Safilo Group S.p.A.

Buongiorno a tutti. Good morning to all of you joining in person Saffilo Capital Market Day. And good morning to all the people connected via conference call and audio and video webcast. Today we are here to present the group 2022 results, its strategic outlook and the medium-term targets. The presentation will last... approximately one hour, a bit more, and then we will allow 30 minutes for the Q&A session, taking the questions from the course, but also from the webcast and the call. The speakers today are Angelo Trocchia, CEO, Gerd Gressler, CFO, and today we also have Alberto Macciani, Global Head Marketing, and D2C Home Brands and Communication, and Marcella Manzoni, Global Head, Digital Transformation and Customer Experience. Before we start, I just need to remind you that this presentation contains forward-looking statements based on current expectation and project of the group in relation to future events. Due to their specific nature, these statements are subject to inherent risk and uncertainties as they depend on certain circumstances and facts, most of which being beyond the control of the group. Therefore, actual results could differ even to a significant extent with respect to those reported in the statements. That said, I hand it over to Angelo to begin. Thank you.

Grazie, Paola. Thanks very much, Paola. As we were discussing before, I think it's great that after a while we see physically all together what is the agenda of the day. Gerd will take us through the 2022 results. Then we will have a specific session on the main achievement of these last three, four years. Then I will come back. We will go through a little bit Just a reminder, I think that some people in this room know more than us, but I mean, we will a little bit talk about what's going on in the eyewear sector. Then we will focus on the Saffilo vision and the strategy and the medium terms for the years to come. So I think let's keep, as I was saying, I think we have asked Marcella and Alberto to be also with us, so I think that also if you can have question more on branding, you know that brand is one of the obsession, the other obsession is digital. So Marcella and Alberto can answer, where on the last big topic, which is sustainability, myself and Gerd will try to answer more. So I hand over to Gerd, and then I will take from our sector.

Gerd. Thank you, Angelo. And good morning to all of you. So I start with the results of 2022. We closed 2022 at net sales of 1 billion and 77 million euros, which is a growth of 11% versus a year ago, 4% at constant currency, and 7.7% organic growth. We were very pleased with how our own brands accelerated in the year, especially Polaroid, Carrera, and Smith. and also how many of our leading licensed brands contributed to the growth in the year. Europe rebounded firmly in the year. You may recall that 2021 was still a little bit COVID-induced in the region, so we saw a 16% growth in Europe in 2022, as well as a good growth in the emerging markets. Conversely, in North America, we had already a big growth in 2021, So we have a more normalized performance in the market in 2022, along with some softer demand, especially in the second half of the year in certain price segments and in certain channels of the market. On the other hand, in North America, we had a very good performance of Smith. And in the fourth quarter, also blenders returned to a strong growth in the period. So the fourth quarter, at 245.4 million euros, up 5.7%, or slightly negative at constant currency, slightly positive on an organic basis. Some of the trends that I just mentioned have been a little bit more accentuated. Looking at our gross margin, I think we closed the year in a significantly better place than for many years now. at 597.4 million euros of gross margin, a 55.5% of net sales, that's an increase of 19% versus a year ago, and a margin improvement of 380 basis points. Clearly, we have some positive drivers. We have the early completion of our cost of goods sold savings plan, the 25 million that we announced back in 2019, and we had positive drivers in terms of price mix, both of the portfolio, but also as we very targetedly use pricing in order to offset inflationary pressures, which in the fourth quarter of the year started to recede. We saw both energy and logistics costs coming down in the fourth quarter, which has therefore allowed us to end the year on an even higher note with a 56.7% gross margin. Moving on to the EBITDA, we closed the year at 101.2 million euros, which is a 9.4% margin on sales, 24% above a year ago, and the margin improving by 100 basis points. Clearly, the positive development on the gross margin allowed us to also post a good recovery on the operating level. So not only were we able to improve the structural economics of the group, but we were also able to continue with some of the important investments, notably into marketing. We've been growing our own brands, and we have invested into them, and in the digital transformation, where last year we invested nearly 10 million euro in software as a service projects as we roll out SAP, as we roll out Salesforce, and our various digital technologies, which, as you know, are now accounted for in the OPEX. In the fourth quarter, the pace of our investments continued, but we had a softer end to the year in North America on the top line. Therefore, we had a little bit slower operational leverage