consistent approach to marketing. To close up in business development, we closed the Picon acquisitions and we're very excited about the future prospects of this brand in international market. And just a few weeks ago, we closed a small deal in Italy with a very premium craft mostly remove brand Del Professore, which is a very nice addition to our portfolio and will definitely benefit in premiumizing most of our key cocktail starting with the Negroni. So moving on to conclusion of the outlook before your questions. Clearly, we've had a very strong performance in the first half, particularly in our higher-margin aperitifs business in European markets. And thanks to the overall underlying momentum across our portfolio as well as strong on-premise recovery. Favorable weather as well as pricing also gave us some nice tailwind. Looking at the remainder of the year, clearly, we expect volatility and uncertainty to remain due to on the one hand, the ongoing pandemic as well as geopolitical tensions. Having said that, we expect a very positive underlying momentum of our key brand market combination to continue. However, the shipment performance will not reach its full potential as it will reflect some temporary supply constraints, and I'm sure you have lots of questions on that. There will also be a less favorable sales mix, also due to seasonality, and input costs are accelerating, particularly when we look at the logistics side, as we try to satisfy the demand across international markets and have moved quite a few shipments for actually air as opposed to ship. But on the other hand, all of these are expected to be partially mitigated by planned price increases as well as operational efficiencies. So we're confirming our guidance of a flat organic margin and EBITDA adjusted in 2022 on the full year basis. And we expect a continued positive contribution from Forex driven by the U.S. dollar. Net in net, looking at the medium term, whilst the current challenges persist, we expect to continue benefiting from very positive trends in consumer preferences, which are clearly favoring our brand portfolio due to its exposure to outperforming spirits categories as well as our pricing power and brand equity. This is it from our side and happy to take your questions.

[Operator Instructions] The first question is from Andrea Pistacchi of Bank of America.

I have 2 questions, please, following up on your outlook commentary. So you're saying with H2 shipments or sales performance will be impacted by these temporary supply constraints. Can you elaborate a bit on this, how sizable are in particular the glass constraints and whether there's anything else besides the glass constraints that you've provided on Grand Marnier? And what sort of impact should we expect that this will have on H2 sales? I think consensus assuming around 6% sales growth for the second half, which is quite a slowdown from H1. So how do you feel about that, if I may? And then possibly to Paolo on the other part of guidance. Your flat margin guidance implies quite a significant decline of margins in the second half. So could you dig a bit deep please on the input costs and the logistics cost pressures? I think at the beginning of the year, in February, you were suggesting around EUR 60 million of headwind from cost inflation. Clearly, this moment have got worse. What are you seeing now and how are you thinking about gross margins in the second half, please?

I'll take the first one. I mean with regard to the supply constraints, we expect Grand Marnier as well as Magnum Tonic to continue to be impacted here on Grand Marnier's glass that's other some key ingredients on tonic. We also expect that the logistics, I mean international logistics to remain a very big challenge. I mean we have a lot of containers sitting in ports and being delayed. So we don't have really clear visibility on that. We're trying to do our best to try to ship as much as possible to air at a higher cost as well as paying premiums to get our containers in the boat, but this will continue to affect us. And with regards to the aperitifs, I mean, currently, we have such strong demand that we're not going to be able to fully satisfy. I mean we're going to have very, very strong growth. But clearly, in the short term, will be impacted by that in terms of production capacity. This is short term as we're already working on developing contract packing relationships so that we do not have issues in the short term next year. And then separately, we're working on significant expansion projects across our key geographies.

No, I'm just saying if you're able at all to quantify all this, I mean, how much could it knock off your second half sales? I know it's limited visibility but if any quantification?

