Safilo Group S.p.A.

good evening and welcome to the South below group third quarter in nine months 2023 trading update this call may contain forward-looking statements relating to future events and operating economic and financial results for the South below group such forecasts due to the 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 depending even significantly to those announced in relation to a multitude of factors. Today's participants are Mr. Angelo Trocchia, Chief Executive Officer, Mr. Michele Melotti, Chief Financial Officer, and Mrs. 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.

Thanks. Thanks very much. Good evening, everyone, and thank you for attending today's conference call on Saffilo Trading Update on the third quarter and nine months of the year. We exited the month of September with a continuation of most of the key dynamics which characterized the first part of the year. In the nine months, our net sales performance mainly reflected the soft trend in North America, particularly in our contemporary mid-price segments. Europe was solid as the region offset with the growth of its underlying business, the most part of the significant sales decline recorded in the former GB chains. And we recorded good growth also in our emerging markets. At the economic and financial level, the nine months delivered a sound improvement of the gross margin, which has continued to strengthen year on year in each single quarter, while our adjusted EBITDA margin continued to be impacted by the higher incidence of our continued investments. In fact, our execution plans did not stop because of the market uncertainties we are currently experiencing. and we continue to focus on the implementation of those projects and activities that we consider strategic enablers of our medium-term objectives. Very meaningful for us, these nine months were also a confirmation of our ability to generate positive cash flows, a goal that we have so far achieved thanks to the good management of the working capital. Looking more specifically at how our business performed in Quarter 3, and its key drivers, sales net of the Forex headwind, which materially worsened in the period, improved from the minus 6% recorded in quarter 2 to minus 3.9%. As mentioned during our previous call, the drop of the business in the former GV banner was less meaningful in this quarter compared to the previous one, but still relevant, accounting for the majority of our quarterly top-line declines. approximately 3%, and for the total nine-month contraction, which was thus slightly positive at the organic level, XGV. As a reminder, quarter four will be the quarter less affected by the GV impact as our decline in the customer became already quite significant starting from Q4 last year. Looking then at the key drivers of our underlying performance in the quarter, Europe was up low single digit compared to the same period last year, showing a deceleration from the strong growth trend that has been supporting our business in the region in the last five to six quarters. Overall, we expected this performance. Also consider that this year, the summer season was not particularly positive and that we were instead confronting a strong sun season last year. In quarter three, our business performance in North America was better than in quarter two, thanks to the sport business, which returned to grow after the normalization of H1. Sports means Smith. which grew in all its core channels. Carolina Herrera, David Beckham were instead our best performing brands in hour. Boss, Carrera and Polaroid were softer in the quarters, but all growing nicely ex-GV. While in the nine months performance, they were positive also including the drop in these banners. Our nine-month revenue stood at €785.1 million, down 3.6% at constant exchange rate. The organic performance, which we did not report in the third quarter, as the base period was no longer influenced by phase-out sales, but is still a relevant data point for the nine months, was down 2.3% at constant exchange rate. As said, excluding the business in the former GV chains, our 9-month underlying organic performance was positive low single digits compared to last year. Let me stop here and I leave it to Michele to go through the specific sales trend by geographical area and our economic and financial KPIs.

