Safilo Group S.p.A.

Good evening, and welcome to the Sakhilo Group's first half 2021 results. This call may contain forward-looking statements relating to future events and operating, economic, and financial results for the Sakhilo 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 Gressler, Chief Financial Officer, and Ms. Barbara Ferrante, Director of Investor Relations. I will now pass the call over to Mr. Angelo Trocchia, Chief Executive Officer. Mr. Trocchia, you may begin, sir.

Hi, thanks very much. And good evening to everyone. And thanks all of you for attending today's conference call on the Safilo Quarter 2 Trading Update and H1 2021 results. We are very pleased that the second quarter continued the solid sales and profitability momentum of the first three months of the year. allowing us to close the first half of 2021 with a significant year-on-year rebound, but even more meaningfully, growing well above the H1 2019. In the period, we continue to size the business opportunities that our renewed brand portfolio offers us in our key markets. For the first two quarters of 2021, our business performance was consistently driven by the strength of our key strategic pillars. We benefited from the successful rebalance of our brand portfolio, which has so far allowed for the full offset of the business terminated at the end of 2020. through our acquisitions of blenders and pre-variables and the new, recently introduced, licensed brands of Levi's, David Baker, Missoni, Ports, Isabel Marant and Under Armour. This has been the main objective of our action plan during the last three years, the effective implementation of which is now permitting us to bring home a positive performance of our core business. In the first semester, we in fact benefited from the significant organic growth achieved by the brands already in our portfolio, meaning our comparable business was up high single digits, a result which was broad-based from Smith's strong outperformance across all its categories, a big thank to the Smith team, across all its categories, channels, and geography, to Carrera and the main license of Hugo Boss, Tommy Figer, Kate Spade, and Jimmy Choo, all firmly exceeding 2019 levels. For the fourth consecutive quarter in a row, our path of recovery was led by the significant rebound in the consumption experience in the United States, a market which is certainly performing better than any expectation. and I think the team over there is doing quite a great job. But also, by the vigorous progress we kept recording in China, Australia, and in most of the Middle Eastern markets. Also in the second quarter, our sales growth came largely from prescription frames. The product category which has best sustained the industry during the depth of the pandemic and which is still today outperforming alongside our winter and summer sports products. Our sales of sunglasses, which continue in the second quarter to be held back by the pandemic-related restrictions which persisted in many crucial European markets, at least until May, benefited on the other hand from the strength of our online channel, which grew a strong double digit also in the second quarter, thanks to the business momentum of Internet2Player as well as the D2C digital sales of Blenders and Smith. Let's then look at the KPIs of our second quarter trading update. As expected, our business performance in quarter two recorded an exceptional year-on-year rebound of growth, with sales and profit doubling or tripling compared to the extremely small business and the losses we recorded in the second quarter last year, the one most heavily weighted down by the COVID-19 pandemic. Our comment will so mostly refer to our performances compared to the same period of 2019, the most meaningful benchmarks to measure the health of our business and the progress of our operational execution. Our net sales in Q2 were up by 9.4% at constant exchange rate versus Q2 2019. posting a sequential acceleration compared to the 6% we reported in the first quarter of the year. Our quarter 2 adjusted ABTDA reached 23.8 million euro and the margin on sales of 9.2%. not far from the double-digit level we achieved in the first quarter and 70 basis points better than the margin of 8.5% we recorded in Q2 2019. The sum of the two quarters was a solid H1, in which the very robust sales growth and the structural cost reductions we have been implementing delivered a significant recovery of the profits. In H1 2021, our total net sales reached 510.7 million euros, reporting a growth of 7.7% at constant exchange rate compared to H1 2019. Our first half adjusted the BDA was just short of 50 million euro and 10% margin, precisely at 49.7 million euro at 9.7% adjusted ABTDA margin. A result which granted us a plus 20.5% increase in value and a 140 basis point margin improvement compared to 2019. Very meaningful for us, the semester was back to a small adjusted group net profit of 4.4 million euro, which compared with the adjusted loss of 63.7 million euro recorded last year, while it was below H1 2019 adjusted net profit of 8.5 million euro due to higher financial charges. Now, the significant recovery of operating profitability we achieved in the second period supported what we consider a satisfactory first semester free cash flow, which allowed our group net debt at the end of June 2021 to be substantially stable with the position we recorded at the end of last year despite of the cost of the restructuring. I stop here for the moment and hand over to Gerd for some additional details on our economic and financial performance.

