Safilo Group S.p.A.

Good evening and welcome to the Safilo Group's Q3 2022 Trading Update. This call may contain forward-looking statements related to future events and operating economic and financial results for the Safilo Group. Such forecasts, due to their nature, imply a component of risk and uncertainty due to the fact that they depend on the occurrence of certain future events and developments. The actual results may therefore vary even significantly to those announced in relation to a multitude of factors. Today's participants are Angela Trocchia, Chief Executive Officer, Gerd Gressler, Chief Financial Officer, and Barbara Ferrante, Director of Investor Relations. I will now pass the call over to Mr. Angela Trocchia, Chief Executive Officer. Mr. Trocchia, you may begin, sir.

Hi, so good evening, good evening everyone, and thank you for attending today's conference call on the Southfield Group's third quarter 2022 trading update. Following our comments at the beginning of August, we achieved a positive exit to the third quarter, driven by the strength of our new collection, the investment behind our brand, and a continued effort to increase the brief of the services we offer to our clients. And our strongholds were backed by a business environment which remained broadly supportive, driven by a strong and busy summer season. This has allowed us to bring home another quarter of top-line growth and further expansion of our profits and margins, keeping us on track with our goals. Looking at the key performance indicator of our quarter three, total net sales grew by 14.9% at current exchange rates, thanks to the solid pace of growth posted by the organic business, up 5.6% at constant exchange rates, and further boosted by an even bigger tailwind provided by the strong U.S. dollar. On the bottom line, in quarter three, we posted another double-digit improvement of gross profit and of the adjusted EBITDA, with also the margin increasing over the same period last year, respectively reaching 53.8% and 8.7% of sales, despite still adverse inflectionary developments. Results were predominantly a continuation of the market trend and business driver we saw in the recent quarters, with sales momentum remaining very supportive in Europe and in the main markets of Latin America and the Middle East, and the North American market holding up. versus another tough comparison base, as well as being constrained by some logistic delays in the shipment of the sport products. On the other hand, the period benefited from the first significant sales rebound in Asia. Quarter three was very much again a period of growth for sunglasses sales, which remained our best performing product category, up by 7.1% on an organic basis, backed by one of the hottest summer season in the years, and blessed by the significant return of tourists. But also another quarter of solid performance of our prescription frames business, which increased by 4.6%, on an organic basis. Quarter three, continue to see the return of consumer to stores, giving us the opportunity to further push the development and the adoption of our B2B platforms, increasing the business for the European platform by approximately 40% in the quarter versus the same period of 2021. Our total online sales, consisting of our direct-to-consumer sales and the revenue we manage through Internet Preplayer, were up low single digits in quarter three and up mid-single digits in the first nine months, making up for around 14% of our total net sales. In the third quarter, the strength of our brand portfolio was again confirmed by Carrera, Polaroid, and Smith, which together with our other property brand represent around 41% of our year-to-date sales. Carrera and Polaroid continue to post remarkable double-digit growth, while Smith recorded a more moderate growth than in the previous quarter due to the late phasing of some deliveries I've just mentioned before. As for our licensed brand portfolio, Tommy Seeger, Hugo Boss, David Beckham, Under Armour, and Isabel Maran were the other consistent drivers of our organic growth in this first quarter. whereas the new license, in particular Carolina Herrera, provided excellent additional support to our further development in specific geographies and consumer segments, and in offsetting the sales made last year with some of the discontinued brands. In the quarter, our new collections and marketing campaigns to continue to be among our key enablers as we remain focused on product innovation and on campaigns of great impact and visibility. Let me share with you some of our most meaningful activities which shaped our business in the period. Carrera enjoyed incredible social media and fashion press coverage with the globally recognized Brazilian pop star, Anitta, wearing the Carrera iconic style in her new music video lobby, which achieved more than 8 million views on YouTube. Quarter 3 was also an intense period of product and marketing activities dedicated