Brunello Cucinelli Spa

Good evening, Coruscall Operator speaking. Welcome to the presentation of the first quarter 2022 revenues of the Brunello Cucinelli Group. I'd like to remind you that all participants are in listen-only mode. Following the initial presentation, there will be a Q&A session. Speakers will be Brunello Cucinelli, Executive Chairman and Creative Director, Luca Lisandroni, CEO, Riccardo Stefanelli, CEO, Moreno Ciarapica, CFO, and Pietro Arnaboldi, Head of Investor Relations and Corporate Planning. In order to receive help from an operator during the conference call, please press star followed by zero. And now I'd like to give the floor to Brunello Cucinelli. Good evening, everyone. And while we were joining in, since we are football supporters, we were talking about the wonderful match last night between Real Madrid and Chelsea, perhaps among the top four football clubs in the world. So thank you once again. Welcome back, dear investors, analysts and journalists. This is the call on the results for the first quarter of 2022, and we have decided to bring it forward by a few days because we actually realized that we can submit to the shareholder general meeting on April the 27th, submitting the Q first figures, so quite good figures, so it will be much easier to answer any questions during the GM. And then, as is custom, we always like to always bring you up to speed as soon as possible. So I'd like to thank Moreno and his team, who by April the 12th and 13th were able to have the results. And I'd also like to pay my compliments to the Maison Vuitton. I don't know how they can manage to actually disclose all their earnings so early. And also congratulations on the results of the Maison. So as I was saying, this year we would like to hold six calls instead of like we did in 2021 and 2020, instead of four as usual, because we want you to be up to speed with everything. But we believe that this year too will be not so linear. And So I don't know, but you may detect a touch of sadness and low spirits in my voice. But you see, two days ago, I lost my beloved father, who had just turned 100. I actually spent 25 years of my life with him living opposite me. My mother died when I was pretty young. And for 25 years, he was a great advisor in my life. So I can say that my adult years, as a human being, I spent them in his company. You see, he passed away like a burnt-out candle, like we had been burning out candles for his 100th birthday. But I'd like to say that I spent three very important days when he passed away. I was next to him. I spent two nights sitting next to him. You see, and I spoke for so long that I think he said to me, please, stop, shut up, you know. But I think that it's like having talked to myself. And I don't want to be a bore to you, but I will mention one of the reflections that I made today. I think that when I was born, I had a chance to make my father experience the fabulous event of birth because, you see, experiencing birth is special. And now he has reciprocated by showing me the miraculous event of death. So thank you very much for all your shows of sympathy. So as usual, now we are all here. And this is how we would like to unfold, the call to unfold. First, I'd like to read out the highlights for the first quarter. 2022. Then a few words on the wonderful acquisition of a minority stake in Kashmir, because as you know, you don't know much about it because we just announced it. Then thirdly, we have just finalized the acquisition of a very important industrial district called . And I'll give you more detail later on. It was really a company that went down in history in Umbria for 40 years. And for us, it is actually a location, a place where we can draft our industrial project for the coming 50 years. Then raw materials production and prices 2022. And then last but not least, the most important things actually, markets. So, I'd like to read out the figures without decimals. So net revenues 196 million plus 19% at current exchange rates 16. Sorry, current exchange rates 19 and constant exchange rates 16. So we call this quite a good growth in all geographies. 14, America 37, Asia 14, Italy 2.8. About here with the decimal because this really supports and underpins Italy. Then a particularly good rise of sales in the retail channel with a 36% increase and wholesale with a rise of 6%. So as I said before, we completed the acquisition of 43% of the Cariaggi and then we acquired a new industrial land of eight hectares. And then we'll give you more color about this. There was a factory there. And then as to the performance of the business, actually confirms, fully confirms the expectations and guidance of a good and balanced growth of around 12% for 2022 and 10% in 2023. So this is the way I define this moment in time. This first quarter of 2022 ended with particularly positive results and we feel that the brand is experiencing a very favourable momentum worldwide. The excellent spring sellouts and the very important order intake for the Men's Women's Fall Winter 2022 collections lead us to believe that we will deliver our idea of a full year sales growth of around 12%. Then, from a human point of view, our faith in the wisdom of men is always strong and alive, hoping that the day of rediscovered peace among all human beings will be as close as possible. So my dear friends, this is our outlook for 2022. So we basically firmly confirm what we said in our last call in March. So we imagine a full year growth of around 12% with revenues with full recovery of our EBITDA. Then we confirm all of our investments. We also confirm our inventory imbalance. And then if you want to ask questions on this, please go ahead. But I don't want to repeat it once again because we gave you figures a month ago too. The financial position confirmed, dividend plan confirmed, around 50%, and five-year plan 2022-2026 also confirmed. And in 2026, we should actually reach the very same revenues that we had thought of in 2019 for our tenure plan. Then a couple of words on Cariaggi. You see, truth be told, first of all, it is the first time that our company acquires a stake in another business. This is really a first for us. But I have to say that we have done this with a company that is in our same industry. Truth be told, I think that the Cariaggi business can be called the Rolls Royce of the world. You see, that's the way it is. It all started with them 43 years ago. And somehow I owe them, because the first time I went to see them, I