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 Results Presentation First 9 Months 2023 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 very much, and good afternoon, and welcome to all to our conference call. As is our usual practice, I'll kick off with Page 2 of our presentation with the overview. You can see from the overall results that we have continued strong momentum in the 9 months. And this is even confirmed after the expected normalization in Q3. Organic sales grew by 10.5% in the 9 months, and that reflects solid brand momentum, particularly from the aperitifs, tequila and bourbon as well as robust pricing across the portfolio. Focusing on Q3, though, organic growth stood only at 4.4%, reflecting the expected normalization. Also, as you know, due to a very tough comp base essentially last year in Q3, we were up by 18.6%, where we benefited from a second round of price increases, particularly in Italy. And this year, we were impacted by unfavorable weather conditions across key markets and again, in particular, in Italy. Moving on to adjusted EBIT on an organic basis, it grew by 10.8% in the 9 months generating a 10 bps accretion. The organic growth in Q3 was 3.3%, reflecting a 20 basis points margin dilution with gross margin accretion, quite positive, up 60 basis points which was more than offset by the dilutive effect of SG&A 120 basis points, driven by the strength in commercial capabilities, including route-to-market, as we're establishing our new in-market subsidiary in Greece and more about that in a little while. ForEx, unfortunately, was negative, had a negative effect on EBITDA adjusted of EUR 30.1 million negative in the 9 months. And key drivers here were the transactional effect of the Mexican peso as well as the depreciation of the U.S. dollar and the Argentinian currency. Our full year guidance, our flat organic adjusted EBIT margin is confirmed despite the current volatile and pretty challenging macro environment. Moving on to growth across regions. You can see that basically, 3 out of our 4 regions are growing in the high single or double -- strong double-digit ratio. The only 1 growing at only 6.5%, which actually in this environment is pretty good. The Americas, and that was mostly impacted by the meltdown we're facing in Argentina, and I think that should come as no surprise to anybody. Moving on to our priority clusters, our global priorities and regional priorities continue to grow double digits, whereas the local priorities were only up 2.9% or impacted by Campari Soda in Italy, as well as a few other things in Asia. Moving on to the net sales organic performance by key markets. I will kick off with the Americas 44% of our sales up, as I said earlier, 6.5%. The U.S. was up 9.1%, and it reflects very solid growth largely thanks to Espolòn, Russell's Reserve and Appleton Estate, which more than offset the destocking effect of Grand Marnier. Q3 shipments were up 4.9%. For your perspective, this is against a very tough comp base in 2022 where shipments were up 30.2%. And if you look at it from a depletion standpoint, actually, in the U.S., we were up double digit by 11.2% in the quarter. So clearly, we have continued robust performance in that market, which is also reflected by strong results in terms of the NABCA as well as the Nielsen indicators. Jamaica positive growth up 4.3%, led by Magnum Tonic Wine, Appleton Estate and Wray & Nephew. However, on the quarter, we were down 11.7% we were significantly impacted by supply constraints due to under treatment as well as the tough comp base whereas last year would grow by 32.5%. With regards to the rest of the region, overall strong, with strong growth in Brazil and Mexico. Offsetting weakness in the other markets, in particular, the very strong negative volume performance in Argentina. Moving on to Southern Europe, Middle East, Africa, 29% of our sales, growing overall by 9.2%. Here the softness is isolated in Italy, which only grew by 5.9% although we are continuing to outperform the market, thanks to Aperol, up 9.2%, Campari, up 8.2%, with a strong contribution from pricing. But the strong performance in Q3 was really impacted by a very tough comp base, wholesaler costings. Wholesalers have come to realize that we don't have the delivery, let's say, issues and bottlenecks and challenges we had last year. So they're more or less traveling with lower stocks at this stage. But I would say that the most important impact, and that was unfortunately the negative perfect storm as the poor weather on the aperitifs in their peak season, where July was very, very hot when consumers move to water whereas August on the other hand, was very, very wet. So water other didn't help our Italian business. France, our second largest market in the region, up double digit, 12.8%. Strong growth driven by core Aperol and Campari as well as Riccadonna Sparkling Wine, and we're happy to see also our latest acquisitions there Fratelli Averna and Champagne Lallier doing very nicely. The rest of the region grew by 17.1%, positive overall performance, including double-digit growth in Spain and Greece, thanks to continued momentum in a resilient consumer environment led by our aperitifs, Aperol and Campari. Global Travel Retail is growing very, very well, up 36.9%. Despite a strong base of 16.4%. Sorry, no, the Q3 number is 16.4%. With