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Operator: Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Campari Group 9 Months 2025 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Simon Hunt, Chief Executive Officer; and Paolo Marchesini, Chief Financial and Operating Officer of Campari. Please go ahead, gentlemen.
Simon Hunt: Fantastic. Thank you very much. Good evening, good afternoon to everyone. Thank you for joining us to go through our 2025 9 months results and perspectives for the remainder of the year. Paolo is here with me; our IR team, Chiara and Gulse are happy to connect after the call to further deep dive with all of you in the upcoming days as necessary. Now just before I get going, I think all of you already know, this is going to be Paolo's last call with us before he transitions to his new role as Vice Chairman. I'd like to thank him for all of his support, long-standing contribution to this group and looking forward to continuing to work with him in his new role. And it's pretty rare these days. He, as a CFO that has presided over more than 100 earnings calls, and holds the title being the longest serving CFOO in the Italian Stock Exchange and certainly across our industry by a long, long way. That is an amazing track record and an achievement. And on behalf of everyone in the company, me, my predecessors and all of you here on the call and in our investment community, I'd like to say a big thank you. And for those of you who are joining us on the Strategy Day on the 6th and 7th November, you have a chance to celebrate together with Paolo. Thank you, again, Paolo.
Paolo Marchesini: Welcome.
Simon Hunt: Now a short summary of our results. As you can see, our performance is on track with what we told you last time. Clearly, the operating environment remains challenging. Despite this, we are continuing to outperform the industry in sellout, and this is exactly our aim. We're keeping our strong focus on commercial execution and continuing to invest behind our brands to ensure we are well positioned for when the market normalizes. In terms of profitability, we're making strong progress, and this is supported by gross margin accretion and visible savings in SG&A more than offsetting the ongoing A&P investments, as I mentioned. And we're maintaining our guidance of moderate organic growth on the top line. While on EBIT-adjusted margin, we continue to expect a flattish organic trend as a percentage of net sales, but now with the tariff impact incorporated. And we'll dive into the details later on. We continue to make solid progress across all of our strategic priorities in line with our expectations. As highlighted in previous updates, our focus remains firmly on the areas we can control, and we are consistently advancing towards our goals. On brand building investments, as already shared, we're not making any compromises. On SG&A, as we already guided, the deceleration trend is evident, and we're also making progress on COGS efficiency. On CapEx, we are on track to complete our extraordinary program for production capacity expansion. In terms of portfolio streamlining, the disposal of our 50% investment in Tannico in Q3 is another step towards simplification following the disposals of Cinzano and the Australian plant in the first half of the year, and we are maintaining our pause on M&A. On the balance sheet, our disciplined approach means that we have now been able to reduce our financial leverage in terms of net debt-to-EBITDA ratio by 0.7x in the last 12 months, down to 2.9x with further improvements to come. Our portfolio approach continues to bear fruit. And while we will discuss this more during our Strategy Day, I can say that we keep growing across geographies where we are continuing to gain share and prioritizing execution and pricing discipline in a challenging backdrop. Now let's look at our top line performance and the drivers. In Q3, we recorded growth across all regions. I'll say that again, we recorded growth across all regions and delivered a very resilient 4.4% organic growth overall. And this means as of 9 months, our organic growth was plus 1.5%, in line with our guidance. And yes, we are still growing even in this tough market. The peak season started possibly in terms of weather, but we did see some variation across geographies in the latter part of the quarter, plus the impact of economic pressures on consumers play a role, especially in the on-premise and in the U.S. But despite this, we recorded solid growth. Regarding some of the technical impacts coming from the first half of the year, you'll remember that of the $11 million U.S. logistics delay impact we flagged in Q1, most of that has now been recovered with a limited impact expected in the fourth quarter. The delisting we flagged in Q2 in Germany continues to impact with EUR 3 million in Q3, leading to a total of $8 million in the 9 months and an expectation to reach $11 million by the end of the year. Net-net, these 2 impacts balance each other out in the quarter. And over the 9 months, the underlying performance broadly matches our reported organic growth. The perimeter impact is plus 1.1% on our top line while the FX impact was negative 2.4%, mainly driven by the U.S. dollar devaluation and Latin American currencies. Overall, our total reported top line growth is 0.2%. Now looking at the sell-out data, which is ultimately the main focus. Our outperformance continued across almost all markets in a challenging backdrop with overall shipments and sellout pretty much to line across the U.S. and EMEA. In the U.S., our outperformance in the strategic on-premise channel and in NABCA is ongoing in Q3 with plus 5% growth year-to-date in the on-premise, indicating a 4 percentage point beat compared to the sector, and a 2 percentage point beat in NABCA. And this is driven by a very resilient growth of plus 12% and plus 9%, respectively, in our tequila and aperitifs portfolio. Note that due to some data policy issues from the provider last night, we're only able to show a 52-week trend in the on-premise data, not the usual quarterly performance, but I'm sure that data will be corrected soon. On the off-premise, while our focus brands continue to show a resilient performance. The rest of our portfolio, which has a higher weight in this channel, impacted our total growth. And by the way, we should highlight that given its universe composition, Nielsen off-premise doesn't sufficiently represent a full picture of Campari America's performance or momentum in the market as we continue to make good progress across the club channel. In EMEA, we also outperformed in each of our main markets with growth of plus 2% versus a market of negative 2% in the region despite