to the Carrera-Ducati partnership. A 360-degree collaboration from the race track to lifestyle, from sponsorship to product, supporting the amazing team that over the last three years has proven to always be at the top of the world's post-popular motorbike championship, winning the MotoGP. Moving to Polaroid, the quarter of Polaroid saw the launch of its back-to-school campaign, a very significant product and marketing initiative which confirms Polaroid as a strong brand, ambassador of our approach of sustainability, bringing together the strong commitment on green product, making its optical collection 100% sustainable thanks to the use of bio-based material and recycled metal. and its colorful and joyful effort to promote and support eye care for children. The campaign is still on air on the PolaroidEyewear.com website. I think you can have a chance and enjoy it. If we move to Smith, in August, Smith launched a new eyewear campaign off the back of some great new eyewear release early in the year. Your life is what you focus on. is a dedicated campaign focusing on both sun and underage eyeglasses, which represents an evolution of Smith's commitment to help people see the optical path with clarity, and it features some of the Smith's top athletes showing their passion not only for sport, but also for life. The campaign has reached over 600,000 views on YouTube. In September, Blenders announced an exciting new partnership with Oracle Red Bull Racing, officially kicking off at the Pirelli Gran Premio d'Italia in Monza. Blenders has thus become an official sponsor of the Oracle Red Bull Racing team, launching from next spring 2023 an exclusive collection of Oracle Red Bull Racing sunglasses globally. So another meaningful partnership giving blenders an additional opportunity to strengthen visibility and engage with new consumers. I stop here and hand over to Gerd for additional details on our economic and financial performance. Gerd?

Thank you, Angelo, and good evening to all of you. Starting from our top line, I would just like quickly to highlight that this positive sales momentum recorded in Q3 allowed us to confirm a very solid progress in the first nine months of the year, with sales reaching €831.3 million, up 12.7% at current forex, plus 5.7% at constant forex, and plus 9.9% at the organic level. Following the introduction by Angelo, let me quickly build on our top-line performance by geography. In Europe, our business remained very positive in Q3, with net sales growing by 15.5% at current forex, driven by the group's solid performance in prescription frames and the continued rebound of sunglass sales favored by the strong summer season and the significant flows of local and international tourists. In Europe, we recorded another organic performance at a robust plus 8.1%, which was also broad-based by brand and by channel. in this case with the only exception of Grand Vision, which declined, although the drop is expected to become more visible starting from Q4. We had another excellent quarter for Polaroid and Carrera, and also for some of our main license brands, while the new licenses we introduced this year in the portfolio provided the region with an additional growth of around 6 percentage points, which we consider a significant indication of the successful renewal of our brand portfolio. Italy, Spain and France remained our best performing markets where sales activities were very dynamic and we continued to grow nicely also in Germany as we kept building stronger partnerships with some of our key accounts in the market. Q3 also confirmed positive momentum in some Eastern European countries, namely Turkey and Poland where we have more recently started to invest. Staying on our main geographies, in Q3, our sales in North America increased by 8.4% at current exchange rates, thanks to the further strengthening of the dollar against the euro, which occurred in the period, while at constant exchange rate, the organic business remained slightly negative by minus 1.2% versus, as said, another tough comparison base last year. As a reminder, Q3 2021 grew by around 20% compared to Q3 2019 at the organic level in the region. I would say that in Q3 the U.S. business environment was characterized by some consumer spending shifting to Europe as U.S. tourists took advantage of the stronger dollar during their holidays as well as the overall resilience of the higher price segments. In the period, in fact, on one hand, we continue to register positive momentum in the upper part of our brand portfolio while seeing a softer trading on the lower price segments. On the other hand, as anticipated by Angelo, Smith's growth in his sports shops was more moderate than in previous quarters, temporarily held back by some logistic delays in the shipments of its winter helmets. The brand should see a rebound of its growth momentum in Q4 this in its core sports product segment. In Q3, Smith's online business was positive, while