CAMPARI GROUP STRATEGY & QUANTITATIVE ANALYSIS EDITED BY GIOVANNI LUIGI BRUMAT WITH THE CONTRIBUTION OF

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1 CAMPARI GROUP STRATEGY & QUANTITATIVE ANALYSIS EDITED BY GIOVANNI LUIGI BRUMAT WITH THE CONTRIBUTION OF CRISTINA CRISTALLI (LIQUIDITY), EDOARDO RAMELLA GIGLIARDI (SOLVENCY), GIANLUCA MENEGHINI (PROFITABILITY) 1

2 STRATEGY & GROWTH: PERSPECTIVES FOR THE FUTURE build lifestyle brands and people with passion Campari Group is today a major player in the global beverage industry: with a portfolio of over 50 premium/super premium brands marketed and distributed in over 190 countries around the world, with leading positions in Europe and in Americas. The Group, which employs about 4,000 people, has an extensive portfolio that spans three business segments: spirits, wines and soft drinks. As of today, Campari is the 6 th group in the Impact Top 100 Premium Spirits Brands Worldwide. 1 Campari Group, headquartered in Sesto San Giovanni (Milan), has strengthened its own distribution network and increased the number of production site since 2004: nowadays, it owns 19 distribution branches and 16 production sites. 2-3 The company s development strategy aims to create value for shareholders through: o structural growth o brand building o acquisitions Spirits are the Group's core business focus where acquisitions take place. The goal is to achieve or improve the critical mass in key geographic markets. On the other hand, nowadays Campari Group is considering the possibility of selling its wine businesses (especially Sella & Mosca, one of the most prestigious Franciacorta s wineries valued million ) to Eataly (Oscar Farinetti), Angelini Group, Zignago Santa Margherita (Marzotto s family) or Ca del Bosco (Zanella s family). Campari Group main objective is to increase its cash flow and revenues over time by focusing on: o high involvement and commitment o distribution structure enhancement o new product lines o rigorous cost control 2

3 Over the last five years, the company s revenues have increased by 10%, reaching 1,560 million in Unfortunately, its profits have encountered a volatile uptrend but this is justified by the number of investments made in recent years and lower dividend income. 1 Impact top 100 Premium Spirits Brands Worldwide by Company: Diageo, Pernod Ricard, Bacardi Ltd., Brown-Forman, Beam Suntory, Campari Group, Constellation Brands, E.&J. Distillers, Mast-Jägermeister, The Edrington Group 2 Distribution branches: Italy, Germany, USA, Brazil, Switzerland, Austria, China, Argentina, Mexico, Ukraine, Belgium, Luxembourg, Australia, Russia, Jamaica, UK, Spain, Canada, Peru 3 Production sites: Italy, Greece, Scotland, Jamaica, Australia, Mexico, USA, Canada, Argentina, Brazil KEY OBJECTIVES OF THE STRUCTURAL/INTERNAL GROWTH Campari Group is committed to the growth and maintain its market share by positioning and promoting its brands in a constant and consistent way. The main objective of marketing is to develop a clear strategy to create distinctive, durable and developed products as a dynamic, contemporary and premium brand in key international markets. For all these reasons, marketing and brand building are considered as key resources to Campari Group brand portfolio. A proof is that Campari Group has invested million in advertising and promotions in We can say that Campari Group follows four main guidelines for its structural growth: 1. Faster growth of top 5 international brands 4 and incubate brands with high potential through marketing and innovation excellence 2. Generate steady growth in key local brands renewing them periodically 3. Leverage a rigorous cost discipline to reinvest in strategic brand building 4. Develop presence in the high potential markets 3

