Aeffe S.p.A. (AEF) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Aeffe First Half 2022 Consolidated Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Simone Badioli, CEO of Aeffe. Please go ahead, sir.

Thank you. Good afternoon to everybody. Thank you for attending our first half 2022 conference call. This afternoon I'm here with Mr. Matteo Scarpellini, this morning was appointed as the new CFO of the group by the Board, and it will be the new -- from today, the new Investor Relator, a role previously held as interim by Mr. Giancarlo Galeone. Before to start speaking about the figures, about the number of first half, I just -- I like to underline the difficult situation we are facing both from economical and geopolitical point of view. If we have to speak about 6 months ago, we were more optimistic about the vision of the future. Even now we have to pay attention to what's happening from the geopolitical situation, in fact, from economical point of view. In the first half, we grow in a significant way. You will see the figures later, but especially in our retail segment that did increase in our figures. We had a great result in the United States. At the same time, we are waiting for wholesale and retail results from China. Because as we announced, we have completed the turnover of China market and there, in that area, we are not more like losing. But we operate directly, and we have just opened 18 directly-operated stores. So the result of this situation will be more visible in the next half. I spoke about the economical situation, but in the possible economic crisis that we are facing, but at the same time, we believe -- we strongly believe in our business model. And so we are confident that we can face the future in the same way we have faced the pandemic situation. So we like to pay attention to the products to make to the quality, to the distribution and, at the same time, to go on with the funding channel strategy we have started just few months ago. I don't want to go more with the general situation. I will now leave the floor to our new CFO, Matteo Scarpellini, and then later, we can speak about your question. So please, Matteo, if you want to...