the pressurized context. Now let's start and look at our top line growth by region, starting first with the Americas. And Americas grew by plus 1% in the 9 months with an acceleration in Q3 of plus 5%, driven by positive top line across the region. In the U.S., the 9-month performance was impacted by the destocking in Q1, while the last 2 quarters have both been positive with plus 3% and plus 1% growth, respectively, in Q2 and Q3. The main drivers are Espolòn, Courvoisier and Wray&Nephew. And the aperitifs recorded a stable trend with a positive Campari, offsetting inventory reduction post tariff volatility in Aperol in the third quarter. In line with the category trends, we continue to see persisting challenges on SKYY. Jamaica recorded plus 11% growth in the 9 months with a very strong quarter 3 due to the base effect of last year's hurricane but also benefiting from a very positive local market dynamics. And given the news at this stage, I think it's important just to update you with what we know about Jamaica. So at this stage, the team are evaluating the impact of the hurricane from last night. And our primary focus is the safety and well-being of our teams, which we are confirming diligently given the lack of communication available. After that, we have got teams on the ground at each of our sites to assess the impacts and next steps to get us up and running as quickly as we can, recognizing the infrastructure damages anticipated by the Jamaican government. Once we have clarity on the situation, we'll then be able to confirm our support for whatever those recovery plans are and can provide more of an update once we receive it. In terms of the rest of the Americas, which makes up about 11% of our group sales, continued its solid performance with plus 3% growth in the 9 months and quarter 3 was flat, impacted by trade disruption in Canada in connection with the tariffs. But on the positive side, Campari has now become the second largest premium spirits player in Brazil, driven by the strong performance of Campari, and leading Brazilian brands. Now moving on to EMEA. The plus 2% growth was broad-based across almost all countries. In Italy, the environment remains challenging, especially in the on-premise. We saw less willingness by consumers to spend and decreased numbers of visits. Regarding tourism traffic, even though accommodation occupancy rates were relatively solid during the summer, consumers were more selective about spending. There were also a few Italians taking holidays during August pressured by increased prices. In August, we saw all main beverage categories. That's all beverage categories, down 10%, including water a mainstay of Italian consumption in both the on and -- in and out of home, really reflecting the economic pressures that consumers are seeing. And all of this played a role in the performance of Aperol. At the same time, we see our portfolio approach in aperitifs bearing fruit, especially with solid trends in Campari, Crodino, Sarti Rosa as well as the Spirits portfolio. In Germany, the environment has become more challenging over the last few months across all categories and sectors, as I think you know. And consumer propensity to save versus spend has increased significantly. And we are still cycling the impact of the delisting at a retailer to hold our line on pricing. Despite this, we recorded positive top line growth in Q3, mainly driven by the success of Sarti Rosa, which now accounts for more than 10% of our net sales and has become the second largest brand for Campari Group in Germany after Aperol. Again, here, the benefit of our portfolio approach and Spirits leadership is evident. In France, our solid performance is mainly driven by Aperol with plus 6% growth in Q3, and the U.K. performance remains strong, supported by our excellent execution during the peak season with the added benefit of some good weather, too. The main drivers of the plus 22% growth in Q3 were Aperol and Aperol Spritz as well as Courvoisier benefiting from the ongoing marketing campaign. In the other countries in EMEA, which contributed 16% to our overall sales, we had a positive trend in all countries in the 9 months, especially in GTR, Greece and Belgium. And the bulk of the growth is coming from aperitifs and Courvoisier. Now moving on to APAC. Growth was plus 5% in the 9 months. In Australia, the growth of plus 6% in the 9 months was driven by a 15% growth in Aperol with ongoing focus on accelerating the on-premise activations as well as a plus 12% growth on Espolòn bottle and ready-to-drink, which keeps leading the tequila ready-to-drinks. In quarter 3, which in any case, is an off-season quarter for Australia, performance was impacted by the phasing of shipments in Wild Turkey, leading into the key upselling -- upcoming summer selling period. In the rest of APAC, we saw a positive momentum in Q3 with plus 14% growth, mainly driven by China, India and South Korea. And Wild Turkey/Russell’s Reserve continued to perform well and we've also seen some initial reorders on Courvoisier following a clearing of the trade channels that we undertook following the acquisition. Okay. So let's now move on to look at it different way via the houses, starting first with the House of Aperitifs. Here, we recorded resilient growth of plus 1% in the 9 months, primarily driven by Sarti Rosa and Aperol Spritz. As I mentioned, while talking about the regional performance, Aperol performance was impacted by a variety of factors during the quarter, and I'll deep dive a bit more on the next page. But in Italy, the impact was a result of pressured on-premise, Germany due to the delisting and operating conditions. And in the U.S., we had an alignment of the inventory post tariff volatility in the U.S. market, which impacted shipments. Excluding these 3 countries, all other countries remain on track with plus 4% growth in the 9 months. For Campari, the main impact is coming from Brazil, where we had a very high comparison base from last year, I think, near on 50% due to the rapid growth as well as price increases. And excluding this impact, the performance remains solid with a plus 2% growth in Q3 and a plus 1% in the 9 months, led by the U.S., Italy and the rest of the Americas. The remainder of the aperitifs portfolio is showing positive trends across the regions. Sarti Rosa continues its solid growth in its core German market and has started to benefit from the rollout into other European markets as well. Aperol Spritz is performing nicely, driven by the convenience trends. And Crodino, our nonalcoholic Spritz, is growing double digit across all seeding European markets. As I said, let's have a closer look at Aperol. The geographic expansion is fully on track across