So the visibility is limited. It won't be meaningful. The first 2, the Magnum Tonic, Grand Marnier factor was known since the beginning of the year. Clearly, on the import to the U.S. market, the visibility as said is limited. So you were not able to ship all the products that the demand is currently asking. But it won't be meaningful in the big scheme of things. I think we're going to say spot vis-a-vis the other question on input costs, clearly the -- and again, it's a highly volatile market. The second quarter has shown an increase in inflation on logistics, being constrained, as Bob said, basically were I would say, overpaying to get product delivered. We think this is somehow temporary situation, which we expect over time will ease. And then we've seen an acceleration of input cost pressure on key components like glass, alcohol and sugar. Those are the 4 major drivers of input cost rate. Now clearly, if you look at the possible of [ psych ], one is pricing. The other one is mix. With regards to the pricing piece, clearly, the programs to take price have been only time. We came back to the trade to review the price increase for a second time in 2022. So we're not moving again to offset that further input cost pressure. So that's the less positive news. On the other hand, like clearly, looking to 2023, clearly, we have the objective of taking that extra price increase offset in 2023. The good news is that the price increase that we've taken particularly on aperitifs and other brands prove that our brand has a very, very low price sensitivity. So the impact on demand is manageable. We've seen with Aperol we compared with the other brands, all brands are really in a very strong trajectory, growth trajectory. With regards to the other possibility of offsetting inflation, the sales mix, notwithstanding the fact that the growth of Espolon is not driving any accretion in our P&L due to the temporary high aggravate price. The rest of the portfolio particularly the aperitifs are driving a significant sales mix effect in our gross margin. It's been a factor over the last many years. We have a very positive underlying sales mix with a positive impact on gross margin. So in total, the price increase will more than offset the cost increase as a percentage of sales and 2022 we're not in a position of fully covering that the input cost as a percentage in value, we would do more than that. But again, as said, we have the objective of offsetting that in 2023.

And you're able, in rough terms, I mean, in the end you're talking about having EUR 60 million cost pressures [ that got worst as where we stand now ]. Would it be EUR 80 million, EUR 90 million that order of magnitude or more?

There's the EUR 60 million, there might be 20% increase about.

The next question is from Cedric Lecasble of Stifel.

A simple one for me. In terms of keeping the same guidance as this is a very positive Q2. The question is, simply, did you have in mind such a strong Q2 when you issued the guidance initially. And this would mean that you have some comfort maybe on your guidance? Or did you see at the same kind of cost bidding up in parallel, so maintaining the same equation and the same risk on H2. Could you maybe internally explain that what the rational is focusing this flat margin guidance despite this very strong Q2? I know it's a follow-up to the previous ones.

Look, I mean, Paolo can elaborate this a little bit more in detail. But yes, frankly, we're seeing input costs and logistics costs increased throughout the year. So we're doing what we can to compensate them. And we think given the context, actually maintaining a flat EBIT margin is pretty good.

I mean I think, the message is positive. So we have a very strong seismic effect in the first half. Clearly, we have 2 quarters. The first one that is coming in Q3 were on the sales mix and a meaningful impact, given the strong trajectory of aperitifs. Clearly, the last quarter of the year, it's more standard categories, we still and so forth were to have when positive mix but is less big in size than what we have in Q2 and Q3. So the message is positive. So we will absorb the incremental input cost that we have highlighted by keeping the price increase that we've put in our plan at the beginning of the year. But on the other hand, in confirming a better sales mix that will offset that impact that top line, a robust top line growth should lead to opportunities in terms of margin expansion sitting in the SG&A line. So that's how we see the second part of the year and the full year.

Just to confirm on the pricing action, you had some in H1, you have some scheduled in H2. And you had a remark on making up for the concentration to the price increase impact in '23. Should we understand that, that it will be a full year basis in '23 offsetting the cost situation?

Yes. With regards to the price increase, the second tranche of price increase is set for August. So we confirm it, and we do not see any major issue on that as we didn't have major issues in taking price in the second quarter. With regards to 2023, clearly, it's -- the objective is to recover completely the impact of input cost inflation. So that's something that we're planning for next year. But again, the good news is that our brands in terms of price sensitivity show that this impact is new. Actually, we've seen an acceleration of growth trajectory following price increase. So I think we shouldn't be any -- we shouldn't have any issue in taking price more aggressively also next year.

