Paolo Rinaldo Marchesini – Chief Financial Officer and Executive Director Bob Kunze-Concewitz – Chief Executive Officer

Alessandro Tortora – Mediobanca Andrea Pistacchi – Deutsche Bank Edward Mundy – Jefferies Javier Gonzalez-Lastra – Berenberg Olivier Nicolai – Morgan Stanley Marion Boucheron – Raymond James Mitch Collett – Goldman Sachs Nico Von Stackelberg – Liberum Paola Carboni – Equita SIM Simon Hales – Citi

Thank you very much. Good afternoon and welcome to our Q3 conference call.

If you have the presentation under your eyes, please join me on Page number 4 where I'll kick off with the usual highlights. As you can see we had a pretty strong Q3 which led to a very solid nine months results.

With regard to net sales, on an organic basis, we grew by 6.6% on nine months. This we had an acceleration in Q3 where we grew by 8.9%.

We've seen a continued improvement in sales mix thanks to the consistent out-performance of our higher-margin brands in core developed markets. If we look at it on brand basis, category basis, our global priorities continued to out-perform, up 10.3% on nine months basis, 13.4% in Q3, clearly strong results by Aperol, Campari as well as our brown spirits.

Our regional priorities were up 5.6% on a nine months basis and improved in Q3 reaching 7.1%, driven by Espolòn and Bulldog. On the other hand, our local priorities were down 1.9% mostly due to a decline in the Brazilian brands.

From a geographic standpoint, solid growth in our higher margin developed markets driven by the U.S., Western Europeas well as Australia. However, we have softness in emerging markets combined to both macro volatility as well as tough comparison basis, this especially in South America.

On a reported basis, we're down 2.5% which reflects the negative perimeter effect expected of 3.7% as well as a negative FX effect of negative 5.4%. Moving on to EBIT on an adjusted basis, organically it grew by 8.7%, ahead of the sales growth, organic sales growth leading to a 40 bps margin accretion.

This is driven by the strong organic gross margin expansion of 80 bps thanks to the positive sales mix both by brand as well as market. And it takes into account the dilutive phasing of A&P, 60 basis points – negative 60 basis points and the accretive effect of SG&A positive 30 basis points.

On a reported basis, EBIT was up 0.7% and it takes into account both the disposals as well as the FX. Looking at group pre-tax profit on an adjusted basis, it reached EUR 235.5 million, up 4.8% or 19.6% of sales.

On a reported basis, it reached EUR 249.4 million, up 4.7%. Net debt at the end of the period stood at EUR 913.8 million, quite robust cash flow bringing the net debt down by EUR 67.8 million.

The proceeds of the Lemonsoda business disposal obviously helped, but this is also net of the acquisition of Bisquit, the dividend payment and the net purchase of own shares for our stock options plan. So net debt to EBITDA pro forma is pretty stable at a comfortable 2x.

The one thing we'd like to underline here is that we've decided to move to hyperinflation accounting for Argentina. Clearly this reflects the trading of the currency and the inflation in that country.

Argentina accounts only for 0.9% of our consolidated net sales in the first nine months, so clearly this move is considered immaterial. Moving on to the following chart, without getting into the details, you can see how all of our geographic areas are in solid positive organic growth territory.

Looking at it from a brand perspective, very strong results in terms of global and regional priorities, whereas weakness in South America impacted the local priorities. Moving on to chart number 7, the only thing worth underlining here is pretty self-explanatory is that the organic change of 6.6%, largely driven by the high margin growth priorities would result into – sorry, 8.9% in Q3 would result 9.5% if we include the price effect in Argentina, so that gives you a gauge for that accounting change.

Moving on to Page number 8, not much to say except that our developed versus emerging markets split is pretty stable at 83% versus 17%. Looking at it on a regional basis, the Americas, our largest region on Page number 9, you can see the heavy headwinds from ForEx which had a negative 9.5% impact.

Having said that, quite robust performances, particularly in the U.S., up 4.3%, very nice double-digit growth of Espolòn, Campari and Aperol, and a very positive trend of Wild Turkey, our rums as well as GlenGrant. These results obviously of the previously listed brands offset the negative impact of SKYY where shipments are still underperforming sell-out trends due to the announced destocking.

However, this gap is gradually reducing over time. Grand Marnier on the other hand was slightly positive in the nine months because it was impacted by a very tough comp base in Q3 of 2017.

Argentina growing – sorry, Jamaica growing double-digit, 14%, continued very positive sustained growth behind Campari, Wray&Nephew Overproof and Appleton Estate. Brazil, although it improved in Q3, is down on a nine months basis to 3.8%.

Clearly the market continues to be impacted by political instability and macro weakness. Most of the decline was driven by Dreher and SKYY.

On the other hand, it was mitigated by aperitifs Campari and Aperol. Argentina down 20.2%.

Here the overall conditions, macroeconomic conditions are deteriorating. We're also tightening and maintaining tight credit policies leading to a decline in our largest brands.

The rest of the region was up double-digit, 11.2%, with a nice sustained performance in Canada, up 5.9% behind the usual suspects; Mexico, double-digit, up 12.7%; and Peru up by a strong 65%. You'll recall this is the subsidiary which we created last year.

