Safilo Group S.p.A.

Good evening and welcome to the SAFILO first half 2024 results. 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 risk of 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 the call 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 South Europe Groups, first half results and Q2 trading updates. The second quarter was mostly a continuation of the main dynamics by market and by brand we saw in the first quarter. Our total sales performance remained soft in Q2. As expected, Jimmy Choo represented our main headwind with its negative impact which was higher than in quarter one. On the other hand, notwithstanding a business environment which was, for different reasons, challenging, our underlying business performance held up, thanks in particular to the strong momentum of Carrera and DeRibeca. In the second quarter, we again delivered economic and financial improvement, and we remained focused on our medium and long-term goals. We recorded another positive cash flow from operating activities higher than last year, which we have reinvested in the continuous strengthening and developing of our brand portfolio. Let me come back to the key business drivers of our underlying performance in the second quarter and your first half of the year. In these first six months, Europe remained positive despite the slowdown recorded in the second quarter due to the poor weather conditions that hit our main market between May and June. On the other hand, the recovery of North America was softer than expected. In Q2, we saw improvement in the eyewear business. with a number of our core brands performing well, while Smith's wholesale business at the sports shop level was still weak. Michele will give you some more color on this data later on. As said, Carrera and David Beckham not only continued to grow, but both gained additional speed, supporting what was a significant achievement for us in the first half of 2024. We had already outlined it when we talked in May, but I think it's important to remind to all of us that today Carrera with the rest of our home brand portfolio including the perpetual license of David Beckham accounts for around 50% of our sales, making it another important milestone of our medium term strategy. I stop here and over to Michele for the additional comments and analysis on the economic and the financial performance of the period. Michele.

Thank you Angelo and good evening to all of you. Starting from our sales performance, revenues in the second quarter were down 3.1% at both current and cost of the change rate, as the depreciation of euro on the U.S. dollar was fully balanced by its application against other currencies, mainly from emerging countries. The first half closed with a net sales down 3.3% reported and 2.4% at cost of the change rate. As highlighted by Angelo and discussed in our previous call, the performance reflected a reduction in sales of Jimmy Choo, which in the second quarter impacted growth in North America and Europe more meaningfully. The brand sales outside, in fact, diminished pretty significantly compared to those recorded in Q1. Thus, we have less business to counter the high base period. Looking at our underlining business by brand, our key growth drivers really in all our regions were Carrera and David Becker, which in the quarter delivered a marked double-digit growth, but also we have seen positive momentum continuing for Caroline Herrera and Marc Jacobs. The period was instead challenging for Smith and Polaroid, and I will come back to this. By channel, the semester benefited from the resilience of the independent optician channel in Europe, also thanks to our advanced B2B platform, UNSafilo, which continues to strengthen the relationship with our customers and does the quality and the volume of our business with them. We also consolidated the progress of our online business, confirming its 16% stake. with a very positive D2C channel and a positive recovery by the internet pure player business in Europe. On the other hand, sports shops and the travel retail channels were the main harbors to grow during the period. Let's now look at what happened in our regions. In the second quarter, Europe was basically flat at current currency and slightly up at cost on currency by 0.8%, taking the first outperformance to a positive 3.4% at cost on the change rate. The deceleration of the region compared to the first quarter was explained by the bad weather that affected the sell-out of most of our channels and also by the more negative impact of the GB2 exits. In Europe, by brand, it was a continuation of much of what we have seen in the first three months of the year, with Carrera and David Beckham leading ahead, but also newer licenses doing well, like, for instance, B-Squared in Italy and Isabelle Maranti in France. Exception to this in the quarter was Polaroid, down by a low single-digit percentage, which was affected more than others by the poor sun season, being the brand still more skewed to sunglasses. By country, our performance in Europe continued to be driven by the positive trend in France, led by a solid prescription-framed business, and by the growth of central and eastern European markets. We also recorded a positive performance in Germany, where the Internet pure player channel continued to recover nicely, and we saw positive business also at some of our major optical chains. Moving to North America, except Q2 was better than Q1, with the sales drop reducing from 7.2% to 4.4% at cost of exchange rate, compared to the same period last year. The improvement was more evident next to the negative impact of Jimmy Choo, as we moved from a mid-single-digit decline in Q1 to a flat performance in Q2. This was below the kind of recovery we were hoping for in the period. We saw some additional recovery in eyewear, while the sports shop channel remained weak. Let me start from the positives. The United States Q2 was a good quarter for Carrera, also driven by the success of its new woman collection, supporting the brand productivity in store, and its further expansion in the market. We saw positive momentum also from some of our core licenses, namely David Beckham, Carolina Herrera, Mark Jacobs, and Tommy Figer, with