The next question is from Mitch Collett of Deutsche Bank.

I have a few questions, please. So the first one is about the longer-term ambition to return to your 2019 level of gross profitability. Can you maybe comment on when you think that you will get back there? And then my second question is on the expansion of Paolo's role. Can you give us some color on that? And is that -- should we read into that, that there's some succession planning going on there? Or is that entirely down conclusion?

No. That's -- I'll take the second one. That's the wrong conclusion. I mean Frankly, Paolo for the past 4 years has been leading in supply chain as well as IT on top of finance. So it's more a question of formalizing that role, particularly also in the context of 25 years of phenomenal service to the company.

With regards to the long-term profitability ambition. Clearly, we believe that it is absolutely at our reach to recover the pandemic marginality. And actually, we think we can even do better given the fact that as said, the positive sales mix is still there. But we said it a fact that we would not see any positive effect coming from agave price reduction. So if you combine the current underlying positive sales mix plus the impact of agave price decline sooner or later will materialize. We believe chances of moving north of the pandemic marginality in part quite high.

And can you maybe comment on when you think that could happen? What is a reasonable expectation in terms of timing?

I think first and foremost, we need to weather the storm and go through this hyperinflation environment and thereafter, I think we can think at the timing. In the short term, clearly, we're catching up with price increases. And then I think as always happen following the storm, we will have a little bit of calm and we'll go back to where we were. So it's difficult to forecast when it will happen, but we're fairly positive it will happen.

The next question is from Edward Mundy of Jefferies.

Three from me, please. The first is that you've grown at 45% versus 2019, which is a 3-year CAGR of 13%, and that's well ahead of your normal rate of growth. I guess there's 2 parts of the question. Is there any reason why you shouldn't be able to grow off this high base in 2023? And the second part of the question is, as you reflect in the past few years, what do you feel is the right rate of growth for your business medium term given that 13% is well ahead of your historical sort of mid-single-digit type of growth? The second question is your -- interest in your perspectives on the sensitivity of aperitifs to a slower consumer environment. I remember that following the global flat crisis, it was quite an affordable way to go out, have a few nibbles and aperitif, I mean the on-trade rather than the full meal. I'd love some indication of how you think aperitifs will behave in a weaker consumer environment. And then the third question is really around the supply chain. I think you alluded in your comments around potential for contract packaging and plants expansion. Presumably, this is primarily [ for aperitif ] as well as for the other brands. Can you talk about the trade-off between the importance of providence versus having local manufacturing and bottling?

Well, I'll take the first 2. I mean I think it's evident to everybody that the world has become a very, very volatile place. It's very difficult to predict what's going to happen, both from -- if you look at politics and government in the Western world, the war in Ukraine and central banks adding their own to the mix. Question mark is how is that going to impact consumer demand overall across markets. Difficult to tell. I mean, if it doesn't sour too bad, clearly, we will continue to perform at a very heightened pace. Our brands are very, very healthy, and we're reaping the benefits of the accumulated investments and tender, loving care we've been giving them for the past few years. So clearly, the momentum is there. We'll have to see what happens in the consumer space. And that is what will impact also in the medium term. Now with regard to the aperitifs, we see the aperitifs as potentially almost benefiting from, let's say, consumer confidence overall because as mentioned, it becomes a very affordable alternative to actually go into a restaurant. We've seen that many times in the past, and this is firmly entrenched in consumers' mind. And I think the rest of the portfolio also benefit from being an affordable luxury. But the big question is how dramatic will there be a shift on the consumer side, very difficult to tell at this stage. I mean, currently, the consumer space is very strong for us.

