Safilo Group S.p.A.

Good evening and welcome to the SAFRILO Group first half 2022 results. This call may contain forward-looking statements related to future events and operating economic and financial results for the SAFRILO 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 and related to a multitude of factors. Today's participants are Angelo Trocchia, Chief Executive Officer, Gerd Gressler, Chief Financial Officer, and Ms. Barbara Ferrante, Director of Investor Relations. I will now hand the call over to Mr. Angelo Trocchia, Chief Executive Officer. Mr. Trocchia, you may begin, sir.

Thanks very much, and good evening, good evening, everyone. and thank you for attending today's conference call on the Safilo Group's first house results 2022, including a trading update on the second quarter. We are pleased with the development of our business in the second quarter. Our strategic objective to build a software with a strong and balanced portfolio of brands, geographies, products, and channels is progressing well, supporting us in sizing opportunities where they arise. Given the complex environment which we continue to operate and the company-specific headwinds we still had to face this year, We are certainly pleased with our top-line growth, very solid at both the reported and organic level, with some clear growth engines which have well overcome some soft areas. And more than anything, we are today pleased with the market growth of our profits and the margin expansion which has come along with it. In quarter two, our total net sales grew 11.2% at current rates as Forex became an even bigger tailwind on the top line, adding almost 90 million euro and by 4% at constant exchange rate. while our organic growth, which is still to be considered our most meaningful KPI of revenue, was very subtly at plus 9.8% to be noticed after the 14.3% we posted in quarter one. This performance resulted in our H1 sales being up plus 11.8% at current rate, after adding a total around 28 million euro of positive foreign impact, but also at 6.2% at constant currency, and an important plus 12% at the organic constant currencies level. It is worth remembering that in H1 2021, our business had already exceeded pre-pandemic level, reporting the growth of 7.7% at constant exchange rates compared to the H1 2019. And it is an interesting data point that our H1 2022 is up around 15%. versus H1 2019 at constant currencies, with organic performance always calculated on a constant Brent perimeter up around 25%. In the second quarter, our gross margin increased to 56.5% of sales. which we consider a significant milestone on the path towards our goal to structurally improve the group's overall margin profile. This enables a virtual circle to improve profitability while at the same time reinvesting in marketing and advertising activities to further fuel the growth of our brand as we did also in the second quarter. This has brought our H1 adjusted EBITDA to 11% of sales, 130 basis points higher than in H1 2021, and 270 basis points higher than the 8.3 margin recorded in H1 2019. This semester is also a record period for our group, reaching an adjusted net profit of 33.7 billion euros, the highest net result in Sanfilo recent history in the first semester. And this is for us an important confirmation of the direction of the work we are taking to build a more and more profitable business at bottom line level. Let's see how our key business driver played out in these first six months affecting our organic sales. This year, Europe, our second largest region, has mounted back strongly, driven by the reopening of the economies and the return of local international tourists, thus becoming the group's key revenue growth driver. Our organic business instead remains substantially in line with last year in North America, where this year the pace of consumption has been, without doubt, more moderate behind the tougher economic environment in the United States. and the market where our sales were facing an even more demanding comparison versus Q2 2021, when we had posted a double-digit organic growth versus the pre-pandemic level of 2019. In Q2, we also benefited from the strength of our business in emerging markets, in particular Brazil, Mexico, and Middle East. which continue to deliver solid sales growth, while China remains impacted by the COVID-related lockdown. In terms of products and channels, in quarter two we saw a continuation of the key organic trends we recorded in the first quarter with the sales of sunglasses and the business of goggles and helmets for winter and summer sport activities remaining our key engine of growth. And prescription frames confirming the initial resiliency posting another quarter on quarter mid-single digit growth. At the organic level, sunglasses grew around 14% in the first semester, goggles and helmets plus 34%, while prescription frames increased by 5%. If we look from a channel perspective, we continue to benefit from the evolution of our multi-channel business model on one hand, fully sizing the opportunities provided in the period by the strong recovery of physical retail, and on the other side, continue to develop our online sales consisting of our direct-to-consumer business and the group sales via Internet Pro Player. which together grew by 6% at constant exchange rates also in Q2, confirming the share of our total revenue at a solid 14.4% in H1. And we