good momentum again on the usual suspects, Aperol, Campari, GlenGrant, also, Grand Marnier, SKYY Vodka and Frangelico. Unfortunately, the one other negative part is, again, impacted by macroeconomic challenges in Nigeria, which we hope we'll be able to overcome next year and the situation settles. Moving on, North Central Eastern Europe, our third largest region, 20% of our sales, up strong double digits, 16.1% and Germany, which is our third largest market, up by 24.6% very, very solid performance in Germany. And here, it's important, I think, to differentiate the weather impact by the type of market, Italy being an on-premise market was severely impacted by the weather was Germany being an off-premise market. Very much better actually -- we had a very nice acceleration in Q3 in Germany, up 38.8%, obviously, helped by robust pricing. But again, key drivers were our very strong aperitifs portfolio with Aperol, Aperol Spritz, ready-to-enjoy, Campari all growing strong double digit. And we're also pleased to see that our recent innovation Sarti Rosa, which is tapping into the more intimate female aperitifs moments has come to a very good start, and we look forward to expanding that in more markets next year. Our nonalcoholic Crodino. And you know, Crodino is the largest nonalcoholic brand in our industry, representing 3% of our total sales continues to grow off a small base. And surprisingly, Cinzano sparkling wines also grew strongly against an easy context. We've had in the U.K., which is a very challenged market right now. You know that the overall U.K. market is quite negative. We've grown double digit, 14.7% despite the unfavorable weather behind this continued strength in our aperitifs, Aperol, Campari and Wray & Nephew Overproof, although we could have done more on Wray & Nephew although we had supply constraints. In the rest of the region, very good underlying trends despite the poor weather in the peak summer season. Again, the aperitifs going from strength to strength. Last but not least, our smallest but fastest growing region. Asia Pac, 7% of sales, growing 26.6%, Australia, up 9.4%. We've had a nice acceleration in Q3, up 12.9% also have easy comp base, I must say. And key drivers here is our core brands, the bourbons, Wild Turkey, RTD and glass as well as Aperol. Looking at the rest of the region, positive overall growth in South Korea, driven by the high in Wild Turkey offerings. GlenGrant and SKYY Vodka also contributed that had a soft performance in Q3 due to tough comp base. China registered an overall positive overall growth against an easy comp base with the key drivers here being SKYY, X-Rated, the aperitifs and Wild Turkey Bourbon. The overall market, as you can expect, continues to remain quite volatile in China. Japan, we're pleased to see also registering very strong growth, thanks to our bourbon as well as GlenGrant and Campari. Moving on to our performance by brand clusters. It's good to see that our Global Priorities now account for 59% of our sales that are growing double digit, 10.9%. Aperol up 23.3% on the first 9 months of this year. We have strong consumption growth across markets with positive momentum continuing during the peak season, despite, as I said earlier, overall unfavorable weather in Europe. This brand has been also boosted by pricing and strong consumption, and it's actually resilience to the brand's strong equity that on the back of a price repositioning this year, the brand has revealed itself to be quite un-elastic. The Q3 performance was positive overall, up 9%, but reflected a quite tough shipment comparison in the core U.S., where last year in Q3, we were up 110% in the U.S. Now, bad weather and wholesaler caution impacted it in Italy, but it's also good to see that from a consumption perspective, we still had positive growth in Italy. Campari, up 9.2%, strong growth overall, despite, I must say, a softer Q3, 1.8%, which, on the 1 hand, reflected a sub comp base, up 26% last year. Poor weather conditions in core European markets as well as weakness in some other key developing markets for the brands, Jamaica, Nigeria and Argentina, which are all top 10 markets for the brand. Wild Turkey, up 10.9%, continued strong brand momentum, continuing also in Q3, where we were up 8%. And actually, depletions were stronger than that. And this despite the tough comp base. Last year, we were up by 30.2%, and it's all driven by the key markets, U.S., Australia, Japan, South Korea as well as GTR. And we're also very pleased to see that our higher-margin Russell's Reserve business tomorrow premium part continues to outperform. SKYY was up only 2.4%, and this was thanks to growth in international markets, driven by China, but Q3 registered a decline largely driven by Argentina. Somewhat by the U.S. but mostly by Argentina, which is actually a top 2 market for the brand. Grand Marnier. No surprise here, down 21.8% as the destocking basically came to an end sometime around August. The good thing is that in Q3, shipments started to normalize. And right now, we're basically in the same territory as arbitrations and consumption indicators. Our Jamaican rums, up 7.8%, again a little bit impacted by supply constraints. But despite that, Appleton Estate was positive overall, up 11.2%. We have continued favorable category trends at the high end of the rum market, and