With regard to the third question, that is around our programs viz-a-viz the supply chain capacity expansion, clearly the season undertake from our top plan cycle that normally takes place in June, July. Clearly, there we forecast demand for not next year and of course, also next year, but most importantly, year 5 and down the road. So clearly, if you look at 3 areas that are the plan sitting in Italy to supply market with aperitifs. The Kentucky plan for Wild Turkey and Mexico, what concerns Tequila and if you see the demand that our commercialized marketing organization are forecasting in the 5 years, we need to start moving now to make sure that down the road, we have capacity, we have the liquids and we have the production capacity to supply the market. Given the fact that capacity -- production capacity expansion programs have a delivery lead time that is not short term. You have to plan ahead of time, which is what we're currently doing. So we do not see any issue viz-a-viz short term. We can bridge the transition period with both in-house production capacity as well as by entering into contract manufacturing agreement with good parties. And of course, we will start moving viz-a-viz the demand that we see in the future that has been lifted viz-a-viz prior cycles. So this is the reason why we were alluding to those programs.

And Paolo, in terms of, let's say, leasing the Aperol liquid in Italy and then shipping it to the U.S., Australia and getting it both locally. Do you think that would be an issue without the minds of the consumer?

Well, we don't think we would do that. I mean that would be a really dramatic thing if we needed to do that, the origin and Italian lifestyle is quite important for the brands, and we will continue doing that.

Yes. Tequila is the same and bourbon should be bought again [indiscernible].

Yes. We'd only do that if touch wood and all sorts of things as a backup, something happened at one of our plants.

Yes, considered at that.

Yes.

The next question is from Laurence Whyatt of Barclays.

Three questions from me, if that's okay. As we potentially enter a challenging consumer environment with the cost of living issues, do you have any differences in perspective around the U.S. consumer versus the Italian consumer? I appreciate your sales profile in the 2 markets is slightly different. But do you see the 2 consumers acting slightly differently? And if so what would those differences be? Secondly, Campari has had a good reputation for a number of acquisitions over the past few years, and there's certainly been a bit more discussion around larger transformational deals. I wonder, do you have any perspectives on the potential for that sort of thing to happen given the oncoming cost of living issues may create some opportunity among potential vendors. And finally, we've talked in the past few years around the Agave prices being elevated, and there was some expectation that that might start coming down. But your comments on the call suggests that certainly hasn't happened yet. Do you have any updated thoughts on what may happen? Where we currently are with the Agave price and what may happen over the next year or so?

I'll take the first 2. I mean what we've seen with [indiscernible] in the past is that when there's a recession in the U.S., there's a consumption shift from the on-premise to the off-premise. So that's another way for consumers to down trade, if you want, continue drinking their favorite cocktails, but actually saving the money and doing it at home. In Italy, on the contrary, we see people actually -- it's mostly in aperitif market shift from going to restaurants to going to the launch bars where you typically have an aperitif. So last crisis, we see a nice booster business. Now with regard to acquisitions in any perspective. I'm not sure our industry is very long-term minded. It's very much controlled by families also. So it's less, I think the consumer side of it, which would impact, I think, the rates of change and much more succession issues potentially or looking at strengthening through to market alliances. So I think that will be more important than the consumer space.

With regards to agave prices in the last quarter, we do not have -- we didn't see any change, still flat as a bank versus last year. Clearly, expectations of a steep price decline are still there. That said, we think that we've been in operation for a while, we will accelerate on in-sourcing of agricultural operations in Mexico. So that's just to make sure that we put an end to that effect, negative effect in our P&L. So we will ramp up agricultural operation in Mexico in the coming years. Clearly will take time to see the positive effect that something that over time we can enhance.

Understood. From that last comment, can I assume that, that means that you're not really expecting a slowdown or a full loss in year agave price anytime soon, and we should sort of expect the current spot rate to remain into the foreseeable future. Is that the right way of interacting your comment?

Yes, not this year for sure. And then we'll see as the time goes by. It has clearly plateaued and is there, not moving up any longer and should come down. But for the time being, we do not have evidences of significant decline of the aggregate price.

The next question is from Fintan Ryan of JPMorgan.