Thank you, Angelo, and good evening to all of you connected via conference call and audio webcast. Let me add some color to the main highlights already discussed by Angelo, starting from our net sales performance in the second quarter and first semester of 2021. We are on slide six of our presentation. So our Q2 2021 net sales reached 259.4 million euros, taking the H1 top line to 510.7 million euros, respectively up 4.3% and 3% at current exchange rates and 9.4% and 7.7% at constant exchange rates on a two-year basis. Forex has been quite a headwind so far for U.S. dollar denominated sales, both versus 2020 and versus 2019. As highlighted by Angelo, key for us this year was and still is the effective rebalancing of our business portfolio in line with our group plan, working on the different important business levers by product category, geography, and channel. The foundation for our business model to be successful is a competitive and very appealing brand portfolio, and what we're commenting on today goes exactly in that direction after three years of portfolio overhaul. Also in Q2, and always in comparison with Q2 of 2019, the negative perimeter effect from the exit of Dior and Max Mara was overcome by the positive impact of the new owned and licensed brands we have been introducing during the last 12 to 18 months. As a reminder, we bought a controlling stake in Prevariable in February last year, while last June marked Blenders' first year within our portfolio. With regards to our licenses, we launched Levi's, David Beckham, and Missoni in the first half of 2020 in the midst of the pandemic. Ports in China in July, while Isabel Marant in Q1 this year, and Under Armour more recently in this quarter. Focusing then on our organic performance, the one driven by our fully comparable brands on a two-year basis, this was strong and again leading the high single-digit growth we recorded in the peers versus 2019. We'll add some more color on our brands when moving on to our geographical performance. By product category, prescription frames continue to register strong momentum, up by a meaningful double digit also in Q2 and consequently in H1, reflecting the sustained business activity in optical stores, quite broad-based by brand and market. Such trends have been supporting our work of shifting more of our business towards prescription frames. The latter accounted for 39% of our H1 2021 sales mix, up from 36% in H1 2019. The rebalancing would be clearly even more evident looking at the business X, the acquisitions, which are largely sunglass businesses. Smith's winter and summer sport products were the other winning categories, growing exponentially in Q2 and driving a strong over 80% increase in H1, also boosted by the surge of outdoor activities. Sales of sunglasses, which doubled year on year in Q2, were, on the other hand, still slightly below 2019 levels due to the impacts of lockdown restrictions on retail and travel and to a particularly difficult comp space given the terminated licenses high weight on these products. As highlighted by Angelo, our sales of sunglasses in Q2 and in the semester were supported by the strong growth of the product category in the digital channel. clearly driven by the significant contribution of our acquisitions, blenders in particular, but indeed also by the strong ongoing progress of Smith's renewed digital direct-to-consumer channel, as well as by the outperformance of internet peer players. Let's have the usual quick zoom into our group's total online business performance in the next slide. At the end of June, our total online business represented roughly 14% of the group's total sales, or around 75 million euros on a constant currency base, with the channel growing 2x and almost 4x compared to H1 2020 and 2019, respectively. For online, the most meaningful comparison to make is with last year, as the channel experienced its strongest development indeed in 2020, concurrently with our acquisitions. In H1 2021, the doubling of our total online sales came from the significant addition of blenders, but also thanks to Smith, up 39% at constant exchange rates and to the revenues generated through the internet pure players, which increased by 38% in the period. In Q2 of 2021, the group's online business continued to record a strong development, up 64% year-on-year, still benefiting from the positive perimeter effect of having blenders in the base period just for the month of June. On the other hand, the organic performance of the channel started to normalize a bit in Q2 compared to the extraordinary growth rates experienced last year when online was the only way for consumers to buy, remaining nevertheless very meaningful. Moving to the drivers by geography of our sales performance in the second quarter and first half of this year, we can generally say that on a two-year basis, Q2 trends were quite consistent with what we recorded in Q1, with some accelerations and decelerations reflecting specific base effects. Starting from what is today our biggest region, representing 47% of our total sales, North America was again the key driver of our sales growth. thanks to the buoyant consumption trends persisting within the United States, to the strong momentum our portfolio is enjoying in the market, and today now to our acquisitions. Meaningfully excluding the acquisitions, our sales growth in North America accelerated in Q2 to plus 20% from the plus 17% recorded in Q1, again driven by a wide-ranging improvement across brands, product categories, and channels. Amongst all, a special mention goes to Smith, whose revenues in Q2 this year almost doubled versus 2019, behind the sizable development of all its product categories through its traditional distribution and more significantly through its renewed D2C channel. Reading out our total reported performance in North America, in Q2 2021, net sales grew 60.3% at constant exchange rates and 50.6% in H1 versus 2019. In Europe, our Q2 net sales recorded a very significant year-on-year rebound, which was, on the other hand, still not sufficient to allow our