Brunello Cucin Unsp/Adr

Good evening, Costco operator speaking. This is the presentation of the first half 20 results of the Brunello Cucinelli Group. I'd like to remind you that all participants are in listen-only mode. So the initial presentation, after the initial presentation, there will be the opportunity to ask questions by the financial markets. Speakers will be Mr. Brunello Cucinelli, Executive Chairman and Creative Director Moreno Ciarapica, CFO, and Pietro Arnabolti, Head of Investor Relations. 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. The floor is yours. So here we are, and good evening, everybody. I hope you are all well-rested. so good evening investors, analysts, and journalists. You know down well that we always appreciate these exchanges very, very much. We actually spoke just over a month ago, but during this year that we have dubbed a transition year, it was our desire to basically release and communicate data pretty often and also to convey our impressions on how the market and the world is doing. We're all based here in Salomeo and would like to schedule the call as follows. I'd like to read out the highlights of the first half and then my comments and after that the CFO Moreno will delve down and then I'll resume the floor and tackle the following themes. First of all, how the company operates today, then deliveries and winter goods production, then physical collections for spring-summer 2021 and orders of the multi-brand accounts in our portfolio, then our take on the multi-brand performance, e-commerce, Then excess inventory in the first half, but I know you are familiar with this theme. Then the performance of markets, very important. And then a sum up of the expectations for the second half of the year, i.e. the third and fourth quarter. And then one last thing, the sum up of our expectations for 2021 and 2022. I'd now like to read out my comments. slight decrease in revenues expected revenues minus 10% supported by the solidity of the business and of the strong order intake for the spring summer collection 21 with a positive performance expected performance both for the third and for the fourth quarter first half was strongly impacted by the closure of a very high number of boutiques worldwide due to the pandemic. Net revenues, you're all familiar with this figure, as of 30th July, 205 million minus 29.6 at current exchange rates minus 29.8 at concert exchange rates. At the DA adjusted, minus 14.1 million with an incidence on revenues amounting to minus 6.8 EBIT adjusted minus 29.8 million euros, incidence on revenues minus 14.5. Then net income adjusted minus 25.8 million euros, incidence on revenues of 12.5%. Then investments, 22.4 million euros in line with the three-year plan and net financial position 136.5 million so this is the way i have defined or described this half following this half year strongly impacted by the pandemic we are now moving towards the significant trend reversal since july the first we have been looking at the company with a fresh new eye considering this to be a year of transition between a past time and a new time having reached the end of august We can envisage that this trend should result in rising sales compared to last year for both the third and the fourth quarter. Therefore, 2020 should feature a slight decrease in turnover of around 10%. As to the collections, the Spring-Summer 21 collections have been met with much success. and the ensuing sizable order intake prompts us to envisage a good 2021 with revenues increasing by around 15%. In addition, the above leads us to view 2021 as the year of rebalancing. And now Moreno, the CFO, will focus on the details, and then I'll resume the floor. Thank you. Good evening, everybody, and thank you, Brunello. I'd like to sum up some issues that have some topics that are typical of the performance of results in the first half 2020 and of course available for any questions. We'd like to recall that in all these months strongly affected by the pandemic, we have kept our corporate structure unchanged and strongly sound. maintaining and guaranteeing the employment level and the wages of all our co-workers with a healthy cost control in order to resume a multi-year growth plan as early as in the second half. Slide number 9 of our presentation basically shows the income statement and it proposes an adjustment of the items concerning the EBITDA, EBIT, EBT and net income. The adjustment of data as of 30 June 2020 neutralizes the accounting effect of the application of the IFRS 16 principle and of the extraordinary provision of 30 million euros concerning the new project Brunello Cucinelli for Humanity aimed at donating the excess apparel that was the result of the emergency COVID-19 situation and of the subsequent temporary suspension of sales. This provision is mirrored in the item adjustment to the value of assets and it mirrors the estimate by the management about the value of the items above. The adjustment of figures as of 30 June 2019 neutralizes the accounting effects of the IFRS 16 like this year, and the tax benefits arising from the so-called patent box amounted to 2.5 million in the first six months of 2019. Slide 10 brings a detail of the reconciliation between reported and adjusted values. The value of adjusted value amounts to minus 14.1 million euros as of 30 June 2020, and EBIT adjusted amounts to minus 29.8 million euros before moving to commenting the balance sheet would like to report the stability of the first margin on slide 11 amounting to 67.1 percent as of june the 30th 2020 against 66.6 percent last year whereas The operating costs performance is linked to the initiatives ongoing, which keep supporting future growth plans and keep the strength of the corporate structure. We'd like to point out some cost benefits linked to some reductions in leases for the lockdown confinement periods offered by some landlords in Asia and Russia, as well as some contributions issued by the government to support employment and wages. These savings, as a whole 7 million euros, basically accounted for an incidence on revenues of 3.5%. As far as net working capital is concerned, slide 13, the inventory reports an increase linked to two main effects. The first one is the confinement effects with the deliveries of the winter collections that were postponed by the very same amount of time, but it was, however, very effectively caught up with a lot of work. Secondly, the development of the business, the expansion of the network, including five new direct boutiques in the last 12 months, two hard shops, and sizable Expansions in selling spaces, the development of the new kids collections and the Sartorias Romeo project and finally increase in the digital channel. The reduction in receivables mainly mirrors the performance of sales during the lockdown and the concession of some deferred payment terms to some of our multi-brand clients. This activity resulted in receivables past due, as of June 30, 2020, increasing by 11 million euros vis-à-vis last year. In the past, we made the same choice when, for example, in 2001 and 2008, we managed our receivables with the very same availability and flexibility. And the result of that was that short-term we went back to normal without compromising business opportunities. Considering our receivables healthy and payable, we have prudentially set aside the provision for doubtful receivables in amounts of 840,000 euros. Therefore, the balance now amounts to 1.9 million, balance of the provision. And the use of this provision for losses occurred in this period was very limited and amounted to 235,000 euros. As far in line with our history, which usually losses on receivables were always 0.1% of revenues. As far as trade payables are concerned, no changes in the payment timing vis-à-vis suppliers, co-workers and advisors. In the first half 2020, we thought it was a priority to maintain the strategic investment plan supporting the brand, production, and the exclusive presence on markets. Investments over the time concerned, on slide 14, therefore amounted to 22.3 million euros, up against the 18.8 million euros invested as of 30 June 2019. As far as the financial position of the group is concerned, Slide 15, the net financial debt, the characteristic figure amounts to 136.5 million euros as of 30 June 2020 against 46.6 last year. Including the financial debt for leasing as required by the IFRS 16, the net financial debt amounts to 621 million euros vis-a-vis 436 million last year. Due to new leases contracts, the performance of net debt over the time was strongly impacted by the effect of the pandemic. That can be summed up in three main streams. The increase in networking capital, the extraordinary inventory write-down, the lower contribution margin produced by the decrease in revenues as of 30 June 2020. All considering the above and the need to have additional funding sources, during the first half 2020 new loans have been taken out, granted by banks on a trust basis, i.e. without triggering the business support measures made available by the Italian government. Starting from March, The new loans granted, amounted to, taken out, have amounted to 116.5 million euros with competitive interest rates, and therefore with a balanced impact on the income statement. This is the end of my presentation. Thank you very much, and I give the floor back to Brunello. So here we are. So basically, since July the 1st, we want to look at our company with a new fresh eye without being subject to what happened in the first half. We consider this time as a transition year between the past and the new time. As of today, we can say that we have led our company to a safer shore and we have conveyed to our esteemed employees physical safety at work, and also the security of having a job. Across the company, the awareness is strong that we need to be quick, flexible, pragmatic, brave, as we know that it is important to be able to live with the virus that can evolve on a daily basis. So the company is basically fully operational today with a 2024 deadline. With 2,224 employees, they're all at work. As you know, with COVID tests carried out every two weeks, this project started back in April and will end when the pandemic ends, hopefully soon. But this way, we can work in the company feeling more secure. And now, deliveries. We have completed all the deliveries of the winter goods according to the timing that we had set. Everything had been caught up with by July the 30th. All stores worldwide are only displaying fall-winter 2020 goods, as it has always been the case. And this is translating into very positive results in terms of both sell-out and image.