Three from me, please. Firstly, with regard to the Aperol brand, specifically in the U.S., I appreciate [indiscernible] the upfront has been performing U.S. markets the last half which is outside the underperformance of the brand as a whole. There's a question more of supply constraints? Or do you have more activation plans for the second half of the year? How do you see the -- your [indiscernible] about U.S. market generally if you're willing to [indiscernible]? Secondly, if you can relate to that as well as seen the strong take of the Aperol brand in Spain, how do you see Spain in the mid-term of the strategic markets? And it will there be potential to do something similar to...

Sorry, we're not able to understand you because there's some other noise in the background. If you could repeat the second question.

Is this better?

Yes. Thank you.

So the second -- did you get my first question?

Yes, Aperol in the U.S. I got that.

Yes. And so secondly, just how do you see Spain as a strategic market given the strong performance in the first half and for the Aperol brand? Is this something where we might consider more M&A to sort of boost your presence and in terms of the name brands in the -- name markets and what you've done with France? And finally, just back to the cost inflation question. Can you give us a sense of how -- what your hedge coverage is for your main commodities, particularly, say, glass and energy costs for the second half of this year and into 2023?

Yes, I'll take the first 2. I mean, we feel very good actually about Aperol in the U.S. The big issue we've had in the U.S. across many brands of our portfolio, but particularly on Aperol is out of stock. That really impacted us. So we haven't been able to -- our inventories are extremely low across the board and even lower on Aperol, and we weren't able to respond due to the issues at U.S. ports. So we're going fully fledged on our activations and continuing to build the brand and new consumers. And the response to that is actually great. And we're seeing more and more consumers not only having it as an aperitif, but actually dining with Aperol spreads in the U.S. So all cylinders are firing. We just need to ensure that we have enough product on the ground. With regards to Spain, yes, Spain is a strategic market, but we think we have all the brands we need to develop a very solid and exciting business in that market. Frankly, we don't see anything which would really whet our appetite from a local standpoint. The third one was on...

Just, Paolo, on the hedge coverage that you have for the second half of the year and it's 2023, I guess, through glass specifically, but also sugar, alcohol and energy costs.

No, we do not have major ageing policies and practice. So the cost that you see is the effect of the 2 increase in cost, and we do not have still exposed in H2 and the coming years due to the increase of input costs.

The next question from Simon Hales of Citi.

A couple of things for me, please. Can I just sort of confirm from a regional standpoint, firstly, where you expect to see some of the biggest impacts of the supply constraints and accelerating inflationary pressure in the second half. I assume the Americas and Asia Pacific, but just wanted to get a bit more granularity there. Secondly, can you talk a little bit about the second round price increases you have been taking? Can you talk about on what brands, which geographies they've been coming through? Any sort of quantification you could share would be very helpful. And finally, transactional FX clearly supported in the first half to margins. Paolo, how do we think about that in the second half of the year given the euro weakness we've seen in late?

Yes. I mean, Simon, the constraints from a regional standpoint is directly pointed out, they're mostly impacting the U.S. and APAC, and we expect that to continue in the second half of the year as well. With the addition, as I said earlier, that there's such a strong demand for our aperitifs in Europe that we're not going to be able to fully satisfy the forecast of demand. I think we're still going to grow with a very, very robust double-digit growth rate. But at this moment in time, we could sell anything we produce. So that will impact us. Second one on pricing, I wouldn't like to get into the details on of competitive reasons, but we can expect that it's been across key markets with a big emphasis, obviously, on the aperitifs.

With regards to the FX impact, actually, as the preamble, what we recognize in the FX column is a combination of 2 different things. One is the fact that clearly affects these effects. And then are the effect of hyperinflation in Argentina. So basically, we apply hyperinflation accounting to that region, which means that we carve out the effect on pricing inflation in that market from the organic growth. So obviously, we deflate our organic growth, and we recognize the impact of local inflation into the FX. So that's a portion of what you see. And then, of course, you have the exposure to currencies where we're exposed to dollar, which generates the transaction impact on imports Grand Marnier, Aperol and Campari most importantly. So in the second part of the year, we expect a trend, a positive impact in top line and bottom line. That basically is what we've seen as a percentage effect increased in the first half, top and bottom line.