continue to leverage on our diversified distribution network by also progressing with the development of our B2B platforms, including UN Syphilo in Europe, wholesale altogether grew by 12% in the first half of the year. Let me give you some color on how our brands perform in these first six months and how we are making them stronger and even more relevant for our clients and consumers. Let's start with Carrera and Polaroid, both confirming nice double-digit growth rates, also in quarter two, with Polaroid, which closed the semester back to the growth also versus 19, thanks to its strong, colorful sunglasses collection and to a new wave of well-orchestrated marketing and product placement activities, which are conveying Polaroid's strong brand equity in its core markets. Polaroid was certainly the brand most hit by the COVID-induced decline of the sunglasses market during the last season, and it was conversely the first one to benefit from the rebound of the product category in Europe, but also in Latin America, India, and Middle East, where the brand is developing fast. I'm sure some of you may have bumped into our new colorful Polaroid pop-up store in the train station in Rome, one of the busiest in the world with almost 500,000 passengers a day. Polaroid is there with its wide range of colorful eyewear for the entire summer season. And so far, the project has had quite amazing results, both in terms of visibility, brand awareness, and sales opportunity for the Italian market. Another very interesting project we recently ran with Polaroid was in Spain, where our brand was the sponsor of the Mat Cool in Madrid, one of the most important music festivals in Europe, with more than 40 international influencers who posted stories and content on the slogan, hashtag the sound of colors, reaching, along with live coverage of the official Polaroid account, more than 7.5 billion users. So the music is a relevant platform for the Polaroid strategy even moving forward. And let me say that while Polaroid is coming back with big time this year after Steel Complex 2021 for the Sun business, on the other hand, Carrera is having its second consecutive growth year, further accelerating on its very positive 2021 performance and growing around 30% or its 2019 business. And the recipe is quite simple for Carrera, strong sun and optical collection. Carrera is certainly becoming one of our core assets in the prescription frames business, very focused and appealing marketing advertising investment currently developed around the brand's notorious play of drive your story. Among Carrera's projects this year, I would like to mention its arrival in the MotoGP as official partner of Ducati team, launching an amazing 2022 limited edition collection to mark the start of the multi-year global licensing agreement for the development and distribution of Carrera Ducati co-branded optical eyewear and sunglasses. Let's go to Smith. Smith, another quarter of outstanding performance on this portfolio of sport and outdoor focused products. In its traditional sports stores, but more and more in its direct-to-consumer channel. As you know, Smith is today our biggest brand. Market leader in its reference product categories and still with the huge potential to grow by geography and product segments. to strategic areas on which, as you know, we are working relentlessly. Smith's current business has more than doubled compared to 2019, so we are indeed very happy about this success and how the great thing behind it is today working more and more with Blenders on the cross-fertilization project. Coming now to Blenders. The brand had a flattish start of the year, which was then followed by a soft quarter two, as the business context in North America has become progressively more challenging for pure e-tailers. On Blender, which is clearly running again its past two years of exponential growth rate, we are working on different levers. On the brand core D2C business, a key topic we are tackling in the U.S. is the diversification of the performance media mix. Historically, mainly Facebook-oriented, to other digital channels like, for instance, TikTok, with great success, connected TV, plus its international expansion in the English-speaking countries first. a project which today is to be running especially for Canada and Australia. As previously discussed, Blender is today also evolving its multi-channel business model by entering selected wholesale clients as well as by opening its first dedicated stores. There are four of them today with the objective to reach up to six by the end of the year. Coming to our licensed brands, also in quarter two, Boss, Tommy Hilfiger, David Beckham, Under Armour, Isabel Moran were outperformers, all posting excellent double-digit growth rates. With regard to our new launches, we are particularly proud of the strong demand for Carolina Herrera's collection, possibly one of the South Florida's best launches ever, a brand which is very meaningful for the Iberian market in Latin America, but progressing fast also in the United States, in line with the fashion house's core strategy. So this year, Carolina Herrera, together with the promoting start of Chiara Ferragni in this square, has given a valuable contribution to our strategy for a more diversified and balanced license portfolio. I stop here and I go over to Gerd for additional details on our economic and financial performances.