than in the other quarters of the year. Still, we closed the year at a 6.5% margin in Q4, and that was also 100 basis points above the same period of year ago. Moving to the net result. So we finished the year at 58.3 million euros of net results. That is a margin of 5.4%. Of course, on the one side, we had a positive operating performance, which manifested itself also on the net result. We benefited additionally from a reduction in financial charges. You may recall back in 2021, we had some more expensive credit lines. We have refinanced those at the end of 2021 with a capital increase, which then has normalized, obviously, the debt structure in 2022. And we had this year, like last year, a lower weight from liabilities on non-controlling interests, which benefited the net result by approximately 30 million, 31 million, compared to the 32 million in the year before. On the financial side, we closed the year with a net debt of 113.3%. This is an adjusted net leverage of 0.7 times. The free cash flow for the full year was negative at 16.5 million euros. We had a positive flow from operations, which was then offset by an absorption of net working capital, in particular, receivables and inventories. On both of those items, though, we believe that we ended the year with a solid quality of both the inventory and the receivables on the books. which is also witnessed by lower obsolescence costs. And you can see that, obviously, in the gross margin results. And we continue to collect cash well with our customers. In fact, in the fourth quarter of the year, our free cash flow turned slightly positive at plus 1.3 million. We invested 15.7 million of CapEx in the period. And as I said before, we ended the year with a strong balance sheet that sets us up well for what we want to do in the future. So I think before moving on to our strategies going forward, we thought it is worth pausing a little bit and reflecting on what were the main achievements of the past four years and how will they in turn allow us to evolve our strategic choices that we go forward with. So we have depicted here five areas on which I would like to comment, things that have worked well for us, things that we will want to continue to leverage as we go forward. First of all, we believe that we have built a highly attractive portfolio of brands, and Angela will talk more about it both for the consumer and for the customer. And I think that we have a portfolio from a brand point of view which is diversified as it has never been before. So we have a much higher share of own brands than we've ever had, and we have a much lower risk in terms of licensed brands than we've ever had. And I'll comment a little bit more on that. We have grown our share of the online business significantly, and we believe that we have been earlier than most of the markets with the choices that we made in the last four years, and this will be an enabler also going forward. We have rebalanced our geographical mix and our product mix. These were important vectors that we talked about in the previous strategic plan, and I'll show you a little bit where we are in terms of portfolio there. And last but not least, economically, And financially, we have recovered good results that you have seen previously, but we also believe to have found a formula for profitable growth going forward. So let's look into some of those developments. The first one is clear that we have been recovering a level of net sales, which is about two years in advance versus what we said in 2019. So we surpassed the 1 billion euros We ended up at 1.77, as I said before. There is a benefit on the currency, but even without the currency, we have managed to surpass the billion last year. What is important to recall is that in the number here for 2019, we still had about 200 million of revenues from exiting licenses of the LVMH brands that you may recall, which over this period of growth have actually basically exited our portfolio, meaning that we have been able to grow despite a big block of licenses exiting our portfolio. Why? We have grown organically on our existing brands because we have added an attractive set of new licenses over the period and because we have made two acquisitions back in 2020 in the United States. So this dynamic manifested itself especially in our brand portfolio, so we can see The excellent growth of Carrera, Polaroid, and Smith, along with the acquisitions of Blenders and Polaroid, have now brought the share of own brands to about 42% of our net sales. So the own brand portfolio grew 9%. This is on a pro forma basis. So also Blenders and Polaroid with the growth rate that they have achieved over the period on their own. And so we have a share that is nowadays, I would say, much higher than it has ever been in the past. I would also say, though, that on the other 58% of our net sales, we're equally proud to have now really a strong portfolio with which we can win in the market and a portfolio which for us is diversified as it has never been before. We do not have anymore the concentration of license risks with big licensors that own large parts of our turnover across multiple brands, we have now no single licensed brands that accounts for more than a single digit percent share of our revenues. And we have no meaningful license that is owned by the same fashion house as any of our other licenses. So we have a much better spread of licenses across the