Ermenegildo Zegna N.V. Ordinary Shares

Hello, everyone, and thank you for standing by. Today's Amenajildo Xenia Group H1 2025 Financial Results Call will be beginning in just two minutes' time. We thank you for your patience. Thank you. Good afternoon. Good morning, everyone. Thank you for joining the Emele Gildo Zania Group H1 2025 Financial Results Call. Please note that today's material and presentation are available under the zaniagroup.com website. Joining us today, the Zania Group leadership team, including Gianluca Tagliabue, Group CFO and COO, and Paola Durante, Chief of External Relations. 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'll now hand over to Paola Durante. Thank you.

Thank you. Good morning and good afternoon, everybody. Thank you for being here today on our H1 2025 results conference call. As already has been said by the operator, I'm Paola Durante. And here with me, there is Gianluca Tagliabue, our CFO and COO, and Alice Poggioli, our director. I will briefly comment on first, six months financial results. And then we'll leave the floor to Gianluca for some final remarks. First half 2025 revenues have been confirmed at €928 million, minus 2% organic, driven by a very good plus 6% DTC organic performance. But I will keep commenting more on revenues since we have already seen and commented during our call at the end of July. So let's then move on the presentation at page 7. First of all, we start deep diving on our metrics, looking at the gross profit. First, the 2025 gross profit reached €626 million, with a margin on sales of 67.5%. The 110 basis points margin improvement has been driven mainly by a better channel mix, since the DTC revenues generated 82% of our group branded revenues, which is higher, 6% higher, compared to the 76% in the first six months of 2024. And as you know, you perfectly know, DTC gross margin is higher than the wholesale. Moving to selling general and administrative costs. you know that these costs are, on the other hand, the other face of the coin when strengthening the DTC channel. This cost reached, in the first six months, €502 million, in line with the €498 million in the first six months of 2024. The incidence on revenues has grown to 54.1%, which compares to 51.8%. And this higher incidence on revenue has been largely driven due to three main effects. The first one, a negative operating leverage, particularly at Thom Browne. the cost related to support our long-term growth trajectory, in particularly in building talent team, in building a stronger IT infrastructure, and CRM platform. This in particularly, not only, but in particularly at Tom Ford Fashion. The third element is higher initial cost incidence for the newly opened stores. you know it is normal that at the beginning stores do not reach the long-term revenue, run rate revenue, so the incidence of cost related to the openings is normally initially higher. At the same time, we undertook actions to contain cost across all the three brands, which has helped maintaining under control the selling, general and administrative cost. Moving to marketing, marketing expenses reached 63 million euros, around 7% incidence on revenue, so substantially in line with what we reported last year. And this notwithstanding some important events that took place in the first six months of 2025. You perfectly remember the last day in Dubai, but I also remind you that also last year we had some important events. OK, so with page 7 I would not comment more. Let's move. Let's skip to page 8 of the presentation where we analyze our adjusted EBIT for the group and by segment. First of all, you know that adjusted EBIT is the main performance metric that we use to analyze our business both at group at the segment level. For the reconciliations between adjusted EBIT and operating profit, you can look, you can see on the appendix of this presentation. So, in the first half of 2025, adjusted EBIT reached 69 million euros, with an EBIT margin of 7.4%, down 100 basis points versus the first six months of last year. The reason of this decline is clearly linked to what I already commented when talking about selling general and administrative higher incidents, and also has been slightly negatively impacted by the currencies movement. You remember that since April, currencies euro appreciated in particular compared to us dollar and renminbi which are the two most important currencies for our group let me also comment or add something that we already said during the call in july We confirm that also in 2025, in the second part, adjusted EBIT will be higher compared to the first part of the year. Of course, we are aware that the sector remains challenging and volatile. However, we know that we have implemented actions to protect our profitability. Let's now look to our results by segment. First of all, talking about the Zegna segment, which, as you know, includes not only Zegna brand, but also the textile division and the third party brands. This segment generated an adjusted EBIT of 94 million euros with a margin of 14.3%, which compared to 12.8% in the first semester of 2024. This important 150 bps increase has been led by higher operating leverage, largely as a result of a more efficient DTC channel, and cost control measures. Tom Brown. Adjusted EBIT for the Tom Brown segment was 4 million compared to 20 million in the first six months of 2024. This adjusted EBIT contraction was driven by the sharp decrease in revenues in the period, in particular in the wholesale funnel, and an increase in the selling cost, in particular, due to the DTC network expansion. Let's now move to Tom for Fashion segment, which has recorded a €19 million adjusted EBIT loss, which compares to the €12 million negative last year. This is a result of the plan expected investments that we made in the store network expansion in talent team in building a talent team in building a better, stronger IT infrastructure to create the right size platform to support the business expansion. I leave for further comments and questions at the end. Let's now move to page 9, income statement. Here I just commented on the net profit line, which reached, in the first six months of this year, 47.9 million euros, up 53% compared to the 31 million last year. The increase in profit is the result of higher financial income and foreign exchange gains. These two items combined moved in the semester from a negative 25 million to a positive plus 6 euro million. And this reflects largely, I would say, the fair value measurement of liability for put option. held by non-controlling interest. The most important liability is actually held in US dollars. So the euro appreciation has also benefited this line. And the second important effect to consider is looking at the tax rate, the income taxes. which was of 20.1 million euro in the first six months of 2025, corresponding to a tax rate of 30% versus last year, 35, as you see from the table. I can also anticipate that the tax rate in the region of 30%, 28 to 30% is more aligned to our expectations for year end. And now, Let's look at capital expenditure. So let's move to page 10 of the presentation. CapEx reached 54 million with the incidence of revenues of around 6%. This 54 million has been two-thirds related to investments in the development of the store network across the three brands. And the remaining part is mainly related to the investments in production. You know, we are building the important plant for the shoe business in Parma and also some IT investments. For year-end, you remember we anticipate a CAPEX, an incidence on CAPEX on revenue of around 6-7%, and I can confirm this expectation, also because in the second part of the year, investment for the greenfield production site for footwear will actually kick in even more importantly. Trade working capital at the end of June was equal to €442 million, which compared to €467 million last year. This reduction has been driven by better inventory management, as you can see from the chart, and also lower receivable. The last one clearly also linked to the streamlining of the wholesale business. Finally, on page 11, free cash flow, I just commented that the free cash absorption has been of 23 million this year, euro, and last year it was around 7 million, and this higher absorption, as you can see, has been driven by the lower operating cash flows. No much to comment on page 12, just saying that the net death at the end of June of around the night of 92 million euros was actually fell in line with what we reported at the end of December 2024. I will finish here my brief comments and leave now the floor to Gianluca for the final remarks. Thank you.

