Safilo Group S.p.A.

Good evening and welcome to the SAFILO Group's first quarter 2022 trading update. This call may contain forward-looking statements related to future events and operating economic and financial results of 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 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. Good evening. Good evening, everyone. and thank you for attending today's conference call on Safilo Group's first quarter 2022 trading update. When we talked mid-March to discuss the 2021 results, we provided some flavor on the first two months of the year and on how our business was progressing in the key geographies and product categories. We are glad to have closed the first quarter in line with expectations, with a positive start to the year for our sales and, even more important, further advancing the improvement of our profits. The first three months of the year were another confirmation of the positive momentum of our own and licensed brands, of their ability to grow at a healthy pace in their core product categories and markets. Notwithstanding the challenges still posed by the COVID-19 pandemic, pandemic, the high inflation environment, and sadly the ongoing conflict in Ukraine. The period stood out again for the resilience of the industry we operate in and the effectiveness of our strategy to drive the group sales and margin growth. Let's then look at the performance top and bottom line we achieved in the first quarter. our net sales grew to 282.6 million euros, up 8.4% at constant exchange rate compared to quarter one last year, while Forex was a quite significant tailwind on top, driven by the U.S. dollar strength and taking our total reported growth for the period to plus 12.4% at current exchange rate. At the economic level, our profits and margin continue to benefit from positive top-line dynamics and from further progress on our structural COGS savings project, while we continue to focus on the efficiency of our supply chain, largely completing in March the industrial restructuring plan launched at the end of 2019. In Q1, Our gross profit increased by 22.8% versus last year, with the margin soaring to 55% of net sales. And our adjusted EBITDA reached 32 million euro, growing by 23.8%, with the margin standing up at 11.3% of sales. In the quarter, the positive momentum of our business drivers were certainly confirmed by the double-digit growth of our organic business at plus 14.3% at constant exchange rate, largely driven by volume and by the launch of new licenses as we continued our brand portfolio overall strategy. Our organic performance continued to be backed by the strengths of Smith and Carrera, both up at some double digits, together with a very promising start of the year for Polaroid. In the licensed portfolio, Tommy Figer, Kate Spade, Hugo Bost, all kept posting high single to double digit growth rates, while the brands that have entered our portfolio more recently, David Baker, Missoni, Isabel Marant, and other armors all soared, increasing their relevance in their respective reference markets. In quarter one, we recorded a significant pickup in demand in Europe, still mostly soft in the first quarter of last year, and a continuation of a strong momentum in our core markets in Latin America and in the Middle East. Our business remains solid in North America, where the good breadth of channels through which we are selling give us resilience and the ability to keep catching business opportunities. Our organic sales performance was driven by the strong, encouraging comeback of sunglasses, which had missed a chance to recover last year due to the restricted business environment in Europe at the time. And by another quarter of strong growth for sports, prescription frames were very resilient, continuing to progress everywhere and to support strong momentum in the core independent optician channel. In a business environment which is today more dynamic than a year ago, With retail operation mostly open, we are also pleased to report that also in quarter one, the online business nonetheless confirmed its relevance and continue to represent an organic growth driver up 9.4% at constant exchange rate. As said, new license were an additional significant growth driver. supporting the offset of the non-recurring sales from terminated licenses in the base period. We move forward in our portfolio overall strategy with the excellent debut in January of the Iowa collection of Carolina Herrera, D. Square, and Chiara Ferragni. The three new licenses we signed last year, and which have been already enjoying considerable market excitement, supporting us in the business expansion toward our consumer target groups. I stop here and hand over to Gerd for additional details on our quarterly performance.

