×

UPDATE 2-Campari's push on drinks promotions hits first-half margins

* Shares hit by falling margin, higher A&P costs in H1

* Says operating margin to recover in H2

* Grand Marnier brand returns to growth in U.S. (Add comments by CEO, CFO)

MILAN, Aug 3 (Reuters) - Drinks group Davide Campari , producer of the Italian aperitif of the same name, sought to reassure investors on Thursday, saying profitability would recover after being hit by higher advertising and distribution costs in the first half.

The company, which also makes Aperol, is trying to increase its market share in North America and bought Grand Marnier last year with a view to making the 137-year-old French Cognac brandy and orange-based liqueur fashionable again.

In the first six months of 2017 advertising and promotional (A&P) costs amounted to 19.3 percent of sales, up from 17.3 percent in the same period last year. Structural costs, related to distribution and sales, amounted to 21 percent of sales.

As a result the group's operating margin fell to 19.3 percent from 19.7 percent in the same period of last year.

Shares in the company were down 1.8 percent at 6.17 euros by 1515 GMT, off an earlier low of 5.82 euros. The stock hit a record high of 6.41 euros in May, since when analysts have said it is vulnerable to profit-taking.

In a conference call with analysts, Campari's CFO Paolo Marchesini said the growth in A&P costs would slow in the current half of the year.

"I see A&P costs at around 18.7 percent of sales in the whole of 2017," Marchesini said.

"As a consequence the operating margin will be flat this year compared with 2016."

GRAND MARNIER BACK TO GROWTH IN THE U.S.

Meanwhile Campari's chief executive Bob Kunze-Concewitz said the group's effort to relaunch Grand Marnier was already starting to pay off in North America, the largest market for the brand.

"Grand Marnier is doing good ... its sales in the United States have returned to grow in the low-to-mid single digits in terms of volumes," he said.

The group reported revenue in line with analysts' expectations at 844.7 million euros in the first half, up 6.8 percent on an organic basis. Adjusted operating profit (EBIT) rose 11.6 percent to 163.4 million euros. (Editing by Jane Merriman, Greg Mahlich)