all seeding markets. More than 10 countries representing 12% of the brand's total sales are delivering outstanding double-digit growth, reinforcing the strength of our approach and the excitement in these markets. And this really is a testament of the fact that Aperol's desirability and consumer trends continue to support its growth. On sellout, our outperformance is continuing in the strategic on-premise and in NABCA in the U.S. European markets are facing some pressure and it's evident, especially in the on-premise data. In Italy, despite this stock levels remain healthy in the trade. In Germany, given the operating backdrop, Aperol's been impacted, especially in the on-premise. But if you include also Sarti Rosa, in fact, we continue to perform better than the market. In France and the U.K., the performance is very robust, particularly benefiting from favorable weather conditions and excellent execution. This is all to say we are very confident in the trajectory of Aperol. It's a tough market without a doubt and the quarterly performance can get impacted by various factors, but the long-term opportunity remains fully intact. Okay. Looking at the House of Whiskey & Rum. In whiskey, we recorded strong growth in Q3 with Wild Turkey benefiting from the stock availability in its core U.S. market. And you'll see it later in this session, but we also launched a new campaign, which we expect to support more going forward with initial encouraging results. South Korea and China are also supporting off a small base. Jamaican Rum showed a solid growth of plus 16% with Q3, driven by an easy comp from the last -- from the hurricane last year as well as strong underlying trends in the U.S. and in Jamaica. In the House of Agave, Espolòn grew plus 3% in the 9 months. Growth was supported especially by Reposado plus 11% while Blanco remained broadly flat due to our focus on pricing. And Q3 was impacted by the phasing of shipments. Key seeding markets also continue to grow for a small base, in line with our international expansion strategy. Within the House of Cognac & Champagne, Grand Marnier recorded a stabilized performance in Q3, also supported of an easy comp from last year. Courvoisier recorded EUR 99 million of sales in the 9 months and was included into our organic growth as of May. As we already highlighted in our H1 call, we are piloting some brand marketing in the U.S. and U.K., which has shown initial positive results. And above all, I'm very proud to say that Courvoisier took top honor as Best Cognac for its 30-year XO Royal in the 2025 Beverage Testing Institute Awards. In fact, out of the total of 8 categories awarded during the event, Courvoisier was on the podium in 4 of them, with XO Royal winning the top prize with XO, VSOP and the VS expressions. And this clearly reinforces the quality of our liquid in our bottles. For the rest, I won't comment too much, just to note that 21% of our overall portfolio is currently classified as local brands given their geographic concentration. SKYY remains an important part of the portfolio and showed a positive performance in Q3 driven by Argentina, China and Brazil, more than offsetting the ongoing softness in the core U.S., in line with other major players in the category. Okay. I'd also like to share some of the highlights of our activations from last time. And given that we're in our peak season, the key focus for us has been imperative in this period. So let's start with Aperol. Music festivals are and will continue to be at the heart of our activation strategy for Aperol. This summer has been our biggest and boldest yet with over 130 festivals in EMEA alone reaching more than 10 million consumers and selling, yes, selling over 2.5 million Aperol serves. We're also once again in the U.S. Open, where Aperol engaged with more than 90,000 attendees, driving 26 million influencer impressions. For Campari, the main highlights of the quarter were the strong partnerships with the major film festivals. Venice for the 8th, Locarno for the 5th and Toronto for the 2nd year. We're also very active during Negroni week because as you all know, there is no Negroni without Campari. And this linked with our cinema and the Negroni are critical for the positioning of Campari, and we'll continue to strengthen this further in the upcoming period. And moving from aperitifs to tequila, Espolòn is also very active during the summer with its mark days of summer campaign. Media impressions increased by more than 28% compared to last year. Social impressions reached millions leading to additional coverage in Forbes and Vogue and all of this culminated in a widely publicized drone show over New York. And lastly, we're going to have a look at our new Wild Turkey campaign, which was launched at the beginning of September, focused on our legendary master distiller Jimmy Russell. This initiative represents the brand's largest ever investment with a media spend planned up to $12 million through 2026. And this campaign is rolling out across the U.S. and Japan in '25, expanding to Australia, South Korea and other markets in 2026. The and the pre-launch testing ranked the campaign in the top 1% to 5% of benchmarks, showing strong purchase intent, brand saliency across the key markets. So let's have a look at the video. [Presentation]
Simon Hunt: Okay. I think back, hopefully, if the technology is working properly. So before I hand over to Paolo for the P&L and balance sheet section, I'd like to give you an update on our key strategic priorities. We're really excited to welcome many of you in-person to our first-ever Strategy Day coming up on the 6th and 7th of November in Milan. The agenda is going to be pretty packed, giving us the opportunity to review our future direction and priorities while not forgetting to have a bit of fun, showcase our brands and our amazing production capabilities. So moving on to cost containment. You can see that in Q3, the declining trend we guided for in SG&A has started and will continue in Q4. Therefore, we are on track to achieve our target of 50 bps benefit on sales in 2025 and 200 bps benefit by the end of '27. On portfolio streamlining, we continue to take the right steps after disposal of Cinzano and our American plant in the first half. We've now divested our 50% stake in Tannico, the Italian online wine and spirits business. Although this has a limited impact on our results, it's another step in the right direction in terms of business simplification, in line with our strategy to focus on fewer, bigger bets. Any additional potential disposal will be based on the optimization of potential proceeds. And I can say that more conversations are ongoing. Okay. With that said, I'm going to hand over to Paolo. Paolo?