business to match pre-pandemic levels and to fully compensate the gap generated in the region by the terminated licenses. After a weak start to the sun season, affected by the impact of retail restrictions until May, and the lack of tourists in key cities and summer locations, sales trends improved in the UK, Italy, and some Nordic countries, but they remained more subdued in markets like Germany, France, and Spain, and in those channels more exposed to the terminating businesses, in particular licensor-owned boutiques, department stores, and travel retail. Also in Q2 2021, sales of prescription frames in Europe were up double digits compared to Q2 of 2019, while sunglasses remained subdued, also reflecting the still negative trading environment for Polaroid, in particular in some of its core sunglass markets like Spain. In the comparison with the respective 2019 periods, our Q2 net sales in Europe were down 11.4% with constant exchange rates, recording, however, an improvement compared to the decline of 17.8% reported in Q1 of 2021. Overall, in H1, our net sales in Europe declined 14.7% at constant exchange rates, mainly as a result of a very challenging base period for sunglasses due to the terminated businesses and a still patchy business environment. In Asia Pacific, our Q2 2021 net sales recorded a year-on-year growth of plus 49.6% at constant exchange rates, and an almost equal decline of 48.5% in its comparison with Q2 2019, a very tough phase period as travel retail was particularly strong then, and as we know, heavily exposed to the terminated business. In the second quarter of this year, sales trends in Asia Pacific were highly diverging, reflecting on one side the ongoing rebound of China and Australia, up respectively 21% and 12.4% versus Q2 of 2019, thanks to a supportive business environment where we could effectively relaunch our brand portfolio, and on the other, the still highly subdued travel retail business and many other markets in the regions still affected by the pandemic and lockdown restrictions. In H1, our net sales in Asia Pacific declined 39.1% at constant exchange rates. Finally, in the rest of the world, Q2 was another supportive quarter for the group's business recovery and growth, with our net sales in the region recording an exponential rebound compared to last year's extraordinary decline, and a plus 4.9% compared to the same quarter of 2019. Both Middle Eastern markets and core Latin American countries, Mexico in particular, contributed to the upside of the period, while our total H1 performance in the area equaled the growth of plus 14.4% in the comparison with H1 2019. Let me now move to our economic and financial performance, slide 10, building on the highlights already provided by Angelo. I would say that the second quarter was similar to what we saw in Q1. More sales, better operating leverage as sales volumes increased, additional progress on our cost efficiency plan accelerating now also at the cost of goods sold level. But also as expected, an acceleration of some SG&A investments and higher inflationary pressures. Let me give you an update on our total structural cost savings in these first six months. These amounted to around 13 million euros with just under 9 million euros on COGS, which, as I said, had quite a significant acceleration in the second quarter. In the six months, we also had some 4 million euros of cost avoidance in relation to the contingency measures still in place due to the COVID-19 emergency. In the period, we incurred some additional non-recurring costs, mainly at the gross profit level in depreciation for the write-off of manufacturing assets in relation to the closure, which occurred as expected in June, of the Ormos production plant in Slovenia. Total non-recurring costs in the first semester equaled 19.3 million euros, and as said, these were mainly related to our industrial restructuring plans. As you will probably have read, on the 22nd of July, the French Competition Authority, following the investigation initiated in 2009 regarding a number of alleged practices in the Irish sector in France, dismissed all the charges which had been raised against Safilo and which we have been vigorously challenging. We are clearly very happy with this decision, which meant that no sanctions were applied to Safilo, thus allowing us to release the provision for risk and charges equal to 17 million euros, which we booked in 2015 in order to cover the potential estimated liability. This release has had a positive impact on our reported Q2 NH1 2021 results, which is not included in our adjusted key performance indicators, as it is treated as a non-recurring income. Q2 2021 gross profit rose to 135.6 million euros and to a margin of sales of 52.3%, marking an exponential increase compared to the exceptionally low levels recorded in Q2 of 2020. On an adjusted basis, gross profit in Q2 was 3.8 million higher, equal to 139.4 million euros and to a margin of 53.7%, accelerating quarter-on-quarter versus the 52.2% adjusted gross margin recorded on Q1. On a two-year basis, compared to Q2 of 2019, gross profit was up 2.6% in value terms and down 100 basis points margin-wise. And looking at the key dynamics which drove this performance, on the positive side, we had the sizable accreted growth of the D2C channel, which is largely, but not fully, offsetting the double negative impact We suffered in these quarters from the terminated licenses, very high and accretive in the base period, yet residual and dilutive in their final depletion periods this year. In the quarter, we had also a quite meaningful positive contribution from lower obsolescence costs, an important component of our structural COG savings plan, which together with some other manufacturing and purchasing savings, supported us in counterbalancing the rise of inbound transportation costs. In the first semester, our gross profit reached €262.2 million, up 76.5% compared to H1 2020, with a gross margin which bounced back to 51.3% from last year's 44.3%. On an adjusted basis, H1 2021 gross profit equals 270.6 million euros and a