Moving on to Southern Europe, Middle East and Africa on Page 10, very good organic performance of 5.8%. However, this is where we have the highest negative perimeter effect with the dismissal – or the sale of our sodas business generating a negative 8.6% effect.

Italy, robust growth for that markets where we're clearly out-performing, we're growing by 3.7%, up 5.2% in Q3. Clearly our long aperitifs Aperol up double-digit 13% and Campari also double-digit up 10.3% are more than offsetting the softness in the single-serve Crodino and Campari soda aperitifs.

The rest of the region grew by 12.9%, very positive Q3 where we were up 22.5% largely driven by France, up 19.9% mostly thanks to Aperol, GlenGrant and Campari. Spain vastly outperforming this market which has been soft all year.

We're up 6.9%, again behind Aperol and Campari and very strong growth in Nigeria as well as Global Travel Retail. South Africa on the other hand is down on a nine months basis, and this is due to the unfavorable comp base last year when we've set up the subsidiary.

Moving on to the rest of Europe on Page 11, North Central Eastern Europe, very strong 9.3% growth. Germany which is our third largest market grew by 8.8%, 11.5% in Q3.

Very positive performance by Aperol, up by 29%; Campari 9.4%; Bulldog as well as Cinzano Vermouth. And from a small base Crodino is becoming an interesting brand there.

The U.K. was up a strong 18.2%, driven across many brands, but in particular Aperol again up 51.2%, the rums and Campari and Bulldog also contributing significantly.

Russia down 16.5%. This to a large extent is impacted by a very unfavorable comp base last year where we're up almost 92%as well as some market volatility.

Having said that, our higher margin brands Aperol, Campari are performing very strongly double-digit and this is obviously impacting the mix and the bottom line. If we look at the rest of the region, it's up 19.2%; Austria up 11.8%, again behind the aperitifs; Belgium 5.7% and actually out-performing in a negative market; Switzerland up 7.1%, and strong results from the rest of Eastern Europe.

To close up, our regions on Page number 12, Asia-Pac, very strong results continuing the trend from the beginning of this year where we're up organically 16.3%. On the other hand this is where we also have quite a significant ForEx headwind of negative 8.7%.

Australia was up, the largest market 12.9%, accelerating in Q3. Bear in mind though that this is ahead of their key seasonality which is Q4.

So in Q3 were up 16.9% outperforming in all the categories where we're active and very strong results once again of the aperitifs. If we look at the rest of the area we're up 24.2% with positive performance across markets, double-digit growth in Japan.

This is also driven by Wild Turkey Bourbon as well as the SKYY ready-to-drink, China and New Zealand. Moving on to chart number 13, not much to say except that global priorities are continuing to steadily increase their share of the pie.

They're up to 58% which is a 400 bps increase versus the same period last year. Moving on to the retail review by brand, you'll see that Aperol accounts for 18% of our sales; grew by 31% in the first nine months of the year, but quite a strong 43% in Q3.

We're seeing – and this I think is very positive – very strong performance in the core established markets, Italy, Germany, and Austria are growing very nicely double-digit whereas we have very strong double-digit growth rate in all of our high potential and seeding markets particularly the U.S., the U.K., France and so on so forth. Campari up almost double-digit on a 9-months basis, 9.7%, but decidedly in Q3 up 13.1%.

Again very strong results in our established markets as well as Jamaica. Brazil turned positive, but its historical second largest market Argentina obviously is down significantly.

If we move on to SKYY, SKYY remains down significantly on a nine months basis, down 8.1%, but almost stable in Q3, down 1.1%. Clearly what's driving the numbers here is the U.S.

where destocking brand and we're closing the gap between shipments and consumption indicators. So this trend should improve in the quarters to come.

Internationally the brand is doing very nicely, growing strongly in China, Mexico, and Italy. Moving on to Grand Marnier, Grand Marnier is flattish on a 9-months basis and that's behind a decline of 15.2% in Q3 which is mostly linked to phasing issue due to U.S.

shipments where we had a very strong Q3 in 2017. The brand overall is performing exactly in line with expectations growing at a low single-digit rate.

Moving onto our bourbon portfolio which is gaining momentum and was up 21.2% in Q3 leading to an overall growth of 11.4% on a nine months, so Wild Turkey portfolio doing very nicely, up 13.7%. Very positive results behind the premium expressions Russell's Reserve, Longbranch, but also the more premium Wild Turkey expressions.

And we're also seeing very good results behind the Matthew McConaughey campaign in other markets such as Australia and Japan. Seeding markets are growing at a very sustained double-digit growth rates, but obviously they're quite small so coming from a low base.

American Honey doing nicely, up 5.6% on a 9-months basis for good Q3. Moving on to the Jamaican rums, on a 9-months basis we're up 5%, building momentum in Q3 up 6.6%.

The key driver here is Wray&Nephew Overproof, up 8.2%, Appleton Estate grew only by 3.4% and to some pricing readjustment in some markets. Moving on to Espolòn, Espolòn is doing very nicely, up 31.5%.

Most of the growth obviously is coming in the U.S. which is growing by 34.4%, but the brand is also seeding very successfully in international markets.