say them because there were two shareholders, two partners, Cariaggi and Caprai, they gave me for free 20 kilos of cashmere for my first sweaters. Then we are always sourced from them for 43 years. They helped us with our growth because from day one, they said to me, you can pay me back once you have made your first earnings. And then over the years, we grew together. Hopefully, we... And still today, 90% of their production is cashmere. So perhaps we have contributed to that. then for a whole host of reasons in 2020 there was Mr. Kaprae's shareholder in difficulty, so it was tough that year for them. And the tribunal, the courts asked us whether we could chip in and safeguard and rescue bailouts. And you see, Back then, although it was 2020, we said it, yes, because we wanted to do it for our community, for Kashmir and also to express our gratitude for everything that we owed them. And so back then we acquired 43% and 57% belongs to the family. The family is still in the board and in the board currently there is three members of the family. Riccardo and Moreno from our side. So two families. The important thing, the average age there, the father 75, then children 43, 44. My children, my daughter is more or less the same age. So I believe that for the next 50 years we can still work together because that's our cashmere supplier for 95%. In 2020, when we decided to buy the stake, they had 80 million revenues, and that's what we paid with that kind of estimate for revenues. Then 2021, 110 million, and the guidance for 2022 is around 125. Well, of course, they are enjoying and profiting from the fact that many companies have have somehow abandoned the idea of working high-quality textile. They source in China and Mongolia. You see that China for white cashmere is the best procurement market in the world, and Mongolia too. We have a joint venture in China that guarantees 30% of raw material. We find, we have always claimed that they have very high top-notch quality, great deliveries and also a lot of taste in colours and sometimes we survey some yarns together and we develop some yarns together so this acquisition provides a great guarantee for the future in terms of raw material. So it is a strongly strategic investment But it is the first one we make, but it is still in our business. So we are particularly pleased with it. And then, as you know, I am in love with manufacture and also product. And then the purchase of this new industrial land, a couple of minutes to be spent there. It's important. So here in the village, we have about 40,000 square meters and then a lot of plots of land. These are all regenerated companies, factories dating back to the 60s or 70s. And then as a foundation, we bought about 50,000 square meters as a foundation and which we then torn down to beautify the land. Then just outside of Solomeo, There is this huge, there are these huge facilities, 300,000 cubic meters, and it is a factory, they used to make iron carpentry, and they actually built the Perugia Stadium in three months once we were promoted to Serie A. The owner is an amiable guy, 600 billion liras revenues back then, So for Umbria, sea chill was a very, very serious business. Then decommissioned for about 15 years, the court called us and we actually decided to perform this acquisition. Of course, we made this decision and we started reclaiming the land. So only land will be left out of these eight hectares. It is full of asbestos and paint, but there's nobody to blame here. The thing is that that's what they used 50 years ago. And we believe that this area can definitely give us the opportunity to develop our business for the coming 50 years, because, well, hopefully we will have the need to develop. But what we would like to say for today and the future is that all the area, actually, where our company lies, it's always factories, these used factories, reclaimed land. We can say that we have not used good land which is suitable for farming. So this year we will be reclaiming the land and then we will start building in 2023 according to the needs. Until 2024, As we have said in the past, the current facilities can still cater for us and our revenues until 2024. We discussed this at the board meeting today, too. We really value the real Italian industry. You see, industry, there is not much talk about it. We often talk about distribution, stores, all is very important, but you see real Italian High quality production is very, very important to have a timely production, a top-notch quality production. And you should also consider that our organization, our products in general, we have calculated that about 52% of our handcrafts are done by hand, made by hand with needles and you see and so we have a very high rate of craftsmanship. And everything we do is an expression of creativity. So the objective of this acquisition, please do not get frightened because of the investments you see. So first of all, we will be reusing land, we will be reclaiming the land, reduce our emissions and we will be strengthening the Italian industry. We calculated our maths on emissions and thanks to this reclaiming, we will definitely boost, actually lower our emissions. You know that I have always loved products and I really, truly believe that product is always the issue. I keep saying to you, especially young people, if you have a beautiful product made well, delivered well, life is always a bit easier. So that's what I wanted to say about this new land. And I hope that in May, June, July, you can come and visit. We can spend the afternoon together also to meet in person once again. And now one minute about raw materials production and prices. So we have delivered the summer collection by February very, very well. And we will be delivering timely also autumn-winter 2022 because the raw materials are all in-house without swings in prices because we set prices twice a year when the collection comes out. We set exchange rates. We just want to profit is never the result of speculation. It's always an industrial profit. You see, we had a discussion with our suppliers. Words has it that there is a shortage in raw materials, but I'd like to pay tribute to our suppliers. The truth is that we have tried to reduce procurement. What do I mean by that? Yes, to reorganize our inventory, our stocks. But you see, for example, the white shirt that I'm wearing now, it takes two months to make, but three months of material because you need to buy cotton, dye it white, and then weave it.