Thank you Angelo and good evening to all of you. Let's now see our specific sales trend by geographical area. In North America, Q3 sales delivered a quite significant improvement from the previous period, from minus 11.5% in Q2 to minus 4.9%, backed by the return to growth of our sport business. Smith was up double digits, a nice meeting performance which was supported by an easier con base with last year, despite a still challenging retail environment in the brand-specific business segment. Notably, Smith was back to growth in physical store while it continued to develop its direct-to-consumer channel that, at the end of the nine months, accounted for around 20% of the brand's total turnover. The eyewear market, on the other hand, remained soft, and as Angelo pointed out, this softness, in line with the previous quarter, was more marked in the contemporary segment where our portfolio is more skewed, with sunglasses being the product category more impacted. In the US, Carolina Herrera, Boss, Carrera, and David Beckham were our best performing brands in the quarter and in the nine months, all posting positive year-on-year growth. An autumn blenders, which despite the challenges of sun, recorded an improved trend in Q3, with the expectation now to deliver a significant year-on-year improvement in Q4, also thanks to the successful collaboration with Coach Prime launched toward the end of the quarter. Moving to Europe, our total sales in Q3 were down 6.1% at constant exchange rates, with the drop in sales in the former GB chains explaining entirely the decline. As already indicated by Angelo, our underlying performance in Europe was slightly positive, up around 1% compared to last year, a normalization from the previous growth trend that was more evident in markets such as Italy, France and Spain, which had more markedly rebounded over the last five to six quarters, also on the back of a very favorable season last year. As a reminder, Europe was up 14% in Q3 last year, so we are still reasoning against tough costs. By channel, on the other hand, also in Q3 our independent optician B2B business continued to outperform the rest of the channel, up double digits in the quarter. Q3 was weak in Germany, a market which remained affected by the negative performance of Internet Q player, while our growth was again very strong in the newest Eastern European market, in particular in Turkey. In the nine months, sales in Europe were up around 7% net of the former GV business. Emerging market and another positive quarter. In Asia-Pacific, sales recorded a more moderate upside coming from a very strong rebound in H1 and some different phasing of delivering between Q3 and Q4. In Q3, the business was up 2.3% at cost on currency, taking our nine-month progress to plus 11.2%. China and some of the other core markets of the region, including Australia, continued to register good progress, while by brand, our quarterly performance was mainly driven by Ports, Smith & Polaroid, the latter thanks to the effective launch in China of a dedicated collection and marketing plan. Finally, in our rest of the world, sales were up 5.9% at cost and rates, driven in particular by the positive performance of Carrera in India and in the Middle East. In the quarter, Latin America was was more muted, with Mexico continuing to record good growth but Brazil softening, while the region was up mid-single digit in the nine months. In the nine months, the total rest of the world grew by 7.1% at constant exchange rates, with its share of total revenue reaching a meaningful 10%. Turning now to our economic performance, commenting as usual our adjusted results, I would like to point out that in the third quarter we incurred some additional external costs mainly related to the disposal of the Longarone plant, still ongoing at the end of September. Those equal €3.1 million at the gross profit level and €4.7 million at the EBITDA level, bringing the total nine months one-off respectively to €8.2 and €17.4 million. That said, in Q3, our industrial performance remained very solid also on a reported basis, with the gross margin improving by 250 basis points to 56.3%, while delivering almost 400 basis points on an adjusted basis to 57.7%. Key drivers of this strong upside were lower inbound logistic costs and efficiency in procurement, which accounted for more than half of the improvement, while the rest came from a positive price-mix effect mainly related to the continued effective pricing action we executed in the last quarters. Overall, such quarterly progress allows us to consolidate our nine-month gross margin at 58.5%, 340 basis points higher than the 55.1% gross margin achieved in the last nine months of the year. At the operating level, our Q3 performance was again impacted by a negative operating leverage, which was internally influenced by high personnel costs due to the ongoing inflationary pressure and the continuation of our investment in the project for the group digital transformation, plus marketing activities that we intentionally implemented to continue to develop in the medium term our own brands. In Q3, our adjusted BDA margin stood at 7.7%, 100 basis points, lower than Q3 last year, while our nine-month adjusted BDA margin reached 9.6%, down 70 basis points compared to last year. Concluding with our financial performance, in the third quarter, we had a positive free cash flow of roughly 12 million euros before the payment of 5.9 million euros we had in July to exercise the first option on an addition of 10% of blended non-controlling interest. Such positive generation took our 9-month free cash flow to €21.7 million before the option payment compared to an absorption of €17.8 million in the 9-month of 2022. In the quarter, our cash flow from operating activities improved thanks to a cash generation at the working capital level. As in the first part of the year, the period recorded a decrease in inventories, and unhealthy cash collection in all our main geographical areas. At the end of September, our group net debt decreased to 96 million euro, 55.5 pre-FRS16, corresponding to a financial average of 0.6 times. Thanks again, and I hand back to Angelo for his closing remarks. Thanks, Michele.