Bulldog slowed down a little bit, up only 5.5% on a 9-months basis. This is behind weakness in some of its larger markets Spain and Belgium, but doing very well in Germany, Portugal, and the U.K.

and particularly the growth rates in Germany and U.K. should bring us back into double-digit territory soon.

Moving on to the whiskies, GlenGrant is impacted by the allocation which we've forced upon the markets as we're transitioning to a more premier age range. We've put the names and allocation, so this is having a mix effect overall, but the brand is performing very nicely on the high side of the range.

Forty Creek is up 4.6%, accelerated in Q3 up 15.6% of the main driver here being Canada. The amaris also accelerated in Q3, up 7.3% bringing to a nine months 1.3% with nice trading around with regards to the largest brand Averna.

We had a temporary decline in Italy. However, the good news is that after having taken a big – a sizable a price increase in Germany the brand is back on positive trajectory.

Cinzano is impacted, it's down 6.5% on a 9-months basis, 7.7% on Q3. Clearly the combination of weakness in Russia and Argentina impacts this brand which is skewed in those two geographies.

The other sparkling wines are up 8.7% and 12.2%, also due to the positive halo effect of the Aperol Spritz. The last page to round up with Campari Soda, flattish down 1.9%.

We'd expect this brand to do a little bit better in a full year basis. It's gone down 3.5% on nine months 7.9% in Q3.

Here we're tackling tough comps due to innovation last year and expect the brand to be down in the low single digits. Doing very nicely on our Wild Turkey RTDs where we're continuing to take market share in Australia, up 8.4% on a 9-months basis.

The Brazilian local brands are down 10.7% on nine months, but up 25% in Q3, clearly we had – we have a comp base issue here too. Moving on to result 12, down 2.1%.

Here we have an unfavorable comp base in Q3 last year where we had quite a bit of promotions in Germany around the brand and we dedicate them to Aperol this year, so we're recovering the remainder of the year. Last one but not least, Cabo also building momentum, up 22.3% in the last quarter down 1% on a shipment basis with regard to the first nine months.

This is the sales roundup and I'll let Paolo take you through the financials.

Thank you. Thank you, Bob.

If you follow me to Page 20 and 21 where we have the nine months consolidated P&L as well as the key highlights on EBITDA adjusted and starting from gross profit, we can see gross profit gaining in the nine months at EUR 732 million growing on a reported basis by 1% in value at 61% on net sales from 58.9% a year ago with 210 basis points gross margin accretion. Most notably we had a very robust performance in existing business with gross profit organic growth of 8% in value and 80 basis point margin expansion, but with just 10 basis in Q3 due to the high rate factor.

Organic growth as we've already heard was in – gross profit was ahead of the top line thanks to the favorable sales mix by brand and market on the back of after four months of our high margin global and regional priorities in high margin developed markets. The positive sales mix helped offset the dilutive effect of the adverse hardware price, purchase price which became progressively more impactful in the third quarter.

And most notably as you may remember the agave this year is worth EUR 12 million of which EUR 6 million of incremental cost have already been recognized in the results for the first nine months and further EUR 6 million to come in Q4. ForEx and perimeter, combined effect on gross profit was negative 7% in value with a positive 140 basis point margin expansion driven by the disposal of low margin businesses as well as agency brands distribution termination.

The A&P came in at EUR 211 million and on a reported basis was up 4.1% in value to 17.6% on sales from 16.4% of last year showing 110 basis point dilution on the top line. In existing business, partly due to phasing, the organic growth of A&P was 10.7% in value, driving 60 basis point margin dilution reflecting as said different phasing as well as a minor step up of the A&P spent on net sales that we have highlighted a quarter ago in about 20 basis points.

ForEx and perimeter combined effect had – were negative 6.5% in value with 50 basis points margin dilution, driven by the disposal low A&P intensity businesses such as Carolans and Lemonsoda and the terminated agency brands. The SG&A came in at EUR 262 million, down on a reported basis in value by 1.2% to 21.8% on sales from 21.5% showing 30 basis points dilution.

Actually in existing business, we saw opposite direction on the attrition dilution effect. The organic growth of SG&A was 5.2% in value, lower than the top line, which was in existing business 6.6%.

And therefore, the SG&A drop 30 basis points accretion at the EBIT level. Again on SG&A, ForEx and perimeter combined effect was a negative 6.4% in value with 60 basis points margin dilution again driven by the consolidation of disposed businesses.

With regards to the EBITDA adjusted, it came in at EUR 259 million on a reported basis, up 0.7% in value with 70 basis point margin accretion. In existing business EBIT adjusted came in 8.7% higher versus last year in value with 40 basis point accretion.

If we move on to the following page, Page 22, this slide reiterates the message that in existing business the organic growth of EBIT adjusted was quite robust, 8.7%, as said 40 basis point accretion driven in the nine months by solid gross margin expansion of 80 basis points. As lower growth of the SG&A which as we saw grew at 5.2% versus 6.6% of the top line driving 30 basis points accretion.