And so there is...

So you always have to have your raw materials in-house. So I think that businesses need to have a fair inventory, fair production. I remember that a few years ago, someone said it is so good to work with someone else's inventory. And when we and my staff met, I said, well, this is quite an old story. We want to work with our inventory. We want to be efficient in reassortment, restocking, and deliveries. And they even asked us whether we wanted to work together. And I said, no, you work with your own inventory. We're never going to work with someone else's inventory. So we believe in a very classic industry. And this year, a new project started. Well, no, actually, it's not a new project. We have had schools started. for many, many years, but we call this a time for crafts. We want to invest double, triple in order to attract young people to take up these trades. And we need to reattach moral nobility to these trades because you should not be ashamed of being a tailor. And secondly, economic dignity. And here we go back to What I keep saying, you see, you need to work at a pleasant workplace. You need to be rewarded accordingly because otherwise how can you make beautiful products? How can you attract 25-year-olds to work in places without any windows? I'll just give you an example. You see, the Perugia Hospital, very ancient, beautiful, built a century ago, It had been built from scratch. And then on the first floor, you would see the whole of the valley. Now, in the new hospital, there are two, actually, stories below the ground. And so there are people working below ground. And now there's a lot of absenteeism. So workplace is really key. Also, the way in which you treat your staff and wages and salaries, this is always going to be important because this way you can actually talk people around to taking up these trades. Then I spoke about prices before. We make the price list twice a year. So from January to June we have the summer prices and then July to December we have the winter prices. And they increase according to the raw materials and the actual costs. So we never have any positive or negative surprises coming from this. Now, markets. So 2021 for our company was broken down as follows. 33% USA, 42% Europe, 24% Asia, 15% of which China. This year, well, we believe that the full year will be similar 33, 34 US, 42 Europe, and 24 Asia. And China, out of 24, will be 15, 16%. Then channels, at the end of 21, 60% retail and 40% wholesale. In 2022, precisely the same ratio. So, same growth. And as you know, we are firm believer in wholesale because their suggestion is always extremely useful. And the other day I was talking to our client, Neiman Marcus, when you talk about taste and you are told that your collection is contemporary and cutting edge, you work in another kind of mood because you have a contemporary collection. So US market, very, very well. I would even say excellent. But you see, some of you write extraordinary. Well, we actually believe that it is quite a good performance. That's very tasteful. But you see, maybe extraordinary is not the right term. I would say that last year, the first half was better. You see, it was not like this. So we would like you to define our performance in the USA as a good performance. This was the case in the second half of the year because everything had gone back to normal in the second half last year. And still today there is a good mood. It seems as if the pandemic has a way worn off for them. And as we were saying today in the board meeting, we believe that still for This year, we want to highlight mainly domestic markets. You see, truth be told, if I have to travel to London and Europe, I feel confident. But if I was to travel to Japan, you see, of course, I long to travel over there to the US, China and Japan. But I would be a bit more on edge, you know, having to spend so many hours on the plane. I haven't caught COVID yet. And I think that I'm one of the few countries So I'm being very careful, but of course I expect to catch it too. So the idea is mainly domestic markets. Then still on the US, resorts are doing great. Aspen, Palm Beach, but also big cities. Very interesting. New York too. And I think that still for this year, each and every one of us will travel within our country's borders because that's the way we would feel safer. then Europe, our beautiful Europe, we have always believed very much in it, especially in terms of taste, but also for the US. Because in the past few years, Americans buy the very same taste as Europeans. And for us, Americans do that. Then the Eastern consumers go and check out the American shops and stores. So Europe, very well. With Luca and Riccardo, we were saying that we call it new normalcy in Europe. And of course, we do miss traveling, but hopefully in September, October, we will start again. And for example, I myself have planned a trip to the US in September, and I don't know, I have been vaccinated three times, but I haven't had COVID, so maybe I would feel safer if I had caught it. Any Asia, very important. Japan, very well in terms of mood, taste, identity. Also very good in Korea, a market with a growth potential for us. And then China. I jotted down the following comments. China is also doing well. China is not growing as expected, but nevertheless closing a positive quarter. So in the last month or so, I'm reading out now, lockdowns are taking place in some cities. But we have noticed that once the confinement ends, life resumes rapidly. And Do you remember when in 2020 on March the 11th we received the video showing all our staff working back at work with face masks on and then April, May and June they did well because they were coming out of the confinement. So this is what I want to say about China. For us it has been a slightly more positive quarter and You see, sometimes I read words like growth in China slows down because maybe it's 5%. So I said to Pietro, can you research the GDPs in China? 1991, GDP was 0.5 trillion. In 2001, GDP was 1.3 trillion. 2011, GDP was 7 trillion. Last year, 17 trillion. Of course, if you grow by 5% starting from a baseline of 17, it's a bit difficult. So what I think is that this giant country, since I tend to have a very long-term view, I think that in the coming years and decades, this giant country will be a great market for us, for you, for our next generation. Of course, for us it is not yet of great significance in terms of turnover, because we have about 15% of our total turnover, but you have young actors, young actresses that are being photographed wearing outfits and without us sponsoring them, obviously. So we like the image of our brand, a no-logo brand in that kind of part of the universe. So you see, it is a market that we focus a lot on, more time than the actual revenues, because we are convinced that if our human beings actually understand the true cultural value of China, it will be much easier. You see, we had a meeting with a professor who gave us very strong insight about China, and perhaps if you are prepared, you can forge a different relationship. And then, last but not least, the collection, we have only one single collection, the same one from east to west. Of course, sizes change, the weight changes, because in Germany, of course, we have heavier items, but the taste is always the same. And to conclude, we would like to say that we keep working in a very focused manner, very serene and peaceful, because our brand is doing well taste-wise too. And so we are experiencing a good time, a good momentum, and we are very confident for the time to come. I'm pretty convinced. And we also are convinced that we will achieve the results that we have laid out for you. And then, you see, we can't conceal some concern in our soul because of what is happening. but hopefully it will be over soon because I'm sure that soon the long-awaited and desired peace will be made. So thank you very much. I'd like to open the floor for questions. If you have any questions, not just now, but maybe during the day, just give us a call. You, investors and analysts, we will be happy to help you. I keep saying that you need to have the courage to listen. We got listed 10 years ago and on the 27th of April, and I was speaking with the new CEO of Borsa Italiana, and I said, I can come and advertise for you because I think that companies need to open up. You see, some companies resort to private equity funds instead of going public, but we ourselves are very happy with the listing of our company. Thank you very much. So, Carlos Coloperator speaking. We will now start the Q&A session. Whoever wants to ask a question, please press star followed by 1 on your keypad. In order to exit the booking list, please press star followed by 2. Please ask your questions using the microphone. Whoever wants to ask a question, please press star followed by 2 now. There will be a few minutes of silence to allow for the booking of the questions. Flavio Cereda, Jefferies, first question. Thank you and good afternoon. Brunello, thank you for holding this call despite the difficult time you must be going through. I have three questions for you. First of all, U.S., When you talk to Massimo Caronna, do you notice any disparities per geographic geographies in the US vis-à-vis the pre-pandemic time? Because in other companies I see some difference, so differing performance depending on the geographic area in the US. Second question, in the guidance you have confirmed plus 12 and then plus 10.