margin of 53%, respectively up 1.7% and down 70 basis points compared to H1 of 2019. Moving down the P&L, our SG&A cost structure benefited from the recovery of operating leverage led by the strong top-line growth and by our now leaner overheads cost structure, which we continue to manage with disciplined cost control. Let me say that as expected and anticipated, we closed the first semester of this year with a substantial completion of our original overheads productivity plan of 20 million euros. We had, in fact, some 4 million additional euros of structural overhead savings in the six months to June. On the other hand, as planned, Marketing and advertising expenses re-accelerated compared to Q1 2021, mainly as a result of the expected easing and lifting of the restrictions which have prevented our core organic business from trading regularly in the first months of the year. The acceleration of these costs was quite significant, also compared to the second quarter of 2019, as the period represents the peak season for the online business, Thus, the months in which a great deal of blenders marketing investments are concentrated. Starting from Q2, blenders, like many e-commerce marketers across industries, have been experiencing advertising price increases on social media coupled with the impact of the recent iOS updates on ad targeting. Quite interestingly, always in our two-year base comparison, the higher mix of marketing or higher weight of marketing was compensated by lighter royalty expenses in line with our now different brand mix in the portfolio. Briefly on the numbers. In the second quarter, our reported EBDA soared to 37.7 million euros as it accommodated the release of the 17 million euros provision discussed before. which meant more than doubling the profit of 17.4 million euros reported in Q2 2019, with the margin jumping to 14.5% from 7% in Q2 2019. Q2 adjusted EBDA equaled instead 23.8 million euros compared to the loss of 34.1 million euros recorded in Q2 of 2020, increasing plus 12.2% compared to the adjusted EBDA of €21.2 million reported in Q2 2019. In Q2, our adjusted EBDA margin increased to 9.2%, 70 basis points higher than the 8.5 margin recorded in Q2 2019. This solid result allowed us to close H1 2021 with an adjusted EBDA of 49.7 million euros, posting an increase of 20.5% compared to the adjusted EBDA recorded in H1 2019. Meaningfully, in H1, our adjusted EBDA margin was very close to the double-digit level at 9.7% of sales, marking 140 basis points improvement compared to the 8.3% adjusted EBDA margin recorded in H1 2019. After DNA, our H1 2021 operating result was back to profit of 22.3 million euros and to an EBIT margin of 4.4% with an adjusted operating results of 24.7 million euros at 4.8% of sales, meaning an increase of 85.5% compared to the EBIT of 13.3 million recorded in H1 2019. and an improvement of 210 basis points compared to the 2.7% margin recorded in H1 2019. Our operating performance in H1 allowed us to close the period with a group net result back to a small reported profit of €2 million, while the adjusted net result equaled a profit of €4.4 million. compared to the adjusted net loss of 63.7 million euros in H1 2020 and the adjusted net profit of 8.5 million posted in H1 2019. Below the operating line, net financial expenses equaled 11.6 million euros, remaining absolutely in line with last year, although with a different mix, driven by higher financial interests and a lower negative impact from exchange rate differences. Financial charges were, on the other hand, higher than the 2.9 million euros recorded in H1 2019, mainly as a result of the higher average net debt and of the higher interest on the shareholder loan. Moving to our cash flow in the semester and group net debt at the end of June, slide 14. As already remarked by Angelo, our solid economic performance allowed us to close the first semester with a satisfactory free cash flow, which was driven by a positive cash flow from operations of 10.1 million euros, which was achieved thanks to a significant recovery of operating profitability, notwithstanding a cash out of around 12 million euros relating to the definitive closure of the Ormoz production site, with which we took another significant step forward in the execution of our industrial restructuring plan. In the first half of 2021, we recorded a relatively contained absorption from working capital of €9.4 million with the net working capital dynamics which were characterized both by the normal increase of trade receivables and payables accompanying the surge of trading activities and by a reduction of inventories by €6.7 million. In H1, the cash flow for investments amounted to 9.8 million euros primarily devoted to the group's current digital transformation and overhaul of its IT infrastructure and to maintenance capex for industrial footprint. In H1, our free cash flow equaled the small cash absorption of 4.8 million euros compared to the slightly positive generation of 2.5 million euros before the acquisitions of Blenders and Prevail Revolve recorded in H1 2020. thanks to, at the time, the strict COVID-related cash protection approach. As regards our net debt, at the end of June 2021, it stood at €226.9 million, €186.7 pre-IFRS 16, pretty much stable compared to the position of €222.1 million or €179 million pre-IFRS 16, recorded at the end of December 2020. and the position of 223.9 million, 181.3 pre-IFRS 16 recorded at the end of March this year. If we look at the key components of the group's net debt position at the end of June, we moved from the gross debt of 298.1 million euros, of which 40.2 million euros was the IFRS 16 impact, 96.5 million euros the shareholder loan for the acquisitions, €108 million, the term loan facility guaranteed by SACE, and €55 million, the renegotiated term loan facility signed in 2018. We then closed the semester with a cash position of €71.2 million and our €75 million revolving credit facility undrawn. I stop here and I hand over to Angelo for his further remarks on the business evolution after the closure of the semester.