And then we had the negative impact of the phasing of A&P as well as slightly – the slight step up in A&P which accounted for 60 basis points on the margin dilution. With regards to perimeter and FX, as you can see quite a significant impact EUR 15 million from perimeter and EUR 5.6 million from FX.

EBIT came in at EUR 271.5 million, down by 8.1% versus last year due to lower positive operating adjustments. Last year, we recognized EUR 38 million of positive adjustments.

This year the positive adjustments accounted for just EUR 12 million in the first nine months of the year. If you move on to Page 23, we have the analysis of the pre-tax profit.

Very positive containment of net financial charges which came down by EUR 7.2 million to EUR 22.4 million. We had clear reduction in the average indebtedness in the first nine months, EUR 945 million this year versus EUR 1.181 billion last year.

And on the other hand the reduction of the average indebtedness has been partly offset by slight increase of the average cost of net debt up from 2.9% to 3.1%, totally driven by the negative carry that is affecting the liquidity that the group owns. Group pre-tax profit came in at EUR 249 million, up 4.7% in the first nine months and the pre-tax profit adjusted was EUR 235.5 million, up 4.8%.

If we move on to Page 25 where the analysis of net financial debt, as you can see here we have a reduction of the overall indebtedness of EUR 67.8 million versus December of last year from EUR 981 million to EUR 913.8 million following as you can see in footnote number two the proceeds from the disposal of Lemonsoda, cashing of the proceeds from the disposal of Lemonsoda accounting for EUR 80 million; the payment of the Bisquit consideration EUR 52.7 million; the payment of the dividend EUR 57 million and net purchase of own shares accounting for EUR 35.5 million. Quite as the leverage ratio with net debt to EBITDA performance ratio of 2x.

Page 26, as you can see the debt maturity profile is quite sound. We currently still have EUR 1.3 billion of long-term gross debt and we have available cash for EUR 581 million, which is more than enough to repay the bonds falling due in October 2019.

I think this is, Bob, it on the numbers. I would hand back to you for conclusions.

Yes, just a few words on the pretty pictures. As you can see we're continuing to reinforce the association of the Campari brand with the world of art, so cinema as well as neoclassic arts and that is doing quite a bit of good to the equity.

The rest of the world is being painted orange, be it the U.S., Central Europe, Brazil, Germany, anywhere you go, we've been very active this summer and you can see that our recruitment efforts have been quite successful. In terms of the other brand building, we're also doing as category captains in Italian bitters, we're doing quite a bit to educate top barmen across the world and expect to reap the benefits of that in the years to come.

Whereas on Appleton Estate, we're continuing to premiumize the brand with high-end age variance. Now coming briefly to the conclusion and outlook before we come to your questions.

As you can see, very positive organic growth, both in sales as well as profit indicators in the first nine months, very nice acceleration of the top line in Q3 and a continued sales mix improvement driven by the higher margin brands in our core developed markets. On a reported basis in the first nine months, the positive underlying trends help compensate the expected negative ForEx as well as the perimeter effects.

Now looking at the remainder of the year, our outlook remains broadly unchanged in balance in terms of risks and opportunities. So no changes versus our guidance in August of this year.

Having said that, I'm sure you have plenty of questions, so we're here to take them.

Afternoon, Bob. Afternoon, Paolo.

Hello, everyone. Three questions please.

First one on Aperol, what specifically driving acceleration in Q3 versus the first half? Is it new geographic distribution?

Is it increase in consumption of existing consumers? What's really behind that?

The second is also on Aperol, I think 12 months ago, Bob, you were sort of comfortable with a growth rate of about 20% or so for Aperol. Clearly you're growing well in excess of that.

Are you comfortable 30% as the new run-rate? And then the third question is on Cognac.

Any update on the Bisquit acquisition opportunities to participate more widely in the Cognac category?

Okay, I'll take the last one, which is the shortest will be we're ready to re-launch Bisquit in the second half of next year. We have a pretty I think strong concept in packaging and now we're in execution phase.

So you'll start seeing Bisquit impacting and going into brand building mode as of the second half of next year. Now what is driving Aperol, I mean Aperol has a very clear brand building model, we call it the success model with three different stages and where we're sticking to our netting and doing exactly what should be done in every given market given the specific stage they're in.

I mean to a large extent it's all about activating the brand, getting liquid on lip and recruiting new consumers into it. If you look at the more established markets clearly frequency has increased as we've been going into other usage occasions such as meals, so it's really about driving the Aperol model.

Now would I be comfortable with 30%? I mean, rest assured that irrespective of what the percent is, the brand has very good momentum and we have strong plans for it for the years to come and we believe we're at the beginning of the Aperol success story, so we'll see what that brings.

But we will clearly maximize the opportunity. As we view this as one of our biggest growth drivers with solid fundamentals.

Important thing is that it's very broad-based and it is very consistent over time.

Great, thank you.

Hi, good morning. Just a question on SKYY, you mentioned that you have some destocking in the U.S.

How long is it going to last? And then just going back to your Q3 performance in the U.S., I think the growth was only 1%.

Aside from the SKYY weakness, is there anything else affecting your U.S. growth in Q3?

I mean if you look at our U.S. portfolio with the exception of SKYY, we're doing very, very well.