Thank you, Angelo, and good evening to all of you. Let me add some color to the main highlights already provided by Angelo, starting from our net sales performance by region, commenting mainly our organic trends versus last year. North America, our biggest market, was totally up 0.9% at constant exchange rates against the challenging double-digit growth recorded in Q1 last year versus 2019. We are thus pleased by the resilience of the region, which posted a mid-single-digit organic growth up 5.5% at constant exchange rates. Returning to Angelo's point, today the strength of our omni-channel go-to-market strategy is paying off. driven by the double-digit growth of Smith, both in the specialized sports shops and online, through its direct-to-consumer channel, thanks to the brand's leadership in helmets and goggles, but also by its growing eyewear business, one of our key priorities for the brand this year, together with its international expansion. Among the other leading brands in North America, Kate Spade, Carrera, and Under Armour outperformed, standing out in the different wholesale channels. Blenders had a very solid and resilient start to the year, substantially confirming the extraordinary level of business recorded in Q1 of 2021 when its e-commerce sales surged by 79% versus the previous year. Moving to Europe, as said, we had a remarkable business rebound there in the first quarter. The region was up 16.2% at constant exchange rates compared to Q1 last year, with our organic growth standing at plus 24.9%. This is clearly a good start to the year for Europe and what we were waiting for after the softness experienced in the category last year. Our organic sales growth in Europe was quite broad-based across markets, very meaningful in the UK, France, Germany, and in Spain and Portugal, with the latter being in 2021 one of the countries most exposed to the slow-recovering sunglass market. This strong sales recovery was broad-based also across brands, with all of our own brands and key licenses recording significant double-digit growth rates, fueled in particular by their sunglass sales. The sound performance of Polaroid, up around 35%, is worth noting, as is the successful launch particularly relevant for the Spanish-speaking markets of Carolina Herrera. Q1 was furthermore another positive confirmation for our rest of the world markets, which kept growing their relevance as a percentage of the group's total business, standing at 8.5% versus 7.1% in Q1 2021 and 7.5% in the last full year 2021. After a very robust performance in 2021, the rest of the world grew by 27.3% at constant exchange rates compared to last year, plus 29.8% organically driven by the main constituents of the area, Latin America, where Brazil and Mexico continue to post significant double-digit growth, thanks in particular to Carrera, Polaroid, and Tommi, and the IMEA markets, thanks to the constantly improving business dynamics in the Middle East and India, with the latter returning to growth after many quarters of softness. In Asia and Pacific, our organic business performance was a positive plus 2.3% at constant exchange rates, mostly driven by the business recovery we recorded in Japan and Southeast Asia. On the other hand, business activities in the region remained constrained mainly as a result of rising COVID-19 cases and related lockdowns in Hong Kong and many Chinese provinces. Also leading to the cancellation of the Shanghai Optical Fair, the most important Iowa sector exhibition in Asia. In Q1, our total sales in the region declined by 9.3% at constant exchange rates compared to Q1 2021. Moving to the next slide. And summarizing what we have said on the dynamics of our sales performance by our three product categories, Sunglass sales recorded an organic growth of around 20% at constant exchange rates versus last year, as said, driven mainly by the European rebound, and to a lesser degree also by the continued growth in Latin America and the rest of the world. In Q1, organic sales of prescription frames grew by a very solid 5.2% at constant exchange rates, after surging by around 21% in the 2021 full year versus 2019. While our other products category, which is mostly sport products of Smith, recorded a plus 27.6% sales growth, following very consistently the plus 28% posted in the full year 2021. Moving down the P&L, In looking at how our positive top-line performance translated into the key catalyst of our economic results, gross profit was the main beneficiary of the volume growth already highlighted by Angelo, coupled with a positive price-mix effect. In the first quarter, we enjoyed a richer sales mix, mainly reflecting a positive brand-mix effect, also supported by a business which is now clean from phase-out revenues. Plus, we continue to benefit from the price adjustments taken in Q4 last year. These two levers continue to support us in countering the ongoing negative impact deriving from increasing transport costs and the now higher incidence of energy expenses. As said very meaningfully in quarter one, we progressed further with our structural cost of goods sold saving, achieving some additional 4 million euros almost fully driven by efficiencies on procurement activities. Finally, at the gross margin level, Forex was a headwind, having a negative 70 basis points impact. We closed the quarter with the gross margin at 55% of sales, an improvement of 460 basis points compared to the margin of 50.4% reported in Q1 2021. The progress was very meaningful also when we more appropriately measure it in comparison with last year's adjusted gross profit of €131.2 million and 52.2% gross margin, recording an increase of plus 18.5% in absolute terms and plus 280 basis points respectively. Below the gross profit, our selling general and administrative costs increased by around 15% in the quarter, mainly due to our higher investments in marketing and advertising given the more dynamic business environment compared to Q1 2021. On top, EDP expenses grew by roughly 2 million euros due to the recent inclusion of the costs no longer capitalized due to the application of the IFRIC standard on software as a service, related to investments in software that we continue to implement in line with our digitalization strategy and which were not yet recorded in the comparative period. These expenses then brought with them an equivalent reduction in capital expenditures. At the adjusted EBDA level, we closed Q1 with a profit of €32 million, up 23.8% compared to Q1 2021, while the adjusted EBDA margin increased to 11.3% of sales, improving 100 basis points compared to the 10.3% margin recorded in Q1 2021. As a reference, before the IFRIC SAS impact, the margin stood at 12% in Q1 2022. Finally, on the last KPI of the period, at the end of March, our group net debt stood at 109.1 million euros, or 68.9 million pre-IFRS 16, slightly higher compared to the 94 million euros, or 52.8 pre-IFRS 16, recorded at the end of December last year. The change was driven on the one hand by a positive cash flow from operations provided by our positive economic performance and, on the other hand, by the normal seasonality of the business in terms of higher working capital absorption, mainly due to the increase of trade receivables. On this front, I'd like to remind you that at the end of last year, our net working capital benefited from a stronger than expected cash collection which reflected for approximately 10 million euros anticipated payments from customers, a cash inflow, which therefore we did not have in this first quarter. This concludes our presentation, and we are now ready to take your questions.