Thanks Gerd. There are certainly a number of important developments in our business and I would like to briefly update you on it. Starting from where we stand with our UN SAFIGO B2B e-commerce platform, which was officially launched this time last year in Europe and which represents a key investment in our digital transformation strategy. when it comes to our customer-centered strategy, improving the relationship with our clients. So one year after its launch, we look at where we stand with this project and what result it is giving us. UN South Africa is online in 19 countries, launched first in the Italian market and then followed by 18 other countries in the EMEA region. The number of the registered customers increased by 80% to our old platform last year, and today we have more than 27,000 registered users. Customer care has also been integrated into the platform, and today Salesforce Service Cloud is used daily by our entire EMEA customer care organization, around 100 people. Now our job is to ensure that those customers who have already started using UN Trafilo use it as the main channel to work with us for all of those activities that they can do conveniently from their shop in total autonomy. And of course, to keep tempting the customers who have not yet registered to do so. In the first semester of 2021, orders in value through our new and software platform increased by more than 60% compared to H1-19. To be noted, also thanks to the recent digitalization of warranty returns in Europe, 50% of the warranty transactions have now moved into you and Safilo from the Customer K channel, which testifies our focus on the continuous upgrade of our post-sales service. The last major goal we achieved was the digitalization of our return process, which was a 90% physical activity before that. The project is not yet completed and is being constantly updated to always better address the needs of our many different With regards to the other major part of our commitment to a 360-degree digital transformation, the D2C business, Blender is now progressing on its growth and development project to fuel the international expansion outside the U.S. Following the go-live of the brand e-commerce business in Canada and in Australia in the first quarter of 2021, Blender will now enter the United Kingdom and Ireland, targeting European largest e-commerce audiences. Blender's digital native business model allows us to open the brand fast to new markets, and that's exactly in line with our strategic plan to fuel the growth potential of such an amazing brand, not only in North America, but also outside North America. At the same time, we continue to work to reshape our brand portfolio with targeted additions that will allow us again to gain a leading position in the various eyewear segments and references markets. After having signed with the Square in May, a few weeks ago we announced a new partnership with Carolina Herrera. an iconic fashion luxury brand valued worldwide for the extreme elegance and femininity of its product, which represents a great, great addition to our portfolio and a significant immediate opportunity to strengthen our women's proposition and to effectively counterbalance some recent brand exits. Carolina Herrera is already a relevant brand in the highway sector, and it will strengthen our portfolio, in particular in Spain and in Latin American markets, while we will be working to strengthen the bank image and geographical reach, thanks to our product design and distribution capabilities. Now, before concluding our presentation, I'd like to give you an update on the most recent performance of our business. In July, our total net sales performance was again strong, with the US and China remaining the market with the highest growth momentum. So our better than expected H1 2021 results and the continuation of the positive trend into the beginning of the third quarter allow us to look with optimism at the growth prospects for the current year, consolidating our ambition to exceed, already in 2021, the pre-pandemic business level of 2019. We now expect the Group's full-year 2021 net sales to grow mid-single-digit at constant exchange rates compared to 2019. Adjusted EBITDA for the year is also forecasted to surpass 2019 levels. Clearly, and this is important from the line, such expectations are based on the assumption of a stable business environment with no further significant COVID-19 related restrictions to be introduced in the second half of 2021. As you will have read a few days ago, the external shareholders meeting approved the share capital increase we announced at the end of June for a maximum amount of 135 million euros. Aimed at the early repayment of the subordinated shareholder loan of 90 million euros, provided by HAL last year in order to finance the two acquisitions in North America. The objective of this repayment is to provide our group with a more cost-efficient financial structure to support us on the path of recovering a solid and sustainable operating but also group net performance. The shared capital increase is also aimed at harder strengthening our capital structure, supporting our future development by external lines. Taking into account the performance of the business and the market situation, we believe that the conditions exist today for this capital increase, with which we have the opportunity, on one hand, to pursue with determination our consolidated cost-saving program, considerably limiting financial charges for the next five years, and on the other hand, to further enable our growth strategy with additional resources and new strength. The share capital increase is supported by HAL, which we will subscribe the option rights related to its existing holding and subject to an agreement with the company on the issue price, any new shares which could remain unsubscribed after the offer in option and the subsequent offer on the stock exchange. We believe in the work we are doing in Sassilo, and we believe that we are moving in the right direction to catch future opportunities for the group. As we have been discussing, the strategy we outlined in December 2019 in our group business plan 2020-2024 are all up and running. and their implementation is today effectively supporting us in recovering from the negative effects of the pandemic and in continuing to pursue our 2024 sales, economic, and financial targets, which now also include the effects of the acquisition of Privé-Rivaud, the new license signed in 2020 and 2021, and the expected proceeds of the capital increase. This concludes our presentation, and we are now ready to take any of your questions.