Paolo Marchesini: Thank you, Simon. First and foremost, I wish to thank Simon for his kind words at the beginning of the presentation of my past contribution to the Campari success. It's been an incredible journey, a privilege to engage with such a thoughtful and committed community of analysts and investors over the years. I look forward to continuing to support the group in my new role as the Vice Chair, and I hope to see you -- many of you again at our Strategy Day in November. For now, let's dive into the results and the outlook for the remainder of the year. Now if you follow me to Slide 17, let's start by looking at our EBIT margin dynamics for the last time together. I am happy to say that we have recorded solid results so far in 2025 with a flat EBITDA adjusted margin supported by gross margin accretion and cost containment benefits, offset by brand building investments as planned. In terms of gross margin, 9 months was up by 90 basis points with an acceleration in Q3 of a positive 180 basis points. This was mainly due to the positive mix and ongoing benefits of input costs, especially Agave as well as contained tariff impact of just EUR 6 million in 9 months. Tariff impact benefited, in fact, from some pre-tariff in-house inventory position we were holding. Accordingly, our full year impact has been revised down to EUR 15 million for 2025. A&P to sales reached 17.3% in 9 months with an acceleration during peak season leading to a positive 9% organic yearly growth and a negative 110 basis point dilution impact on margin. As Simon mentioned before, we continue to invest behind our brands and our full year guidance of 17% to 17.5% is fully confirmed. As you all know, our cost containment efforts are becoming more and more visible. In Q3, we had a declining trend of negative 4% in value, and we are on track to reach a 50 basis point accretion guidance driven by ongoing value reduction in Q4. Accordingly, EBITDA adjusted was realized at EUR 517 million in 9 months. Within this, there was a positive contribution from perimeter of EUR 1.1 million driven by Courvoisier until April, net of agency brands and co-packing. Foreign exchange impact was realized at a positive EUR 9.8 million, driven by devaluation of the Mexican pesos offsetting the negative impact of U.S. dollar devaluation. Let's move on to look at our group pre-tax profit with a few comments. So far this year, operating adjustments totaled EUR 41.9 million and that includes the impact of plant disposal in Q1 and severance payment. Financial expenses came in at EUR 80 million in 9 months. This is on track with our expectations of EUR 105 million to EUR 110 million for the full year. The increase versus 9 months of 2024 was driven by higher average net debt, actually EUR 2.365 billion this year versus EUR 2.071 billion last year, mainly due to the base effect of Courvoisier closing on cash and debt. Average cost of net debt is now at 4.3% versus 3.7% in 9 months 2024. As in previous quarters, we need to remember that last year's figure was artificially low, given cash at hand ahead of Courvoisier closing coming from acquisition funding. Adjusted 9 months 2024 figure would have been 3.8%. Overall, group pre-tax profit adjusted amounted to EUR 440.4 million in the 9 months, indicating a negative 2.6%. And group pre-tax profit came in at EUR 398.8 million with a negative 5.7% decline. Moving on to look at the net debt, Slide 19. Net financial debt was EUR 2.241 billion in 9 months, improving by EUR 136 million compared to 2024, thanks to positive cash generation. This is before the further benefit expected from the proceeds of Cinzano disposal after the closing, which is expected to occur before the end of the year and will further contribute. Cash and cash equivalents were at EUR 509 million, up versus first half due to cash generation. Compared to the end of 2024, it is down by EUR 157 million due to EUR 78 million of dividend payment, CapEx initiatives, loan repayments and employee termination payments. Lastly, in line with our strategic priority of balance sheet discipline, our leverage ratio improved to 2.9x in 9 months, down from 3.6x in 9 months of 2024, following the acquisition of Courvoisier, 3.2x at the end of 2024. So in 12 months, as we said before, we have a deleverage that is accounting for 0.7x. Pro-forma including Cinzano disposal, the ratio is slightly better at 2.85x. This is a testament to our capability of actively manage our balance sheet following acquisitions and bringing leverage ratio down with further improvement expected going forward. Let me hand back to Simon to comment on our outlook.
Simon Hunt: Great. Thanks very much, Paolo. So I started this year by saying it was going to be a transition year. And in these 9 months, we've showed a resilient performance despite the ongoing challenging backdrop you all know. The environment is still one of the most complex any of us has gone through, but we continue to outperform in key markets. At the same time, we keep our focus on what we can control in order to manage our balance sheet and P&L effectively and the results as clear as you just heard from Paolo. For the full year, we continue to expect moderate organic top line growth, assuming no worsening of consumer confidence in Europe or in the U.S. and especially in the on-trade. So far in the 9 months, we recorded plus 1.5% organic growth which confirms our targeted progression. On EBIT-adjusted margin, we're maintaining our flattish organic guidance. Have this in guidance now includes the tariff impact and the drivers behind this provision are as follows: first, lower than previously guided negative impact from tariffs of EUR 15 million as Paolo mentioned before, due to the benefit of our pre-tariff in-house inventory position. Of course, this is assuming the current tariff rates remain the same, which we hope they do. But now anyway, given the stability we've established. But just to consider, we will not have the same benefit next year. Second, the benefit of efficiency gains in COGS and SG&A, where we continue to make good progress. This is more than offsetting the reinvestments in A&P which are critical for our brand building, and we believe investing now while many others are cutting their budgets, helps to deliver strong long-term brand benefits. In terms of FX and perimeter, we expect limited overall impact in value terms. And regarding the medium long-term outlook, we confirm our previous guidance, and we are confident for the future. As I mentioned before, we'll come to the market with more details of how we're going to get there next week during our Campari Strategy Day. So to summarize, we keep our focus as planned in the key areas that we've mentioned before. We continued relative outperformance in sellout, which we are doing; financial deleverage trend, which we are achieving; deceleration in SG&A growth driving operating leverage, which we are delivering; continued focus on commercial execution and pricing discipline, which we are controlling; and portfolio streamlining, which we are delivering. So let's close here, and let's open up the floor for your questions. Thank you.