the premiumization of the brand is clearly resonating very positively with consumers. Wray & Nephew Overproof grew by only by 3.7% after a shipment decline in Q3 and Jamaica as well, I'm saying, in the U.K. would have done better due to the supply constraints. Moving on to regional priorities, 24% of our sales, growing double digit, 14%. Espolòn continues to go from strength to strength up 37.6% on the first 9 months, 32.4% on the quarter. We continue to take market share driven both by volume share gain as well as positive pricing to the very strong brand equity. And I must also say that in the environment, where we are and the price positioning of the brand, clearly as it benefits as consumers move from the $50 plus into the $40 to $45 range where we're positioned. Now Sparkling wine removes only up 2.1%. This with Riccadonna in France compensating weaknesses elsewhere. Italian specialties down 5.7%. Again, largely due to a very tough comp base. Last year, we were up by 33.9%. Crodino, up 2.3%, doing very well in the Continental European markets but impacted by weakness in core Italy in Q3 due to the poor weather as well as the wholesaler cash offer. Aperol Spritz ready to enjoy at 7.9%, very nice for outlet profits fear for core markets. So that shows again the strong demand for the Aperol Spritz cocktail. GlenGrant continuing to grow strongly on a value basis, up 22.9%, really helped by the premiumization as well as the Asia focus behind the higher expressions. Magnum Tonic up 28.4%, doing very nicely in the core U.K. in Jamaica. Now if we look at the other brands, we also have positive growth across the portfolio. Montelobos, Ancho Reyes the rest of our Mexican offering as well as Lallier in Privia, as I mentioned, and we're discussing France. Last but not least, moving to local priorities. Net sales grew by 2.9% and it's only 8% of our sales. You can see that clearly what really dragged the results for Campari Soda, which only grew by 1.4% due to the week Q3 overall, we had on our Italian business. Due to the wholesale culture as well as the unfavorable weather. And then the other brand which held back this cluster is exported, up only 3.7%, and this is due to a very tough comp base from last year. Wild Turkey RTD, up 6.3%, and it's building momentum in Core Australia. So it's good to see that the negative impacts we had from our supply issues last year, we're basically overcoming them, and we've regained promotions loss in the listings, which we lost last year. To round it all up, SKYY RTD in Mexico continues to go very strongly up 33.8%. Before handing over to Paolo, that's to see that we've been very active from a marketing standpoint. Very pleased to see that the second big activation, which we did in the U.S. following Coachella the U.S. Open resonated very, very strongly with consumers. We sold an incredible amount of Aperol Spritz and really printed the U.S. Open orange. Campari continued to do very well with its film festival platform moving from patent into Venice. And again, painting the town read. Again, very successful on Negroni Week this year, 17 increase in the number of bars across the world, which is very, very positive. And one little -- nice little update, when we started cooperating with Wuliangye in China. As you know, it's a very premium and very successful baijiu brand, and they contacted us, and we developed a Chinese version of the Negroni, which we call the Wugroni. And this will lead to further cooperation with the key player in the market from a retail perspective as well. GlenGrant, our premiumization is continuing at an amazing pace. We're very, very proud to have had broken a few records at [ Akfen ] this year in the past few months. The devotion decanter #1 fetch $101,000. The visionary 68-year-old fetched $256,000. So clearly, the brand is going in the right direction. On SKYY, after many years of no innovation, we've returned with 2 new infusions, the espresso and the agave lime and they're being well received by the market. As follow-on continues to do quite well with our overall A&P approach, where from purely, let's say, guerilla marketing, we're moving to a little bit more into the mainstream. And particularly, we're benefiting from our sponsorship, which we agreed a few years ago of Inter Miami, which you know has become a very, very popular team as Lionel Messi is playing there. On the business development standpoint, we announced a new distribution agreement for the Miraval Rosé brand in the U.S. and France. So this is clearly a strong brand. And it is playing in the Aperitivo moment. So it's very complementary to our offering. In terms of other distribution agreements, we have a new one in France where we agreed to overtake the exclusive distribution of Aperol Spritz brands and for Continental France and Monaco. And this is basically will compensate the termination of the Beam Suntory brands which will be going under on. Last but not least, we're adding our 24th in market company. Greece is a fantastic spirits market on its own, but most importantly, it is a great destination for tourists. And tourists from all over the world, and we want to really leverage that to continue building our aperitivos and do the brand building and the recruitment via their attractive islands and beaches. So this is on my side, and I'll pass on to Paolo. Thank you.