4 A fundamental contribution to the growth strategy comes from innovation, considered as development of new products, brand extensions and/or revitalization of existing products. Campari Group has a long tradition of revival and development of brands purchased. On the other hand, the main objectives of the internal growth can be sum up as follows: 1. Seek acquisitions in markets where Campari Group controls its distribution. 2. Acquire local brands with strong equity to build new distribution platforms 3. Identify specialty brands with strong equity and high pricing power 4. Maintain financial discipline Campari Group has always been adherent to responsible and sustainable behaviors, which it considers of fundamental importance for company growth, doing business with the utmost integrity and correctness. For that reason, the company launched a project called Sustainable Campari intended to make sustainability a strategic lever for Group growth through the engagement of the 5 main functions that make up the project: People; Responsible Marketing and Practices; Quality, Health, Safety and Environment; Responsible Sourcing; Community Involvement. QUANTITATIVE ANALYSIS 4

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6 LIQUIDITY Assets 852,5 Assets 1066,9 Assets 1282,3 Assets 1257,8 Assets 1088,2 Liabilities 374,2 Liabilities 548,4 Liabilities 510,7 Liabilities 485 Liabilities 509,2 Inventory 294,9 Inventory 331,3 Inventory 446,5 Inventory 442,6 Inventory 477 ratio 2,28 ratio 1,95 ratio 2,51 ratio 2,59 ratio 2,14 Quick ratio 1,49 Quick ratio 1,34 Quick ratio 1,64 Quick ratio 1,68 Quick ratio 1,20 During the last five years, Campari Group s current ratio as boosted over 2 with a slight decrease in FY2014: the company is able to cope with future releases thanks to future revenue coming from current activities. Moreover, the quick ratio has always been higher than 1, therefore current liabilities are more than covered by liquid assets. Despite both ratios have undergone a negative trend starting from FY2013, fixed assets increased by a total of million, mainly due to the acquisition of Fratelli Averna S.p.A. in June Other non-current assets and liabilities showed a net liability balance of 19.8 million in FY2014, compared with a liability of 21.2 million in FY2013; this was mainly due to higher deferred tax assets. Operating working capital decreased by 13.8 million, mainly due to a contraction of commercial loans, while there was a slight increase in inventory and payables to suppliers. Other current assets and liabilities showed a net liability balance of 5.5 million, a decrease of 4.9 million on the previous period. assets totaled million in FY2014, a decrease of 13.5% compared to FY2013. On the other hand, current liabilities reached million, showing an increase of 5% over the previous year. 6

7 & Quick Ratios ratio Quick ratio SOLVENCY Incidence of short-term debt 26.76% 35.75% 25.84% 25.44% 26.34% Incidence of medium/long-term debt 73.24% 64.25% 74.16% 74.56% 73.66% Financial Autonomy Ratio Gearing Ratio The company's financial position showed a 22.8 million increase in total net debt in FY2014 compared with the previous year. Cash and cash equivalents was lower than the ones in FY2013, although current financial receivables were higher. It can be observed that the incidence of short-term debt remains approximately constant over the five years observed, averaging more or less 25%. Considering Financial Autonomy & Gearing Ratios, we can observe the presence of a sustainable financial structure, although it should always be kept under control, as debts are higher than company s equity. 7

8 Over the past three years, these indexes have undergone a minimum but gradual improvement, indicating a continuous and increasing capitalization of the company. Financial Autonomy & Gearing Ratios Financial Autonomy Ratio Gearing Ratio PROFITABILITY ROE 12,51% 11,69% 10,96% 10,77% 8,2% GROSS ROE 18,59% 18,32% 16,48% 16,49% 12,29% ROI 10,17% 10,19% 8,43% 8,76% 7,25% ROS 23,17% 23,19% 21,44% 18,98% 16,34% TURNOVER 0,44 0,44 0,39 0,46 0,44 LEVERAGE 7% 6,5% 6,6% 5,7% 2,94% Profitability for shareholders During the five years analysed, ROE presents a slight decrease, due to a rise in shareholders' equity more than proportional to the growth in net income. Even the gross ROE follows the same downtrend: this is due to the fact that net profit for the year, totalling million, was lower than in FY2013 ( million), mainly due to lower dividend income. 8