Operator: [Operator Instructions] The first question comes from Andrea Pistacchi of Bank of America.
Andrea Pistacchi: So first of all, Paolo, I haven't been on all the 100-plus calls you've done, but many of them. So I really want to say a big thank you for the help, detailed answers, insights that you've consistently provided. And also, of course, congratulations for your appointment to Vice Chairman of the Board. And all your best -- all the best in your new chapter, and I look forward to seeing you in Milan next week. So I have 2 questions, please. First, I'll start with Paolo, on gross margin. Gross margin being one of the key highlights, I think, of these results. Now there are a lot of moving parts here from the tariff impact, the input cost benefit, Agave, mainly mix effects, maybe other things. So it would be helpful, please, if we could go through these drivers in a little more detail if that is okay? For example, how much of a benefit are you getting from input cost and Agave, and is there more to go as we go into next year? And also, if you could say, what is driving the mix benefit? Because I think your aperitifs was a bit more subdued this quarter growing below group average. Yes. So putting all this together also on the margins, how you're thinking about how these moving parts play out in Q4 and maybe going into next year? And then for Simon, please. I wanted to dig a little deeper on EMEA, which I think was very solid overall. Some markets are strong. Others not, however, various companies are calling out how affordability is weighing on consumer demand. Now given that the affordability headwind probably won't go away in the short-term, what are you doing to deal with this to adapt with this? What does it mean for pricing in EMEA in the next 12, 18 months? And in Italy, stock levels, given that there's been a bit of a softer performance that you're calling out in the on-trade in the summer, how are wholesaler stock levels there?
Paolo Marchesini: Thank you, Andrea. On -- I'll start with the gross margin question. So vis-a-vis key drivers on the COGS, we have originally highlighted EUR 20 million benefit from input costs, most of it coming from Agave. But also, I have to say that many other commodities are -- the prices are coming down. The only exception to that still remain logistic costs, where we have seen negative variances vis-a-vis a year ago. In terms of -- if you look at the upcoming quarter and more directionally into 2026 for the upcoming quarter, we think we will still benefit from positive contribution at the gross margin level, as we've seen in the third quarter of the year. We will keep on benefiting from a reduction in value of SG&A due to the restructuring initiative that is having an impact in the second half as we have originally guided, more to come with a further 90 basis points in 2026 due to the full year effect of the initiatives that have been implemented in year 2025. Vis-a-vis the mix, the very good news is that on Espolòn, originally the objective was to achieve parity vis-a-vis group average gross margin by Q4 of this year. Instead, we managed to put it forward to Q3. So Espolòn in Q3 was no longer a bleeder and that contributed to a positive mix. Clearly, if we look at the composition of the margin gain in the third quarter, giving the pricing pressure that we had, most of the -- if not most of the gain is coming from cost benefits more than mix and so the very same dynamic we are expecting to see in Q4 with promo pressure negatively impacting the company's ability to take net price gains. COGS, will keep on being positive and mix as we hope will positively contribute. So this is a little bit how we see the first quarter and next year. In terms of clearly, perspective in the past years, our ability to drive gross margin expansion based on sales mix improvement is linked to the performance of primarily aperitifs but now also tequila, Espolòn will be no longer a bleeder. So we remain extremely positive vis-a-vis the possibility of expanding gross margin via sales mix. Commodities remain a tailwind in 2026, whilst at this stage, we believe pricing, the opportunity is minute and less evident given the current market conditions.
Simon Hunt: Andrea, looking forward to seeing you next week. Look, your question on EMEA, look, EMEA, overall, it's tough, as you rightly said. But I'm really pleased with the performance that the team has delivered. And I think the call out on affordability, you're seeing consistently across categories and this whole cyclical structural debate. I think one example of cyclical EMEA is a great one where you're seeing it across every category. It's not just within our category, put it that way. I think, look, in terms of what we need to do on this, we are very good, I think, at positioning the brand as aspirational, yet affordable. So the space we play in, we've got to really create that value in the consumers' eyes. And so the best way to do that is execute brilliantly. And that's in the markets where we're carving out, we're getting -- gaining share or outperforming, it's where we're really doing that, and the consumers are seeing the value in what we offer. So I think that's the first thing in terms we need to do. The second thing is then leveraging our portfolio. We have a collection of brands that allow us to compete very effectively in these markets. And you see that whether it be there may be a tougher performance on Aperol in Germany, but the growth in Sarti or the growth in Crodino and other markets. So leveraging our portfolio is key. I mean, more tactically, there are some opportunities, I think we've got to focus on around revenue management, which you'll hear more about next week. And just generally, in terms of our overall strategy, I'm not going to take away from what you're going to hear next week. So maybe by the end of Friday, you can let me know whether I've answered your question probably.
Operator: The next question is from Sanjeet Aujla of UBS.