I mean you might have movements from quarter to quarter between shipments, depletions and consumption, but actually if you look at the most important indicators, consumption, particularly the most robust indicator NABCA, you can see that we're outperforming the market and doing well across the range. The SKYY is also improving also from a consumption standpoint, but the brand will continue to be impacted by destocking for the next nine months more or less.

Thank you very much.

Yes, hi. Good afternoon.

Could I ask two questions, firstly on agave inflation, you've guided us to inflation impact on margins to be way high in the second half than in the first half. But I just wondered how much of that will follow through into H1 2019 if anything?

So if – some guidance that would be very helpful. And on Grand Marnier, we've seen a big decline in shipments.

We had a very strong H1. I think back in the last call, you mentioned that the brand was going somewhere between low-single digit and mid-single digit.

I just wonder whether you could confirm that that is the case and when is that destocking expected to finish? Should we expect that to follow through into Q4 or Q4 should see an improvement given the competitor, some color there would be very helpful?

I'll take the Grand Marnier question. I mean Grand Marnier is perfectly in line with our expectations and also what we've shared with the market, our first half results, we expect the brand to grow in the low-single to mid-single.

We'll see how the Christmas season goes. Clearly, there are some tail-end effects, that's probably what you're referring to as destocking, our discontinuation of limited editions, Cordon Jaune as well as the flavored variants.

We'll see a much cleaner and clearer picture of the brand from the next year onwards, but so far so good.

Yes, with regards to the agave inflation, as I have called out during the presentation, we had EUR 6 million of negative impact in the first nine months. We're expecting to suffer further EUR 6 million of headwinds in Q4 of this year.

Likely enough, on the back of a very positive sales mix, we will be able to offset and compensate the negative impact. And our expectation is for a full year positive – very positive gross margin expansion.

Now looking into 2019, as you correctly pointed out, there will be some tail-end of the price, of the agave price effect. But again nothing that prevent us from achieving very healthy gross margin expansion as you know the top line performance is quite robust at the moment.

And if I can just quickly another follow-up question on FX, you very – you gave earlier in the year in Q1 very specific guidance in terms of the FX impact expected on EBITDA and you haven't updated that since. Would it be possible to get some update on that given that the currency exchange rate is very different to what it was back in April?

Yes, we've – true, we've modified the guidance. We've originally guided the markets toward a negative to the EBIT line coming from ForEx for EUR 24 million that will then lower to EUR 19 million.

Taking into consideration the change, the movements of the key currencies, so – and that has led us to highlight a potential step-up of the A&P spend and investments in – on-premise capabilities directly impacting SG&A line of about 20 basis points each, so that the current guidance for the full year, we do not see meaningful upside, clearly we don't see downsides. There is as any news, the different accounting treatment of Argentina, which clearly has an impact in top line, less so in the bottom line, but clearly the movement of the dollar will compensate the impact at the bottom line.

So in a nutshell, I don't know whether you had the opportunity of looking at Slide 36 in the annex of the presentation deck. There is a very comprehensive explanation of how we've treated hyperinflation.

In a nutshell, basically you revalue that the revenues, the local revenues in Argentinean pesos to take into consideration the reduced purchasing power of consumers, but then you apply, that's clearly a negative within the FX, the period end FX, the pesos Argentina's to euro. So basically we stripped out both the revaluation of the local revenues, the – of course the effects that is higher than originally envisaged, but we also took the opportunity of stripping out the price mix effect from the organic growth, so what you see now is the full organic growth treated for volumes, pure volumes performance.

So clearly this is to a certain extent negatively impacting the FX impact on our P&L. In the first nine months, we have a negative hit in revenues of EUR 4.2 million, if I'm not mistaken 0.2% of the top line.

Clearly due to seasonality, the impact on full year will be higher in top line, but not significant on the EBITDA line. I mean, there is an impact that will be compensated by the better dollar.

Okay.

Yes, hi, Bob. Hi, Paolo.

I have three questions please. Just one quickly to clarify here on the hyperinflation accounting in Argentina, the organic sales growth for Q3 of 8.9%, you said that strips out the pricing in Argentina.

Is this completely comparable to the 7.4% organic EBIT growth? I mean how do you treat the inflation that you have in the cost-base in Argentina?

The second question please is – the second question is on your medium term on A&P. A&P for the nine month was up 60 basis points.

I think you said for the full year, it will be a drag of 20 basis point. Last year A&P was up 50 basis points.

Clearly you're supporting the strong momentum of your global priority brands. Now given the strong momentum probably continues, do you expect to continue to support these brands of increases of A&P on a two to 3-year view?

And finally if you could give us an update on Bulldog, where the brand is compared to your plans, what you've done with the brand in the past 18 months and why is the brand a bit soft in Spain?

Yes, let me take the last two questions, Andrea. Now Bulldog's largest market historically when we bought it was Spain.

As you know Spain this year, the markets softened quite a bit in the first six months and that also impacted our peers, the weather was very bad, the political situation, people weren't going out that much. So one, there is a market effect in general.

The second one is frankly that there are a lot of now – 0 kilometer local gins creeping up. This is a phenomenon, craft gins in Spain, which is impacting the mainstream brands, which I think we need to wash out of the system.

