Safilo Group S.p.A.

Good evening and welcome to the SAFILO Group's first quarter 2021 trading update. This call may contain forward-looking statements relating to future events and operating, economic, and financial results for the SAFILO Group. Such forecasts, due to their nature, imply a component of risk and uncertainty due to the fact that they depend on the occurrence of certain future events and developments. The actual results may therefore vary, even significantly, to those announced in relation to a multitude of factors. Today's participants are Mr. Angelo Trocchia, Chief Executive Officer, Mr. Gerd Kressler, Chief Financial Officer, and Ms. Barbara Ferrante, Director of Investor Relations. Mr. Trocchia, you have the floor, sir.

Hi, good evening. Good evening, everyone. And thank you for attending today's conference call on the sample of Q1 2021 trading update. Exactly two months ago, during our discussion on the 2020 results, we talked about how the 2021 had started substantially in line with our expectations and how March could have been a key month Not so much for its potential significant upside compared to March last year, but more as a first important sign of how the overall business could perform compared to 2019. Without that, this year represents a fresh start for our group after two years of meaningful turnaround to give the company a stronger and more resilient business model. with a diversified brand portfolio and a supply chain right-sided to market reality. In the last two years, we have been working to reshape our brand portfolio from a concentrated to a diversified one, establishing global brands with high visibility and new champions with differentiated focus by geography and consumer segment. We are therefore pleased about this very positive start of 2021, which saw our Q1 sales and economic results exceed the first quarter of 2019. These results are all the more significant as they were achieved in a health and business environment, which has remained in the meantime tough in a number of countries and distribution channels. And they represent for us a first encouraging testimony of the growth we can aim for thanks to our new business leaders. Let's then look at the economic and financial CPI of the period. As you have noticed from our press release, given the exceptional nature of 2020, our results this year will be compared also with the same period of 2019, the most significant benchmark to measure the health of the market where we play and the progress of our operational execution. Our net sales in Q1 reached 251.4 million euros, up 20% at cost of exchange rate compared to the first quarter of last year, and more meaningfully, up 6% compared to the first quarter of 2019, thanks to the strong recovery recorded by our own brand and core license. with the new business in the portfolio effectively compensating the license terminated at the end of 2020. The positive sales momentum was again largely driven by the United States and by a better than expected growth of the online business, which again soared thanks to the higher contribution of our newly acquired e-commerce business, the higher growth of the Smith D2C channel, and the sales generated through the internet pool player. From an economic standpoint, in the first quarter we registered significant improvement in profitability, also in this case above last year, and again, even more important, above Q1 2019, thanks to the positive sales development, the ongoing strict discipline with which we are managing our expenses, and continue to pursue our structural saving plan, which has already provided, for now, linear overhead cost structure. Q1 this year, we recorded €25.8 million of adjusted EBITDA, and the margin which jumped to 10.3% of sales, exponentially above Q1 last year. Compared to Q1 2019, The increase was plus 29.4% in absolute terms and plus 220 basis points at marginal level. The group net debt at the end of March stood substantially in line with the position we recorded at the end of last year at 223.9 million euros. I'll now hand it over to Gerd for some additional details on the top and bottom line.