GERARDO FERRAGHIERI- Thank you, Angelo, and good evening to all of you. Adding, as usual, some color to the main drivers already highlighted. I'll start from our net sales performance by geography, our reported performance, and more importantly, commenting on our organic trends, which represents the performance of the brands fully comparable as present in both periods. That said, by market, starting with our key growth driver, Europe, 41.5% of our business at the end of the semester. grew 14.1% on a reported basis and constant forex, 22.7% organic, after another significant bounce back in the second quarter, respectively plus 12.1% reported and plus 20.7% organic, as the business context remained very dynamic, also driven by a significant return of local and international tourists, mainly from the United States and the Middle East. Sunglasses were the leading product category, rebounding by a strong double-digit growth rate in all key European markets, in particular in Italy, France, Spain, and Portugal, with Polaroid and Carrera being our stars, together with Tommy Hilfiger, David Beckham, Isabel Marron, and the new business of Carolina Herrera, as Angelo was saying, playing a significant role. Among the other markets, I would also mention Germany, which remained well supported by the good performance of the main internet peer players, as well as the quite meaningful sales increase we recorded in Turkey and Poland, where in the latter we opened a brand new subsidiary at the beginning of this year and a special focus on the development of our own core brands. It is worth noting that the European prescription frames business remained very solid, up by a high single-digit rate in the quarter, with the region representing, together with Latin America and the Middle East, the key growth driver of the product category. Business in North America, 45.3% of our total revenue in the first half, was up overall plus 7.7% at current forex, driven by the significant revaluation of the US dollar against the Euro. It was down minus 2.2% at the constant forex. On an organic basis, North America remained in the semester in positive territory, up 2.4%, reflecting the mid-single-digit progress recorded in Q1 and the substantial stability just highlighted by Angelo in the second quarter at minus 0.6%. We tend to consider this a reasonable performance given the double challenge the region faced on one side with the demanding Q2 2021 when we reported an organic growth of around 15% compared to Q2 2019 at the time, and on the other with a slower consumption pace in the United States behind a tougher economic environment. Smith was our strongest asset. in its core categories of goggles and helmets, followed by sound performance of Carrera by Boss and Hugo, Under Armour, and David Beckham. On the other hand, as already highlighted, the second quarter was soft for blenders and for some of our other local brands, which suffered the slowdown in consumption more. In H1, emerging markets represented the remaining 13.1% of the total business. Net sales in Asia-Pacific were down 8.9% with constant forks in the semester, minus 8.5% in the second quarter, with the business in Greater China remaining the main drag of the reported performance, due to the month of April and May having been heavily impacted by COVID-related lockdowns. In Q2, sales momentum was instead dynamic in a number of Southeast Asian markets, in Australia and in Japan, thanks to our ongoing expansions of brands such as Carrera, Smith, Boss, Kate Spade, and Levi's, which supported the whole region to record a positive organic performance of plus 5.9% in the quarter and plus 4.1% in the first half. As highlighted before, Latin America, India, and the Middle Eastern countries representing together the so-called rest of the world region and 8.7% of total group revenue were our growth engine over the entire H1, with the second quarter sales up a reported plus 24.9% at constant forex plus 26.4% organic. positive sales momentum continued into the second quarter in Brazil, Mexico, and other smaller Latin American markets, driven in particular by the strength of the key brands of the region, namely Tommy Hilfiger, Carrera, Polaroid, Boss, and Hugo. Similarly, our focused sales plans continued to be favored by a dynamic trading environment in the Middle East and in India. Two markets where sales were again very positive thanks to the significant progress of our core owned and licensed brands. Moving to our economic results in the second quarter and in the first half of the year, the solid pace of profit recovery we achieved in these last quarters is quite noticeable, with our growth and operating results growing at two to three times the rate of sales growth. In the second quarter, we hit a positive milestone in Safilo's recent history, certainly at the gross profit and margin level, as our sales growth continued to be driven by an increase of volume, a positive price mix effect provided by a richer brand assortment, largely absent of phase-out sales, and on the opposite, our new products and brands which lifted our price mix. plus the selected adjustments taken last year to start countering increasing input costs. These key top line dynamics, together with additional structural cost of goods sold savings for around 6 million euros in the first half, allowed us to more than offset inflationary pressures, as well as the ongoing Forex headwind, which diluted the gross margin by over 100 basis points in the second quarter. We closed the second quarter with the gross margin up to a meaningful 56.5% of sales, 420 basis points higher than Q2 of 2021, with the underlying improvement compared to last year adjusted gross margin having been of 280 basis points. In the first half of the year, our gross margin reached 55.8%, respectively 450 and 280 basis points higher than last year, on a reported and adjusted basis. Below the gross profit, we delivered a robust economic performance also at the operating level, notwithstanding the increase as occurred in the first quarter of selling general and administrative expenses by 13% in the second quarter and by 13.9% in the first half of the year. mainly driven by our now higher investments in marketing and advertising activities following the business peak season and the positive momentum of our key brands. The second quarter and the semester also continued to record higher EDP expenses following the impact in the P&L of software as a service investment projects under the new IFRIC agenda, the equivalent of which in Q2 and in H1 of last year was still being capitalized. The IFRIC SAS impact accounted for 1.8 million euros in the second quarter and a total of 3.7 million in the first half of the year and reflects the ongoing investment in SAFIDO's digital transformation. At the adjusted level, we closed the second quarter with an EBDA of 30.6 million euros, up 28.5%. while the adjusted EBITDA margin rose by 140 basis points from 9.2 to 10.6% of sales or 11.2% if we exclude the IFRIC SAS impact. This resulted in 62.6 million euros of adjusted EBITDA in the first six months of the year, taking our adjusted EBITDA margin to 11.11% of sales or 11.6% excluding the above described IFRIC impact. 130 basis points or 190x IFRIC higher than last year. In H1, our adjusted EBIT stood at 39.2 million euros. The margin grew to 6.9% from 4.8% in H1 2021. We ended the first semester with a record adjusted group net profit of 33.7 million euros. which represents an exponential increase compared to the 4.4 million euros recorded last year. Below the operating profit line, we recorded three positive dynamics. First of all, a significant reduction of net financial charges from 11.6 million euros to 2.7 million this year, thanks to the share capital increase undertaken last year, which more than halved group net debt, plus a net positive impact of 3.4 million euros from exchange rate differences, compared to a net negative of €0.9 million last year. Second, in the semester, we had a gain of €8.7 million for lower liabilities for put-and-call options on non-controlling interests, mainly due to the increase, which occurred in January of this year, of our controlling stake in Prix de Revaux from 64.2% to 82.8%. Third, our effective tax rate was this year of 26.7%. Moving to our cash flow and financial performance, at the end of June, our free cash flow equaled the cash absorption of 14.5 million euros compared to the absorption of 4.8 million euros recorded in H1 of last year. The cash flow from operating activities was slightly negative. by 3.6 million euros, reflecting on one side the significant improvement of our economic performance. We had in fact a positive 52 million euros of positive cash flow from operations before the change in working capital, and on the other, the absorption from net working capital, which was driven entirely by a strong and seasonal increase of trade receivables while the dynamics recorded by the other key components of working capital, a slight increase of trade payables and of inventories, offset one another. It is worth remembering that while cash collection remained strong and healthy during the entire semester, the activity of the period could not count on around 10 million euros due to some anticipated payments from customers at the end of 2021. In terms of CAPEX, the semester saw a cash flow from investments of 6.2 million euros while the cash payments for the principal portion of lease liabilities IFRS 16 equaled 4.7 million euros. Concluding with the group's net debt at the end of June, this stood at 105.6 million euros or 63.5 million euros pre-IFRS 16, slightly better than the 109.1 million euros recorded at the end of March and around 11 million higher than the 94 million euros recorded at the end of December last year. Very briefly on the key components of the net position, gross debt equaled 184.2 million euros, of which around 42.1 million was the IFRS 16 impact, 107.6 million the term loan facility guaranteed by SACE, and 34.5 million euros the term loan facility signed in 2018. We then closed the semester with a cash position of 78.7 million euros. I stop here and I hand over to Angelo for his further remarks on the business evolution and further actions.

