Safilo Group S.p.A.

Good evening and welcome to the Safilo Group's Q1 2024 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 Angelo Trocchia, Chief Executive Officer, Michele Melotti, Chief Financial Officer, and Barbara Ferrante, Director of Investor Relations. I will now pass you over to Mr. Angelo Trocchia, Chief Executive Officer. Mr. Trocchia, you may begin, sir.

Thanks. Thanks very much. Good evening. Good evening, everyone. and thank you for attending today's conference call on Safilo Group's first quarter 2024 trading update. The start of the year was overall in line with our expectations and with the trends we had partially outlined and discussed during our earning call in mid-March. The first quarter was once again a very positive confirmation of the strengths and the resiliency of our European business. We were particularly pleased about the dynamic business environment we continue to experience in our core European markets, where among all brands, Carrera had a really strong start to the year, also making its debut with a brand-new women's collection that is gathering excellent feedback. And we continue to register the strong progress of David Baker in the premium segment, where the brand plays, an increasingly relevant role among different man-consumer targets thanks to David's credibility both as a fashion icon and British gentleman with refined tastes. I would, therefore, say so far so good in Europe. On the other hand, as anticipated, it was a difficult start in North America, reflecting both a pretty poor winter season for our sports business stores as already seen in quarter four, and a weak wholesale hour market in the contemporary sunglasses segment, where a more cautious order approach persists, while consumers buying online remain more dynamic. It was, above all, a solid quarter at the economic and financial level. We delivered another significant improvement of our gross margin and has been more moderate and improved also on our operating performance. Very meaningfully, we then maintained a good grip on our cash flow, slightly declining the group's net debt. Before I hand over to Michele for some additional comments on the top and bottom line of the period, I would like to stress that our main focus remains the execution of our medium-term strategic objectives. continue to enhance the uniqueness and innovation of our product and service, and to solidify the core asset of our business model. I would like to come back to this at the end of my presentation. Michele, over to you.

Thank you, Angelo, and good evening to all of you. Starting from our top line, revenues in the first quarter reached 277.2 million euros, down 3.5% at current exchange rates, with Forex negatively impacting for 170 basis points. So, at cost of exchange rates, sales softened by 1.8% compared to Q1 2023. Starting from this quarter, we stopped reporting the organic performance, a KPI which was particularly helpful to highlight our underlying performance during our transition out of the LWMH licenses. This is over, and any current and future entrants or exits will be specifically spotted where relevant. As you know, in the first six months of the year, we will be phasing out Jimmy Choo, meaning that we are doing some depletion sales with the brand, with a reduction compared to the one done in the same period last year. This largely explains the drop in sales recorded in the quarter. Therefore, in Q1, before the Jimmy Choo drop, our sales were flattish. Let's now look at our top-line performance by geography. It was a very positive first quarter for us in Europe, where sales were up 5.8% at cost and exchange rate versus last year. I remind you that Q1 2023 was a challenging comparison period when organic sales grew double-digit, net of the decline recorded in the former Grand Vision chains. The start of the year was particularly positive in the French market, where we kept strengthening and expanding our commercial network, as already mentioned during our previous earning call. And we had a good quarter also in our central and eastern European markets, driven by the positive performance of the Internet Pure Player channel in Germany and the excellent progress of the business in Poland and Turkey. Angelo has already highlighted the strong performance of Carrera and David Beckham in Europe, were the brand-new BBBs. I would also like to add that it was a positive quarter for the majority of our licensed brands, and we also had a promising debut of our new Heathrow collection. In North America, Q1 sales dropped 7.2% at cost of exchange rates compared to last year, which you might remember was still a decent quarter in terms of organic performance. The drop in US started to become more meaningful in Q2. As already highlighted by Angelo, the weakness in sales concerns both mid-business in physical sports shop, which was impacted by a soft winter snow season that started slowly in Q4 and continued with a low level of reorder in Q1 this year, and also the high-worth business in the contemporary sunglass segment, where we continue to experience the cautious order attitude of the main wholesale clients. On top, we were penalized by the Jimmy Choo phase-out. A positive note in the United States was the growth of our direct-to-consumer channels, continuing the strong performance we achieved last year. And, as you remember, a particularly strong Q4. In Q1, Blenders and Smith's B2C business did very well, up respectively high single digits and double digits. Moving to our emerging market in Asia-Pacific, our net sales were up low single digits at cost of exchange rate by 2.3%. The quarter was positive for our business in China, also supported by the initial positive effect of the good result of our product and the Shanghai Fair held in March. In China, we had another strong quarter with ports and with Polaroid, which keeps solidifying its business. Q1 was a quarter of growth also for the business in Australia, where we continue recording the positive growth of Smith, our second largest brand in the market after Carrera, which is a strong asset for us in the country, and where we have now launched CarreraWorld.com to accelerate bank growth through e-commerce. To conclude with our geographies, sales in our rest of the world recorded in the quarter a decline of 12.7% at cost of exchange rates, which was mainly explained by the different timing of some deliveries in our Middle Eastern markets. The quarter was also a soft period for the travel retail business in Latin America, while on the positive side, I would like to highlight that both Carrera and Polaroid continue to make good progress in India. Moving to our economic key performance indicator, Q1 was another confirmation of our ongoing strength of our industrial performance. Our gross margin soared to 60% in the quarter, 160 basis points higher than the 58.4% recorded in the same period last year. Overall, we benefited from the higher production efficiency resulting from the industrial restructuring we accomplished in Longarone last year, which also resulted in a decrease of depreciation. Pricing remained a favorable lever together with the positive channel mix due to the ongoing development of our direct-to-consumer business. This driver more than offset the dilutive effect we had in the quarter due to the Jimmy Choo phase-out sales. Below the gross margin, the expected normalization of the IT investment and the marketing expenses allow us to keep better under control the still negative operating leverage, bringing home part of the improvements achieved at the gross margin level. We thus close the quarter with an adjusted BDA of €32 million, equal to an adjusted BDA margin of 11.5%, 20 basis points higher than the 11.3% recorded last year. Clearly, at the BDA level, we missed the benefit of lower DNA, which impacted the cost of goods sold, and also DNA, for approximately 50 basis points. We conclude, as usual, with the gross net debt at the end of March, which stood at 81.3 million euros, or 41.8 million euros pre-FRS16. Better than the position pre-FRS16 of 43.7 million euros, reported at the end of December last year. As stressed by Angelo, we are very glad to be able to confirm a positive free cash flow generation also in this quarter, notwithstanding the seasonality of the business and Q4 last year, which was better than expected in terms of cash generation. The period was driven by a positive operating performance and a lowered cash absorption from networking capital thanks to declining inventories. I stop here and I hand over to Angelo.