Kering Sa Ord

Thank you. Good evening to all of you and welcome to Caring's 2023 Altshare Results Call. Jean-Marc Duplex, our brand new CEO, will go over the operational and financial highlights of the first half in a moment. But before I give him the phone, it's important for me to go over the rationale of the changes in our organization we announced last week. As you saw, I made a series of major decisions that will have a profound impact, and I want to make sure that they are well understood. As you have also seen, we've just announced that we are buying a 30% stake in Valentino, and I will also say a few words about that. So, why did I decide to modify our organization, and why did I want to do it now? As I told you at the time of our full year results, we had some reasons to be satisfied, of course, but we had also reasons to be disappointed with our performances and starting with Gucci. I heard many calls for new brand leadership, some kind of musical chairs at the end of our houses, but what we needed in reality was much more than just moving people around. I wanted to change the way we operate for the long term. In fact, in the past decade, we tripled the size of caring as we leverage our brand's visibility and visibility to build their scalability. And then, having achieved that, we will continue, of course, to leverage the visibility and visibility of our brand, but at the same time, reinforcing the exclusivity is our top priority. and this requires another set of skills at group level to guide and to support the brands. Over the past 10 years, we've made great progress in becoming an integrative luxury group. This transformation, however, is not yet complete, and we can still improve the way we see our houses so then they can reach their full potential. So, in a nutshell, the rationale of our reorganization is the following. It is to elevate the operational expertise at the group level. It's about enhancing our stewardship of our houses. And it is to empower them to focus on their core know-how. And I'm certain that this reorganization is a decisive step, not only in getting our performance back on track in the short term, but more importantly, to capture the growth of the luxury world for the next decade. So, in their new roles as deputy CEOs, Francesca Belletini and Jean-Marc Duplex instilled the group and its houses in an efficient, coordinated, and determined manner. Francesca has done a great job in her tenure at Saint Laurent, transforming it into a luxury powerhouse overseeing a successful designer transition, and building a winning management team. And by the way, Saint Laurent has been the most consistent growth story in the group. So from no harm, all brand CEOs will report to her. In over a decade, Jean-Marc has taken more and more responsibilities in addition to his core finance brief, and he demonstrated that he has the right leadership skills to let all the group cooperate, as well as financial functions. Francesca and Jean-Marc will report to me, and together we will conceive the strategy of the group and its houses. We will direct its execution and oversee their performance. And I'm looking forward to working directly with both of them in this new configuration. Then, I have decided that Gucci needed a change in leadership for this new period. Marco will lead the group on September 23rd, after Sabato de Sarno's first fashion show. Jean-François Pallu has been, as you know, by my side for several decades now, and he knows the group better than anyone. He also knows Gucci perfectly, and he has worked with many Gucci executives over the years. So, by teaming up with Francesca, it will be immediately operational to ensure a smooth and efficient new chapter at Gucci. Jean-Francois will drop his board responsibilities and he will be moving to Milan in September. Over the next month, we will iron out some of the details of this setup. I am confident that this team and this organization represent what the group and all its houses need to face the challenges and opportunities of the global luxury landscape. This being said, I wouldn't want you to believe that we pressed the pause button as we were working on this arrangement. In fact, H1 has been a busy period on many fronts. We pursued our investment in our houses' desirability, in their visibility, and in their exclusivity. Their fashion shows, their events, were among the most viewed in the sector, like, for instance, the Saint Laurent Men's Show in Berlin that you can see here. We organized a number of events to raise our profile in Asia, including the Gucci's highly-uploaded Cosmos exhibition in Shanghai and its cool show in Korea. or the Bottega Veneta repeat show in Beijing that happened last week. We reinforce the top end of our product offer, notably in high jewelry collections at Gucci, at Boucheron, but also Pommelato, showcasing you the unique creativity and heritage of these houses. And we further raise the quality of our distribution and client experience. For instance, here you can see Bottega Veneta's recently reopened store. This is in London on Sloan Street. And this store was qualified by a fashion publication as a library of good taste. Tightening our control over our supply chain is also a priority. And we have made strides in this area as well. We've moved, like, the acquisition of UNT by Caring Eyewear, or the opening of Bottega Veneta's specialized atelier near Padua in the heart of the Italian shoe manufacturing area. Of course, a major highlight of the first half was the launch of Caring Botte and its first concrete step with the acquisition of the famed House of Creed, the iconic iron fragrance maker, which will propel our entry into the world of beauty. Finally, we remain at the