Lanvin Group Holdings Limited Ordinary Shares

Thank you for joining us, and welcome to the Lanvin Group's 2023 First Half Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. Now, please take a moment to review the disclaimers. During this presentation, the company will be making certain forward-looking statements included but not limited to future performance and industry outlook. Forward-looking statements are inherently subject to risks, uncertainties, and other factors, and they are not guarantees of performance. For today's presentation, I would like to introduce Joanne Cheng, the Chairman and CEO of Landvin Group, David Chan, Executive President and Interim CFO of Landvin Group, Siddhartha Shukla, Deputy General Manager of the Landvin brand, and Sylvia Azali, CEO of Wolford. With that, I would like to turn the call over to Joanne Cheng to start the presentation.

Thank you all for joining us today. I'm Joanne Cheng, the Chairman and CEO of Levant Group. I'd like to start by recognizing the entire Levant Group and the brand team for their effort in the first half of 2023. Among our achievements in the first half, We transitioned our creative direction at Lavon and set our future path. Launched our creative lab program to bring new insights to creative direction for Lavon. We welcomed the now Takikoshi into our family as our creative director for Worldfall and then reacquired the Lavon's trademark in Japan. Regarding our financial performance for the first half, we had a solid first half, continuing our top-line growth and the market improvement across our portfolio. Our industry faced macro economy challenges in the first half, but to our credit, we were nimble and decisive in adapting our strategy, such as accelerating the buyback of Lavon Japan trademarks and the development of Lavon Labs, while pushing out certain marketing initiatives to launch during better market conditions. Furthermore, we saw improving pace in growth in all other regions starting in April. We continue to make progress on our path to profitability. Our improvement in gross profit and contribution profit are evidence of our commitment to profitable growth. We have done the groundwork for our brand to ramp up their growth and are excited about our prospects for the remainder of 2023. we have an exciting second half planned with the first Lavon Lab collaboration launched with its first-ever collaborative designer, the Grammy Award-winning artist, Future. The opening of Lavon's Madison Avenue store in New York City, World War's Next Step with Mao Takikashi as a creative director, and its collaboration with No. 21, as well as St. John's partnership with celebrity stylist Cara Welsh. With that said, I'm pleased to report that we continue to grow our group revenue in the first half of 2023, achieving €215 million compared to €202 million in the first half of 2022, representing a growth of 6.4%. Our gross profit for the year increased to €125 million by €130 million, with our margin improving to 58.5%, from 55.9%. Our financials show period-over-period stabilization of our core operating cost line items, including cost of sales, marketing and selling expenses, and GMA expenses. The progress we have made in optimizing our cost structure has created a significant operating leverage to drive profitability as we accelerate our top-line growth in the second half. With that, I'd like to turn it over to our executive president and the interim CFO, David Chan, to go through some of the details.

