Brunello Cucinelli S.p.A. (BC) Earnings Call Transcript & Summary

Good evening, Chorus Call operator speaking. Welcome to the presentation of the full year '21 results of the Brunello Cucinelli Group. [Operator Instructions]. 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. [Operator Instructions] I'd now like to give the floor to Brunello Cucinelli. The floor is yours.

Good evening, and welcome back. So first of all, we'd like to thank the family and also the companies because we have had a chance to thank them to start 15 minutes ahead, so we can both have our calls. As usual dear, welcome investors, analysts and journalists. I have to say that this call reminds me very much of that of March 11, 2020. Well, you see, that was a time of great pain for the soul and the body, for us and for all humanity. And the reason being the arrival of something we did not know, something that still today, I want to call plague because you see, I have always been used to reading about plagues in history. This one today fortunately seems to be coming to an end, this plague, to the great relief of humanity. We, ourselves we will be closing down the vaccination hub here in Solomeo next week. We wanted to close actually in August, and we had to postpone by 7 months. So today, 2 years later, we are here for a call that up until 15 years ago, would have been a beautiful call both for the company's results for 2021 whereby there is a total rebalancing of the company. And it would have been beautiful also for the atmosphere that the brand is enjoying and also for the positivity worldwide that I can still feel that I used to feel, that I can still feel. And also due to the results of the current year that we -- that seem to be pretty stellar. So today, we will tackle this call with the same -- very same spirit we used in our Board meeting today, but with 2 moods. The first mood being a pensive, gloomy mood for something we would never have imagined in the present times. And of course, we could have never imagined nor wished for the modern times. And we hope with all our hearts that everything will go well in the times to come. The second mood. Well, as you know, we strongly believe at least I, myself, I'll use the plural, but I'm really convinced of this. We really believe in the fascinating sort of Thomas Moore, who in 1,500 stated, "Oh, my God, help me accept what I cannot change and help me change what I can change." So the only thing we can change is the way we manage and run our business in the best way possible with humility, courage, creativity and trust. It's clear that if one day, our collection -- of course, it's better for it to be beautiful rather than average. So I think that our enterprise, once everything is over because you see mark my words, everything will be over, we hope that if we have a beautiful collection, you will have great possibilities for the decades to come. And as it was the case for 2020 and 2021, for 2022 too we will organize 6 annual calls instead of the usual 4 so that we can inform you often about the flow of things and the -- how the company is faring and then hopefully, in 2023, we'll go back to normal. As usual, we're all here. As the presenter said, Luca, Riccardo, Moreno, Dario and Pietro. So first, I'd like to read out the highlights, then the CFO, Moreno, will go into detail. And then I'll take the floor again to tackle the big -- following big issues. 2021 results of a splendid year, like we can give you very accurate brief results here, then an important visibility for 2022, you should also bear in mind that the first quarter is almost gone. Then big -- good visibility for 2023 as it is usually the case. And then I'd like to very clearly talk about our 11th 5-year plan, 2022-2026. And finally, of course, the current markets with the big theme of Russia. So as I was saying to the Board meeting this morning, hopefully, this will be a very, very concrete call as we deal with big global themes. And hopefully, we can gain some glimmer of hope at the end of it. So net revenues, EUR 712 million, up 30.9%, 32 at constant exchange rates compared to 2020 with an increase of 17% compared to 2019. EBITDA, EUR 193 million, with 27% incidence compared to EUR 89 million last year and EUR 169 million in 2019 with a margin of 27 -- sorry, an incidence of 27.9%. Then EBIT, EUR 77 million; incidence of 10.8% compared to the loss of minus EUR 14 million last year and the positive results of EUR 83 million in 2019 with an incidence of 13.7%. The net profit, very interesting, EUR 56 million compared to a loss of EUR 32 million last year and EUR 53 million in 2019, the profit. Then significant investments in line with the multiyear planning in favor of the contemporary character of our fashion house. So EUR 61 million invested in 2021, EUR 51 million in 2020 and EUR 52 million in 2019. Core net financial debt, this was a good windfall surprise, EUR 23 million, a clear improvement compared to EUR 93 million last year and EUR 30 million in 2019. So the Board of Directors will propose to the shareholders' meeting convened for 27th of April 2022, which will mark the 10-year anniversary of our great IPO. The distribution of a dividend of EUR 0.42 per share. Then the consolidated financial statement of 2021 has been approved and also the stock grant plan for '22-'24. So before reading my quotes, I'd like to really extend a big thank you to all the financial institutes and the banks because we definitely are the results of the help and aid of banks because in 2020, in 6, 7 days, they basically resolved over EUR 200 million loan to give us a credit line, to give us the possibility to protect our suppliers and ourselves. So luckily enough, we only used a little bit in 2020 and then we paid it back in '21. So thank you very much to all our dear banks. So I have really thought long and hard about what to write in my comments, truth be told. And this is how it starts. I have firm faith in the wisdom of men. At a dramatic time for humanity in this winter of our struggles, a new era of responsibility is required of us. The search for a peace forged by great thoughts. I grew up in the land of Francis of Assisi, from whom I learned the great value of dialogue as the noblest means of always achieving harmony among men. Great challenges demand the courage to walk together and to reaffirm the common sense of humanity that only words can guarantee when these words rest on the brotherhood and wisdom of the man who rule the world. 2021, which we called the year of rebalancing, ended with some splendid results, both economically and in terms of image for our brand. Turnover grew by 30% and consequently, profit -- net profit amounted to EUR 56 million. This year opens with a quarter that is now drawing to a close and some particularly interesting results. The order intake for men's and women's winter collections 2022 was truly, truly significant. And all this prompts us to envisage yet another year of good balanced growth with an increase in turnover of around 12%. And this is a growth that we hope will generate human thriving and prosperity for our people, for our mother earth and for the whole of creation. And may the heavens and the stars enlighten us at this time when souls have lost their bearings, but they're nevertheless filled with great hope for the bright future that awaits us. So thank you for that. Moreno, the floor is yours. Thank you.