forefront of the sector in terms of sustainability commitments. Here we publish the second edition of our biodiversity strategy, reinforcing our deforestation and conservation-free policies. And we also became one of the early companies selected to pilot the world's first science-based target for nature. And this busy period did not stop at the end of the first half. We are thrilled to have reached an agreement with Mayula to take a 30% interest in the equity of Valentino. The agreement could lead to carrying reaching 100% ownership of Valentino no later than 2028. And this is part of a broader partnership agreement, and we will explore potential opportunities that are aligned with our respective strategies. Valentino is a house that we have always admired. It's an amazing Italian name rooted in haute couture and known all around the world. We are very proud to be able to support the brand innovation strategy that successfully implemented in the past few years. We are also delighted to work once again with Jacopo Venturini, whom we know well, and his team that has been running Valentino for the last few years. I think I don't need to go over the details of the deal, which are included in the news release, and summarize on this slide. Just I want to mention that we're hoping to close this operation by the end of this year. We are honored to have been chosen to work alongside Mayula on the development of Valentino, as well as on other potential opportunities. And now I will hand over the mic to Jean-Marc to review our 2023 first half performances. Thank you, François, and good evening to all of you. On slide 10, our review in the first half stood above the €10 billion mark at €10.1 billion, up 2% reported and comparable year-on-year. The two-point positive SCOP impact from Maui Gym broadly offset the negative FX impact. In Q2, revenue was also up 2% reported, but with a higher comparable growth, up 3%, SCOP contributing permanently for an additional 3%, while FX was 4% negative. In the first half, Our total revenue breakdown by region changed quite substantially year on year. Asia Pacific accounted for 37% of total, up three points. Western Europe and Japan both gained one point, respectively at 27 and 7% of revenue. All these gains were at the expense of North America, accounting for 22% of revenue, down 5 points. I will discuss the dynamics driving the geographic mix. On slide 11, we provide the breakdown of revenue by segments for Q2 and H1. Comparable growth in Q2 was higher than in Q1, driven by better governance and caring hardware, as well as some improvement at our other houses. On slide 12, let's dive into Q2 top line by channel and region. Retail accounting for 77% of review was up 4% comparable or 8% excluding e-commerce. Online channel penetration decreased to 12% of retail sales and infection after the stellar growth observed in 2019 as customers return to install shipping. In addition, the online channel is more exposed to aspirational product categories. Another feature of the second quarter is the confirmation of the recovery in tourism. Worldwide, tourism accounted for nearly 25% of sales, with Western Europe and, to a lesser extent, Japan over-indexing. Both North America and Asia Pacific were more skewed to locals. Turning to the regions, Western Europe moderated sequentially, up 4% comparable in Q2, on a very demanding income base, on the back of some softness with locals. The world was largely skewed by tourism, mostly American and Asian, with a gradual return of men and Chinese, although they are still standing 60% below Q2 2019. Conversely, North America remained under pressure, down 23% comparable, a picture that is not very different from Q1. Traffic was not supportive across most brands and sales were particularly impacted on entry price points. The U.S. cluster Fared slightly better, down less than 20% in the quarter. Momentum in Japan was sustained with a retail of 26% comparable, a trend similar to one. Growth ensued by tourism, mostly in Asia, notably from greater China. Moving to Asia Pacific, the region accelerated sequentially up 22% comparable in the quarter. Greater China with the key driver up more than 50% with a strong rebound in mainland China and very high growth in Hong Kong and Macau. Some of our housing performed better than others with YSL and Balenciaga standing out. The rest of Asia was less supportive partly due to tough outcomes, but also to persisting softness in Korea. And finally, the rest of the world was up 5% comparable, mainly due to the Middle East. Ulsan and other regions were down 1% comparable with very different situations. An 11% decline from our luxury houses as we continue to enhance the exclusivity of their distribution, a strong performance at Caring Eyewear at 21% excluding the scope impact from Maui Gym, and a 13% increase in royalties and other revenue. On July 13, a global view on recurring operating income, pre-cash flow from operations, and net debt in another year of investment for the group. Recurring operating income was 2.7 billion euros, a limited year-on-year drop. Elite margins stood at 27% and maintained a very high level of profitability, although lower than last year. This reflects the ongoing reinvestment in all oranges to nurture their desirability to their current trajectory or prepare for the next phase of sustainable growth. Our free cash flows during real estate acquisition and disposal rose by 4% to 2.1 billion euros after more than 500 million euros in capex in the first half, a year-on-year increase of nearly 50%. Capex to sell stood at 5.2% compared to 3.6% last year, with some H1, H2 savings. In the first half, we also acquired prestigious buildings in Paris, securing prime location for our