Thank you, sir. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove your question, please press star and 2. Please pick up the receiver when asking questions. We will now pause for a moment while participants join the queue. The first question is from Cedric Rossi of Brian Gagne. Please go ahead.

Yes, good evening, everyone. Actually, I have three questions. The first one is regarding your implied outlook over the second half of the year. So I understood that you were expecting a relative normalization in H2. But since the U.S. and China are still driving the growth, How do you expect Europe and Asia to behave in the second half, assuming that we saw some new lockdowns in Australia? So I was wondering how you were seeing Europe and Asia behaving in the second half of the year. My second question relates to the marketing expenses. So I understood that you were you had some pickup in marketing expenses in Q2, also probably related to the launch of Blender Cyware in the UK. So I assume that we can expect these cost expenses, these marketing expenses to continue to increase in Q3 and Q4. So could you confirm that? And my third question is regarding the prescription and the performance in the prescription category. So, of course, the COVID had driven this category, but what did you change in your strategy or in the go-to-market approach to really sustain that growth? Because in the past, Safilo was, let's say, quite weak in that category. So what did you change in the marketing strategy or in the commercial strategy to really have this very strong performance?

Thank you. I will answer to the third question and then I leave again to answer to the first two questions. Prescription category. I think we did two important things. First, we have been revisiting our portfolio, so we have been enriching the optical bit of our collection. This has been action number one. Just to give you a concrete example, we have launched a full range of Polaroid prescriptions which is flying, where before Polaroid was fundamentally a brand which was only fun. Today, Carrera is becoming almost a 50-50 brand between prescription and sun, and that was not the case before. So, first action, work on the portfolio with new launches or a new part of the collection or rebalancing the collection. This is action number one. Action number two, we've been doing the last two years quite some enhance of the sales force because selling optical product, you need a little bit a different set of capabilities. So we've been trained almost all our sales force Repeating or improving or teaching them how important are some characteristics when you go to the optician and you sell optical product versus when you sell some product driven by big license. So second dimension training on the sales force. Third dimension has been a step improvement of the level of service because more you move toward optical product, prescription product, more the level of service becomes crucial. And here, especially in Europe, the implementation of the new B2B and the new focus on the customer care has been a crucial bit to rebuild the trust with the customer. We have done now for two years in a row a customer survey and we keep improving for the second year in a row the judge and the score that the customer are giving us. So three elements, enlargement of the collection, training on the sales force, step improvement of the customer level or the service level. I pass to Gert.

So on the first question on the implied outlook for the year, I think we wanted to give an outlook as to how we see the rest of the year coming in. We do still take, let me say, a prudent stance on this outlook considering the macroeconomic scenario. is still quite uncertain. I think Asia, we see quite a difficult market environment, to be honest. I mean, other than China, most of the Asian markets are still in lockdown or like Australia are going again into lockdown, vaccination rates are low, et cetera. So I think the Asian recovery in the second half is still going to be challenging. Somehow also in Europe, we do have a better performance from local consumption. We see that clearly in the prescription French performance, but we are still missing, let me say, the tourists that used to be a big and important driver of the business. So looking at H2 and always looking at versus 2019, let me say, we do have some base period effects. Of course, not only did we have the terminated businesses, Dior and Max Mara, which were stronger in Europe than in other parts of the world, plus now also Fendi. As you know, the Fendi license has ended on the 30th of June. And so we do have some base period effects that are impacting more in Europe when it comes to growth. along with the typically lower seasonality of the business in H2. On the North American side, so far we do see a very good trend continuing. I mean, I have to say that the H1 performance of Smith has been quite extraordinary. It's a great supporter of our growth. We do expect Smith to keep growing also in H2, but possibly at a different magnitude of what we saw earlier. So we decided all considered to take a reasonable stance on the year. With regards to the question on marketing, let me say, I mean, it's a good thing that now that we have more own brands, we are spending more in marketing in building our own brands rather than on licenses for licensing the brands of others. Clearly the peak period for marketing investments is the summer months. This is now even more true for us compared to the past significantly because of Blender. So here we have, as you know, much higher gross margin but much higher marketing expenses which are concentrated in the peak months. So let's say May, June, July, and to some degree August are the most important months. So we will continue seeing these kind of marketing dynamics also In the third quarter, the UK launch on blenders is pretty much new. I mean, we started really in July. So, you know, I wouldn't expect this to be a significant contributor yet in the third quarter or the fourth quarter when the seasonality changes. But going forward, clearly the expansion of the direct-to-consumer business of blenders globally will also lead to, you know, higher marketing investments in the overall mix of Safilo.

Super clear. Thank you.

The next question is from Oriana Cardani of Intesa San Paolo. Please go ahead.

Yes. Good evening, everybody, and thank you for taking my question. This first one is on expected gross margin in the second part of the year. Do you see any specific pressures on gross margin in H2, or can we assume a gross margin at least at the level of last year in H2? The second question is on expected net debt, AASIRS. Without taking into consideration the cash in from the capital increase, which is your target for net debt by the end of the year, and how much cash out for structuring cost and for working capital do you incorporate in it? The third question is on blenders. In the press release, you say that the new licenses and the acquisition purely offset the business terminated at the end of 2020. Can you quantify the amount of this business terminated and how much is the contribution of blenders? And can you give us an idea of potential revenues in 2020 2022 and 2023 for blenders coming from its international expansion out of USA. And finally, you stated that the capital increase is aimed also to support opportunities that may come in the sector. What kind of company may be an ideal target of acquisition for you in terms of market and stage of development? Thank you.