Thank you, Brunello, and good evening. I'd like to briefly analyze some topics that featured in 2021. The net revenues of 2021 confirmed the preliminary results of the 10th of January. So I'd now like to analyze the income statement, Slide #12 of our presentation, highlighting the results of 2019, 2020 and 2021. So 2021, we confirmed the choice that we made in 2020 to maintain the solidity of the company and to keep investments planned unchanged, all -- everything that had been planned before the pandemic. And when comparing results of this year to the past years, we need to bear in mind the impact of the pandemic on 2020, whereas in the comparison with 2019, we should consider the effect of the pandemic that lasted well into 2021 and the presence of costs with many commercial initiatives, which will contribute to the results expected for the coming years. In 2021, we had 13 conversions from wholesale to retail, 3 conversion of franchising, 10 hard shops in the luxury department stores, thus making the reported growth in wholesale even more important, 6.2% to 2020 and 9% versus 2019. First, margin. No significant changes here compared to the past margins in 2021 of 67.3% in line with the margins of 2020, 67.9% back then. In '21 EBITDA net of IFRS 16 amounts to EUR 110 million with a 15.4% incidence. The value of EBITDA of 31st December '21 benefits from nonrecurring assets due to the deferred tax assets for the research and development activities for 2017 and '18. In 2020, EBITDA, net of IFRS 16 and the extraordinary provision of EUR 31.7 million for the Brunello Cucinelli for Humanity project amounted to EUR 41.8 million with an incidence of 7.7% whereas in 2019, it had been EUR 106 million with an incidence of 17%. Net profit in 2021, EUR 56.3 million with a tax rate of 12.1%, which benefited from 2 nonrecurring items. The first one is the deferred tax assets for EUR 8.8 million, calculated on the provision for the humanity project. The second one is the tax effect related to the research and development activities and the tax credits because the accounting is not subject to tax. And so it produces 1 million benefits. If we exclude these 2 nonrecurring events, the normalized tax rate at 31st December '21 amounts to 28.5%. And we consider this to be healthy for an Italian company that makes its profits in Italy and that might become a benchmark for the coming years. The following slides give the highlights of the income statement, in particular, the personnel -- cost of personnel, then the -- so personnel costs grow progressively in the period 2019-2021, following the expansion of our human resources structure to support new commercial initiatives, the expansion of the network and the processes of consolidation of our activities. Also, the rent increase is mainly related to development of the network, and we expect benefits in the coming periods. Investments in communication have an incidence higher than 5%. In 2021, it was 5.1% incidence. Then moving on to the income statement highlights. We can say that the net working capital has an incidence of 23.8% on sales vis-a-vis 36% in 2020, which have been impacted by the pandemic and 28% of 2019. The incidence in '21 of the inventory amounts to 28% of sales, where there is the overcoming of the 2020 situation and then further improvement, thanks to the sell-out. The reduction in commercial receivables is to do with the return to ordinary terms of all the -- in the payment of wholesale after some deferments granted in 2020, basically came -- we're not -- it did not happen again. So we have a healthy clients. We have very small loss on receivables, 0.04% of revenues this year. And last year, 0.07% of revenues. As to the commercial payables, we did not change our payment terms with our suppliers and the purchases of raw materials mainly happened in the second half of the year versus 2020. On Slide #17, you see the investments in line with our multiyear planning. And on Slide #18, we highlight the strong improvement in the financial indebtedness also vis-a-vis 2019, thanks to the cash generation and the excellent results in the management of net working capital. This is the end of my presentation. Thank you. I give the floor back to Brunello.

