Ermenegildo Zegna N.V. Ordinary Shares

Hello everyone and thank you for standing by. The Amenogildo Zegna Group FY2024 Financial Results Call will be beginning in just a few minutes time. We thank you for your patience and we will begin shortly. Thank you. Good afternoon, good morning everyone. Thank you for joining the Emeno Gildo Zania Group FY2024 Financial Results Call. Please note that today's material and presentation are available under the zaniagroup.com website. Joining us today is the Zania Group leadership team including Gildo Zania, the Group CEO, and Gianluca Tagliabue, Group CFO and COO. Before we begin, we need to point out that the team will make certain forward looking statements during the call. The group actual results may be materially different from those expressed or implied by these forward looking statements. Also, these statements are subject to a number of risks and uncertainties, including those described in our SEC filings. Please refer to the forward looking statements cautionary statement included at page two of today's presentation. I will now hand over to Jill Dozania.

Thank you and good morning and good afternoon everyone. And thank you for joining us today to talk about our manager group for year 24 results. As you all know, 24 was a different year than what we initially planned. Despite the challenges, we delivered an adjusted EBIT of 184 million euro. And although I cannot be fully satisfied with the numbers we present today, I'm absolutely assured by the proven strength of our teams in navigating challenging moments with discipline and determinations. I would like to start this call by sharing some reflections on last year as well as our outlook going forward. First, let me start my commenting on the most recent event, the Tom Ford Fall Winter 25 Fashion Show in Paris. The person I cannot recall such an An anonymous acclaim from the press and key opinion leaders. The show has been celebrated as one of the best of the season, recognized for its innovative collection and presentation. Also, we generated double the media impact of the brand's latest show. But it's not just about recognition. The show was a powerful testament to either Ackerman's ability to evolve from Ford into a modern and sophisticated interpretation of sensuality and elegance. And we are already starting to see customer interest in the collection. They see now, buy now piece, those already available in stores, being positively received as well as the fall-winter 25 wholesale sale campaign. Of course, this is just the first step. But we must sustain this momentum, and they know that the Tom Ford Fashion Team is fully focused on doing exactly that. It is also important to recognize that this show would not have been possible, at least not with such success, without the contribution of our unique filiera, our integrated supply chain, with artisans working childlessly, day and night, in the lead up to the show to achieve such perfection in every piece. So bravo to all of them. Second, Tom Brown. The February show confirmed that we have already discussed about the brand journey. Tom Brown has always stood for expertly crafted product and distinctive tailoring. The DNA has and always will be there. We built on that to evolve the brand, and this is what the team is doing. We are enhancing newness while protecting the unique Ford bar emblem, improving the brass architecture of the collection and of the in-store offering for both men and women. All this while the company focuses on embedding a strong retail culture. Last week, the brand opened its new store in Palm Beach, Florida, and soon will open LA, California, and New York Madison Avenue. An important step in enhancing its footprint in the United States. Let me also mention the February fashion show and the Reese's result, which confirmed that the brand collection has been highly appreciated by customers. And last but not least, the innovative show that Ducci did at the Grammys. She performed with 20 dancers all dressed in Tom Brown, a further testament of the strength of our brand. Finally, on Zegna, the Velu Sarum exclusive collection and the innovative advertising campaign we launched with Mr. Auro Montanari outperformed our expectations, attracting not only our existing customers, but also new ones. This is part of our future journey. to engage both existing and potential customers with products of the highest quality and exclusivity, outstanding craftsmanship and a unique heritage. In June, we will take all this to Dubai, a market that continues to show impressive growth and appreciation of the Xenia brand. To celebrate our special relationship with Dubai, Xenia will host its first show outside Milan alongside a week-long village experience, the third after Shanghai and New York. That also proves the strength of our personalization project. Let me also briefly touch on two important projects that reflect our commitment to excellence, to giving back, and to the environment. We recently appointed the first 20 maestri of our Academia dei Maestri, an internal school dedicated to preserving the unique know-how we have developed across the entire luxury value chain. It is a significant project inspired by our founder's relentless pursuit of excellence and commitment to the Made in Italy. In 2025, we continue to work to make our group a more inclusive and diverse workplace. I'm particularly satisfied to say that some 50% of our managerial position are now covered by women. And last, for me, the most important, we continue to invest on traceable raw material across our brand. This project launch and the goals achieved are important, but for our group, sustainability is much more than just this. Sustainability and caring for our communities are a part of who we are today. and will continue to be so. Now, let me take a moment to talk about 2025 and our mid-term targets. First of all, let me provide some color on current trading, since I know this will be your first question. The Q1 2025 trend still reflects a challenging environment in China. And in addition, we will continue to reduce the wholesale footprint across all brands in line with our strategy focused on DTC and customer centricity. This will continue to be a particular focus at Thom Browne, especially in the first part of the year. In fact, we do expect the trend in Thom Browne wholesale channel in Q1 of this year to be similar to Q1 24. We also announced today an update of our mid-term targets. We expect to reach a revenue between 2.2 billion and 2.4 billion, with an adjusted EBIT between 250 million and 300 million. These assumptions are based on a still cautious outlook for 2025, with an expected low single-digit growth in revenue and adjusted EBIT. Our assumption for this year factors in the expectation that the current challenging environment in Greater China will persist, in particular in the first semester, also due to the negative trend in Hong Kong. We anticipate more sustained growth in 2026-2027 as the steps we are currently taking across all three brands and our filiera begin to yield results. And you have my full commitment that we are working to turn them into reality. Thank you, and let me turn over to Gianluca.