That's very helpful. Paolo, can I just sort of follow up with one quick other question? Just the associates line, that move into loss that you saw in the first half to a positive contribution last year. What was driving that, please?

The last is -- it's primarily attributable to minorities of companies which we control.

The next question is from Trevor Stirling of Bernstein.

Three from me, please. First one, if I look to the 3-year stack, Bob, you mentioned that it's 45% in H1. But I think it's virtually identical, 45% in Q1 and Q2. And when we last talked 3 months ago, you've been talking about phasing in the second half would be tougher. So is the way of thinking about that there was a tough comp coming from phasing, but that was offset by good weather in Europe or other factors in there that have kept that for years back so high. I guess second question, around the U.S., as you highlighted, Bob, the Q2 comp was incredibly tough. Does that mean that you think we could see an acceleration in reported growth in the U.S. as we get into Q3 and Q4? And then finally for Paolo, you talked about tax being up 100 bps in H1, Paolo, and that's because of profits from Italy. Presumably, at best, we're going to be neutral in the second half but you're looking at 50 bps of accretion for the full year and possibly a little bit on the high side. Is that the right way to think about tax?

Let me take the first one. On the 3 years back, I think that the demand, which we're seeing across the portfolio is really very strong. And it's good to see that it's actually sustained. Clearly, the weather helped significantly for the aperitifs business across the board. And a few other factors, which I think will have a long-term impact. One, which is very important, is how Aperol Spritz has gone beyond the aperitif moment and it's actually now an integral part of informal lunches and dinners not only in Italy, but this is spreading across the globe. So the usage occasion of the brand is expanding significantly. And the other big change is really what the Campari Spritz is doing for the Campari brand. Again, this is something which came bottoms up from the consumer and is spreading across all of our markets. So that's clearly having some dynamic. And last but not least, so we're starting to internationalize brands like Crodino and this is also adding up. Now with regards to the U.S. acceleration given comp basis. In theory, yes, but I think in practice, it will be decided by also logistics. If everything goes well from a logistics standpoint, our ability to import and then distribute, et cetera, then yes, at this moment in time, it's difficult to express judgment on that. Clearly, we've strengthened our customer service teams in the U.S. and working very closely with our distributors to make sure we don't have any issues, but the proof will be in the pudding.

With regards to the recurring cash tax rate that we've seen in the first half of 1%, 100 basis point, we expect that to materialize as on a full year basis.

The next question is from Alessandro Tortora of Mediobanca.

I have 3 brief questions if I may. The first one, sorry, is a follow-up on the FX impact you mentioned of adjusted EBITDA. So if I understood well, the answer you made, is it fair to assume that probably at full year that we would have an impact of, let's say, at least EUR 45 million or EUR 50 million for FX in absolute term? So this is the first question. The second question is on the one-off, let's say, item, if you can give us, let's say, little more color on, let's say, the number that we saw in the first half and also if you can, some, let's say, some guidance for the full year for this item. And the last is on the organic growth in the second quarter. Can you give us an idea of, let's say, the component of the supply price mix, the amount of this factor for the -- considering the 12.5% sales organic growth.

With regards to the FX, yes, your role there, we're expecting a mid-single-digit impact top line and a low double-digit bottom line. So it's about that what we've seen in Q1.

Yes, the one-off item is the -- as said, the effect of the write-off of certain assets in Ukraine, most of it. And then we have 2 restructuring programs in place, and then we have the retention scheme that there's an impact in H1.

The next question is from Gen Cross of BNP Paribas Exane.

The first one, can I just follow up on the last question. Are you willing to share what the breakout of the 12.5% like-for-like growth was in Q1 between price mix and volume? The second one is just on the SKYY brand. I think you said that you expect it to be flat to slightly up in low single-digit range globally for the full year. Is that still your expectation?

Yes. Let me start off with the SKYY brand. Yes, that was roughly the expectation with international markets, helping compensate the shipment weakness in the U.S.