Sanjeet Aujla: Hi Simon. Paolo, I'd also like to echo massive congratulations on your new role and many thanks for all of the help of the years [indiscernible]. So also 2 questions from me. Simon, I just want to come back to the consumer demand environment in the U.S. and Europe. Would you highlight there's been a deterioration between Q3 and Q2? And in particular, how are you seeing the evolution of the competitive and pricing environment? Would you say that's further intensified over the summer months? And that's my first question. And then just coming back to stock levels. I think Andrea asked the question, but can you just give us a flavor for where stock levels are, particularly in the U.S. and Italy and anywhere else that might be noteworthy?
Simon Hunt: Sure. Absolutely. So I think in terms of the performance in Q3 and Q2, it is really mixed. And as you know, looking at this data from a national point of view, it kind of blurs what's going on. Yes, if you look at the Nielsen data, and it seems very kind of doom and gloom across the industry in many cases, but we have pockets of growth really coming through quite nicely. I mean a good example is not picked up is, in our 11 cities that we're really focusing on building Aperol, we have 10 of them in double-digit growth. So when you talk about the deceleration, it really depends where and on what. And I think that's where we've got to be a bit careful that we [indiscernible] too many conclusions simply because of the negativity in the off-premise. We are still growing. We're growing in the on-premise. We're growing in NABCA and we're growing really successfully on the brands that we're focusing on that we're prioritizing. So I think for me, it's -- it's more about what we're doing and where we're doing it than actually what's happening in the marketplace. As I've said before, we have the benefit of being a smaller operator in the U.S. and therefore, we've got to go after opportunities and maybe some of the other companies don't have. Having your second point on the pricing environment, I think you're saying you see the same data we see, which is from a mix point of view, again, it depends on which category. I think you're starting to see a bit more price competition coming through in Blanco as we've seen within the tequila sector. Repo is dipping down a bit. But if you look at the overall price mix, actually, the tier that most of it is coming from is the tier above where we play with Espolòn. It's up at the super premium price point, where you've got a mix, from memory, at 2.6% negative as consumers are now trying to -- our brands are trying to capture that consumer affordability in that end. And that's actually creating a good opportunity for us, some people on the down trade. So, we're going to have to carry on [ sale. ] I think it's going to be a pretty aggressive festive period. I think everyone is going to be up trying to close out the calendar year strongly. So we'll have to wait and see, but I'm very confident in terms of the plans that the team has got. I mean in terms of the stock levels just quickly in the U.S., I'm very happy, as I said before, with the levels of stock we've got we can -- we've managed to take down some of the pre-tariff stock that we put in, which on the flip side of that allowed us to not get hit by the tariffs quite as much as we originally forecasting. So that's impacted some of the shipment numbers that you see in Q3. In Europe, again, very happy. We see the stock levels we've seen in Italy and perfectly normal with what we're seeing in terms of sell-out. I'm not concerned about excess stock anywhere. There was -- I'm not concerned about heavy pushing through to land Q3. I feel pretty confident. And without getting into the performance in Q4, but I'm not seeing any hangovers running from Q3, put it that way.
Operator: The next question is from Simon Hales of Citi.
Simon Hales: Can I echo the congratulations to you, Paolo, and look forward to celebrating properly with you when we see you next week at the Strategy Day. So just a couple of quick ones for me as well, please. I want to start, can I just go back to the U.S. sort of briefly. And I wonder if you could just talk about whether you -- obviously, we're seeing a deteriorating underlying trend in the industry through Q3. I appreciate you're outperforming that and some of your comments earlier in terms of you're still winning where you're investing. I wonder what you're seeing as we're coming to the early parts of Q4, obviously, an important festive season to come. Has that deterioration in trends fed through to just sort of do you think weaker ordering by wholesalers in the U.S.? I mean, any comments and color there would be interested. And then secondly, just coming back to Jamaica. I appreciate it's very early days, given the hurricane only hit last night and your focus is rightly on the safety of your people. But you're obviously confirming at this stage, your full year '25 guidance for group moderate organic sales growth. I think consensus is looking for around about 2% to be moderate for the year. I just wonder, is that deliverable that moderate sales growth even if the disruption in Jamaica ends up being pretty significant given the hurricane?
Simon Hunt: Yes, Simon, good questions. I mean I think, look, in terms of the underlying Q3 and heading into Q4, we're certainly living in a dynamic environment at the moment is the way I describe it. So I think ultimately, we're not seeing any real pressure from, certainly from our relationships. We came through on the wholesaler side, but that's also probably because we're actually in a reasonably healthy stock position already, healthier than not too high is what I mean by that and appropriate for what we need going forward. So I think -- as I've said on previous calls, the cost of capital, both in on-premise retailers and wholesalers is clearly ask -- people are now asking about what -- are people destocking further. For us, we feel pretty confident in terms of the flow. We're very confident in terms of the stock levels at each level. So we don't really see too much of that coming through. I think what will be interesting is whether or not retailers are willing to take in the holiday stock that they normally take in. And I think that's something we don't know yet. We've had no indication they're not going to. But again, things are changing quite quickly in the marketplace, and we'll see. Maybe they're taking half as much through to a holiday to wait and see what the consumer does. So that may impact. Again, for us, it comes back to a big chunk of our business is in the on-premise as well. So we've got to make sure we're executing really well in the on-premise, which the team is doing a good job on, but also making sure that we can respond to those changes if they come through in the purchase patterns. So I think on the first question, again, it's difficult to kind of predict what's going to happen, as you know, but we feel pretty confident with the plans that we've got. On your second question on Jamaica, you're absolutely right. Look, it's all about the team and making sure everyone is safe at the moment. I've got calls later tonight with the team to find out where we are. In terms of this year, I want to be clear that we've already shipped a vast majority of the stuff that we need to close out the year out of Jamaica. And we're sitting on healthy inventory positions to meet the demand. So I don't see that being an impact into this fiscal or impacting our ambitions to close out the year strongly. I think until I see or until I hear really what the team has found, once I've established everyone is okay, then I'll be in a better position to give maybe a bit more of an update next week in terms of what we found out. But at this stage, it's very hard to get the communication. I think you know electricity is out, phones are out, a lot of the roads are blocked. We're getting kind of piecemeal information. We've got a call later tonight, and I'll know a bit more, but I probably won't have the full picture tonight either. But in terms of full year impact, I don't think there's -- it's a significant impact.