I take it for granted. So I'd like to know, well, I'd like to have a few more colors on this.

And then medium term, well, you already answered this question. Now, the mix between retail and wholesale, what is the ideal mix in three or five years? Is it still 40-60 or do you think it will be broken down differently? So, very interesting questions. So, up until today, Flavio, as far as the US is concerned, You see, Massimo keeps telling us that everywhere is fully booked. In Palm Beach, Miami, the other day, our friend Stefano Domenicali, he said that today they have put out for sale some tickets for the Formula One, $30,000. You see, but we do not feel any difference, Flavio. There is a full... life in New York, maybe Los Angeles not.

So medium term.

The channel mix, we think that there might be a slight increase in favor of retail because we have 500 accounts, but actually 400 accounts worldwide, wholesale. I think that maybe they could become increased by 100, 150. But I think that the company grows a bit faster. So if you were to ask me, I would say that in two or three years, it could be 30, 70 and 30, the split. But just because of, not because we want it to be like that. And then Russia, you see, I do not think that what you said will come true. I really trust the wisdom of people. And you see, economies are so tightly intertwined and linked that my feel is that a solution will come about. That's what I envisage. Well, personally speaking, I have no prejudice towards any human being. But of course, human beings are one thing and politics is something different. But I can't even imagine that it lasts for 30 years. Well, hopefully it will not. Thank you, Flavio.