Thank you, Gildo. Let's move to page 10 of the presentation where we do find full year 24 results key highlights. The revenues for this year were already disclosed at the end of January. and we confirmed them at 1,947,000,000, up 2% year-on-year driven by Zegna Brand organic growth. In 24, the group reached 67% gross margin and adjusted EBIT of 184 and the profit of 91 million. Let's move to the following pages to comment more on this result. On page 11, starting with gross profit, in full year 24, Gross profit rose by 230 basis points to 1,297,000,000 with a margin of 66.6%. The 230 basis points improvement from last year has been driven mostly by two factors. First, channel mix more skewed towards DTC as the major driver of this improvement. In 24, DTC revenues reached 78% of the three combined brand revenues versus 73% last year. And as you know, DTC growth margin carries a higher margin than the wholesale one. Second factor, a better inventory management, which we will see also in the trade working capital base. Let me also remind you that in full year 24, cost of sale still included almost 4 million of Tom Ford fashion PPA-related charges purchased by the location. These charges were instead $15.6 million in full year 23. The 2024 amount is the last tranche of PPA-related charges from the acquisition of the remaining 85% of TFI. That is the company that signed the 20 plus 10 year license agreement for the Tom Ford fashion business. Moving on to SG&A. SG&A in full year 24 reached 1,000,008 with a 51.8% incidence of revenues compared to 47.3 in full year 2023. The increasing SG&A incidence of revenues is linked to three drivers. First, the investment in talent and organization across different functions. We reinforced all the three brands Even it is important to highlight that the investment made at Tom Ford Fashion represents the vast majority of the increase of SG&A in absolute terms versus 2023. Also related to the fact that this year we had 12 months, while in 2023 we had eight months of Tom Ford Fashion. The second factor, the expansion of the store network, including also the conversion of the Korean monobrand stores to DCC for both Zegna and Tom Brown. Clearly, when we launch a new store, either from conversion or not, some ramp-up time is needed before reaching maturity. Third factor, a negative operating leverage, in particular at Tom Brown, since we decided to streamline the wholesale business, which I remind defined by 33% versus prior year inorganic terms. Moving to marketing expenses. In 2024, we continued to invest on our brand. Marketing expenses were $121 million, equal to 6.2% of revenues, slightly above the $115 million mark achieved in 2023, which at that time was 6.0% of revenues. And this is in line with our indication of a fair, mid-term marketing revenues incidence of around 6%. As already anticipated in the call related to H1 results, in 2024 we experienced a different timing of spending in marketing, fully related to the different concentration of events across the year, which has been more intense in H1-24 compared to H2. Let's now move to page 12 of the presentation where we report the adjusted EBIT for the group and bisector. As always, This is the main performance method used by the management to analyze the performance of the business at group and segment level, and you can find all the reconciliations in the appendix of this presentation. In full year 24, our adjusted EBITDA reached 184 million euros compared to 220 in 2023. As Gildo commented, these results reflect largely the challenging sector environment, especially in GCR. And the decision to streamline the wholesale business and some Brown, but reflects also the efforts that have been made to improve costs. And postpone some projects that are that have not been considered a priority. This effort is continuing also in 2025. Recently we have taken, for instance, some important decisions as it regards to our figure where we are reorganizing the activities of the fabric by concentrating them from the current two facilities into just one site. And we are still working on other forms of optimization at 360 degrees across the book. In particular, last year, Tom Brown's segment has been the most penalized in terms of adjustability performance, having recorded the strongest reduction in revenues, minus 21% organic versus 2023. which in 24 has been only partially mitigated by cost control actions. Tom Ford fashion segment reported a loss at EBIT adjusted level in line with our expectation and also in line with the results that we reported in H1. Actually, the adjusted EBIT of Tom Ford fashion in the second half of 2024 came in slightly above breakeven. The full-year adjusted EBIT performance of Tom Ford Fashion reflects the cost to build a platform to support the long-term growth of this business, going from design to merchandising, from IT system to regional leaders, and so on. Last on the segment that, as you know, includes Zegna Brands, Textile Division, and third-party brands. This segment generated an adjusted EBIT likely south of 14%. 70 bits below 2023. This performance reflects our decision to keep on pursuing strategic projects that are important for the long-term of the brand in a market that over the year has become more challenging, especially in GCR. I have to say that on the other side, the team has been responsive on working on cost control and containment actions. On the positive side, corporate costs including the intersegment elimination decrease to 21 million compared to 30 million in 2023, mostly lower cost for short-term and long-term remuneration. Moving to page 13, you can see here summarize our reported income statement. Let me make here one comment on taxes, as you see, In fact, the tax rate moved to 30%, a more normalized level compared to 20% of prior year, which was mainly a result of non-taxable income. As a result of the above, we reported group's profit in 2024 at 90.9 million euros. I can also here anticipate that based on the 2024 results, and acknowledging that in any year, the dividend per share should be at least equal to that of the prior year, the Board of Directors proposed a dividend distribution of 12 cents euro per ordinary share, which equals to a total dividend distribution of roughly 13 million euro. Let me move now to page 14, where we comment capitals and trade working capitals. In line with our indications, cash off capitals