Well, so maybe 3 minutes on 2021 numbers. It is the tenth financial statement since the -- us going public, but we will go back to this in April -- in the call in April. And hopefully, we won't have that many emergencies to take into account. It has been a splendid year, year of rebalancing, very good turnover. We caught up everything, and we are back on track. Very good EBITDA. We are just missing a few points, nothing big there. Very good inventory, 28% incidence there. Usually, we have 28%, 29%, 30%, depending on the year. Very well customers and payments, as Brunello was saying. We have not stopped any investments in '21. But investments in stores and everything, not even in 2020, it's very serious here. Net financial position, very well. And honestly speaking, I keep saying that we can say that we virtually have carried no debt. We have a great equity or capital situation. Net profit, very well. And tax rates, very well, too. It's 28.5% ordinary, but actually the past 5, 6 years, I was always trying to speak in favor of Italy. Somebody might say, you pay too much tax. But in the past 5 to 6 years, our company must have paid maybe not more than 22%, 23%. And as a result, dividends around the standard of 50%. This is as to 2021. So great figures there. Then a small flash on the image, memorable year for the company. We were awarded the Design of the Year 2021 award from the British GQ Magazine. Then the value of taste. We presented the project of the Solomeo Universal Library by the foundation. Then the value of territory, we took part in that fascinating event in Rome, the G20, on the theme of humanistic capitalism and human sustainability. The value of sustainability, therefore, is definitely important. Then we have received a lot of attention from the world press on this. So maybe today, we -- in the world, we enjoy a great image of total sustainability across the board. So we mean sustainability from the environmental, economic, cultural and spiritual point of view. And with this year, 2021, we basically end the -- we basically end the tenth 5-year plan that started in 2019, and it used to be in 2019 and 2023. We have stopped it in 2021 because of the pandemic. And so we restart again with the 11th 5-year plan, '22-'26. And I will tell you something about this later. Then 2022. We still foresee a very important year for our industry, where our growth project will shift from 10% to 12% of turnover. And we want to call it a total rebalancing of profitability to our usual levels -- to our pre-pandemic normal usual levels. And as a result, accordingly, a net financial position around parity without stopping any investments, obviously. First quarter. 2 weeks are left there. It is ending with very good results, both in terms of turnover and margins. Then order intake. Well, wholesale for winter '22, order intake has ended with important results. As you know, our business is broken down as follows: 60% retail, 40% wholesale. As usual, we have a lot of trust and belief in the wholesale because we consider them the guardians of our brand. And we have the 500 accounts, well, 400 between men and women. They are the best in the world. But in our opinion, they have done something very interesting. They have redrafted their 3- and 5-year plans, and thus making a very strong selection of brands with whom they want to continue their business in the years to come. Of course, the important order intake and the -- allow us to call it wonderful feedback on the collections from customers and the international press. All this means that probably our direct boutiques will also have beautiful winter merchandise on their shelves. Therefore, we feel very, very confident for the year -- the current year. Then 30 seconds on how we usually build our budgets. In around 1998-1999, there was a big dispute between the U.S. and Europe called the Banana Dispute. As a matter of fact, what they wanted to do, they want to impose a tax on cashmere in the U.S., 100% tax on the import of cashmere. Then it did not happen. If they have imposed that tax, we would have had no profit at all. So from that experience, we always try to have a small spare budget for any world eventuality. And this has always protected us from big surprises. To be clear, this did not apply to 2001, 2008 or to 2020 because these were really out of the ordinary, extraordinary years. This is the reason why we are very confident for the current year. Another important topic, prices. As you know, we set prices twice a year upon the release of our collection. So our prices are subject to no change. Very important, raw materials. Well, maybe you might say, you keep saying very important. Well, yes, because there are a few things that you must be -- pay a lot of attention to. So raw materials, they're all in-house for the winter and all of high quality. In