their distribution growing double digits. Our insights from the field were some consumer demand shifting from pure luxury brands to more after contemporary offer, especially in the dependent optician channel. As a matter of fact, was our best performing business in the quarter, delivering a positive performance in , but also some recovery . On the other hand, in Q2, SmithHorse's revenue of helmet were hampered by the lower reorder of winter products due to the unseasonal weather in Q4 last year, which unfavorably impacted no sell-out and consequently no reorder by sports shop. At the whole sales level, orders were also lower than expected for summer helmet, as the bike channel was still recovering from high stock level built post-pandemic. Smith Performance remained, instead, very positive in its direct-to-consumer channel, which continued to benefit from the greater responsiveness of end consumer, and the more favorable product needs more skewed two sunglasses. I think that it's very important to note that despite the favorable business environment in store, in North America, Smith consolidated its leadership in snow, ready to take advantage of a more positive winter season. Moving to our emerging markets, in Asia-Pacific, net sales were down 11.3% at cost of exchange rates in the second quarter, closing the first half at minus 5.6%. As we know, the quarter had an extremely challenging comparison base versus Q2 last year, when sales grew 38% over the same period in 2022, mainly driven by reopening in China. In Q2 this year, this tough comp mitigated the still positive performance we recorded in China. We continue to benefit from the very positive progress of Brand Life Force and Polaroid, where we continue to invest in locally relevant collections and marketing plans. The main edge win of the region was the weak sales performance recorded by distributors in Southeast Asia. Sales in our rest of the world remained weak in Q2, down 9.6% at cost of exchange rate, with H1 closing at minus 11.3. In the quarter, the main negative driver was the travel retail business in Latin America and in Argentina in particular, while in India, and so better business trend in the Middle Eastern and African markets, while sales in India normalized as they were running against a pretty tough comp base. Moving to our economic performance, notwithstanding the still soft-top line, we made further progress in margin expansion, continuing to post an improvement both in industrial and operating level. Q2 confirmed our gross margin at 60 percent, precisely 60.1, 100 basis points higher than the 59.1 gross margin adjusted recorded in the same period last year. In this quarter, the positive drivers were pretty much the same as those recorded in Q1. In other words, an higher production efficiency resulting from the industrial restructuring accomplished last year, which also resulted in a decrease of depreciation. Price-MIC remained a favorable lever. While in this quarter, the dilutive effect from GV2 phase-out sales was lower than in Q1 when we recorded more of these revenues. Gross margin H1 was 60% sharp, an improvement of 120 basis points compared to the adjusted gross margin of 58.8 posted in H1 last year. Below the gross margin, despite the still unfavorable operating leverage, Q2 performance recorded a more significant year-on-year margin recovery compared to the first quarter, mostly benefiting from the ongoing normalization of IT investments. Similarly, on our marketing and advertising activities, while we continue to focus on all our key projects, these expenses also seen some normalization compared to last year peaks. In Q2, they reduced by around 6% in absolute term, while their incident on sale was some 40 basis points lower compared to last year. As a reminder, this cost became seasonally more marked in Q2 compared to Q1, thus waiting more on sales than in the first three months. In the quarter, our adjusted BDA margins stood at 10.1%, 60 basis points higher than the 9.5% recorded in Q2 last year, while we closed the first half with an adjusted BDA margin of 10.8%, 40 basis points better than H1 last year. Finally, our group adjusted net result equals 24.2 million euro compared to 6.9 million euro recorded in H1-23. As a result, that as you may remember, was affected last year by a charge of 8.6 million euro resulting from the revaluation of the liabilities for option on the interest in blenders. Net of this item, that in this year was around 1 million positive, our adjustment net result grew vastly, 50% compared to last year. In H1, net financial charges decreased to 6.9 million from 9.4 million euros in H1 2023, mainly due to our lower average group net debt, plus a tax rate which in the first half normalized to around 30%. Coming to our financial performance, the free cash flow of the first semester was negative for 19 million euros, reflecting the two distinct dynamics already mentioned by Angelo. On one side, the cash flow from operating activities increased to 27.3 million euros from the 21.1 million recorded last year. This was the result of the positive Generation for around €20 million posted in Q2, which in turn reflected the solid economic performance of the period, which, by the way, also included the settlement of a no-return cost related to a terminated license agreement posted in P&L in Q1. It was also the result of a positive cash generation from working capital, also due to a reduction of inventories. On the other hand, cash flow from investment grew to €41.1 million from last year's maintenance capital of €6.2 million. The increase was explained by the investment we made of around €35 million for the perpetual license of Teddy Peckham Highways. Very meaningful for us, the agreement also caused a significant reduction of the royalties to be paid, making the license one of the most profitable and accretive brands in the portfolio. Finally, our group net debt stood at 100.4 million euros, or 62.6 million euros per IFRS 16, from 82.7 million euros recorded at the end of December last year, and 103 million euros at the end of June 2023. Our financial leverage also predicts that we've been very solid and sound at 0.7 times. We stop here and we are now ready to take your questions.