Operator: The next question is from Mitch Collett of Deutsche Bank.
Mitchell Collett: And I'd also like to say thank you very much, Paolo for all your help and patience over the years and good luck with the future. Two questions for me, please. So the first one is a little bit similar to what we've had before, but you've obviously reiterated this year's guidance, but you've added this line about assuming no further worsening of consumer confidence in Europe, especially impacting the on-trade and in the U.S. I appreciate the importance of OND, but maybe just a bit of color on why you felt that additional line was necessary given how far we are into 2025? And then I wouldn't want to take anything away from next week. But clearly, you've confirmed your medium-term outlook. And I appreciate visibility is low. It's still early to ask for a read on 2026. But the question I want to ask is, do you think that next year, you'll be in that mid- to high single-digit organic growth range? And I guess, if not, what do you need to see to get there?
Simon Hunt: Okay. Mitch, yes, in terms of the guidance, the reason we put that in is, as I said on -- literally on the first call, I think I came on with it, we're controlling what we can control. And so the team is working through that. And so yes, we've only got a couple of months to go to close out the year. But this has probably been a year with high volatility than I've seen in 31 years. We've had tariffs, we had economic pressures, geopolitical changes. And as a result, we're seeing consumer behavior really change quite quickly and certainly a lot quicker in terms of purchase behavior. And that was the only reason we put it in. We want to be prudent. We want to make sure that we land the year in line with what we've told you, each one of these calls of what we're going to do. So I think we're just kind of being a bit prudent there. I'm confident we can get where we need to get to. But I think it's also recognizing there are some things outside of our control. And therefore, we want to make sure that we've kind of covered that off in terms of our guidance. I think in terms of your question on '26, yes, you're right. I'm not going to give you an answer yet in terms of where we are, but I think -- the reason we set our medium-term outlook, and we'll talk more about this next Thursday and Friday is really about our confidence in that longer-term outlook and medium-term outlook. What we anticipate '26 will be, will be a step on that journey. Exactly what step? We need to confirm we want to close out this year, and we'll be able to give more guidance once we see how we finish out the year. But it would be, I think, a positive step in that direction. Again, the only caveat on that is there's a bunch of stuff outside of our control and volatility at levels we haven't seen before. So again, what I want to be able to do is be prudent, make sure we can deliver what we tell you we're going to deliver.
Operator: Next question is from Laurence Whyatt of Barclays.
Laurence Whyatt: Simon and Paolo, and can I echo all the comments to Paolo, and thank you for all your hard work and help over the years and look forward to seeing you next week at the Capital Markets Day. A couple of questions for me there, please. Just on the tariff impact. You mentioned you've managed to get around some of the tariffs by using some of your stock. Presumably, that means that some of the impact will be felt next year. I was wondering if you could quantify what sort of tariff impact you would expect next year once you no longer have that -- the benefit of the stock and whether you think you have taken any price in order to overcome some of those tariffs and if so, sort of on what brands do you think that will be taken on? And then secondly, with regard to Espolòn, of course, the expectations of tequila over the past few years have been, I guess, pretty heroic. The growth has been enormous. And of course, that's slowed down somewhat in recent months and quarters. Just wondering on your sort of contracted Agave supply, whether you've had to adjust how much Agave you're buying in from Mexico and whether that's giving you some of the benefit on the margin on Espolòn recently?
Paolo Marchesini: Yes. On the tariff, the -- we confirm -- although this year, we're benefiting from already existing in-house stocks for next year, unfortunately. If nothing changes, the EUR 37 million guidance that we've highlighted before stays. So it's completely unchanged. You alluded to opportunity of taking price. Of course, there's always the opportunity to partially mitigate the impact. But we also have to recognize the fact that the U.S. environment is particularly competitive at the moment. Therefore, I wouldn't bank on it at this stage. Whilst on the second question vis-a-vis the Espolòn brand, we've managed to tweak down the prices and the commitments. And so this is why we're benefiting from the decline of the Agave price. For next year, there will be still a tail end opportunity sitting in the current trend. We have directionally highlighted in the past EUR 5 million, which is, I think, makes sense is confirmed for next year. So we have a little bit of tailwind also on that -- on input costs for next year. We're in a good spot on Agave suppliers.
Operator: Next question is from Trevor Stirling of Bernstein.
Trevor Stirling: Simon and Polo, let me add to the que Paolo and look forward to really having a proper drink and celebrating next week. Simon, probably one question for you. If we look at the Espolòn shipment data, it looked kind of weak around minus 1%. And so the sellout data we see in NABCA is much stronger than that. I think you alluded to shipment phasing. Maybe could you just give us some sense of where you think Espolòn is on an underlying basis?