the past 2 years, we have even most -- we have strengthened our relationships with our suppliers even more. They're always the same. And together, we have tried to plan ahead to guarantee mutual stability and quality and business. Of course, unless you do so, the risk -- you run the risk that all of a sudden, you are without raw material. And as always, we purchase cashmere on average with 2 years in advance. Of course, we are talking about overall cashmere, the cashmere then you can dye and do whatever you want with it. And we buy it from a historic serious supplier, Lanificio Cariaggi, with whom I started my business 44 years ago. It was him who gave me the first size of real trust because he gave me the first 20 kilos of cashmere. I had no money in my pocket. He said, you will pay for it when you can. So thank you, Cariaggi. Another very important topic production in 2022. All spring/summer '22 production was delivered as usual by February. Then winter '22 production is going very, very well with our manufacturers. 100% production in Italy, as you know, with 365 micro enterprises. Another thing. We have 52% of work that is really only done by hand, not -- without any machinery. We are true artisans, and we have always shown total openness towards our partners. Also in order to strengthen the partnership, I state -- I wrote that their creative minds, their hands and their seriousness are our treasure for the years to come. And I want to say this to you, Luca, Riccardo, too. This has always given us great security and confidence in the high-quality Italian supply chain. Then 2023. A growth project of around 10%. And so this is the 11th 5-year plan that starts in '22 and ends in '26. In this 5-year period, we expect to achieve those results that we indicated back in 2019 in the 10-year plan, 2019-2028. So we think that we might end the plan 2 years ahead of schedule. Then markets, we have a couple of minutes and then we have time for your questions. So to date, all the markets are doing very well, I would say very, very well. In the last 2 years, and this is something I'm really keen on, you see business has been practically domestic in all the countries in the world. So honestly speaking, I don't see any great difficulty ahead for this year. Do remember when in 2020, we thought that tourists would -- there would be a lack of tourists. Clearly, not bearing in mind the lockdown period in various areas of the world, human beings bought either through the website or in their cities, in physical shops. I went shopping in Perugia, Rome and Florence. So why do I call them physical stores? Because they, once again, represent something very important because it is important to touch, to feel the product for advice, experience. Therefore, we always believe very much in the physical store, but it should -- provided that it is beautiful, attractive, modern and contemporary. Russian market now. 3 minutes. Very serious thoughts here. So Russian markets. Our business in this country for many years has been worth about 4% of the total, of which 70% is wholesale with very serious reliable partners we've had for many years, and 30% of this 4% is retail. So wholesale, we have delivered the whole spring/summer season in February. And everything went well. The winter season will start to be delivered from June onwards. So hopefully, in June -- well, may God protect us. Then retail is worth about 30% of that 4%. So the first quarter is practically over. So 9 months are left. We have 3 direct shops that are closed. Beautiful stores. And we basically paid the wages of all our Russian employees as in 2020 in the lockdown. Well, out of these stores, 1 in St. Petersburg, dating back to August last year, 2 in Moscow, 1 we opened in November last year. And I have to say, in a month's time, we will double the size of a beautiful shop in Moscow. So they're currently closed, but the employees are nevertheless being paid. So to conclude on this great team. We could say that the exposure to this country at the most, it could affect the total annual turnover by about 2.4%, of which 1.6% wholesale with the winter orders still in-house and 0.8% retail -- 0.8% retail, in the next 9 months. So to conclude, we are very confident about this year's results for our company. And truth be told, also for Luxury in general. We are working, fueled by the spirit I mentioned at the beginning. So we have 2 spirits, 2 moods. One is pensive and gloomy and the other one is very much focused on our business. And I'd like to end with a statement that has been by my side throughout my life. And I was talking to my dad the other day. And my dad, by the way, is turning 100 on the first day of spring. I have always said that I have firm faith in the wisdom of men. Thank you very much. May creation protect us. Let us now open for questions.

