Safilo Group S.p.A.

Good evening and welcome to the Safilo Group Q1 2023 Trading Update. This call may contain forward-looking statements relating 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 Angelo 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. Angelo Trocchia, Chief Executive Officer. Mr. Trocchia, you may begin, sir.

Hi, thanks very much. Good evening, everyone, and thank you for attending today's conference call on the Safilo Group's first quarter 2023 trading update. I will give you a brief introduction on the drivers that characterize the period, leaving to gear the specific discussion on the key sales, economic, and financial performance indicators, concluding then our presentation with a Q&A session. During our last Capital Market Day in March, I think we discussed about our stance on the current year, given some macro challenges and our specific headwinds. I must say that the first quarter of 2023 ended broadly in line with our expectations for the beginning of the year, with the month of March, which confirmed the trends already seen in January and in February. mostly reflected the continuation of some of the main business drivers that had characterized the second half of last year. Our home brand and our core license registered again a sound progress in the majority of our emerging countries and, above all, in Europe, while the business environment remained soft in the United States. On the profit side, we are pleased we continue our journey to achieve and improve the gross margin while we kept investing in our home brand and in the digital transformation of the company. I look at quarter one as a solid and resilient quarter, notwithstanding the expected headwinds, and I would like to look at our quarterly performance through the lens of our business portfolio. By brand, we were particularly satisfied with Carrera and Polaroid, which continued to post double-digit growth, broad-braced across product categories and markets, as much as with the solid momentum of our core license, from the good progress of Hugo Boss and Tommy Hilfiger to the double-digit expansion delivered by Carolina Herrera and David Beckham. The quarter was instead overall soft for Smith, mainly due to a very high comps base, while Blender was flattish behind bad weather conditions in California. Looking at our business from a geographical standpoint, and more specifically looking at our two main regions, also in quarter one Europe was strong and our key growth area with the various markets of the area which continue to grow nicely thanks to solid internal consumption and positive touristic flow. And growing Europe continues to be sided by strong growth trends in all the emerging markets, but China, where order intake resumed more sizably starting from the month of April. On the other hand, in the United States, we continue to see a discrepancy between more positive sell-out data and a more prudent behavior by customers, leading to still subdued wholesale demand and order intake. By channel, in the quarter, business with physical eyewear customers were largely positive and outpacing online due to the softer IPP sales in Europe. As expected, the business generated through the Grand Vision store network dropped significantly as its integration into Essilux Loxotica Business Arena progressed. I stop here and I hand over to Gher for the specific economic and financial outline of the period.