Simon Hunt: Trevor, you're right. I mean in terms of shipments down 1% and then you see the performance on the sellout, we basically -- there are 2 drivers of this. One was actually just destocking the stock that we brought in ahead of the tariff, we're still unsure as to what was going to happen there. And so we've just been working that through, which is whether ultimately the shipments will catch up with the sell-out performance, is the first thing. The second thing on that is just there's some mix around the different states is about where we're shipping stuff as well. So in terms of whether Repo, whether it's Blanco, again, there's just some different phasing in terms of that. So I don't think either of them are big drivers. It's more just about -- I think you'll see some catch-up on that as we close out the year and head into Q1.
Trevor Stirling: And then maybe just one follow-up. The strength of both Jamaica and the Jamaican Rum portfolio, it seems really strong. I mean, I think Jamaica and Jamaican Rum is down about 19%, 20% this time last year, and you're up 45%, 50% which would imply you got underlying growth as you're probably in some of the region of 20% at least. Does that sound about right?
Operator: [indiscernible] you have your phone on mute?
Simon Hunt: Sorry about that. I thought -- Trevor, I thought I hit it. The -- in terms of the Jamaican Rum performance, really a couple of drivers on that. One is the performance in Jamaica. So we're cycling the disruption of the hurricane last year, which now it looks like we might be doing the same this year. So that's one of the drivers. But the brand is incredibly powerful on the island, and the team has done an excellent job of continuing to drive the execution. So that's been one area. The second area has been the fact that we were out of stock in the U.S. And so now that we've got stock back in, that's allowed us to give us a very positive performance there as well. So put those 2 things together, that's really why.
Operator: The next question is from Chris Pitcher of Rothschild & Company.
Chris Pitcher: Another round of thanks for Paolo from me for [indiscernible] over the years. And also congratulations on the, The Glen Grant sale, which you highlight in the Annex, which has gone to raise some good money for charity. So good work there. One question on Courvoisier again. Are we through the last really disrupted period for Courvoisier? Because if my numbers are right, you've probably done EUR 13 million, EUR 14 million of organic sales through on Courvoisier. And should that be normalizing into the fourth quarter? Or should we still expect to see continued strong momentum as that brand comes back? Because certainly, the EUR 99 million was a bit ahead of what I was forecasting for the 9 months.
Paolo Marchesini: I think as we progress further into the upcoming quarters, the shipment performance of Courvoisier will basically mirror the depletion and the sell-out trend. So it's clearly at the beginning, we benefited from the first time consolidation of Courvoisier. So I think most of that is behind us.
Chris Pitcher: The destocking phase? So it's on a more normal comp in the fourth quarter. And are you still expecting to release -- continue to release cash from the inventories given the levels they were at?
Paolo Marchesini: On the inventory side, we -- as we said that, we have a lot of aging liquid. Over time, we will more than selling liquid, contain the intake of new aging [indiscernible]. So yes, it's directionally positive. It will take time to absorb the stock we've taken on board as we bought the brand. It was more than EUR 440 million.
Operator: The next question is from Alessandro Tortora of Mediobanca.
Alessandro Tortora: I have 2 questions. Okay. The first one, if you can comment a little bit on the debt-EBITDA trajectory, considering the leverage ratio you already got in the 9 months, if we can assume, let's say, that you're going to stay below the 3x by year-end or if we need to think about any seasonality or any, let's say, factor that should bring this ratio, let's say, again above the 3x. This is the first question. The second one is just a follow-up on Cognac. If you can comment a little bit, let's say, the recent change on the duty-free side and if you expect also on Courvoisier side, a significant, let's say, impact on the reorder on the duty-free.
Paolo Marchesini: On the leverage ratio target, we're not giving any guidance. We have also to take into consideration the fact that in Q4, we still have a significant tail of extraordinary CapEx. The total amount of CapEx is EUR 200 million. And in the first 9 months, we've already spent EUR 120 million. So there is EUR 80 million cash outlay coming from extraordinary CapEx in Q4. Yes. But directionally, you're right in saying that the company generates a lot of free cash flow, one of the highest free cash flow to EBITDA conversion in the sector. Average for the last 5 years at about 60%. So we -- you can easily calculate the deleverage potential in coming years.
Simon Hunt: Okay. And Alessandro, sorry, I couldn't quite hear the question. [indiscernible] We got the recent change in duty-free on Courvoisier and others, but we aren't sure what the question was?
Alessandro Tortora: Yes, it was related to China. I know it's, let's say, is not so big for you. But if we look at, let's say, the GTR and the restock that is now possible according to the recent tariff agreement. If you see, let's say, any restock for Courvoisier in the coming months?
Simon Hunt: Right. So yes, so I couldn't hear you. Look, for us, as you know, look, China is very small for Courvoisier and so is the Asian duty-free at this stage. So it's not a big driver for us. I think China represents less than 2% of Courvoisier sales. So the key thing we want to look at in GTR as part of our relaunch plan of Courvoisier across the region is the strategic role that GTR plays as a shop window for the consumer. So I think that's more where we'll see it with part of the new strategy. But there's no -- we're not looking at a restock and it would be negligible in our case anyway.
Operator: [Operator Instructions] There are no more questions registered. Would you like to make any closing remarks?
Simon Hunt: Yes, I would just very quickly, thanks very much, and look forward to seeing many of you next week. Just to reiterate, all of your thanks to Paolo again. A remarkable run and a remarkable set of earnings reports, and [indiscernible] to him next week. So thank you again, Paolo. And we'll see you next week. Thanks for your time.
Paolo Marchesini: Bye.
Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.