Thanks, Gerd. Our first half of the year was solid on the top line with some clear growth engine. and even more so on the bottom line, where we were able to offset not measurable headwinds, well surpassing last year's results, when we had, as a matter of fact, already exceeded 2019. These results, coupled with our visibility in the current quarter, which is still suggesting top-line growth driven by Europe and the emerging market just discussed, and North America remaining stable at the organic level, give us confidence to confirm that already in 2022, we will reach the economic target set forth in the 2024 business plan, which envisaged around 1 billion of sales and adjusted the BTDA margin between 9 and 11% in 2024. Under the assumption of a reasonably stable economic and business environment for the rest of the year compared to the current scenario, where numerous macro headwinds persist, including strong inflationary pressures and their related impact on consumption, COVID-related restrictions and the conflict in Ukraine, we now expect full-year 2022 net sales to grow mid-single digit at constant exchange rates compared to 2021, and the adjusted EBITDA margin around 10% up from the 8.4% recorded in 2021. Our aim is to provide an update of our medium-term economic and financial targets in the fourth quarter. Before concluding our presentation, I would like to say that we are proud to have just joined the Fashion Pact, a global coalition of companies in the fashion and textile industry. including their suppliers and distributors, all committed to a common core of key environmental goals in three areas, stopping global warming, restoring biodiversity, and protecting the ocean. Becoming a signatory of the fashion park is part of our purpose-led strategy based on three sustainability pillars, planet, product, and people. And it represents a further step confirming the group's commitment to develop projects and initiatives that address the global challenges of tomorrow in the areas of climate, oceans, and biodiversity as per the fashion pack mission and priority. So this is another meaningful step forward in our sustainable journey, which takes the bar higher, giving us an additional opportunity to make the difference for our planet in collaboration with many outstanding companies, as you can see in the slide showing the other signatures of the fashion pack. Last week, we further asserted our business commitment and effort to bring more recycled material to the hardware industry, announcing the introduction of Eastman 10-Add Renew in our sunglasses and prescription collection, becoming the first player in the market to use all Eastman Renew materials for hardware across all types of application and production processes. This concludes our presentation, and we are now ready to take your questions.