Okay, I start from the last one. Oops, I need to start always from the last one, the last question. Look, The opportunities, I think that we have outlined a very clear strategy when we presented the strategic business plan. And the two strategic directions are D2C and prescription area. As you remember, we were a company which were 70% sun, 30% optical or prescription. Clearly, strategically, we said we cannot be like this because we are completely different from what the market is. We have defined like to grow on prescription in a heavy way compared to the sun. Our potential target needs to be more in the D2C arena because I think that there is space there and we are currently at 14%, but I think there is an opportunity to go higher as a percentage of our total top line. And the other dimension is optical because I think that we need to strongly shift our portfolio from being a 70-30 company to a 50-50 company. Just already to give you a reference, this year I think we will be a 60-40 company. So we will start having a more balanced portfolio. But the two priorities are B2C and... and optical, so any target which fits along these two directions. On blenders, then I leave to Gerd, on blenders clearly When we bought Blender, Blender is a 98% B2C company. It will stay like this. I think still there are great opportunities in the U.S. because I think the U.S. remains the biggest market. And if you look at the number, it's a market which keeps growing, especially in the sun because part of the on the D2C, so blenders is going to gain out of it, but obviously the international expansion is another huge opportunity for blenders. So we start with Canada, we start with Australia, now we are coming to Europe, and obviously there is all the Hispanic world speakers, which is another big next step of expansion. I don't think we should give a number, but, and then I leave to Gerd, but possibly it's going to be a crucial bit out of the blenders, of the blender strategy, the weight and the strength of the international expansion, and you will keep hearing from us more and more in this direction. Gerd?

Yeah. So I think maybe just completing the perspective on that question, I mean, we do not comment, let me say, on individual brand numbers or individual parts of the portfolio. What I can say is that at the end of 2019, so when we had all that terminated business in our base that was roughly 200 million euros, And our ambition is that, you know, over time, with the M&A and with the addition of the new licenses, we can offset that. This is what has happened in the first semester of 2021. Clearly, there is a bit of a different profile of seasonality with the D2Z business, but, you know, in 2022 and 2023, our ambition would be to basically offset what used to be that block of the business back in 2019. With regards to the gross margin, I think that we should have a good opportunity to be above the numbers of 2020 and 2019 in the second half of the year. I mean, we had 51% now in H1, adjusted close to 53%. So I think here we should have the possibility to be above two years ago, especially in Q4 where we had some quite low gross margins in the base periods. I would expect additional cost of goods sold savings to be delivered in the period. We are facing, let me say, also quite an impact from rising transportation costs, so both on the route from Asia to U.S. and Asia to Europe, and we think that this will persist. And we see a risk, to a lesser extent, that there may also be some inflation on the raw material side. We will have cost savings, and we are looking at some potential risks to offset. But I think, all in all, we should be able to deliver or exceed the gross margin in H2. With regards to the net financial position, I mean, let me comment, excluding the capital increase, then you can obviously easily add the $135 million against that. I would expect that the net debt at the end of the year will be higher than the net debt that we recorded at the end of June, which means de facto a free cash flow negative for the rest of the year, just as we also had in the first part of the year. On the one side, we do have a lower business seasonality, so the level of revenues in H2 is seasonally always lower, so there will be lower operating flows than what we saw in H1. I would expect a higher absorption from networking capital because we will see possibly a bit of a re-acceleration of inventory levels. We have quite a favorable effect in H1, but as we also start going towards the inventory for the new January 2022 releases, we will probably see some rebalancing on the stock. Receivables and payables will obviously depend on how the business will perform, but we should probably see some reduction there. On CapEx, we saw about $10 million in H1. I would expect another more or less $10 million in the rest of the year. So that's something quite similar, but at the end of the year, I do expect to close 2021 with a negative free cash flow, which was always expected as this was a year in which we are executing a lot of the restructuring. We mentioned the cash out of $12 million in the first semester. And clearly we still have some way to go on completing the restructuring, depending on when that will also be possible within the legal framework, especially in Italy. So I think in terms of restructuring, we are, let me say, I would say maybe 80% there. In terms of what is to be accrued on the P&L, as you know, because of delays in the implementability of some of those plans, I would say that probably we are about halfway through on the cash side, respective to the overall restructuring envelope that we announced in 2019 of about $50 million at the time.

The next question is from Domenico Ghilotti of Equita. Please go ahead.

Good afternoon. A few questions. The first is a follow-up on blenders, in particular blenders in the U.S., in the sense that Q2 had a quite significant slowdown on a tough comparison, clearly, but I wonder if you still see huge opportunities also in the U.S. market for blenders. or if you are seeing some kind of, I'm not saying maturity or saturation on the market. Second, a follow-up also on the gross profit question. So if I look at Q2 compared to Q1, so the decline of the gross profit despite higher sales, can you clarify what has been driving this dilution? And how are you managing or if are you managing some price increases, price hikes to offset the logistic costs that you were mentioning? And the last is on UN SAFILO that you mentioned in the beginning. I'd like to understand what is the size that has been reached today because you were mentioning particularly strong performances from businesses that joined you and Safilo.

