MILAN, Jan 3 (Class Editori) — While the phenomenon of premiumization is still very much in place, Western spirits, such as Cognac, are becoming more and more popular in China, especially among young people and in major cities. Campari Group is primarily relying on this market’s potential to justify its 1.3-billion-euro acquisition of Courvoisier, the most well-known Cognac brand, in December of last year.
“In what is the most significant operation in Campari Group’s history, Courvoisier will enable our Company to advance significantly in the US while also offering transformative potential in the strategic Asia-Pacific region in the long term,” Campari Group’s Deputy CEO, Matteo Fantacchiotti, commented, responding to analysts’ criticism of the price paid. “We are excited to further consolidate our premium brand portfolio in the US while significantly expanding our presence in China and the Asia-Pacific region, thereby increasing the innovative strength of our Cognac premium portfolio,” he added.
The expansion into China, which is considered the most valuable market in the category, primarily concerns the Courvoisier, VSOP+, XO, and Prestige variants, which are the most expensive.
EQUITA SIM analysts have acknowledged that the expansion into the East, a fundamental aspect of this operation, represents “a strong strategic rationale: Campari strengthens its portfolio with a premium brand, increasing exposure to the US market and opening a significant medium-term development opportunity in Asia. Furthermore, it enters the Cognac category, which, accounting for 8% of pro forma sales in 2022, will become the fourth pillar of the Group’s growth, alongside aperitifs (36%), tequila (8%), and bourbon (8%)”.
Campari’s management is betting on structural growth in a category defined by strong pricing power and a structural trend of premiumization in major markets such as China (35% of retail value), the US (25%), and travel retail (above 10%).
In the fiscal year that ended on December 31, 2022, the Courvoisier business, which also includes the Salignac brand, achieved net sales of 249 million dollars, with a contribution margin, which is the gross margin remaining after subtracting advertising and promotional expenses, amounting to 78 million dollars. In the first 10 months of 2023, net sales totaled 148 million dollars, down 33% compared to the same period in 2022. The contribution margin for this period amounted to 37 million dollars. The US is Courvoisier’s largest market, accounting for approximately 60% of 2022 sales, followed by the UK and China, which together totaled 25% of net sales. On the other hand, global travel retail accounted for slightly more than 3%. Therefore, the US, China, and travel retail account for approximately 75% of total Cognac sales worldwide.
Many analysts believe that Campari paid an excessive amount to complete the acquisition, namely 1.32 billion euros, an Enterprise Value (EV) that is 16 times the EV/EBITDA ratio in the absence of debt/cash. Out of these 1.3 billion euros, 1.2 billion euros will be paid at closing (expected in 2024), and 120 million euros will be paid as an earn-out by 2029 based on meeting the sales target for 2028. The value includes 365 million dollars of aging liquid, which will support future growth.
(Source:Class Editori)
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