Thank you, Angelo, and good evening to all of you connected via conference call and audio webcast. Let me add some color to the core highlights already provided to you by Angelo, starting from our Q1 Net Sales Performance, slide 4 of our presentation. The way in which we analyze our performance this year is by evaluating the effectiveness of our brand portfolio rebalance. This year, we have different moving parts in our portfolio and our objective for 2021 rests on the ability of our business, both owned and licensed, to effectively compensate the terminated activities, top and bottom line. This is indeed what happened in the first quarter of the year, when the contribution provided to the period by Privé-Revaux and Blenders, with the latter not yet included in our perimeter in Q1 2020, and the newer licensed brands in the portfolio, among them Levi's, David Beckham, Missoni Ports, and Isabelle Marant, largely compensated the licenses terminated at the end of last year. At the same time, our comparable brand portfolio recorded a strong recovery, explaining the majority of the upside we recorded compared to last year, but also versus Q1 2019. These are significant positive news for us, pretty much broad-based across our brand's from the strong growth of Smith and Carrera to the meaningful rebound of the majority of our licenses, in particular Hugo Boss, Tommy Hilfiger, Kate Spade, and Jimmy Choo. By product and channel, prescription frames remain the key positive driver across brands and markets, confirming the resilience of the product category in optical stores. In the quarter, our total sunglass business was supported by the new contribution coming from the e-commerce channel, which more than offset the soft-sum business and terminated business in Europe. As just highlighted by Angelo, our total online business soared in Q1, thanks in particular to blenders, Smith, and the sales growth through the internet pure players. Focusing on this in the next slide, today our total online business is three times bigger than it was in Q1 2019, moving from 4% of the group's total net sales to 6% in Q1 of last year to 13% in Q1 of 2021. The exponential increase of our D2C activities we recorded this year at plus 164% compared to Q1 2020 were clearly driven by blenders exceeding our expectations up 79% versus a year ago on a pro forma basis compared to its Q1 2020. To note, Blenders is now starting off well also in Canada and Australia, as the brand and its e-commerce started to expand out of the United States this year. As a reminder, Blenders was not in our perimeter in Q1 last year, as the acquisition was effective 1st of June 2020, while we already had a couple of months of Privé Réveau acquired on February 10th, 2020. On the other hand, this year our online sales continue to be nurtured by the significant growth of the Smith direct-to-consumer business, up around 63% at constant exchange rates, as well as by our sales through the internet pure players, up around plus 48% in the period. Moving to a snapshot of the sales performance in our four regions, as expected there was a continuation of the main dynamics recorded in the second half of 2020. particularly as far as the strong ongoing sales growth in the United States was concerned. In North America, our Q1 sales at constant exchange rates were up 53.8% versus Q1-20 and by 41.8% versus Q1-19. Indeed, a strong upside which materialized across all product categories and brands, which reflected the combination of a number of positive effects. from the just-mentioned contribution of Privé Revaux and blenders to the strong momentum of Smith products, both online and through the more traditional sports channel, and in particular its bike helmets business doubling and reaching 16% of the brand's business in the quarter, and to the outstanding business upside continuing in independent optical stores, chains, and department stores. In Q1 2021, the contribution of Privé Revaux and blenders to the North American growth versus 2020 trend and versus Q1 2019, was respectively plus 21% and plus 25%. In Europe, our business remained soft, down 5% at constant exchange rates versus 2020, and minus 17.8% versus Q1 2019. This was very much expected, as many markets remained constrained by the persisting retail restrictions and lack of tourist flows, which continued to penalize, in particular, the sunglass business in specialty channels like boutiques, department stores, and travel retail, but also in some of the biggest chains. Among our brands, this market context impacted above all Polaroid, a brand particularly exposed to the European sun markets. As previously highlighted, the prescription frames business was very solid for the majority of our brands also in Europe, growing compared to both Q120 and Q1 of 2019. In Asia Pacific, Q1 sales were down 10.8% at constant exchange rate compared to Q1-20 and minus 25.3% versus Q1-19. This was again not a surprise for us as the region is one of the most exposed to the travel retail business, a channel which was still high in Q1 last year, while it represented around 36% of the regional business in Q1-19, with the terminated licenses being roughly half of it. On the positive side, our sales in China and Australia confirmed the significant growth trajectory recorded in the second half of 2020, up respectively around 73% and 46% versus Q1 2020, and both significantly also above Q1 2019, proving thus the effectiveness of the portfolio strategy we have been implementing to build a more relevant and sustainable business in Asia Pacific. Finally, in the rest of the world, our Q1 business recorded a sharp acceleration across all main brands and product categories, up 40.6% versus Q1 of 20, and plus 26.5% versus Q1 2019, with a rebound that materialized in particular in the Middle Eastern markets, which had started to recover from the fourth quarter of last year. Let me now move to our economic and financial performance, slide seven. following from the highlights already provided by Angelo. In this first quarter, both our industrial and operating activities clearly benefited from the positive leverage provided to the period by the sales rebound, as well as from the cost discipline we continue to pursue alongside our ongoing structural savings plan. Structural savings totaled 3 million euros in the first quarter, on top of which we benefited of 2 million euros of COVID-19 related measures. Non-recurring costs were booked in the period mainly in relation to the announced closure starting from June of the Ormoz production plant in Slovenia. In Q1 of 2021, non-recurring costs totaled €16.2 million, €4.6 million at the gross profit level, mainly in depreciations for the impairment of manufacturing assets, and €12.4 million at the EBITDA level. In Q1 last year and in Q1 2019, These costs were 2.4 million and 1.1 million euros respectively. On a reported basis, Q1 gross profit stood at 126.6 million euros with a margin on sales of 50.4% compared to 49.5% in Q1 2020 and 52.7% in Q1 2019. On an adjusted basis, gross profit equaled 131.2 million euros or 52.2% of sales, up 19.9% compared to last year's gross profit, and plus 270 basis points compared to the gross margin. Compared to Q1 2019, it was substantially in line in value terms and 50 basis points below in terms of margin. Our industrial performance this year benefited from the better cost absorption provided for by the increase of production volumes, although still below Q1. one 2019 levels, and from the first structural savings on manufacturing and obsolescence, which in the period were partially offset by higher inbound transportation costs. Sales mix had two key opposing dynamics, the positive accretive growth of the D2C channel and the still negative brand product mix, mainly related to the exit of terminated licenses and to the higher weight of sport products. Below the gross profit line, our general selling and administrative expenses benefited from the cost containment actions we continue to implement and from the leaner overhead cost structure deriving from the last two years' structural savings. Clearly, the exit of terminated licenses means today a lower level of royalties and marketing contributions, and these positive impacts are now visible in our numbers. Q1 2021 reported EBITDA equaled €13.4 million, with a margin on sales at 5.3% compared to 1.5% last year and 7.6% in Q1 2019. On an adjusted basis, excluding the non-recurring costs of the period, EBITDA this year equaled €25.8 million, marking an exponential increase compared to the €5.8 million recorded in Q1 2020 and a meaningful improvement of plus 29.4%, compared to the 20 million recorded in Q1 2019. The adjusted EBITDA margin jumped to 10.3%, up 770 basis points compared to the 2.6% in Q1 of 2020, and up 220 basis points compared to the 8.1% recorded in Q1 2019. As always, in this quarterly trading update, we also provide you with our group net debt, which at the end of March, as anticipated by Angelo, stood substantially in line with the position reported at the end of December last year at €223.9 million or €181.3 million pre-IFRS 16. This reflected the positive economic results of the period and the ongoing strict control on net working capital where we continue to make progress on our cash collection activities as well as on the reduction of our inventories. I stop here and I hand it over to Angelo for his further remarks on the business evolutions after the closure of the quarter.