Thank you. If you follow me to Page 18 of our deck, we can see that in 9 months, the organic growth of EBITDA adjusted accounted for the very healthy 10.8% in value with a 10 basis point organic margin accretion. Whilst, if we look at the third quarter in isolation, the organic growth of EBITDA adjusted accounted for 3.3% with a 20 basis point dilution. Again, in 9 months, the organic gross profit increase accounted for 10.4% in value with 10 basis point margin dilution impacted by COGS inflation that we had in our for the 3 quarters, only partly mitigated by pricing and sales -- and positive sales mix. In the third quarter stand-alone, the gross margin accretion accounted for a very encouraging 60 basis point mainly thanks to positive pricing partly offsetting the easing input cost inflation. A&P in 9 months increased by 7.3% in value with a 50 basis point margin accretion. Driven by continued very poor weather conditions impacting our summer activations on particularly on the operated portfolio. SG&A were up by 12.5% in value, generating 40 basis point margin dilution in the 9 months due to normalized top line growth reflecting the continuous investments in business infrastructure in particular, the new route-to-market in Greece, which Bob just alluded to. If you look at the third quarter in isolation, SG&A grew faster than net sales and were only partly mitigated by NPE containment leading to a combined margin dilution of 80 basis points. On a reported basis, the EBITDA adjusted increased by 5.7% in value whilst looking at the third quarter in isolation on a reported basis, the EBITDA was down by 11.3%. In 9 months, we had negative FX effect totaling 6.1% in value. EUR 30 million air cut to the bottom line with 90 basis point dilutive impact on EBIT. Mainly driven by transactional FX effect on the Mexican pesos, which penalized the imports of the kit and U.S. market, together with the depreciation of both U.S. dollar as well as the Argentinian peso. On perimeter, we have a positive contribution in 9 months of 1.1% in value, EUR 5.4 million with a 10 basis point dilution driven by the decision to significantly reduce the sale of back whiskey to third party on the recently acquired Wilderness Trail Distillery. The EBITDA adjusted came in at EUR 601 million with a reported change of 7.8%, actually negative 7.1% in Q3, of which in 9 months -- on an EBITDA basis, we had a very healthy organic growth of 11.4%, positive contribution from perimeter of 1.9% and unfortunately, negative FX effect of 5.5% in value. Moving on to the following page, we can see operating adjustment of -- negative operating adjustments of EUR 29 million attributable to restructuring initiatives, nonrecurring costs primarily related to 80 projects and long-term retention schemes. Total financial expenses came in at EUR 50.5 million with a significant increase vis-a-vis a year ago by EUR 39.6 million, excluding the exchange effects. The financial expenses came in at EUR 38.4 million versus EUR 40 million of a year ago, showing an increase in overall increase of EUR 25 million -- sorry, EUR 24 million due to the combined effect of -- on one hand, a higher level of average net debt, EUR 1.7 billion versus EUR 0.9 billion of last year. And on the other hand, a higher average cost of net debt, 3% coupon versus 2.1% of last year. We then had unrealized exchange losses accounted for EUR 12 million linked to gross country transactions involving emerging markets, namely Argentina, for which the hedging would not be cost efficient, hence that has not been activated by the group. Hyperinflation accounting for Argentina generated EUR 6.4 million of profit-wise, losses from associates accounted for EUR 3.6 million in 9 months of 2023. The PBT, the profit before tax came in at EUR 445 million. It was down 1.7% in value, but on a recurring basis, it came in at EUR 473.8 million, still down 2%. If we carve out the unrealized exchange losses the PBT adjusted would be EUR 485.9 million with an increase over prior year of 2.1%. Page 20. Net financial debt came in at EUR 1.815 billion with an increase of EUR 216 million versus last year -- versus December and last year. As the positive operating cash flow were offset by the announced and planned CapEx investments as well as other cash outlays among which the dividend payment for EUR 67.5 million. Leverage ratio, net debt-to-EBITDA came in at 2.6x marginally higher than the 1 achieved in December of 2.4x. I think that said, our numbers, I would hand back the floor to Bob for comments on company outlook.