I would try to answer to the first in the lab. Blenders. No, I mean the slowdown of blenders is definitely not related to a less... First of all, let's be clear that we compare Q2 this year with the Q2 of last year, which was abnormal growth. So this is the first point. Second point, no, there is no slowdown of the market in the U.S. The slowdown that we have been suffering with the blenders is related and by the way it's common to quite a lot of B2C companies, is related to the change of the privacy policy. the famous iOS 14, which clearly has put some challenge on how easy, or let me say how expensive, is to reach the same customer base. So, I mean, now Blenders is recovering. They are finding their way out of this new world, these new routes of engagement, due to the change in the privacy policy, but it's just It's just a transitional effect. Absolutely. There are big opportunities still in the American market with no doubt. So the growth opportunity remains U.S. The international expansion is just an up on completely additional top line compared to the North American business. The other question, if understood correctly, was on the B2B. The question was from where the business is coming or from where the growth is coming. Let's be very clear. is not intended to substitute the agent and the sales force. The B2B logic is from one side to make to keep improving the service level that we are able to deliver to the customers. I was mentioning a digitalization we are doing on the return, the digitalization that we are doing on a lot of operations that makes life easier to the customer, that this is part of, let me say, the scope of the B2B. The most interesting part, if you like, is to make the life of the customer so easy that it can sell more and so it will translate in additional sales. We see that is happening a strong shift or the traditional customer care on the B2B. So the customer, instead of ringing the customer care, does the operation directly on the website because it's easier, it's more effective, and it's more efficient. fast responding, this is the effect. But the other effect we see is that for the customer it becomes easier to buy, it becomes easier to reorder, he has all the information in what we call in one click, he gets all the content, so it's really helping the customer in selling more. And honestly, this is the real effect that we are seeing in the number, and this is the real effect that B2B should give us on the sales side. If you like, it's changing the experience of the customer. Before, our system was very complex to use. Now, it's very easy. Before, it was very slow. Now, it's very fast. but it's really changing the relationship because we are able to do really to build a sort of daily relationship with the customer helping the customer understanding what is the product that is is the most sold helping the the customer they're giving him the content on that different brand so it's a completely really sort of changing the journey in the relationship between the customer and the company. And I think that that is where the really big value is there. We are seeing the first sign of a very positive effect. I'm expecting more moving forward. And for us, we made one of the fundamental projects. As I told, we have rollout in Europe for 2022 priority will remain Europe and then we will implement all these also in US. Back to Pierre.

So on the gross margin, so what we're seeing is a Q2 gross margin which is higher than the Q1 gross margin. We recorded this year, so we've made, I think, a step forward. It is right that compared to 2019 gross margin, we are still below in both quarters. I would say there are three different main drivers. I would say one is what we called also before this double negative on the licenses and the terminated businesses. Clearly, in 2019, we had regular business. As the licenses were enforced this year, we had a lot of the closeout business. So not only is the weight of those luxury licenses, which have always an accretive gross margin, less than it was, but on the other side, there's also the dilution of the last month of the closeout period. Secondly, we were commenting on a very strong performance of Smith, which we're very happy with. It is very good for our bottom line. But on the other hand, we do have a dilutive gross margin there as the categories are a little bit different with Helmets and Goldberg. So that is simply a portfolio mix effect that we see. And last but not least, I mean, we estimate that the increase in transportation cost that we have seen is weighing on us with about 150 basis points on the gross margin. Clearly then we have cost savings that we delivered, which are offsetting that, but with the cost savings clearly we would have liked to get ahead. So the dynamics will probably be different in the second part of the year, so we should be able to get ahead of where we used to be in the last couple of years in H2. It will depend on how these cost dynamics and inflation dynamics will continue. We clearly have our cost savings program that we expect to continue, and we are also looking at pricing potentially to take some very calculated interventions depending on which brand country combinations offer us the opportunity in order to address that. I mean, looking ahead, I think as a company, we have now a very efficient overhead cost structure in place. So the OPEX fixed part, I think, is quite efficient. So the leverage is of the incremental sales is benefiting us quite nicely, where we do have the opportunity to get further ahead. And I think also if you look versus our competitors who are publishing their numbers, it's clearly in the gross margin. So over the next couple of years, we will continue to work on our gross margin.

Okay, thank you. So when you give the guidance, if I'm not wrong, you're comparing a constant Forex, and I presume that the current spot rate, we should add something like 50 to 60 million of FX headwind on the guidance. On the net sales? Yes.

Yeah, yes, I think that's about right indeed. Okay, thanks.

The next question is from Francesco Brilli of Intermonte. Please go ahead.

Yes, good evening. Thanks for taking my question. A quick one on just level of prices. If you are just a follow-up from the previous one on gross margin, if you are seeing and if it is convenient or guidance on price increases during the second part of the year, And if so, which timing should we assume for the pass-through of these price increases?

Yeah, I think this is always a tricky topic to answer on a public conference call. Let me put it this way. I think we are looking at the pricing topic. We are looking at it where we see opportunities within our collection structure, within the different brands and the different geographies where we see also from a, let me say, competitiveness and value equation point of view, the opportunity to do so. So this is something that we are looking at, but I will decline to specify more on timing and magnitude.

Okay, thank you.

Gentlemen, Mr. Ante, there are no questions registered at this time.

Okay. Thanks very much. Thanks to everyone. And have a nice evening. Thanks very much indeed. Bye-bye. Thank you. Bye.