Excuse me, 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 1 on their touchtone telephone. To remove your question, please press star and 2. Please pick up the receiver when asking questions. We will pause momentarily while participants join the queue. The first question is from Tom Nass of Cohen & Company.

Hi, Tom. I'm for Oliver Chen with Cohen & Company. Congrats on a strong first half. Two questions for you. First would be, since we enter into a sustained global recession, how would you highlight your promotional strategy going into the second half and maybe some color across regions and brands?

Okay.

I mean, I think that, do you want us to answer right now or do you want to ask the second question you had?

You can go ahead and answer now and I'll follow up with the second question.

I mean, I think the way that we are looking at this is really through the lens of a well-diversified portfolio. So we have a brand portfolio that goes across, you know, all the segments and all the various price value positionings in the market and And then we have a very broad portfolio in terms of geographies, as you may have seen, along with, I think, also an interesting channel portfolio. So we believe that with this diversified portfolio, we should be able to invest in a way and in places where we can have the best response from the consumers. So looking at DH2, we see Europe performing very strong in the third quarter, and we do expect that this will continue also throughout the rest of the year. And we see the same in Latin America. And in EMEA, while we are hoping that in China, especially in the second half, we may also have a rebound of the consumption. So these are certainly places where we will continue to invest, but when I say invest, to invest in the marketing and advertising of our brands. In North America, I think we're seeing a little bit more tough economic environment, but the dynamic there is that the more upper part of our brand portfolio is doing well. We're seeing good results on brands like Hugo Boss and Carrera, on Marc Jacobs and so forth, so we will continue to invest there, but we will be ready to shift in case the American consumer over time perhaps may be more enticed by the more value end of our brand proposition. So I think we're going to invest in a very targeted way, depending on which brand country channel combinations are the most promising. And maybe I should say that we do expect, especially on Smith, which is our sport channel proposition, both in the sports channel trade, but also on the e-com, which represents more than 20% of Smith sales, we see a very good consumer reaction at the moment, and that's another brand that we'll keep on investing for the rest of the year and for the key winter season.

I'd just like, if I can add, to stress what Gary was saying. I think today the good thing is, first of all, we have a very, very tight control on what we try to read the signals from the different markets, but I think one of the big advantages we have, which is both in terms of brands, we can really cover different consumer needs and complete different price positions, which gives us the flexibility to really understand what is happening and react. And also we cover in a more balanced way different geographies. So in reality, last year we had a huge rebound in the U.S. where Europe was a little bit behind. This year we have a rebound in the U.S., and we have a little bit of slowdown in North America, and still China next year can be positive. So I think today the big advantage of Saffilo is to have a broad portfolio of brands which cover different price position means also different consumer needs. And on the other side, we can play on the geographies according to what we see the dynamic is going to be. So I think this is a big advantage of the Saffilo today and on how also we are running the business within a clear framework but with quite a flexibility to turn the investment and the priorities and the focus according to the dynamic, which is going to be different country by country or at least region by region.

Great. Thank you for that additional color. My follow-up question would be regarding the decision to join the Fashion Pact. Are you able to add some additional highlights here on what this could mean for financials? Say, how should we think about relating this ESG strategy to COGS or gross margin?

Well, I would say, I mean, the Fashion Pact is an important further step on the way. We've been obviously engaging in sustainability reporting for for a number of years now. This year 2022 focus for us is to really establish the comprehensive data set that we need to meaningfully improve, let me say our ESG footprint going forward. So we're working hard on establishing scope three emission tracking, and we're working hard on establishing a proper life cycle assessment for our portfolio of brands so that we have a good baseline. to then, based on the Fashion Pact, which is obviously then a science-based target initiative, which will then also set goals that the Fashion Pact members would sign up to over the coming years, having that set of data, we can then also formulate coherent strategies. As Angelo was saying, we're working more and more to bring sustainable materials into our portfolio. We have already today. more than 400 models that are made based on recycled or sustainable materials, partnering a lot with companies like Eastman, as we were saying. And I think that is something that we are going to expand on. So I can't quantify today what will be the exact impact on the gross margin or on the OPEX going forward, other than that we are putting focus there and we're putting capabilities to expand it. and eventually clearly expecting that also the consumer will appreciate those kind of things.

Yeah, I don't think that we can translate immediately, I mean, what we are doing with the growth margin, but by sure, more we will be serious around sustainability, which is a journey, it's not something that you do in one year, more we will get close to a part of the consumer which are becoming more and more sensitive to this kind of topic. So I don't think it's so much an issue of gross margin, it's more an issue to say to get more relevant, become more relevant for some of our consumer and then make our brand more stronger, stronger, stronger. I mean, the fact that we have already today 400 SKU on some brands based on the recycle or sustainable material is going to be an advantage. It's going to translate in a short-term gross margin difference, not at all, but by sure it's going to position our brand, it's going to position Safilo in the eye of the consumer in a strong way. So in the medium term, But sure, we will have a return behind these activities. I'm sure of that. Polaroid, we have a sustainable collection. It works well. We have a lot of positive feedback from the consumer, especially in some regions. In Europe, for example, we get a huge attraction from the Nordic countries where these kinds of topics are important. are more strong. So, yes, I mean, the measure for me is not the gross margin assured, but by sure we have customers which are calling us. There are customers which prefer to put our collection on the shelf compared to some of the collection of the competitors. And then in the medium term, it will translate in stronger brand and then strong positioning and then, again, strong business and profitability.