Belgian to a lesser extent it's the same situation, so it's not brand-specific. Having said that, in all the other markets the brands is from a lower base, growing at a very strong and sustained double-digit growth rate.

We expect to improve upon that. A ad hoc campaign, which we'll be rolling out next spring, so we feel good about the brand.

With regards to medium term A&P, yes, we confirm what you have for this year where we're going to be on an organic basis 20 basis points above last year, I think next year will most probably revert to our normal trend on A&P, nut as you know there's always a give and take 20 bps, 25 bps in either direction.

With regards to hyperinflation, under the international accounting standard number 29, once the market – the country triggers the hyperinflation accounting, then you're obliged to reclassify the whole year starting from January. So basically what you see in Q3 in isolation is the catch up of the effects of hyperinflation from January to September.

So this is the whole thing. Clearly you cannot read too much into Q3 because you have that effect to a certain extent.

Now the way we've treated, we have basically stripped out in local currency the effect of price mix to take into consideration just the volume performance of the local business. And with regards to COGS and therefore gross margin which treated similarly the cost.

So we stripped out the cost inflation, ended 2-plus – the two effects plus the revaluation of revenues and costs have been shifted into FX. And then basically you apply to the local revenues the worst FX foreign exchange that is the period end, September end FX.

So that's basically you have basically treated the net sales COGS and gross margin at variable results, that's how it works.

Okay, thank you.

You’re welcome.

Two questions for me please. One could you make – you focus on Espolòn and how you see growth continuing, I mean, it's been very strong so far.

And then on ForEx and the guidance, I understand I mean you improved it to EUR 19 million, but this would still impact a very strong FX negative impact on EBIT in Q4, which struggling to find, maybe if you could comment a bit more in this and then just on A&Ps, if you could update us on what you expect in the full year?

Well, Espolòn is a brand which we sort of created 10 years ago. We bought a distillery to internalize the liquid production and bottling for our Cabo Wabo.

We came up with a very strong package. Concept and the liquid has always been very good, and since we've launched it it's been growing at a consistent strong double-digit growth rate.

As you know Tequila is very much on fire in the U.S. and Espolòn is one of the better performers there.

Over time as the brand gets bigger, obviously the marketing mix also evolves behind that and we'll put a little bit more of a focus on traditional brand building on it next year, but we view this as definitely one of the brands which in the medium term could become a global priority brand for us.

Yes, with regards to the FX, yes, as we have just said, we've reviewed the guidance with a less negative focus for the full year. Due to the high volatility of currencies and due to the effect of the Argentina hyperinflation effects, we're not in a position of reviewing the guidance for again for the full year, so we're still stick to that.

What we're saying is that we don't see further downsides, that's the starting point. And I think the last question, is it on –

Yes, this…

Okay.

I've got one question and one related follow up which depends on the answer to the first one. I think we had most of the components of your margin guidance from 1H, but just to check out I've understood this correctly you said at 1H that you thought there should be about 60 basis points of gross margin expansion during F 2018 and then that would be offset by roughly 20 basis points of step up in A&P and 20 basis points of step up in SG&A all on an organic basis.

Is that all still correct?

Right.

And then related to that therefore at this stage A&P for the nine months has been a 60 basis point drag on margins, so I guess is running well ahead of that guidance and similarly, but in the other direction SG&A has been a 30 basis point headwind – sorry, 30 basis points accretive to margins. What's going to change in the fourth quarter to move those numbers back to what you just guided to?

Yes. With regards to the A&P, as said there is in the first nine months a phasing effect that is worth 40 basis points, so this is a positive in Q4 looking at the P&L of the Q4 in isolation.

And then on the SG&A clearly in Q3, we had a very positive top line development which drove the 20 basis points – sorry, the 50 basis point accretion that we're not expecting in Q4. So we will have a different comp in Q4, so we expect SG&A to increase faster in Q4, so it's a combination of faster growth of the SG&A and potentially lower top line growth.

Also you have to take into consideration that with regards to the top line in Q4 we had the negative impact of Argentina that is denting the organic top line.

Could I ask one follow up that is completely unrelated, which is can you just give us an update on the penetration of Aperol in the U.S.? How far have you got geographically now and therefore how far has that to go?

Well, frankly, we're only scratching the surface of the U.S. even at this stage.

I mean in terms of penetration per capita consumption per person per year the U.S. isn't 1% of Italy.

So we're quite a way to go in the – yes, if you walk around the right neighborhoods in New York you'll see quite a bit of orange, but the U.S. is vast.

But it's still very localized in the northeast and also LA.

The West Coast, yes.

Okay, thank you.

Hi. Good afternoon everybody.

Just let's say two follow-up question from my side, very, very brief. The first one is on the restructuring cost if you can give us an idea of the amount that you spent in the nine month for restructuring activities?

And if the guidance you released on the structuring cost around the EUR 36 million for this year is still valid? And the second question, just a clarification on last year at the same time in the nine months, but you let's say also released a sort of guidance on the FX side giving a preliminary impact considering the U.S.

dollar-euro exchange rate trend, are there any specific reason why you are not let's say giving any positive ins I would say considering the U.S. dollar strength for the next year?