Thanks, Paolo. Before we move on to the questions, let me reiterate our outlook. I mean we're confirming our full year guidance of flat organic EBITDA adjusted margin in 2023. And this despite the quite volatile macro environment. In terms of organic performance, we expect our top line performance to reflect the strength of our key brands with the continued outperformance versus our core reference markets, positive pricing as well as the expected normalization of volume growth. Talking about the normalization though, we do expect Q4 to be stronger in terms of top line growth than Q3. Margin trends are expected to reflect the sales mix evolution as well as the continuing easing effects on input cost inflation, which help mitigate continued investment to strengthen our group's commercial capabilities. Unfortunately, the negative ForEx trends are expected to continue, reflecting the weakening U.S. dollar and some key emerging market currencies as well as the appreciation of the Mexican peso. In the medium term, looking beyond 2023, we remain quite confident to continue delivering strong organic top line growth as well as margin expansion, leveraging mix improvement as well as input cost inflation normalization. So this is it on our part, and we're all here to the many questions, which I suspect you all have.

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

I have 3, please. 2, I think, for Bob, 1 for Paolo. The first 1 on top line. So Q3 decelerated a bit more than the Street was expecting. You're flagging that the consumer environment is getting more volatile, a bit tougher, but there were also some one-offs, some negative one-offs like the weather supply issues in Jamaica. I don't know if you can answer this, but are you possible to give a sense in your view of what the underlying performance in Q3 is once you strip out these factors. And of course, you've said that you expect Q4 to be better? Second point on Italy, I'd just like to dig a little deeper there, please, on the wholesale cautiousness situation. If you could elaborate a bit on this, what stock levels do wholesalers in Italy typically hold? How is this changing? Do you see this mainly as a one-off that affected Q3? Will it continue in Q4? Any color there would be very helpful. And also how you're seeing the consumer environment in Italy. And then for Paolo, please, you've left your margin guidance for the year unchanged. But it will be helpful, Paolo, if you could probably give an update on some of the key drivers affecting COGS as we go into Q4 and next year, in particular, I'm referring to agave prices have continued to fall, it seems and maybe an update on your glass negotiations?