Collections.

spring-summer 2021. These collections were displayed physically in the showrooms in Shanghai, New York, London, Munich, Milan, Salomeo, in the time when it was decided, that is in July, like every year. I'd now like to focus on this interesting topic. It could be perhaps we have designed the most beautiful collections in our heritage, in our 40 years of history. This is the judgment passed by our multi-brand clients and also our store managers. The press has not yet seen them. This usually happens in September. And this is a great result also supported by the new trend in taste products. that is very akin to our taste. Order intake, very important. It is close to 60% and I would like to say that it has been exciting. And all this augurs well for an important pickup and recovery in the second half of the year, as well as a great start to 2021. Our impression is that many multi-brand clients, you know, we have 500 accounts, are strongly selecting their suppliers, both based on the taste of the collections, which is the way it usually goes, but also, at this moment in time, based on the soundness of the company. And this relates to timely deliveries, special help with weekly restockings, And also the fact that it was possible to physically see and touch and feel collections was very important. You know, buying a $7,000 suit without even touching it is not the same thing. So as far as collections are concerned, drawing to the conclusions, we can say that these true beautiful multi-brand accounts we'd like to pass a very positive judgment on them because what is happening with them is that they are redesigning, reshaping their business. And they are trying to now sort out the companies, sorting out their partners, and trying to single out the reliable companies they want to make business for in the next three to five years. So we are very happy with their new planning, very interesting for us. because we want to always have a mix between multi-brand and retail business 45 and 55 is the percentage and we are investing on this we have been for a long time then e-commerce the excellent performance of this channel is continuing over the past few years we have invested heavily in this channel, both in terms of money, but also in terms of time and mind. And of course, it's a fundamental channel for communication. And as you know, the structure is also equipped, the facilities are equipped to grow, to also sustain an important growth in the coming years. The conversion rate is extremely high in the e-commerce sector. A couple of words on the inventory, first half, the excess inventory. And we had done the write-down on this. Everything is closed. We don't need to do any more impairments or write-downs. I know you're familiar with this project, but I'd like to add two very positive notes that, frankly, moved us somehow. The first remark is that over the past 30 years, we have been contacted by a wealth of people worldwide who are really concerned and keen on improving mankind. Just to mention one, the beautiful and very humane Sharon Stone. The second important thing is that we have given very important interviews on this topic The latest one happened yesterday with the very prestigious New York Times. And tomorrow, we have another important interview scheduled with an important Chinese television channel on the very same topic. And as of today, we can say that this extraordinary project concerning this year, Ronello Cucinelli for Humanity, really is a great resource for mankind and for the company itself.