Thank you all for joining us today. I'm David Chan, executive president and interim CFO of Lamang Group. Like Joanne, I'd like to take a moment to recognize the entire Lamang Group family for their hard work in the first half of 2023. I see the progress we have made, and I'm excited for our future. First, I'd like to direct you to pages 5 to 7. You can find a deck that we have just uploaded to our IR website. Our sales continue to improve across the portfolio, period over period. We saw particularly strong growth in Greater China at 13.9%, with Serge Rossi, Warford, and Xinjiang leading the way. EMEA grew 5.3% from strong domestic demand, and North America remained resilient, managing through an unsteady economy by growing 2.6%. Our DTC channel grew at 5.1%, while our wholesale channel grew 2.2%. Additionally, we saw increases in other revenue, mainly stemming from increases in our royalty revenue, from the acquisition of the Long Bon Japan trademarks, and from clearance income. Wolfer and St. John's. Two of our three largest brands by revenue continued their solid growth with revenue up 8.4% and 11.3% respectively. And Sertorossi showed very strong results with growth in all regions and channels at an overall growth rate of 22.4%. Caruso continued to take advantage of the acquired luxury trend and its production capability by growing its B2B Mazars business in Europe by 42.9% and 33.6% overall. Moving on to Lanvin, as Joanne mentioned, Lanvin began the year by transitioning his creative direction and taking steps to plan new creative initiatives to be launched in the second half, resulting in comparatively lower period-over-period revenue of €64 million in the first half of 2022 versus €57 million in the same period in 2023, a decrease of 10.8%. Following the four-year tenure of Bruno Sinelli, Long Bon decided to make a strategic change in its creative direction and also launched Long Bon Lab, both of which will impact revenue in the second half, but did not benefit the results in the first half. With the trends in Greater China and U.S. improving, we're expecting a strong second half performance as our strategic plans begin to accelerate Long Bon's revenue growth. As I mentioned in our full year 2022 earnings webcast, Greater China and North America are significant areas of potential growth, and as the numbers show, we continue to keep them as the focus areas for our growth. Next, I'd like to point you to pages 8 to 10 and to discuss some of our first half brand highlights. Focusing on Lanvin first, our flagship brand had some key achievements. Lanvin's fall-winter 2023 fashion show was well-received with strong acclaim and recapturing elegance in a wearable form. Second, We have successfully reacquired Lombon's trademark in Japan from Itochu Corporation, who has been and remains a valued strategic partner for us. Achieving this milestone allows us to integrate our global IP to further develop a consistent brand image and pursue strategies in a key market for Lombon. Finally, we announced the launching of Lombon Lab with our first guest designer, Future, who not only is a music icon, but also embodies the spirit of Long Bon's new philosophy. I speak for the entire Long Bon group when I say we're extremely excited for Long Bon Labs' first collection, which will launch for winter 2023, with ready-to-wear and accessories for both women and men. We are embarking on an exciting new phase at Long Bon, which Siddhartha Shukla will provide more details in a later part of this webcast. Touching on some of our other highlights, Wolford had a busy first half kicking off a number of initiatives, including collaboration with iconic singer, Grace Jones, and hiring Nile Takakoshi as creative director. Wolford also launched the W Club to provide customers with an integrated digital platform that promotes self-esteem, body awareness, and physical activities, and is curated for with Wolford's and Leisure product offerings. Sergio Rossi and St. John also had a few notable collaborations, including St. John's collaboration with world-renowned producer Shonda Rhimes and a partnership with celebrity stylist Carla Welch. While Sergio Rossi started a project with Japanese artist Marie Katayama called a High Heel Project and officially launched a special capsule with Aria in the first half, leveraging Aria's strong brand in North America. Looking back at achievements during the first half, I realized we have a lot of momentum built up out of brands, which is why I'm excited for the second half. And now, getting back to the financial fundamentals, please turn to page 11 for a review of our profitability and margin performance. Group-level gross profit continued the positive trend, increasing to 125 million euros from 113 million euros with the margin improving to 58.5% versus 55.9%. We continue to benefit from scaling our revenue, and we'll see this impact continue to improve our profitability. Our operating leverage is most evident in our contribution profit increasing from $6 million to $15 million, with the margin improving from 2.9% to 6.9%. I'd like to remind you that our definition of contribution profits, which is a non-IFRS measure, takes gross profit, less selling and marketing expenses. This is a key metric for us to use to gauge the performance of our variable operating efficiency. And we have seen significant progress over the past few periods. Furthermore, taking into account our fixed G&A expenses for the period and calculating the after G&A profit, also known as our adjusted operating