Thank you, Andrea. Now let me start with the first question. And I think I'll take a little bit of a bigger picture view than just Q3, Q4. I think it's become quite clear to everybody that our growth algorithm has changed. I mean if in the past, we had mid-single-digit medium and long-term top line growth objective it's very clear that we're growing at a much faster rate. And if you allow me to give you a little bit of an imagery if the spirits industry is a highway in Continental Europe, we're on the left lane overtaking all the others. Now clearly, highway not only straight and sometimes you hit the curve and you need to slow down and then you accelerate again. So our underlying growth rate, if we get headwinds is probably in the high single digits, if the market is more benign, it's in the low double digits. So that is our overall expectations going forward also for next year. As I said, in Q4, we expect it to be better. Let's see how it goes. Definitely October is a better month than what we had in September. And August were particularly in Italy and in Argentina, we had the perfect storm. So storms have an end, and then you move on. Moving on to wholesaler cautiousness. Italy wholesalers usually have, what, 4 to 6 weeks of start probably last year, they might have added a week or 10 days more on top of it because we -- due to logistics issues as well as allocation issues, they weren't always being served the right way. I think this summer, they've come to the conclusion that we're able to deliver without any issues within a few days. So they probably took a week, 10 days stock off. I mean the biggest impact on the Italian numbers, as I said, is more the short-term weather impact effect consumer sentiment is not helping. But on the other hand, as you know, during all the crisis years we've had, actually, when consumer sentiment was subdued, our aperitifs ended up doing very well because consumers then move from restaurants to the long aperitifs for the price of a cocktail. You can also dine for free. So we feel quite comfortable about that going forward. I hope that has answered your first 2 questions. I'll pass on to Paolo.

Yes. On the Q4 margin guidance and then on 2024, margin guidance, Q4 clearly is a big quarter for us. We have a lower weight of aperitifs and a higher weight of brand spirit. So if you look at the Q4 starting from the top line, it always boils down to volume, pricing and mix. So volume, the business still has a very, very good traction. And clearly, the softness that we've seen in Q3 that is primarily due to tough comps as well as poor weather conditions. So this is a nonrecurring affair. So for the volume piece is good and healthy and October started pretty well. On pricing, clearly, as we have guided at the beginning of the year, clearly, we have, on the other hand, a tougher comps because we're recycling through the second round of price increase after 2022. And so the impact of pricing will be less stronger than in Q1, Q2 and Q3. But overall, if we look at the year, we can say that the achievement on price increases probably even ahead of our initial expectations. And talking to mix, that these other factor driving the performance of the fourth quarter, as said, we have a lower proportion of aperitifs. And then clearly, we can rely on a lower contribution from mix vis-a-vis, Q2 and Q3 where we had the peak season for aperitifs. On cost, the environment is overall easing. We've seen in Q3, 60 basis point gross margin expansion that is extremely encouraging and clearly bodes well for the remainder of the year and also for 2024. Now talking to 2024 as said, on agave that is our biggest single efficiency opportunity. I tend to remind always that any pesos of agave price containment translates into about $5.5 million of incremental EBIT or lower COGS, as you will. So we have very, very positive conditions. We are currently renegotiating most of the contracts. The vast majority of the contracts bringing down the purchase price to its fair value. Currently, spot price for top quality agave plant. That is what we normally -- that is what we take to the sale for our Aperol and couple of tequila is now down to about MXN 19 per kilo versus MXN 28 per kilo is the average for this year. So there is a significant cost efficiency opportunity sitting in next year. Clearly, glass is the other big conundrum. We closed some of the contracts, so more to come. But overall, the softness in consumption in FMCG space is clearly boding well for a positive outcome of our discussion with the vendors. And I think we'll be in a position of giving -- to shed more light on that front as we announce the full year results. Other commodities, they are not as low as we would like. Energy cost is not collapsing as we hope. But overall, looking into 2024, we remain extremely confident to achieve gross margin expansion, Also thanks to COGS containment, yes.