And sir, on the first question, the breakout of the like-for-like growth.

The breakdown of the 12.4?

Yes, please.

Yes. I think we've not disclosed the price impact in Q2 and in H1, but it's meaningful. It's a good portion of that.

The next question is from Chris Pitcher of Redburn.

A couple of follow-up questions. On the aperitif demand, could you talk a little bit about where your production capacity is for Aperol and Campari? I appreciate they're incredibly efficient brands. As part of the EUR 170 million CapEx, can I confirm with your expanding capacity for those brands? Or was it just a matter of not building enough stock ahead of some very good weather? And is that the right sort of number for CapEx going forward? Apology, if I missed that? Then secondly, could you give us a bit more color on some of your other brands like Bulldog and Forty Creek. And then thirdly, how is the rare division working? I mean, you launched it this year. Are we seeing, is it having a meaningful butterfat on things like Appleton and other such brands within that?

Yes. I mean, look, the aperitif demand is very, very strong. And currently, we're working essentially on 4 shifts, 6 days a week. And it is demand probably exacerbated at this moment helped by the weather. But I mean the underlying consumer demand is very strong. And looking at the years to come, it is clear that we need to start moving now to satisfy that demand. We can bridge as Paolo said short term via third-party contracting so that we don't expect any issues next year, and we're planning for nice growth next year. But for the mid to long term, clearly, we need to invest in CapEx. What you've been seeing this year in CapEx is mostly tequila capacity expansion as well as the [indiscernible] program in Jamaica, which is an important one from an ESG standpoint.

We're talking to CapEx and our perspective also this year, we've guided the market for EUR 170 million investment, of which maintenance was about 50%, EUR 100 million, 40%, EUR 70 million is ordinary CapEx. Most likely, we will step up the spend this year and in coming year, CapEx are not destined to come down as we have to buy capacity in the Italian plants, in Kentucky as well. And so that we need to over time and source become brand in France. And of course, we're investing, as said, on the agave in the fields for the in-sourcing of the agave production. So we will finalize the plan and then we will come back to you with a 3-year rise on of expected CapEx.

Moving on to your second question. [indiscernible] benefiting from the international, strong demand for gin -- driven by gin and tonic, so doing nicely. Forty Creek has slowed down a little bit, it was actually flat or slightly negative in Canada, that's on the one hand, due to a major packaging changeover, which were slightly improved currently as well as some slowdown in the Canadian off-premise. But we would expect the new packaging to really benefit the brand in new campaigns and see coming back in the second half of the year. With regard to the rare division, with this very nice ninth is currently more of a lab and a full-scale division. We're currently in 4 states. It's great to see that this -- our high-end expressions are growing anywhere between 13%, 50% faster in those states, and we're really learning a lot on the consumer as well as a route-to-market standpoint. So watch this space, and we'll add more states next year and we'll continue innovating and testing things before we go for national probably in a few years.

The next question is from Paola Carboni of Equita.

I have a few questions. First of all, apparently, you said that the constraints are not going to wait much on H2, if I got it right. So I was wondering whether -- and to what extent you were already, in any case, envisaging a slowdown in the second half because of clearly seasonality, but also because of early buying from the trade. So the same you commented on Q1 probably was repeated in Q2 as well ahead of the second price hike. And so if you believe that there has been a further increase in stock by the trade at least in Europe, where there were less logistic constraints. Second question is on gross margin. Actually, we have seen a dilution of gross margin on an H1 basis across the region, except for South Europe. And so I was wondering whether to what extent this could be a proxy of what we should expect when the push from operative will fade in the second half of the year. So if you can elaborate on your flattish EBIT margin guidance for the year by gross margin and then A&P, SG&A line by line, let's say. Then if you can provide some more color on the efficiencies you are planning to contribute offsetting the federation in inflation costs for the second part of the year. And last quick question on the price side, the second round of price increases. Are these going to involve both the on-trade and the off-trade channels?