profit, we saw a near 600 basis point increase in the margin, showing the potential operating leverage we have created. As a group, our adjusted EBITDA was lower because of the revenue decrease in Long Bomb and the resulting reduced cost risk absorption as well as an increase in investment for selling and marketing. The increase in selling marketing, including investment for the launching of Lombon Lab, for in-person fashion show, as opposed to digital ones in the previous year, for the transition of creative direction and the set of all the brand sales and marketing initiatives planned for the second half. While Lombon's results were lower, all of our other brands continue to improve. With the changes we have made at Lombon, we are setting our path for the future, and I'd like to reiterate, we are on track to break even with Badaa. breaking adjusted EBITDA. With that said, I'd like to turn your attention to page 13, where we show our margin evolution. Our historical trend has remained consistent with steady improvement, period over period, and notably, a strong second half each year. While we are still working on increasing the balanced accessory versus ready-to-wear, we have made significant progress in optimizing our product mix to enhance margins. Furthermore, as you can see on page 14, We have stabilized our OpEx with most of the OpEx reduction behind us. We have been able to grow sales while consistently reducing our OpEx at a percent from 107.4% two years ago to 87.2% for the first half of 2023. Additionally, we have been able to keep the OpEx flat period over period, going from $183 million to $188 million, a $5 million increase while increasing revenue by $13 million. Some of the brand-level achievements I'd like to highlight are, first, full-on bond, we have right-side team across function and empower regional leaders to streamline the organization. And we have also scaled OpEx on a near real-time basis with focus on efficiency and critical review of business expenditures. Wofford is nearing completion of its restructuring measures, including the pooling of distribution activities in Milan and manufacturing efficiency and overhead reduction initiatives. For St. John, the office rationalization is on track to be completed in the second half of 2023, including upgrading the supply chain and rationalizing production. This transition to being a brand company as opposed to a manufacturing business has already brought stability to the brand. Overall, the group is in its strongest position ever to accelerate revenue and capitalize on operating leverage we have built. Our entire team is working towards achieving adjusted EBITDA break-even in 2024, and with our results today, I'm confident we will achieve our goal. Turning to page 15, we take a brief look at our global retail doors. We continue to pursue a rationalization strategy to manage our footprint. We've closed several additional doors in the first half as we strive to optimize our unit economics. We continue to effort to rationalize and upgrade our group's product offerings and store network. Our retail sales per square meter have increased globally, and in particular, the greater China region. Furthermore, St. John and Sardarasi show significant improvement in the first half. Much of the work is behind us, and our store footprint is ready to accelerate growth. Looking at our store growth regionally, We took advantage of opportunities in North America and recently opened our new flagship Long Bon New York City stores on Madison Avenue in July. We remain focused on the potential of Greater China as well as new opportunities in the Middle East where we have plans for our first Long Bon and Walpole locations in the regions to be open in the second half of 2023. We plan to remain diligent and optimistic with our retail network in 2023 to optimize our footprint and maximize ROI. Turning to page 19 and looking ahead at the rest of 2023, we're excited about many initiatives we have invested in, occurring in the second half as discussed. We believe the second half of this year will see improving market condition that we'll be able to capitalize on and drive top-line growth. Additionally, we're progressing on a pipeline of new strategic partnership to enhance production capability as well as expand our retail footprint. On the M&A front, we're having discussions with several interesting parties. Overall, we continue to build our unique ecosystem with best-of-kind partners to enhance our performance and shareholder value. With that, I'd like to discuss our brand-level results and upcoming initiatives. I'd like to start with Lombon on page 18. As I mentioned, Lombon focused on a creative transition while managing through a globally softness first half of market. While revenue was down, I'm pleased to report brand gross profit increased from 30 million to 32 million period over period from higher sell-through rates, resulting in margin increasing from 47% to 56%. Additionally, contribution loss remained relatively flat in the face of lower revenue, dipping slightly by 500,000 euros, from a 4.3 million loss to a 4.8 million loss. Lombon's ability to manage through a creative transition through uncertain economy conditions shows the brand's resilience and is credit to Lombon's management team. The brand will complete its creative transition in the second half and will begin to capitalize on those changes. With that, I'd like to turn it over to Siddhartha Shukla, Lombon's Deputy General Manager, to discuss the exciting upcoming innovation.