The next question is from Simon Hales with Citi.

A few for me. Bob, can I just sort of clarify around some of those technical effects that you just mentioned in relation to Andreas' question. Just so I'm clear, it sounds like, obviously, the destocking of Grand Marnier is complete. The wholesaler caution that we've seen weighing on Q3 probably shouldn't weigh on Q4 and shipments in Italy probably should be matching depletions. And then the other area around the supply constraints in Jamaica. You haven't said much about where we stand on that going forward. So I'll be interested to see is those constraints continue from here? Or when do they start to ease? That's the first question. Secondly, just coming back to the margin outlook, Paolo in Q4, given that you've had 10 bps of margin expansion year-to-date, it sounds like despite some easing of COGS headwinds, the combination of that weaker mix, and I imagine ongoing SG&A investment in relation to Greece is going to mean that EBIT margins will be diluted in Q4. Is that the right assumption? And then just finally and briefly, on financial expenses, clearly, a big step up over the first 9 months. How do we think about financial expenses into the year-end? And should we expect a further step up in the average coupon in 2024?

I'll kick off with your first question, Simon. Yes, I mean, clearly, the one-offs in Italy, I confirm that they are one-offs in the sense that, I mean, okay, we don't control the weather. But the wholesaler caution, it's not like they're going to turn super optimistic, but I think the mini destocking they've gone through, there's not much margin to go any further than that. On Jamaica will probably continue the next 6 months to have those supply constraints before our Dunder plant comes on stream. So we'll see how that goes, and we'll try and compensate it with other brands. But the underlying Jamaican business is very healthy.

Yes. With regards to the fourth quarter matching guidance per se of course, the fourth quarter in order to hit slight EBIT margin for the full year, there's -- given the fact that we have expansion in the first 9 months it's marginally dilutive. And as you correctly pointed out, there is some leakage sitting in SG&A as we are basically front-loading the investments on the Greece new route-to-market initiative where basically we've hired most of the sales organization without having the contribution of the revenue. So that's clearly a fact. Conversely, if you look at the A&P. Clearly, there are the promotions and the activations that have been planned in Q4, but we're not going to double down and shift the investments in activation that we couldn't do in the third quarter due to poor weather condition into Q4. So that's not a further dilutive effect. So that's on Q4. With regards to the cost of debt. Our long-term loans overall, they have a coupon of 3.7%, but 40% of the overall tax is currently paying variable interest rates. So it's less than that. I would say we're in the -- in 9 months, we are at 3% for next 3 years probably will be marginally higher than 3%, would be about 3.3%.

The next question is from Laurence Whyatt with Barclays.

Bob, Paolo couple for me, if that's okay. Just following up on the agave price reduction. Just wondering how long you expect that to take to flow through both your long-term contracts and the production of tequila, should we expect to see the full impact in 2024? Or is that going to be a bit of a longer-term process to see that profitability improve? And then secondly, you talked about Espolòn benefiting from people trading down from over $50 a bottle tequilas. I'm just wondering elsewhere in both Europe and U.S. whether you're seeing evidence of down trading across the board. Are there any other countries or categories you'd highlight where that down trading has taken place?