Just quick on my side. With regard to the last question, yes, price increases, I think when we run them, it's across all of our channels. Quick one on your first question, Paolo can get more into depth. I mean let's be very clear. We have very, very low inventories across our of markets. If you look at customers and distributors, we've never been at such low stock. So it could be -- we won't see any of that effect.

Yes. With regards to the third question on impact of constraints and stock on hand and seeking that distributor level, clearly, the certain brands, the ones that we've alluded to the beginning of the Q&A session, [indiscernible], Grand Marnier and so forth. If you have no constraints on raw materials, there's nothing significant we can do. We simply kept the volume available to the market and you extract as much price increase as possible. With regards to logistic constraints, I said before, those are impacting particularly ocean freight. So imports into the U.S. And so notably Campari and Aperol, Grand Marnier is capped because of the glass constraints. And secondly, the ocean freights to Australia. So you think that Wild Turkey ready-to-drink, it is locally bottled, but bulk is coming from the U.S. as well as all the Australia imports. So that's not the reason where we are the highest issues. In terms of business momentum, we confirm also in the second half, a very solid business momentum. The point that we're making is that we cannot exploit the full potential of demand on our brands, but that does not necessarily mean that the second half would be to work in terms of organic growth. With regards to the stocks, we'll write up as much as possible stops in our onward [indiscernible]. In the first half, you've seen it -- we've seen the inventory risk in the first half. But on the other hand, stock -- but we think sitting at distributor level are -- it is minimum, both in the U.S., all-time low and as well as in 2 tiers market. So it is seen that Italy, for example, where we have the 2 channels, the top trade and wholesaler given that were the bare minimum. And actually, it is actually causing sometimes a poor service level to the market with other stocks because we cannot rely on buffer stock that is typically put between you and customers to offset demand volatility. So the demand is -- keeps on growing. We do not have buffer stocks, and we cannot rebuild the buffer stocks in the short time. So that's where we are at the moment. But as said, in terms of top line, we remain quite confident on H2. With regards to gross margin dilution, clearly, you've -- you're right in saying that most of the offset of the dilution is that it's coming from the recovery also of SEMEA and also the good momentum that apparently had probably speaking in all markets. So we intentionally did not want to give a precise guidance on gross margin on sales for the full year at the beginning of the year. And we would rather do the same for the remainder of the year, while sticking to a flat EBIT margin on sales for the full year. Clearly, the robust top line growth in the second half, as we see, will generate some interesting operational leverage in the SG&A line whilst we believe A&P will be kept flat on sales on a full year basis also in the second part of the year. With regards to the efficiencies, we have many, many projects were not to not spend too much time in detail. I think given the robust top line growth, the impact that can alleviate the cost inflation is primarily sitting in the better absorption of fixed cost in production logistics in SG&A as well. So that's where we see the opportunity. So in cost 25% is fixed in A&P, 10% is fixed in SG&A, as we said years ago when the market was scrambling 85% of SG&A are fixed. So you very presented in our major stride in downturn economy, and they are clearly in a rising demand environment and opportunity to be explored.

Okay. Just a follow-up question on glass. I don't know if you are elaborating on a possible rationing of glass scenarios in Europe and how this might impact the future availability of glass for the next few quarters? Should we assume, for example, the higher inventories also linked to early purchase resourcing of glass to be prepared for more difficulties in this respect, for example? Or how do you think about this potential disruption?

On glass, it's not possible to buy glass ahead of time, just in time you order, you get it and immediately bottles are produced and shipped. We're lucky because we do not have plants in Germany, which from a structural standpoint is the country which could be the most exposed to glass shortage. Most of our production in Europe is sitting in Italy and France. And in the U.S., of course, we do not have an issue there. And also the vendors or the glass suppliers of our European plants are not sitting in Germany. So that's to a certain extent alleviates the risk. But of course, that's the fact, this is a rift for everybody.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

Well, thank you all for joining us. We wish you a great summer, and hopefully, it will be a very pleasing red and orange summer for you too. Take care. Bye-bye.

Bye-bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.