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

Yes, thank you. Good evening. I've got two questions. The first one is on prices. Can you tell us the actions done in pricing this year and what are you planning for next year? And how long do you expect to be able to sustain the price increase without seeing a drop in demand? The second question is on M&A. What kind of deal should make sense for Safilo now? And do you see now opportunities considering the current market condition and also the price tag in recent deals? Thank you.

Let me take the first question on the pricing. Let me say that what is always important for us is that we are seeing the price mix effect to come on top of the positive volume effect, and we have been able to see that both in the first quarter and in the second quarter so far. of this year, which means that we are not only benefiting from a higher price mix, we're also transacting more in the market. What has helped us this year, as we were saying, is clearly that we have a richer brand mix. I mean, we don't have exit business anymore as we had last year. We have launched new collections on new licenses that are coming in accretive, and we are seeing upswing on some brands like Polaroid. that have accretive gross margins. We have taken pricing interventions in the second half of last year, which are clearly benefiting us in the first half of this year as well. We're always focused on trying to bring pricing together with value so that we are also giving a richer brand proposition, if you wish, to the consumer. In our industry, the good thing is that there's a very high rate of innovation, so there's a lot of new styles, a lot of new models that are coming out with a new collection so that we can use also this innovation type of pricing in order to bring new products to the market. We will remain vigilant on cost and input inflation. We are clearly seeing logistics costs to remain quite high. We are seeing, let me say, starting to see some moderate impacts from energy costs and we're going to keep monitoring. We're going to keep monitoring those dynamics and if it is necessary, we will then consider potential future. implementations or adjustments, but at this moment I think we are satisfied with where we are at with the actions taken. On the M&A, I mean, right now, let's say we are certainly actively looking at the market. There is nothing that today would be, let me say, of discussion grade in terms of specificity But we are actively looking at the market in principle. Yes, it's true that when there are downturns, sometimes new opportunities crystallize themselves out. I think we're quite looking at objects that would give us a meaningful complementarity, a meaningful fit to bolt on to our company rather than big transformational things. So we are more looking into that direction. but we don't have anything right now to share further.

I don't know, Angelo, if you want to... No, I think on the M&A, obviously we are... It's an important stream of all our work, but we know quite... in a detailed way what is happening there, what are the potential targets. Let's see what is happening with the new economic cycle. I think we have clear priority which is brands which are going to add on our Smiths, blenders, Carrera, Polaroid, and Prevarivoso. We know which kind of brand that we're looking for. But on the other side, to be honest, we are also not ready to crazy overpay. So we need... We have... We're very focused on M&A, but we are not ready to overpay because that should not be happy for our P&L. So we are very... ready for that, but let's see what is going to happen in the next month. But we have a very clear idea which kind of target we feel can reinforce the Safilo portfolio.

Okay, thank you. The next question is from Cedric Rossi of Brian Garnier.

Yes, thank you. Good evening Angelo, Gert and Barbara. I have two questions. The first one is coming back on the North American performance. So I heard your explanations and the cautious outlook you have. But could you also give a view on the outlook by channel between independent opticians and chains and digital? I was curious to have your view on that for the second half of the year. The second question on North America is also, I know that you are not in the retailing activity or at least it's very small, but do you have an estimate of the percentage of your business that is covered by insurances? Because we see that it could be also a resilient business for the second half of the year. My second question is on the sports products or an amazing performance in H1. So I was curious to have your view on what are the main drivers behind this strong growth. Is it the category enlargement you alluded to in the past that is now working? And my third question is on Carrera. So I know that in the past it was a structural issue to increase the share of the prescription business. It seems that now you are really surfing on that trend. So I was also curious to have your insight on what have you changed in the go-to-market strategy or in the way you communicate on Carrera to drive this prescription business. Thank you.

Yeah. Okay. I start with the first two. So I think in terms of North America, there are two dimensions I think that are relevant. One is looking at it through the lens of the portfolio, as I was also alluding to previously. So we do see that the premium part of our portfolio is holding up quite better than the value part. And when I mean quite better, it's growing, of course. And I think this is encouraging. And this we see across the channels, let me say. And perhaps it's a bit of a reflection of what is going on in the market right now, also reading a bit the commentary that other players have been discussing in the previous days and weeks. So I think there's a portfolio driver within the eyewear. From a channel perspective, what is doing extremely well is everything related to sport. And I think Angela will comment a bit later on Smith. So Smith is booming and gaining market share. be it in the wholesale of Smith, so the sports trade, as well as in the direct-to-consumer. So that piece of the D2C is doing very well, while in the other areas of the market, we are seeing the slowdown in the independent opticians, in the second- and third-tier retailers, and as well in the department stores. So we are feeling it there, but I think at the moment it's more a portfolio situation and brand positioning topic rather than the channel-specific topic. On the coverage by insurance, I mean, I don't think that Safilo would differ very much from the overall market, let me say. So probably somewhere between 50% and 60% of the business would be somehow impacted by the insurance. which is in principle a good thing. Then I think we have Smith.