Okay. Thanks, Simone, and good afternoon to everyone. Let's move to the results, the financial results and to the presentation in the page -- at Page #3, there is a very quick recap of Aeffe Group. So 4 maisons, around EUR 176.5 million in terms of revenues in the first half, around 1,325 employee as average number. We are present in 69 countries, with especially 4 companies. On Page #4, we have in front the Aeffe Group management team, both from the holding to Moschino brand, Velmar and Pollini Group. At Page #5, our brand starting from Alberta Ferretti, of course, going through Moschino, Philosophy di Lorenzo Serafini and finally Pollini. At Page #6, we have, in a nutshell, our consolidated figures. So on a consolidated revenue's perspective, we faced, EUR 166.5 million (sic) [ EUR 176.5 million ]. That is, at current exchange rate, a percentage growth of around 14%. That is around 13% at constant exchange rate. The consolidated EBITDA is around EUR 21 million, so plus 4% versus 2021 and that show 12% on revenues. Going to the group net result, the net profit is equal to EUR 2.9 million versus around more than EUR 13 million showed in 2021. Of course, in 2021, the net profit includes around EUR 15 million of extraordinary tax benefits that the group showed. So of course that is a one-off in 2021 that we cannot have in the current year. On a consolidated debt basis, the financial debt is around EUR 183 million, but we have to subdivide this number into the real -- let me say, real financial debt. So without considering the IFRS 16 effect, so the real indebtedness is around EUR 105 million. But without considering the acquisition of the minority stake of Moschino in Q4 2021, the net financial position will be around EUR 35 million. So the real and net effect from the characteristic activity from the company is positive of around EUR 10 million. Jumping to Chart #7, let's have a look at our, again, net sales breakdown, so around EUR 177 million. But by business, we can read the number on 60% from prêt-à-porter business and 40% from Leather Goods. If we change the region, and looking to the geographical areas by region, the most important area is confirmed Italy for around 40%. Europe totalize 34% of revenues, USA 8% and the rest that is Asia and rest of the world, less than 20%, 18%, specifically. By brand, we reached Moschino around 80%, Pollini 9%, Alberta Ferretti brand around 6%, Philosophy 4%, and of course, other collaboration are around 2% of the total net sales. Finally, by channel, as you know, Aeffe is a wholesaler company. So we totalized 74% of the revenues. Retail that is growing is around 22% in the semiannual figure and royalties around 4%. The following chart are a sort of deep dive by business, by geographical area and so on. We splitted this semester, the half figure from 2021 and on the right 2022, and also, in the following figures, the figures and the explanation by quarter. At Page #8, we are -- we have, sorry, the revenues by business. So the prêt-à-porter get a growth of around 13.7% versus 2021, then the Leather Groups jumped to 17.6%. At Page #9, we have better visibility of the seasonality of the group, the Q2 versus Q1. So the quarter composed the half year results in Q1, we get a double, a high double-digit growth. And in Q2, the prêt-à-porter is more or less flat, so plus 0.5%. And the Leather Goods continue the growth from around 5.2% in Q2. Going to the revenues by region. So looking at the geographical perspective, Italy seen a plus 21.5%, with a very good performance of retail. So the retail performed around plus 60% versus 2021. Also Europe got a very good performance in terms of revenues, going to around EUR 60 million, so an increase of 15.8% versus 2021. Also here in Europe, the retail performance is very high, more than 100% versus 2021, and benefits, of course, of the reopen post pandemic situation. The only minus we have in the growth in the geographical area is coming from Asia and the rest of the world. Of course, we have a minus around 10% versus the first half of 2021. The explanation ultimately become from the situation and the finalization of the takeover in China, where we move from only a wholesaler to a retailer. So you know that, in the previous quarter, the executives has explained the project of Asia, especially in China. We faced, and we successfully closed the project within the end of June. Unfortunately, we had some negative effects arising from 2 different perspectives. On one hand, we stopped the wholesale revenues. And on the other hand, we bring our sales from retail, but unfortunately, due to the time line of this takeover, we will have all the benefits from the retail market in the second half of the current year. So in the first half figures, we have a minus 10% of decrease in net revenues. Finally, if we look to U.S.A., there is a very important and significant growth, around more than 30% growth. And in U.S.A., the wholesale market jumped to plus 70 -- sorry -- yes, 71% of growth in terms of revenues. At Page 11, there is the split by quarter. Of course, Italy, thanks to retail, again, grow a lot, around 17.3%. Europe is more or less flat, but has benefited of around 38% growth in Q1. Asia Pacific and rest of the world is what we have discussed in the previous chart. So we were more or less flat on Q1, and we get a negative effect in Q2 due to the China project finalization. Finally, in the U.S.A., more or less, in percentage rates, we are facing minus 8.5% decrease in revenues, but in terms of absolute amount, we are more or less of around EUR 0.5 million revenues. Jumping to Chart 12, so revenues by brand. Alberta Ferretti showed a very positive increase in revenues, so plus 44%. Philosophy brand is flat 2022 versus 2021. Moschino plus 8%, and Pollini significant growth, so the best growth of our brand that's showing plus 47.7%. Page 13, there is again the split by quarter. Very quick Alberta Ferretti is positive also in Q2. Philosophy has showed a drop, a significant drop in Q2, around 26%. Moschino is more or less flat and, Pollini, again, plus 54%. Revenues by channel. Finally, we -- the wholesale increase of around 6.5% despite the penalization of revenues coming from China in Q2 due to the reorganization of local distribution. Retail, as already mentioned by our CEO, showed a very important increase, so plus 40.7%. And also royalties increased a lot in 2022 versus 2021 of around 21.5%. At Chart 15, the split by quarter confirm the alpha results, in particular, for -- be coming from retail and the wholesale is more or less minus 7.8%. Also royalties finally in Q2 increase of around 13.1%. At Page 16, we get some recap in terms of consolidated revenues, around 14% growth. The consolidated EBITDA around EUR 21 million. So plus 4% compared to the previous one -- EBITDA over the previous year, sorry. The net result, again benefited in 2021 for the extraordinary taxes linked to the revaluation implemented by Article 110 of Italian Decree Law. Anyhow, we are very happy over the net profit showed in 2022. Finally, the consolidated financial debt, we have already commented on it on the split between the IFRS 16 and the real, let me say, debt towards the third party. At Chart 13 and 14, we have the income statement and the balance sheet. Only some comments coming from this chart. The raw material cost signed at Page 13 increased 2022 versus 2021 of around EUR 5 million, also due to the increase in revenue figures. The service costs increased a lot, in particular due to the inflation effect. So in transportation, in the utilities and so this is a cost that we have in watch list in order to control those effects coming from inflation. The cost of use of third party is only coming from the rentals. And here, in order to compare the apple with apple, in 2021, the company benefited from the rental reduction from the landlord on a rental perspective. The same coming from the analysis on the personnel cost that is increasing in 2022, but in 2021, we benefited from 2 different topic, on one hand, the social safety net, so let me say, in Italy about trial. And from the utilization, stronger utilization of holidays that got a very important impact that we are only in part in 2022. We get depreciation and amortization a bit higher than 2022, but without specific or significant topic on it. In terms of net financial income, we are more or less flat and notwithstanding the increase in interest rates. But frankly speaking, we expect an increase in the second part of the current year. And then finally, the taxes effect that we are already talking about and the minority interest, of course, is 0 in the first half '22 because, as already mentioned, in Q4 2021, the company has completed, let me say, the acquisition of the Moschino brand, acquiring the 30% of minor stake. Some words finally from the balance sheet. I think it is the case only to comment the last part of the chart, so the operating net working capital, in terms of receivable, we increased our accounts receivable of around EUR 8 million due to the increase in revenues. In the accounts payables, we increased also our accounts payable. But here, the fact is that coming from, let me say, from the China perspective and the China takeover. So we have acquired the stores and all the stocks. And we have a higher accounts payable that will be normalized in the second half of the current year. The same for the inventory, of course, the jump from EUR 91 million in 2021 at the end of the year and going to the first half '22 is referred from the stock that we acquired, and we have nowadays in our stores, in our retail stores, ready to be -- to become, let me say, revenues in the second part of the year. That's it from my side. In the last chart, you will have the cash flow for the first half of the year, but -- so nothing to underline from a significant perspective. So I kindly ask the operator to open the Q&A session. And together with the CEO, we are able now.