Thank you, Paula. Good afternoon, everybody. Let me give you a brief update on the actions that we did in the last few weeks since we last spoke before going to the Q&A session, starting with Zegna. We just launched the Zegna Fall-Winter 25 marketing campaign labeled It's Not a Suit, It's a Zegna. For Fall 25, a new chapter has been presented rooted in a century of style. The focus of the campaign is Zegna Torino, the suit that comes directly from our founder's closet, and we made it with our unique new fabric, the Velusaurium, the finest wool in the world. In the campaign, the Torino suit is matched with pecta shoes that are the winter version of our triple stitch to create a unique, charismatic, and in one word, Zegna look. The campaign accompanies the launch of drop two of the fall-winter collection, which has received in the stores initial positive feedback since we began pre-sales and pre-orders a couple of weeks ago. Moving on to the Zegna DTC network, we are pleased to announce the opening of our new store in Miami Design District, marking another important step forward in the strategic expansion of our presence in the US market. Additionally, we just opened a new Salotto, which are the permanent by appointment stores for our very important client at Plaza 66 in Shanghai, bringing the total to three globally following the openings in Shinkon Place, Beijing and Paragon Singapore. As you know, as I said, the Salotti is a by appointment only store offering exclusive collections that you don't find in the regular stores and the unique shopping experience that reflects the essence of Xenia luxury and personalization offer. Moving to Thom Browne, we just launched the Fall 25 campaign, which in line with the brand communication strategy, reflects an evolution of uniformity to include lifestyle-oriented visuals with distinctive DNA that makes Thom Browne authentic and unique, remaining unmistakably present. On Thom Browne, let me also remind you that since September 2nd, that is this week, we are pleased to have Sam Lobman that has officially started his mandate as CEO of the brand. And finally, Tom Ford Fashion. The first Tom Ford campaign signed by Ida Rakeman has been released and it has been very well received, as confirmed by many comments made by journalists and media experts. Ida's collection touched the store's floor at the end of August. It is therefore early to commence but the first very initial reactions in the stores have been really positive. All in all, I can say we have entered September with good energy across all three brands, but it's essential to remain cautious and vigilant as initial signs should not be considered yet as a consolidated trend. The sector continues to face. Which calls for a cautious and thoughtful approach. As a final comment, I can add that by region, we still continue to see strong momentum in Europe, Middle East, and Americas. GCR remains challenging and volatile. It is true that in some recent weeks, the trend in GCR has slightly improved, also thanks to easier comparison base, but still staying on the negative side. So it is yet early to draw a solid conclusion about this latest trend of GCR. I think I can stop here and we can now open to the Q&A session. Paola.