houses near Place Vendôme and on Abbey Mountain, and sold the building in London. Taking this into account, CapEx was close to 1.9 billion euros and free cash flow just above 820 million. Operating working capital for its past stood at 16.8% of last 12 months' revenue, broadly in line with the ratio at year-end 2022. Net debt, excluding lease liability, ended at 3.9 billion euros after the increase in dividend paid and real estate acquisition. Let's now look at good shoes. in which we continue to invest during this transition phase. Starting from slide 15, H1 revenue at 5.1 billion euros was down 1% reported and up 1% comparable. Q2 comparable growth was similar to Q1, with retail also. In line with the house strategy, retail was again driven by higher A1 through a combination of immense collection structure and price increases across categories. Best performances came from handbags, travel, and immense offer. Conversely, men and the entry-level segment wear drag, as well as e-commerce, which, as you may remember, had reached very high penetration in North America. All sales were up 2% in the quarter, royalties and other revenues up 8%. On slide 16, recurring operating income came at 1.8 billion euros, a 35.3% margin. The increase in the cost base was driven by star expenses and design. In addition, the chief pursued active communications initiatives to amplify brand visibility, investing in client and store experience elevations, as well as in high-visibility campaigns and events. Gucci held three fashion shows in the first half, including a spectacular display in Korea in May, and reinvested substantially in Asia with the Cosmos exhibition in Shanghai. The house is, of course, getting prepared for the September fashion show of the new creative direction. Capacity sales stood at 4.5%, a 50% increase year-on-year, partly on the same mean more stood toward the first half this year. This strategy then changed. Selective expansion, network enhancement, and investment to improve the efficiency of operations and control over the supply chain. For the store network, I would highlight the opening in New York's backpacking district and the relocation of the Milan Galleria store to a beautiful larger location. Canon delivered a robust first half, a testimony to the house's desirability and consistent execution. Turning to slide 18. Revenue in H1 was close to 1.6 billion euros, up 6% reported and 7% comparable. Retail drove growth and now represents 80% of revenue. The second quarter was solid, up 7% comparable. Retail grew 8%. Product-wise, and ready-to-wear posted the highest performances, notably thanks to the strong success of spring and summer collections. The house also launched fine jewelry as part of its continued elevation and development strategy. It's a category where Saint Laurent is more than legitimate, building on its legacy and DNA. By region, YSL performed well across the board. North America was challenging as the house kept its very disciplined approach in a market that was difficult and somewhat promotional. The house also applied its distribution strategy consistently, although it was down 7% in Q2, deflecting continuing retailization and downsizing the number of accounts. You can see on slide 19, recurring operating income came at 481 million euros, leading a margin of 30.5%. Growth margin was boosted by favorable channel mix and pricing initiatives, both from pure increases and improved product mix. The house enjoyed positive operating leverage and kept reinvesting with three fashion shows in the first half, and higher communication intensity. CapEx also increased from a relatively low base in H1 2022. This is a year of investment for the house, with selective openings, including a shoe and mask. You might be aware that Saint Laurent is preparing for a major flagship opening of the Champs-Élysées in Paris toward year end. Some resources were also dedicated to strengthening production capacity and operations. Delta-Galleta kept reinforcing its position in the ultra-high-end universe. As you see on slide 21, comparable sales were up 2% in H1, with revenue at 833 million euros. Here again, retail was a growth driver, up 6% in the half year and 7% in the second quarter, posting a sequential acceleration. By region, The house proved resilient in North America and performed well in Western Europe and Japan. It did not yet benefit from strong tailwinds in Asia-Pacific. It is now accelerating its initiative to enhance its visibility in China, as you have seen with the beautiful repeat show held in Beijing last week. Product-wise, demonstrating the appeal of Pilaf, Icon, and Munis, leather goods and ready-to-wear were the best-performing categories, with significant increases in AUR. Ongoing rationalization of third-party distribution resulted in a double-digit decline in all Fed institutes. Slide 22. Recurring operating income was 169 million euros, controlling an EBIT margin above the 20% level on higher gross profit margin. Bottega Venica continued to invest in stores, communications, and activations to amplify brand resonance and visibility across markets. CAPEX was up on initiatives to upgrade the store network, including relocations, regroups, expansions, conversion into retail, and issue openings. Our other houses had a soft but increased sequentially thanks to growth in retail and sustained performance of our children's houses. On slide 24, you see that the revenue was down 5% in reported and comparable terms in the first half at 1.9 billion euros, with a decline limited to 1% in the second quarter. Retail was up for whole houses in both quarters, but accelerated intuitively. Balenciaga's gradual recovery was driven by Asia-Pacific. Alexander McQueen performed well in