Yes, with regards to the – to the restructuring cost as you've seen we've recognized EUR 12 million of total one-offs, positive that is basically in reality a positive one-off on the disposal of the Lemonsoda business that accounted for EUR 38 million and then a number of projects. We'll not be specific project by project as you can imagine, but we've announced the closing down of one plant in Brazil and we've announced the transfer of the U.S.

corporate office from San Francisco to New York. We've announced the closing down of sugar field operations in Jamaica and few other minor projects.

Clearly we've guided the markets towards an overall flattish impact on the one-off line which means that in Q4 we will still have some more negative one-offs to recognize which clearly will offset EUR 12 million of positive that we have in the first nine months of the year. With regard to FX, the reason why we're not changing the guidance is due to the very limited visibility that we have on FX movements.

It's clearly a market that is event-driven and political instability does play a role in setting the effects and we do not have the crystal ball. Italy – Italy has a big impact on this, so we need to stay vigilant and see what's going on.

It would be interesting to see how the midterms elections also go.

Yes.

Okay, okay, thanks.

Hi, good afternoon. I just want to take a step back and think a bigger picture here as Aperol and Campari become a bigger part of your pie and overall footprint, could you give me a rough guide as to what sort of return on investment you guys use as an ROI metric?

I believe last year you finished at – was it 13.2% up from 11.2% the previous year. Say for example Aperol and Campari together represent 25% of your portfolio 30% – 40% of your portfolio, can you give me some sort of scenario analysis of what ROI might do given that they have no aging profile?

I'm not sure what ROI KPIs you're referring to. I mean it's quite clear that both brands have very high gross margins.

I mean they're on the highest scale within our global priority brand, so as they grow faster which they are, that will have a very beneficial effect.

Yes, it's Page 5 of your annual report, you guys give ROI, you guys define it as operating income adjusted divided by fixed assets is 13.2%, on reported basis 13.7%. Just wondering if you can maybe – you guys haven't looked at the math around this, I take it.

No. No, we don't have it at this stage.

Okay. Interesting.

The ROI on investments with both brands are phenomenal.

Yes, and is the infrastructure well invested? Would you need to invest in additional capacity given they've grown so fast?

No, no. I mean we could double or even triple production and we wouldn't need to invest.

Oh, my gosh. Excellent.

And also in terms of the breakdown that you applied in the half year it sounds like there are a lot of moving parts. Were there any material – I mean there's a lot discussed today in terms of margins, but for the most part those numbers provided in a half year are more or less still the rough guide, is that right?

And then I have one last one.

Yes, basically not changing in the big scheme of things, the guidance, that is the point, correct.

Perfect. Excellent.

I thought I heard that right. And then the last one, I thought I just heard you mention something about the sugar fields in Jamaica.

Did you close all of the sugar fields? I understand the plantations are actually quite a significant employer for the island nation.

I was wondering – go on.

It's a minor part of our overall operations.

Of your overall operation, but I'm more wondering if the general health of the island given that it actually is a contributor, is there – maybe if you're seeking some alternate arrangements to help employ the people that will be out of jobs and presumably help –

Yes, I mean in line with the Campari way of doing things we're very responsible when it comes to the local communities. So there's a whole activity, re-education and re-conversion of the fields into new crop, working with external experts beyond the transitional support we've given to each individual who stopped working for us.

That’s wonderful. Excellent guys.

Thanks.

Thank you. Hi, Bob.

Hi, Paolo. Just a couple of questions both related to the U.S.

business. So Bob, you talked about sort of the ongoing destock at SKYY.

I think you said perhaps another nine months.

Yes.

Could you expand a little bit on that? It seems a very long destock period and what's actually happening in – with that brand, what sort of variants are really driving that destock and it's the period out?

And then maybe secondly just on Aperol in the U.S., would you just talk a little bit more about the penetration that you've got there now? You highlighted on some of the slides at the back the success you had in the Hamptons and things over the summer, but now how well penetrated are you on the eastern seaboard and I suppose how much is the white space really?

The white space is very white and very large because we've – we're mostly penetrated in New York and certain neighborhoods, certain parts of Massachusetts as well as in Florida if you're looking at the eastern seaboard and then on the on the western side it's San Fran, Los Angeles and a little bit of California. So we started seeding the brand in other places, but I can't call it any effective penetration.

Now with regards to SKYY I mean the destocking is impacting a lot more of our flavors business because obviously we're rationalizing significantly the range both in terms of flavors as well as in terms of sizes and this is something we're doing gradually together with our partners. And then there is sort of reallocation, if you will, between states on the core brands, so this isn't something which you just press a button and do overnight.

We try to do it gradually with a plan which we've worked together with our largest partner.

Understood, thank you.

Sure.

Just wanted to ask for an update on Brazil and Russia. Brazil had a strong quarter, Russia still difficult.

I mean leaving aside all comp effects and shipment phasing, what is the underlying situation in these markets? Are you seeing an improvement yet?

Overall in Brazil I mean what we've seen this year is really ups and downs from one month to the next, so no clear trend. The clearer trend overall is that if you're playing in premium you're doing well, I mean our premium brands particularly in the aperitifs and in particular Aperol are doing very, very well in Brazil.