9 Business profitability FY2014 closed with an operating income of 255 million, a decrease of 11% compared with the previous year ( million). More specifically, net sales totalled 1,560 million, a slight increase of 2.4% compared with FY2013. EBIT and EBITDA have respectively decreased by 15.6% and 10.5% between FY2013 and FY2014. ROI shows a steady decrease. The decomposition of ROI (ROS and turnover) is useful to understand the reasons of this decline. From this analysis, we can observe that ROI s downtrend is explained by the drop of profitability of sales (ROS), while turnover of invested capital does not show significant changes. ROE & ROI 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 12.51% 11.69% 10.96% 10.77% 8.20% 10.17% 10.19% 8.43% 8.76% 7.25% ROE ROI 9

10 MULTIPLES VALUATION Year NAVPS P/BV EPS P/E DPR DY MC Net Assets Dividend Price/Book Earnings Price/Earni Market Value Per Pay out Dividend Yield Value Per Share ngs Capitalization Share Ratio ,72 1,9 0,22 23,1 35,7 1,6 3, ,4 2,53 0,26 23,6 30,8 1,3 5, ,48 2,34 0,27 21,4 25,4 1,2 4, ,35 2,19 0,27 18,7 25,4 1,4 4, ,16 2,26 0, ,1 1,2 4,55 Over the last five years, multiples indexes have varied quite a lot: o P/E ratio has constantly increased until 2014 when it fell down to 23,1 o P/BV ratio has followed P/E ratio steps, with a decrease between 2013 and 2014 o Both values are consistent with market peers o Market Capitalization has reached a peak in 2013 with 5,06 and fell down in 2014 to 3,79 Campari Group has encountered a strong financial growth until 2013 but in 2014, even if sales growth was over expectations, some multiples fell down due to a devaluation of key currencies against Euro (partially improved in the fourth quarter of 2014). 10

11 APPENDICES 11

12 2010 million Δ% ( ) 2011 million Δ% ( ) 2012 million Δ% ( ) 2013 million Δ% ( ) 2014 million Net sales ( milions) 1.163,00 9,6% 1.274,20 5,2% 1.340,80 13,7% 1.524,10 2,4% 1.560,00 MoC 463,60 28,5% 595,50-10,6% 532,30 5,4% 561,20 1,7% 570,90 EBITDA (before non-recurring charges&proceeds) 298,60 10,2% 329,00 2,6% 337,40 0,5% 339,10-0,5% 337,50 EBITDA 295,30 10,3% 325,80-1,7% 320,20 2,7% 328,80-10,5% 294,40 Operating Income from operations 272,80 9,5% 298,70 2,0% 304,70-1,7% 299,60-0,5% 298,20 Operating Income 269,50 9,6% 295,50-2,7% 287,50 0,6% 289,30-11,9% 255,00 EBIT 232,90 7,6% 250,60-5,7% 236,20-2,5% 230,20-15,6% 194,20 Profits 156,20 1,9% 159,20-1,6% 156,70-4,4% 149,80-14,0% 128,90 Free Cash Flow 132,00 3,0% 136,00-7,1% 126,40-16,2% 105,90 68,0% 177,90 Acquisitions of companies 149,60-82,6% 26, ,6% 315,80-95,7% 13, ,0% 236,10 Net debt 677,00-6,0% 636,60 36,6% 869,70-1,9% 852,80 14,7% 978,50 Net assets 1.252,90 9,1% 1.367,50 4,8% 1.433,10-2,6% 1.396,10 13,2% 1.579,90 Fixed assets (net capital) 1.783,50 1,5% 1.810,50 14,0% 2.063,10-3,1% 1.998,70 16,7% 2.331,90 Working capital, other assets&liabilities (net working capital) 146,50 32,1% 193,50 23,9% 239,70 4,4% 250,20-9,5% 226,50 Average number of employees ,2% ,6% ,1% ,8% 4229 Revenues/employee ,67 6,1% ,31-2,2% ,31-30,3% ,41-3,3% ,53 ROE 12,5% -6,6% 11,6% -6,1% 10,9% -1,9% 10,7% -24,0% 8,2% ROS 23,2% 0,1% 23,2% -7,5% 21,4% -11,5% 19,0% -13,9% 16,3% ROA 15,1% 8,0% 16,3% -14,6% 13,9% 3,9% 14,5% -24,5% 10,9% 12

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