Blender's was still softer than in 2021, but turning positive in the month of September on a less demanding comp base, as it did also in the month of October. Moving to emerging markets, as already highlighted, business in the rest of the world remained very dynamic, also in Q3, showing a double-digit growth of 36.9% at current exchange rates versus last year. During the period, Carrera, Polaroid, and some of the group's key licenses were again the key brands contributing to the positive organic performance of the area, equal to plus 13.3%, with the strongest sales trends in the period having been recorded in the Middle Eastern market, and by India. Organic sales were also very solid in Latin America, where the growth of the two key markets, Brazil and Mexico, were further boosted by the new business of Carolina Herrera, a strong brand with which to pursue the additional development of these countries. And finally, the performance of our business in Asia and Pacific improved quite markedly in the third quarter, For the first time in the year, recording a significant recovery over 2021, the region was up 43.3% at current exchange rate and by 46.1% at the organic level, driven by all the key brands we are focusing on to ensure current sales and future growth of the area. In the period, our key licenses remained the main growth drivers in Southeast Asia, while Carrera and Smith posted a strong progress in Australia. Q3 was a period of recovery also in China, where September was a month of fewer COVID restrictions, but as we have been learning, this is an ever-changing topic and policies are still very stringent there. Moving down to P&L, our economic profile improved also in this third quarter, again driven by the growth and increased profitability achieved in terms of gross profits. Key driver of another growth quarter of year-on-year expansion of the gross margin were again on one hand the positive evolution of the top line in terms of price mix effect while on the other some further structural cost of goods sold savings taking the ones achieved since the beginning of the year to 8 million euros and to a total of 22 million euros including last year's now very close to the substantial completion of the COGS saving program related to the 2020 to 2024 Group Business Plan. As in recent quarters, our tailwinds effectively countered a number of headwinds. In this quarter, we were more meaningfully impacted by the surge of energy costs, while we continued to register a dilutive effect of currencies on margin, given our current supply chain footprint. On the positive side, starting from Q3, Transport rates, mainly sea freight, have been decreasing quite materially from the peaks earlier this year. That said, we closed Q3 with the gross profit up 18% versus last year, and the gross margin at 53.8%, 140 basis points higher than Q3 2021, while the underlying improvement compared to last year's adjusted gross margin was of plus 60 basis points. Finally, in the first nine months of the year, our gross margin stood at 55.1%, respectively 340 and 210 basis points higher than last year on a reported and adjusted basis. Below the gross profit, also in Q3, selling, general, and administrative costs increased as a result of higher marketing investments in our brands to support the business growth over the summer. and due to the impact related to software as a service investment projects under the new IFRIC agenda, the equivalent of which in Q3 2021 have been capitalized. Such costs, which reflect our ongoing investments in digital transformation, equaled €1.8 million in Q3 and a total of €5.5 million in the nine months to September. At the adjusted level, Q3 EBDA reached €22.6 million, up 18.6%, while the EBDA margin rose by 30 basis points from 8.4% to 8.7% of sales, or 9.4%, excluding the IFRIC SaaS impact. This took our first nine months adjusted EBDA to €85.3 million and the margin to 10.3% of sales, 10.9 excluding IFRIC-SAS, 100 basis points higher than last year, or 160 ex-IFRIC. As regards to group's net debt at the end of September, this stood at 115.4 million euros or 67.3 million euros pre-IFRS 16, corresponding to a comfortable adjusted financial leverage of 0.7 times. Let me then conclude my recap by mentioning the new financing agreement we have just signed at the closure of the third quarter for a total amount of €300 million, maturing in September 2027, and consisting of a term loan facility of €150 million, a revolving credit facility of €75 million, and a CAPEX facility of an additional €75 million. Given the difficult macroeconomic context and outlook, we wanted to secure our debt structure for the medium term early, extending maturity, and making the group's capital structure safe. Today, the $150 million term loan is drawn as we repaid the previous bank debt, and we have now some additional $150 million on top to support the growth of Safilo going forward. I stop here and I hand over to Angelo for his final remarks.