UPDATE 1-Campari to invest in brands, spend more on acquisitions

Wed Mar 12, 2014 2:50pm EDT

* Buys Canada's Forty Creek for $167 mln

* Sees 2014 EBIT margin flat due to investment in brands

* Shares close down 4 pct (Recasts lead, adds detail, CEO quotes)

MILAN, March 12 (Reuters) - Campari predicted flat margins this year as a result of higher spending on advertising and said it would invest in acquisitions to add to its list of drinks brands.

The Italian company, famous for its bitter red aperitif, on Wednesday agreed to buy Canadian spirits group Forty Creek Distillery for 185.6 million Canadian dollars ($166.73 million), and said it has some 350 million euros ($486.67 million) to spend on other deals.

Chief Executive Bob Kunze-Concewitz said any increase in profits this year would be reinvested into marketing and advertising - and the result would be that Campari's EBIT (earnings before interest and tax) as a percentage of sales would be flat versus 2013, when it was 19 percent, he said.

"The gross margin accretion which we'll be generating this year, we're going to reinvest it into more (advertising and promotion)," Kunze-Concewitz said on a call with journalists.

The company's shares closed 4 percent lower, erasing earlier gains on the back of the Forty Creek deal.

The sell-off was due to the fact that people did not like the guidance for a 2014 EBIT margin in line with 2013, a Milan-based analyst said on condition of anonymity.

Campari is looking to relaunch the classic Crodino tipple in Italy, bring drinks like Aperol, Cinzano and Frangelico into new markets, and buy local brands.

While other Italian firms have become targets for foreign buyers Campari has gone shopping around the world, most recently buying Australian bottler Copack Beverage in June.

"In choosing firms to acquire, we are not driven by category, we are driven by geography," Kunze-Concewitz said.

Sales last year rose 13.7 percent to 1.52 billion euros ($2.1 billion) broadly in line with market expectations. Group net profit fell 4.4 percent to 149.8 million euros, missing a Thomson Reuters SmartEstimate of 156.5 million euros, due to one-off charges of 10.3 million euros.

The Forty Creek purchase was well received in the market.

"The acquisition ... fits perfectly with the Campari external growth strategy of looking at small but fast-growing brands which completes the current portfolio and the geography," a Milan-based broker said in a note.

Kunze-Concewitz said in a statement the group was in a stronger position to grow after a year of transition in 2013, which included restructurings, plant start-ups and the integration of new businesses including Jamaican rum maker Lascelles de Mercado, which it bought in late 2012.

But he said the business climate was expected to remain challenging with tough macroeconomic conditions in key markets and a worsening forex outlook. ($1 = 1.1132 Canadian Dollars) ($1 = 0.7192 Euros) (Reporting by Isla Binnie. Editing by Jane Merriman)