The rest which are much more in mainstream are local Brazilian brands. They're the ones suffering.

We'd expect now that the election is behind them and if we have coherent economic policies coming up that the situation should improve next year. Russia, yes, some volatility as well, but it's more on the – let's say, depletions or trading side of it, that's on the consumption side.

Again, we're seeing a very positive bias to our more premium brands as the aperitifs, Campari, Aperol, it's Espolòn, Tequila and Wild Turkey bourbon which are driving the roost. We'd expect also Russia to improve and normalize next year.

Thanks.

Yes, good afternoon everybody and I have a few questions like for example, as for Aperol if you can remind us of the regional breakdown, in particular the incidence of the main markets for the brand as of today and in particular the setting to Italy just because of the many plus acceleration we have seen for this markets from plus 7% in H1 to plus 13% overall on 9-month basis. So if you can elaborate on that whether – I mean we should think about more sustainable 15% or plus 7% or there has been a specific initiative in the summer or maybe these initiatives are usually more effective during the summer.

So I was particularly surprised by this acceleration in Italy. A similar question, if I may.

Sorry, may I go ahead with the –

Yes.

With the next few ones? Similar question actually for the organic sales trend overall which was quite strong.

Actually I remember when commenting on Q2 H1 performance you suggested us to see more sustainable the overall H1 trend than Q2, but we are even exceeding the Q2 trend itself, so I was wondering how are you thinking about the overall 2nd half now that you have posted an already such strong performance in Q3? Then a very quick question on Espolòn.

So next question is for Espolòn if you can give us a sense of how much of growth was driven by price possibly where the transfer of the cost of agave increase and the – still on agave I remember you were expecting a sooner or later normalization of this trend and possibly a reversal, I was wondering whether this might happen already at some point next year? And I think that's all.

That's all.

Yes, let me do some brain gymnastics and go to what I think was your first question which was on Aperol in top markets. Now if you take Italy, Germany and Austria, I mean they roughly account for 60% of the total.

The good news is that they're growing at double-digit growth rates. Now the changing growth of Aperol in Italy from first half to Q3 is not driven by changes in consumption.

Consumption you will recall I've always said has been growing double-digit. It had more to do with some policies we have with regards to pricing to the trade where we had some discussions with some customers on price increases in Q2 and some of them didn't like them, so slowed down and destocked.

Having said that consumption is so strong that they've joined the fray, and right now on a 9-months basis, these shipments reflect the consumption. With regards to Espolòn, I mean, it's a guesstimate I would assume that the price increases about – accounting for about 10% of the growth, not more.

Most of it is coming from volume because we were the first one to take price and at that stage, nobody had followed. Even at this stage there are quite a few big players which haven't followed with price increases.

There was a question on agave I believe.

Yes.

Yes. For the time being looking at 2019, we don't see agave being moved around over numbers 2018 versus 2019.

Clearly with different dynamics in 2018 we've seen the agave price coming up, so as previously highlighted, we may still have little bit of tail-end effect in the first half of next year, but then the similar trend should go opposite direction. So overall we don't see opportunity reducing the EUR 12 million, but on the other hand we think we're fully hedged and we will not see the EUR 12 million increasing further.

So that's we see, but again it's difficult to predict because it's primarily driven by balance and balance between demand and supply, so depending on how the U.S. market grows then you may have phasing effects of the change of the cycle on the pricing from upwards to downwards.

That is the current estimates in Mexico.

And as far as I mean your view on H2 overall, what you said noticed…

Yes, with regards to the…

I mean, I'm looking outside and I see more rain as opposed to sunshine. So obviously that will impact.

We'll see how it goes. I mean the underlying momentum of the brands is good, but as you know, I mean Q4 is a very big month for our geography such as Russia as well as for Argentina, which is their summer; Brazil as well, and they're not exactly in the most robust health.

Whereas in the rest of the world, I think we'll continue doing well. We'll see how it comes out, but rest assured we don't miss a single case if we can.

Okay, thank you very much.

Hi, gens. Thanks again for the question.

You are talking about pricing on Aperol and that piqued my interest. I personally think it's probably a bit too – it could be probably little bit more expensive here in the U.K.

it's around GBP 15 per bottle, and I appreciate you need to buy it probably with Prosecco on the side to go with it, but could you just talk more generally about how much I've guess like pricing headroom you think you probably have and why aren't you being more aggressive on the price full-stop?

Yes, you need to understand that the price is not just the price which we impact, but it's also impacted quite a bit by excise duties. After all having 11% alcohol, it's not fair to compare it to spirits which are 40% alcohol, which is probably what you're doing.

And whereas the consumer might not necessarily understand or make that difference, the buyers in the trade certainly do. After all it's a healthy brand, we take pricing regularly, but I don't think there's any possibility at this stage to do any radical repositioning of the price.

The brand is in its growing phase and we're sticking to our model and so far results vindicate us.

Excellent. Just keep on doing what you’re doing guys.

Thanks.

So we'll go back doing what we do. Thank you.

Have a nice afternoon. Bye-bye.

Bye-bye.