So vis-a-vis agave price reduction and the timing of its positive impact on our P&L, the tequila is short-time production cycle. So you don't need to match. So it will be pretty quick. On the other hand, the full potential can be achieved over a longer period of time due to the fact that some of the contracts had fixed prices. Overall, I think probably phasing effect of 3 to 6 months it makes a lot of sense. But again, I cannot exclude that also moving forward vis-a-vis the current MXN 19 per kilo, the price can go even lower. So it's a moving target that is difficult to predict, but it's clearly going in south, and that's extremely positive for us.

Well, with regards to your second question, yes, I mean, there is overall softness on the really high end, but I think you need to differentiate it. If on the bourbon side, you have some really special unique expressions they continue to do very well. It's more once you get into categories and things which are sort of interchangeable. So if you look at tequila, particularly in the past few years, we've seen some incredible price points coming into the market above $100, $150, those are clearly coming down significantly. And if you look at the other categories, yes, there's a little bit of softness but it's not anything really major. What's interesting is that in this environment, though, that the on-premise continues to do well.

The next question is from Olivier Nicolai with Goldman Sachs.

I got 3 questions. First of all, a follow-up on Italy. Italy was down 9% in Q3. I think it's been asked before, but are you able to quantify at all the poor weather impact versus a wholesaler consciousness and then potentially any weakness on the consumer. In other words, what was the kind of exit rate in Italy in September at the end of the quarter? That's the first question. Secondly, going back to normalization in the U.S. you expect a better quarter in Q4 for the group. Does this apply to the U.S. as well? And then related to that, again, on the U.S. market. What's your view on the spirits RTD category? And Campari has any ambition in that category. And then lastly, if I may. Bob, unfortunately, for us, we've learned that you're going to retire in April 2024 after a phenomenal run for the last 16 years as a CEO of Campari. First of all, what would you have -- wanted to achieve if you had decided to stay a few more years? And what is the main piece of advice you gave to Matthew?

Thanks for your questions. I mean Italy did minus 9% in Q3, you need to put it within the context also of the comp base, I mean, last year, we did the second price increase, which was the first time we've ever done that ever since I'm in the business. And that had a huge impact of pulling into Q3 volumes from Q4 last year. So clearly, that was 1 very big impact. On the consumption side, had we had Sunshine, clearly, I think we would have been much more in the high single digits, at least on a total basis and continue growing double digit on our aperitifs. So that was quite meaningful. Moving on to your question about the U.S. business. I mean, as I said, our U.S. business is doing very, very well. In Q3, our depletions were up 11.1%, so significantly ahead to our shipments data, which again is significantly ahead of the market and most of our peers. So the overall portfolio is doing quite nicely, and we expect that momentum to continue for the rest of the year and also potentially next year, assuming there's nothing major happening from a macroeconomic standpoint. What is our view on Spirits RTD. Our view is that it's probably a fad. We view that it is something negative if you flank your brands and create RTDs. We have some minimum exposure to that, as you know, but it's some long-term historical exposure when we have a significant cocktail, which we own, like Campari and Soda, we have the RTD or we have the Aperol Spritz ready-to-enjoy in selected markets as convenience items. But we're not -- we don't want to get into the rat race of having to launch every year more and more RTDs just to basically compensate the comp base. And at a certain point, you find yourself with your main brands seriously impacted from an equity standpoint. So this is our view, we might be a dissenting voice in the industry, but we've really learned also our lessons from the innovation mania in vodka. So we're not going to play that game again. What would I like to do? Well, I think if I go back to when I took over 16 years ago, I think we've done much, much more than what I -- what's possible at that point, to be honest. I think it's a great transformation of this company. And the great thing about this company is that irrespective of the CEO, there's a very, very strong management team with this very strong support of long-term majority shareholder and a very clear strategy, and that's going to continue. So it's -- the transformational acquisition doesn't happen during my watch. I'm sure it's -- how it's going to happen in my successors watch. So it is what it is. And the 1 advice I would give to my successor is that really our secret sauce is our people. And that's what really makes a difference, having the right people and the right positions of the right motivation, and we need to keep on building and scaling up that secret sauce. Our culture makes the difference.