portfolio. And I think that is the brand vector and is an important achievement that we want to further build on as we go forward. The second piece I mentioned before is the online channels. So in 2018, it was 4% of our sales, but we embarked quite early on the mission to grow the online part of the business because we saw the consumer was going there. So we invested early in partnerships with internet pure players. We invested early in our business with smithoptics.com and we acquired Blenders and Privé de Vaux also for that reason to add to our online sales and to add to our D2C So this has enabled us to almost quintuple our share of the online business, reaching the 15% that we have now. At the same time, also the other 85%, which is our core wholesale business, has grown. And this has grown because we have been modernizing the way we go to market with our customers. And Marcella will talk about this further. Our product mix has diversified also very nicely. This was something that we have in the past also said in our previous strategic plan. You may recall historically, now I'm going years back, Safilo was a company that was very much focused on sunglasses, luxury sunglasses behind some big licenses. Today, we have a much more diversified portfolio. So first of all, we have added a third pillar to the product mix, which is sport. So 12% of our revenues now are generated from sport products. Snow goggles and snow helmets, with which we are market leader in North America with Smith. Bike helmets, which is an increasingly growing part of our business as clearly the consumer in the outdoor space is evolving. So we have now 12% of our revenues in sport products. We have 40% of our revenues in prescription frames, so notwithstanding the growth of sport, notwithstanding the acquisitions of blenders and privé de veau that are predominantly sunglasses, our prescription frames business has grown in the period and is now at 50%, while sunglasses represent the other 48% of the portfolio. And we believe that from a product point of view, we have now found the right balance going forward. On the geographical side, so the brand channel and product mix that I outlined before also manifested itself in our geographical footprint. North America is now the biggest region in the group. It is about 46% of our net sales. Clearly, the growth of Smith, the acquisition of Blenders and Privé de Vaux have helped the geography. And we're happy to be a strong player in North America, which is by far the largest Iowa market in the world. and it is also a very profitable market. So it is good for Safilo to have a strong leg in that geography. Europe on the other side, which represents approximately 40% of our net sales today, grew in the period, but was more impacted by the portfolio changes. Clearly, the luxury licenses that we have, these were brands that were particularly strong in Europe, and they have exited. But nonetheless, we saw organic growth in Europe as we have really worked on bringing relevant new licenses to the region, and improving our commercial capabilities. Last but not least, we have our emerging markets, which today account for about 14% of net sales. They developed nicely. We did want to go towards the 20% mark as per the previous plan, but we also feel that we have not yet had the chance to fully develop the potential there, especially in Asia, where in the last three years we've had lockdowns and slowdowns and all kinds of restrictions in the business. But we believe emerging markets remains a big opportunity still for us going forward. On the profit margin, we've achieved a big turnaround. You can see that from the 50 odd percent that we used to be at in terms of gross margin, we have now increased by about 570 basis points, which was on the one side driven by pricing and mix dynamics, both because we've added high gross margin businesses like blenders, but because we've also been very targetedly and purposefully using price and innovation mix in order to improve our marginality. We have completed the 45 million cost savings program that we announced back in 2019. The 25 million of that is COGS and has helped the gross margin. 20 million of that was overhead and has helped us basically also achieved the 9.4% EBITDA margin that we have now. And not only that, we have therefore reduced and flexibilized our fixed cost structure. So as we grow the top line, we have a higher degree of operational leverage on the margin. Not just saving and not just margin improvement, we have also been able to invest in the period. We have invested in the growth of our own brands. We have invested in the digital transformation of the group as we strive to become ever more relevant to customers and consumers. Last but not least, we have, as I said before, a healthy balance sheet with a relatively low level of leverage. The path has not been linear. There have been numerous external developments, as you know, in the market. We have made acquisitions, so clearly in 2020, we acquired blenders, we acquired Privé Révaux, We subsequently refinanced the bridges that we drew for that in 2021. And we have also in 2022 refinanced our debt capital structure with our bank partners. So now we have a debt maturity that is 2027 at favorable conditions for the group, a low leverage, and therefore also the firepower that we need as we aim to invest in the future. I think this finishes my section, and I hand back to Angelo.