[Operator Instructions] Flavio Cereda, Jefferies. First question.

Brunello, [Foreign Language] as usual for your results. I have 2 trivial questions. Russia. So most sales to Russian consumers, do these sales happen in Russia or maybe you have a different weight in other countries outside of Russia? Because you see in London, Russians are very important here, but very often, they have a different passports. So they're here but this is not that much impacted. So whether you believe that that's the weight of the Russian customer. Then on stores, could you give us some color on the opening plan for this year and next year or maybe important expansions, extensions, so we can understand a bit better because you gave a growth estimate of plus 12% this year despite the trouble in Russia. So perhaps things are going even better than what you say.

Well, thank you, Flavio, very interesting. The first question. So we were saying to ourselves that the past 2 years, nobody traveled. Nobody went out of their borders. So we have really enjoyed great sales domestically. So we are not very much worried about the dearth of traveling tourists. And this is true too for Russia, China, U.S. As far as stores are concerned, as usual, Flavio, we -- every year, we want to have 2 beautiful openings and 2 or 3 expansions. We have a great opening in Palo Alto in July, 350 square meters. But actually, what we're building there, you see, that's a special store for the tech guys. There is a young made-to-measure project there. And then we have an important expansion in Zurich, another very important city. Pretty expensive. But nevertheless, it is always difficult to find a location there. And then one extension in [indiscernible]. And then we have Dubai. And by the way, 2 important brothers from Dubai are coming to visit tomorrow, and we are very pleased because they wanted to come and spend the day with us to get to know our culture. So why are we very confident? Because you see, collections were particularly beautiful. But what we were impressed by is the great selection of brands performed by the wholesale accounts. Since we need to plan for the [ 3507 ], they need to plan for the coming years. They really made a strict selection. And therefore, this year, we have a wholesale -- so the percentage should -- the split should not change 40/60 and also 33% U.S. and 43% Europe and 24% China should not change either -- no, no, it's not China, sorry, it's Asia altogether. And another thing I wanted to add because you see [indiscernible] half past 6. I'd like to spend a word on mytheresa because mytheresa [indiscernible] fashion. They really are beautiful online multiband. I have a lot of respect for them. For example, also the way -- as far as image growth is concerned, Saks, Goodman and Neiman Marcus, you see when you take a look at their website, it's always a pleasure. But as a whole, we do 6 -- 7% with our own e-commerce and with the wholesale included, perhaps it goes up to 12%, 13%. But this is it. And I think that it will grow hand in hand with the physical stores.

Next question from Andrea Randone, Intermonte.