Yeah, I mean, I think for me, we have been looking to these angles already three years ago when we have been looking to the market, looking to different kind of lenses, you know, optical sun, but we've been also looking to women and we've been looking with sport outdoor. So we've been trying to look to the market with different kind of lenses and then understand how our portfolio could have been played, which kind of role our brands could have been playing there. So if we park for one second women and we go to sport outdoor, obviously, Smith was a brand already placed correctly there, but historically was a brand which was mainly snow. So one of the strategic shifts was to say there was a trend there, which is still here. Obviously, cannot keep growing at the rate that is growing, because then it would be impossible, which is cycling. So we've been really... say, okay, sport outdoors is by sure a great market. Let's open up. It's not only snow, it's also bike. So we really went into bike heavily. And so snow, bike, and a little bit of leisure, these are the reasons behind the growth of Smith. This was one first point. Second point was more looking with the channel. I think that We have been able, or we are able, there's always area to great improvement, but to balance and let work the two-channel wholesale and D2C, because I think that The new reality is that wholesalers and D2C should not be seen like one in conflict with the other. It's the opposite. I think that if you do a great job on D2C, the wholesale will gain. If you do a good job in wholesale, D2C gains. So we have changed completely the organization before it was a very channel, vertical organization to really an organization which is running and managing wholesale and D2C as one organization. powerful way how to grow it. So behind Smith, two things. So get on top of snow, add bike, and really managing the two channels, not as one in conflict to the other, but one as the accelerator of the other. So Smith is in the perfect position to catch this position, to keep surfing the growth. Obviously, in the future, we cannot think that that market is I think that market will keep, by sure, growing. Obviously, it cannot keep growing at the pace which has been growing in the last two years, but by sure, it's a great business opportunity. Going back to Carrera, I think Carrera is a difficult brand, but on the other side, I think it can be a huge brand. It can sound a contradiction what I'm saying. It's why I'm saying it's a difficult brand because it's a brand where it has a strong heritage on the sport dimension in Europe, less in North America, and it's a brand which has two kinds of nature. One is sport, one is fashion. So I think with the work we are doing now, cleaning up the portfolio, cleaning up the strategic framework, we try to manage these two dimensions that we call active and fashion in a specific way according to the country. So we are very clear that there is a strategic direction for Carrera, which is working, we see that it's working, but then we retune this strategy according to the country. Just to give an example, in some countries it's more relevant the fashion dimension. Take an example, France. or in some other countries, more relevant, the active dimension, take Spain and Latin. So I think that Carrera is a difficult brand to manage, but looks like We found the right platform and can be, I believe, can be a huge opportunity. Also because it is a brand which is now, it's really balanced, which can sound strange, between sun and prescription. So this gives even an additional opportunity to the growth opportunity of Carrera. So Carrera, difficult to manage. It has to be managed very careful. I think we are now catching the right opportunity. the right platform and I'm sure that we will keep seeing the growth behind Carrera because the potentiality of Carrera, you know, the competitive arena of Carrera can be really, really huge. So we have hired new marketing team. We are building strong, strong marketing team both behind Carrera and Polaroid. We are pushing on having a little bit different kind of communication but I think consistency, focus, and clear marketing strategy, this is what is behind the number of Carrera. But I think, honestly, we are just at the beginning on Carrera. It can be a huge brand.

Thank you.

The next question is from Domenico Ghilotti of Equita.

Good afternoon. A few questions on... first half or second quarter results. First on the price and volumes contributions. Can you give us a sense of how much was the price mix driven and how much volumes? And the second you mentioned is the premium versus value on the North American markets clearly having different performance. Do you see a similar situation in Europe or not? And last question or at least a couple of questions additionally on the results. So how much today is the contribution of the house brands? Because you are mentioning really big brands, big house brands have been performing very strong. So I wonder what is the level that has been reached so far in terms of sales. And last on the effects, did you have any... relevant contribution on margins from FX, so gross profit or EBITDA, any impact from the FX? And my very last question, maybe I will follow up with a broader question later.

Okay. I take the first one. So on the price and mix, we can say that in the first semester we had more or less half of our organic growth was volume and the other half was currency. So we had volume and the other half was price mix, sorry. So more or less equal contributions. On the house brand contribution to in terms of percent of total sales slightly above 40% in the semester on the foreign exchange, In terms of relevant contribution to the margin, we commented that we had about just over 100 bps negative on the gross margin level, and we've seen, you know, a dimensionally similar slight dilution also at the EBDA level. So it's not been a positive contribution, but a slightly negative contribution.