his core ready-to-wear category. Tim Brimley was nicely up on a healthy mix of review from formal wear, leisure wear, and bespoke. Ocel was still down sharply on the rationalization strategy and a challenging U.S. market. Our jewelry houses, Dufront, Pommelateau, and Killing, were up strong double-digits in both channels, reflecting the appeal of their creations and the investments we have made to broaden their visibility. We are extremely pleased with the development of our jewelry activity quarter after quarter, and with their growing contribution to the group's top line. Slide 25. €224 million recurring operating income was down from a very high base. EBIT margin was 12.1%, quite in line with H2 last year. That's when we first recorded the full impact of our stepped-up investments in the brand's retail expansion alongside hotel rationalization. We kept shooting their long-term growth. Erevis is translated into some negative leverage at Balenciaga and Alexander McQueen in the short term. CapEx is allocated to selective store opening further enhancing penetration in key and new markets. Caring Eyewear on slide 27 delivered a record first half with 869 million euros in revenue up 51% including the contribution of managing or 16% comparable. For Q2 only, comparable revenue was up 21%. All grants continued to be successfully developed, and the integration of margin is going on smoothly. 10 hours EBIT contribution improved again materially, yielding a 21.5% margin thanks to both benefit of scale and accretion from margin. It's worth keeping in mind, however, that some investments to further develop and expand my regime are ahead of us, and that there is a seasonality network with revenue and profitability most towards the first half. Care Incorporates costs were well controlled. CapEx was 93 million euros, a limited increase year on year, as we have reached a quite normative level to support our houses in IT and logistics upgrades. This is excluding, of course, the acquisition of the buildings previously mentioned. Now, looking at the remaining lines of the P&L on slide 28. Net financial charges amounted to €204 million, or €134 million excluding interest on these liabilities. Cost of net debt stood at €40 million on higher debt levels and interest rates. All the financial expenses were 94 million compared to a 57 million income last year. The major part of this swing comes from recognition in H-122 of a fair value gain on Puma exchangeable bond derivatives. Corporate tax was 692 million euros, a 27.1% tax rate on the recurring income. Root net income from continuing operations adjusted for non-recurring items reached 1.8 billion euros. Free cash flow and net financial debt are on slides 29 and 30. In the first half, in excluding real estate, we generated over 2.1 billion euros in free cash flow. The change in working capital is negative, but to a lesser extent compared to H1 last year. as the various components of operating working cap are indeed well under control. We provided the presentation excluding and including real estate impacts. On slide 13, at June the 30th, net financial debt was 3.9 billion euros with a healthy net debt to EBITDA ratio of 0.5 times. In the first half, we paid 1.7 billion euros in dividends, a 15% increase. So, to conclude, while there is no hiding that we are not yet where we want to be, I also want to echo François-Noël's confidence in the future. We continue to generate considerable cash flow and enjoy a very healthy financial situation. We are investing in the long-term success of our brands and increasingly in their exclusivity. The acquisition of Crib that provide the cornerstone to our expansion in beauty, and the investment in Valentino that we announced today marks new milestones in the development of the group. We have the right people and the right culture to face today's environment. And we just announced a major organizational change that will make us stronger, faster, and more effective. And now, we are ready to take your questions. Operator?

Thank you. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Thomas Chauvet with Citi. Please go ahead.

Good morning, everyone. Thanks for taking my questions. Firstly, on Gucci and the transition, the appointment of Jean-Francois Palus as interim CEO and his relocation to Milan seems like a strong sign of determination to implement some changes at Gucci. Could you elaborate on what's you know, will be the key priority for him and the Gucci team until a permanent CEO is appointed? What do you want perhaps to speed up as part of the strategic plan you presented a year ago in Paris? And how long would you expect the CEO transition period to last? Second listing on Gucci and the numbers, if we look at stage two, 23 consensus. It's about plus 7, I think, constant effects for the revenue. EBIT margin down 100 bps. Is that, Jean-Marc, a sensible scenario in light of what you're seeing in July? And then would you expect the management transition at Gucci to drive a bit of a maybe a slight reset of 24 expectations, which are also expecting a bit single-digit revenue growth and some margin expansion? And finally, on Valentino, very interesting acquisition of a 30% stake. What potential are you seeing in this brand? How does it fit in the group portfolio? Would you then have 100% of the capital? And on that point, the option to buy the remaining 70% by 2028 could lead Mayula to become a shareholder in Caring. So what do you think Mayula would bring to the group if they were to become a I don't know, 5%, 6% perhaps shareholder in caring as opposed to caring buying the remaining 70% with new debt. And you're talking also about potential joint opportunities. Are you mainly thinking about eyewear and fragrance?