Just one question on margins. You said that in 2022, you can achieve the same margin as 2019.

No, we think that we will go back to normal, Andrea. So this year, we called it the year of rebalancing. The only thing that we did not rebalance is 1.5 points of EBITDA. But we think that next year, we will go back to the full rebalancing in terms of EBITDA, but perhaps I have interrupted you.

So still on this, does this extra margin come from the mix because you have not raised prices. So this margin comes from more sales at full price. And then another question on 2023. Do we expect yet another improvement there if 2019 level is stable?

Well, we had this year is the full rebalancing year for EBITDA. Of course, we have gone back to normal in terms of sales. It's not that we have not increased prices. We raise prices every 6 months when the collection comes out, not in between. So in January, full spring, summer and then full winter. So prices did go up as it always happens, and this depends on raw materials. But we do not do anything in between. Then as far as 2023 is concerned, we want to resume our revenues growth and stabilize with the pretty fascinating EBITDA, that amounts to 17%, 18% more or less healthy profit. Our friend, Ramin, the member of our Board was saying something important. Last week, he took part in an important meeting where basically very important executives talked about fair profit and a fair balance between profit and giving back. And truth be told, I think that we are very, very pleased with this. The fact that we are going back to once again talking about a fair balance -- balanced growth.

And congratulations.

Yes. Thank you. Hopefully, we will find a balance because I'm a great believer in the wisdom of men.

Next question from Melania Grippo, BNP Paribas.

Brunello, 2 questions. In your 12% growth guidance at constant exchange rate, do you also include sales in Russia, I mean retail and in the second half? And then the other question. Any idea on the U.S. and Chinese trends?

I'll start from the last question, U.S. and Chinese trends. You see, things are not going well. They're going very well. Do you remember when we released the figures on January 9 because we have to do that because of PT. And I was saying that the year was going well for -- had gone well for everybody. And now there's a great move there. What about the other question? I forgot. Yes, Melania, we explained -- we talked about the way in which we build budgets. I think that when you build budget, you always need to have a spare budget but not for extraordinary items. But one year there's something, one year there's something else. So we think that for contingencies, so to speak, that we have -- that's why we have slightly improved expectations and estimates for this year. Truth be told, if this problem had not happened from the human point of view, you see, it would have been completely different. Nobody imagined this. But we are very confident. That's for sure.

Next question, Paola Carboni, Equita SIM.

2 quick questions. One, the marketing investments, if I understood properly 5% of revenues, and I think this is below the pre-pandemic levels. I'd like to understand whether this is the result of restrictions in '21 and what we can expect in terms of adjusted incidents from this year onwards. And then another question. Given this bigger trust guidance revised upwards, given that this happens after the fall/winter collections, do we have to think that this will be in a year with an acceleration with the second half stronger than the first or maybe not because of the timing of store openings?

Well, Paola, as far as investments are concerned, it's always been between 5.3%, 5.6%, 5.7%. So no decreases there. There have been -- you see since some stores were closed, we had a bit less events because, you see, the events in the stores, it's a great culture already. And since we did not have any chance to move around, that's what happened. But the idea is that we're always having 5.5%. So it was not deliberate. Well, collections. Well, spring/summer has gone well, too, and it is still going well. We expect a trend the same as the beginning of the year. Then of course, we are -- we have a human passes because of what is happening. But as far as marketing was concerned, you see the thing is that we had a bit less events. And what I'm saying is that there's a plethora of events coming up and Luca and Riccardo will take part in that. The problem of events is selfies because you see the latest event we had in London, I'm sure this is not the time to smile, there was a customer who wanted to take 5 photos because she was never happy. She was never satisfied. So we took 5 selfies. So I just wanted to very -- to joke. But you see, now it's better to smile rather than to laugh. But you see, I'm very confident in humanity, too. We have the courage -- we need to really have the courage to look ahead. Thank you.

[Operator Instructions]

So if there is nothing left, we'd like to thank you, and good luck to Diego for their call, which is starting now. Thank you very much, and goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]