And I leave to Antje on the... I answer on the premium versus value. Now, in this moment, we see a different dynamic between North America and Europe. To be honest, we see this divergence more in North America. So the premium working well, the lower bid suffering. We don't see this effect in Europe where, to be honest, our brand portfolio is performing well both on the premium side and on the lower bid. So currently the dynamic between North America and Europe is on terms of price position or price segmentation is quite different. And to be honest, the dynamic in North America, we don't see neither in the other part of the world. So it's specific for North America at this moment.

Okay. And my follow-up question is a broader early stage consideration on 2023 in the sense that Clearly, you have more flat issues in North America on tough comps, and you have Europe this year recovering a lot, so regaining performance in a tough macro, so tougher macro both for Europe and North America. We are entering 2023, in which basically we'll have, say, more normalized base also for the European markets. region and the macro and the cost inflation will probably remain quite tough. So I wonder if you see what are the levers to growth also in 2023 when the macro is tougher for both regions and the comparison is less easy in Europe.

I believe it is a topic, I mean, obviously there are two dimensions. One is cost and one is consumer. I think I believe we should keep investing behind our brand because at the end, the winner is going to be the brand which is going to be more relevant toward the consumer. I think I was mentioning before, I believe that our portfolio has this big advantage today that we can really cover different price position and different consumer need. I think this So for me, it's keep investing behind our brands. The more we have stronger brands, the more we will be stronger in the eye of the consumer. And as I said, both in North America and in Europe, I think now our consumer can answer to the different dynamics, which, to be honest, today, we don't know exactly what the dynamics are going to be. But I think we will manage to keep investing behind our four or five crucial brands that we have which tackle different consumer and different price positions. So that is for me the way how to get out. On the other side of the customer, I think thanks to all the work that we are doing with the customer, I believe it's going to be even more crucial than in the past. It's a little bit like during the COVID time, you know, to be very, very tight, to be hand in hand with our customer. Our customer, I imagine they would get a little bit nervous, so the more we work close together, the more we can take a shared space. So I think that we will apply what we have applied during COVID, be very, very close to the customer, now even more than in the past, and being very, very focused on investing on a couple of brands which can answer to different dynamics on the consumer behavior. Then, you know, I think no one of us really knows what's going to happen, but I think we are very clear what are the levers that we need to be playing. And I believe that already the quarter one will tell us something on, you know, what's what is going to happen in North America, what is going to happen in Europe. And the trick would be to react very fast to what we see as a dynamic. And the fact that in this year we've been now becoming More sophisticated on data, we have now a full visibility, constant visibility, daily visibility by minutes on what is happening by brand, by customer, by sub-region, mainly in Europe. That can give us a huge advantage. tool or huge advantage you know to react fast on what we are going to see i believe it will be crucial the quarter one you know to see how the customer is going to to react to the new environment and how eventually the consumer is going to adapt his his consumer behavior okay and how much are you investing for example in the first semester in marketing compared to last year

We have invested about 25% more, but this includes the currency effect. So I think on a constant currency basis, we're talking about a point and a half of net sales in terms of incremental marketing investment.

Okay. Okay. Thank you. Thanks.

The next question is from Alex Apostolidis of Barron's.

Yeah, just two questions regarding inflation. I think you had guided about 200 bps of gross profit margin pressure that you're seeing. Can you maybe give us a sense of what that will look like for the full year, if it's gotten worse or better? And the second question related is, can you give us a sense of what sort of price increases you passed through last year? My understanding is you haven't passed any more this year because those are sufficient, but can you maybe give a sense of the magnitude of that? And that's all I have. Thank you.

Okay. I think in terms of gross margin pressure, so we expect that in the second half year, we will continue to see logistics costs representing a headwind. We are seeing it ease a little bit in the last months, but clearly it depends a bit on the overall on the overall market solution, but I think that we should continue to see pressure. We should continue to see some pressure there. But I don't think it will necessarily get worse. On the other hand, I think that we may see a little bit more negative effect from the energy cost side. Again, we haven't seen a material effect, but I think we're all curiously or nervously awaiting what will happen with the gas and the heating in the coming months. So I think that these input costs, they're going to remain headwinds, less so for us the labor cost, honestly, because we have so much of our sourcing from Asia and the inflation is much less of a phenomenon in Asia than we see it in Europe and in North America. So I think these headwinds They will stay there. We have taken price adjustments, be it through lists or through innovation, in the second part of last year, which are clearly helping us so far, and we will continue to do that. I don't want to give specific numbers, but let me say they will have been reasonable in terms of being absorbed by the consumer. This is why we're also not seeing a negative elasticity so far.

Thank you.

Mr. Rante, gentlemen, there are no more questions registered at this time.

Okay, so thanks very much for all of you, and thanks for the question, and have a nice summertime. Thanks very much indeed. Thank you.