Thank you Angelo and good evening to all of you. Starting from our top line, Revenues in the first quarter reached 287.2 million euros, up 1.6% at current exchange rates and basically flat at minus 0.4% at constant exchange rates compared to Q1 2022. At the organic level, sales instead grew by plus 3.2% at constant exchange rates, which compares to what was last year our strongest quarter. having posted an organic growth of 14.3% versus Q1 of 2021. Let's then look at the drivers of our top-line performance by geography. And I would start from our key positive driver, Europe, where our business grew by 4% at constant exchange rates compared to Q1 last year, while organic sales increased by 5.5%. Angelo has already referred to Carrera and Polaroid's ongoing strengths, and this was particularly evident in Europe, where the two brands grew respectively by approximately 20% and 10%, driven by their core markets, namely Italy and Spain, but expanding nicely also in Eastern Europe. These were indeed our overall top-performing countries in Europe, together with France. And in all, sales growth was pretty much broad-based across channels. with chains and independent opticians particularly strong. We are glad of these performances because they come alongside the continued expansion of our B2B digital channel in line with our medium-term strategy for a strong omnichannel business model. As said, the general strength of the European business allowed us to more than offset the expected decrease of the revenue generated through Grand Vision, which dropped by approximately 70%. Therefore, our mid-single-digit growth in Europe was actually a sound double-digit, excluding Grand Vision, thanks to a strong, improved relationship with the thousands of customers outside the Essilor Lux Optica galaxy. In North America, Q1 sales remained soft, down 7.2% at constant exchange rates compared to last year, while the organic business was more stable, down 0.9% at constant exchange rates. As a reminder, the organic performance is stripping out the Givenchy phase-out sales still recorded in the base period. In the quarter, what we continue to observe and experience in the U.S. wholesale eyewear market was, on one side, healthy and ongoing demand for premium and high-end products, a trend from which also a part of our portfolio continued to benefit with Hugo Boss's Carolina Herrera, Carrera, and David Beckham delivering good growth. On the other, a still prudent propensity to purchase in the entry and mid-tier price points, which eventually resulted in a still soft order intake from our wholesale clients. What we then need to consider when looking at North America is the performance of sports shops and direct-to-consumer. In the former, Smith's business was soft in the quarter, as in H1 it is running against a tough comparison base, especially for bike products. It is indeed a well-known topic in the marketplace, the cautious start to the bike season, with bike retailers in US and Europe having to deal with higher inventory levels than they would have liked. Direct-to-consumer was instead low single-digit positive in the US, driven indeed by Smith, which was very positive in the channel, while blenders was instead slightly negative. This is the lowest season quarter for blenders, which was on top influenced, as Angelo said, by poor weather conditions in several key states, such as the Californian coast. Moving to the emerging markets, our net sales in the rest of the world marked another important growth of plus 16.6% at constant exchange rates compared to Q1 2022. The key driver of our good performance in the area were once again Brazil and above all Mexico, where Carrera Polaroid and all our core licenses recorded double-digit increases, both thanks to the greater productivity of the brands in existing stores and to the expansion of distribution, so new customers for us to serve. Sales in India and the Middle East also recorded a positive quarter as we continued to invest on focused events, to engage with the main local wholesale partners as well as on the development of online channels through internet pure players. Finally, in Asia and Pacific, net sales were down slightly by 2.6% at constant exchange rates, mainly due to still some prudence of wholesale customers in the Chinese market. Also considering that this year, the Shanghai Optical Fair, the most important eyewear sector fair in Asia, took place in April. In fact, we have seen a trend change starting from this second quarter. In Q1, our sales in Asia instead grew in the travel retail channels, thanks to the reopenings in China and the gradual recovery of tourist flows, and in Australia, where Smith kept expanding. Moving now to our economic KPIs. In Q1, we confirmed a solid and improving gross profit, up 7.9%, and a margin which reached 58.4% of sales, up 340 basis points compared to the 55% recorded last year. Yet again, our industrial performance was driven by a positive price mix effect, reflecting in particular our richer product offer and the pricing policies we successfully implemented last year, along with a more favorable brand mix driven by the absence of phase-out sales and a less abundant quarter for sport. which at the gross margin level is less secretive than eyewear. The other positive driver was then the easing of transport and energy costs, which in the same period of last year were still particularly high. As highlighted by Angelo in Q1, we continued to invest in the development of our home brands through very focused and targeted marketing and advertising activities, and we kept progressing on our digital transformation roadmap. through investments in software as a service. On the other hand, the period also reflected higher labor costs due to the inflationary pressures and some new capabilities and personnel. Selling general and administrative costs increased by approximately 9% compared to the corresponding period of 2022, with marketing and advertising expenses up approximately 14%, personnel costs by almost 14%, and software-as-a-service costs by around 1.4 million euros. Adjusted EBITDA in Q1 equaled 32.4 million euros and a margin on sales of 11.3%, up 1.3% in absolute terms and bang in line with last year margin-wise. As usual, we conclude our trading update with the group's net debt at the end of March, standing at 112.4 million euros, or 70.2 million euros pre-IFRS 16, substantially in line with the position recorded at the end of December last year. And we were glad to close the period with a slightly positive free cash flow, despite the normal seasonality of our business. I stop here, and I hand over to Angelo.