[Operator Instructions] The first question is from Oriana Cardani of Intesa Sanpaolo.

I've got a couple of questions. The first one concerns the Chinese network. Are you facing unexpected cost or delays due to lockdowns or other unforeseen events? And in the press release, so you stated that profitability was impacted by cost in China. So can you quantify the one-off cost that you had, and the new structural cost that you had and will remain in the second part of the year? The second question is on your wholesale clients. Do you foresee any concern for the next year? So have you got some feeling of a more conservative view in some countries and in which countries?

Okay. Thank you. Let's refer to the China network and the finalization of the project. Of course, we have underlined the successful closing of these projects because within the end of the first half, we were able to collect all the stocks and to open all the stores. Unfortunately, there is a strong impact, both on revenues and on EBITDA because, in our expectation, we needed to be able to anticipate the opening of our stores. But due to COVID situation, especially in China, in Shanghai City, there is a strong delay, more or less 3, 4 weeks of delay due to COVID situation. So we get all the stocks from our third party. All the stocks are in our stores, but the stores were closed. So in terms of revenues, the expectations were a bit higher versus the revenues we have showed in our first half, and, as a consequence, the EBITDA part. In terms of costs, the structure of cost will remain the same because Aeffe Group is not only a wholesaler, but also a retailer protagonist in the market. But due to this finalization of China project, we push a lot in the retail part of the business, and we are sure that in the second part of the 2022, we will be able to recover. And, anyhow, frankly speaking, it's very difficult to understand the market over there due to the pandemic situation because every day, there are reopening and closures.

Just to give you better information, at the end, we complete more or less -- completed stores as we planned. But what happened, we have to anticipate the smaller one because the cities, the smaller cities were open, and we participate the bigger cities Shanghai and so on. So because they are closed or are opening our project, small city instead are working. What I can say the perspective in China in our position, are quite good because, in the small city where we have opened, the results are better than what we expected. It's that, we have to face with the situation in the bigger cities that they are opening and closing and so on. But we have moderate -- we have a lot of optimism about the handling of China market, which we delay 1 month, 1 month and down because due to the opening. Jumping to the second question, we do not see any sort of concerns by our clients in the wholesale market. Of course, again, the geographical pandemic situation in China versus other geographical areas in the world we are monitoring every day because the situation is not 100% clear. And so we -- again, we are monitoring every day. Anyhow, at the time being, we are not facing any sort of concerns from our customers.

[Operator Instructions] The next question is from Emmanuel de Figueiredo of LBV Asset Management.

It's really a little bit about the Q1 versus Q2 in terms of Europe. There's a very big drop in the sales momentum. And I was wondering if there's any specific reason for that? And if you could possibly comment how do you see the second semester in Europe and in Italy given that COVID, in China, you can't control so well?

Okay. Thanks, Emmanuel, for your question. I kindly ask Simone to integrate my reply. But anyhow, in the fashion market, in the fashion companies, there is a very, very strong seasonality. In particular, all the revenues and, of course, EBITDA will rise in Q1 and in Q3 of each year. Of course, the strategy of the company to move from a wholesale market to retail one is to try to normalize the revenues incoming and the EBITDA, too, in order to normalize the quarter, but it's only a part, it's not easy to move from wholesale to a retailer in a fast way. So the strategy of the company is to move to the retailer part or -- in a strongest way to the retailer part and the China project is the first step in this direction. Anyhow, in our expectation, again, due to the China project delay, we will expect a higher part of revenue and EBITDA in the first half, but we are sure, too, that these revenues and EBITDA will be recovered in the second part of the year. It's very difficult to estimate the second part of the current year due to the both Ukraine war, COVID situation and so on. Anyhow, we are thinking to have a bit higher semester versus the first one due to this China postponement. But again, it's very difficult from our side being present all over the world to get some or more specific estimation.