Thank you for your interesting questions, as usual.

And Flavio, if there was some about the question on America, you see we speak to Massimo, Nima Marcus, Sachs. We will let you know if anything changes immediately. Because maybe this way we can help you understand East Coast and West Coast, the differences. But for the time being, we do not see any discrepancies or disparities. Next question by Andrea Randone, Intermonte.

Thank you. Good evening. On my behalf, I have three questions. The first one, a comment on collections, men's, women's, and kids' So a question just general on collections.

So what is happening with the reopenings? And third, China. I apologize, but the sound is really bad. Maybe you can see some opportunities in retail in China there. Thank you, Andrea. So on China, I'd like Luca to comment on this. He's a specialist, an expert in China. Then collections. First of all, we'd like to say that men, women, in terms of number of items, is half. I mean 50-50. But of course, in terms of revenues, women's is worth 58 because women spend more than men. But I have to say that we feel that, of course, the prize we were awarded last year by the UK has translated into really brand awareness. Then online, very interesting. As usual for us, we think that 60% of shoppers in physical stores, they actually searched the goods online first. But I keep saying that the online will still be important. But do you remember when someone in 2020 wrote that everything would be switched online? I remember that in our board meeting, someone said, In the future, we won't even need to have a secretary or someone making coffee for us because we will all be talking through the screen. Well, I do appreciate technology, but we understand how important it is to step into a store and then to be met by physical people. And by the way, Precisely today, we have entered the training of 25 brand ambassadors here in Sonomeo. And if you go to a store, a physical store, and you are met by a very nice sales assistant, you will always want to go back there. So online is important. Its growth is important. I am not one of those who thinks that the online will replace the business. So we think that online could be between 13 and 14. Well, you see, we have 40% wholesale, so it's difficult. Direct is seven. But we think that we can maybe achieve 15, 18, 16. But I never think that online will never make up for 40% of our business. The other day I bought a wristwatch. I went to Milan. And you see, I had a chance to actually see it, to touch it. And there was a great sales assistant and I had to leave, otherwise he would have given me, sold me three or four wristwatches. And now China, can you reply, Luca? So we... are very happy with the result in China, and even more, we are happy about the positioning and the appreciation from our customers. Of course, in China, ready-to-wear as a category is strengthening and consolidating. And another important thing is the fact that Chinese customers are looking for a no-logo, high-quality product. And they are very demanding in terms of quality, Brunello says. And they are really good connoisseurs. And young people, they want to know where it is made, how it is made. This is something very new and very fascinating too. So as Brunello was saying, China showed us the way out of the pandemic at the start of 2020. So we are not at all worried that these turbulence problems might this temporary turbulence can change demand. You see, we have less than 20 stores in domestic China. Our network is still very limited. And all landlords and players, they are showing really bringing vitality that is not equaled by other geographies in the world. We can't be directly there in the field, but I speak to the landlords on a daily basis. They are presenting us huge malls with a lot of interest for the best brands. And then in terms of wholesale, as you know, we were pioneers in discovering city by city discovering the beautiful specialty stores already present in the territory, we keep scouting for more, and I have to say that the quality is rising, the numbers are rising, so in our strategy there is retail but also wholesale development. Yes, and to close on China, I don't want to be too optimistic, but truth be told, I think that Everybody will have positive earnings like with Vuitton but of course this is my take like with on January the 7th when we held that call and we said we think it will be a great quarter for all brands and that's the way it was. So what we feel there is a very good mood around luxury worldwide But of course, there is the war in Russia, the Ukraine, there is the confinement, but there is a good mood, generally speaking. Thank you very much and happy Easter to you too. For any further questions, press star followed by one on your keypad. I'd like to remind you that if you want to ask a question, you can press star followed by one on your keypad. Mr. Cucinelli, there are no other questions booked for the time being. So the call is always a very interesting opportunity. So this is just what we think. but the mood that we feel around the world is particularly positive. So we try and be confident all the time. I'd like to thank you very much for everything, and we are available. And the more questions you ask, the better it is. And then next year, we will go back to normalcy, and we will hold four calls a year, although I do enjoy these calls. But you always need to have the courage to listen. So best wishes, happy Easter, and goodbye. Coruscall operator speaking. The call is over. You can now disconnect your phones. Thank you.