Safilo Group S.p.A. (SFL) Earnings Call Transcript & Summary

Good evening, and welcome to the Safilo Group's First Half 2021 Results. This call may contain forward-looking statements relating to future events and operating, economic and financial results for the Safilo Group. Such forecasts, due to their nature, imply a component of risk and uncertainty, due to the fact that they depend on the occurrence of certain future events and developments. The actual results may therefore vary even significantly to those announced in relation to a multitude of factors. Today's participants are Mr. Angelo Trocchia, Chief Executive Officer; Mr. Gerd Graehsler, Chief Financial Officer; and Ms. Barbara Ferrante, Director of Investor Relations. I will now pass the call over to Mr. Angelo Trocchia, Chief Executive Officer. Mr. Trocchia, you may begin, sir.

Hi. Thanks very much, and good evening to everyone, and thanks all of you for attending today's conference call on the Safilo Quarter 2 Trading Update and H1 2021 Results. We are very pleased that the second quarter continued a solid sales and profitability momentum of the first 3 months of the year, allowing us to close the first half of 2021 with a significant year-on-year rebound, but even more meaningfully, growing well above the H1 2019. In the period, we continue to size the business opportunities that our renewed brand portfolio offered us in our key markets. For the first 2 quarters of 2021, our business performance was consistently driven by the strength of our key strategic pillars. We benefited from the successful rebalance of our brand portfolio, which has so far allowed for the full offset of the business terminated at the end of 2020 through our acquisitions of Blenders and Prive Revaux, and the new recently introduced licensed brand of Levi's, David Beckham, Missoni, Ports, Isabel Marant and Under Armour. This has been the main objective of our action plan during the last 3 years, the effective implementation of which is now permitting us to bring home a positive performance of our core business. In the first semester, we in fact benefited from the significant organic growth achieved by the brand already in our portfolio, meaning our comparable business was up high single digits, a result which was broad-based from Smith's strong outperformance across all its category, a big hand to the Smith's team, across all its categories, channels and geographies; to Carrera and the main license of Hugo Boss, Tommy Hilfiger, Kate Spade and Jimmy Choo all firmly exceeding 2019 levels. For the fourth consecutive quarter in a row, our path of recovery was led by the significant rebound in the consumption experience in the United States, a market which is certainly performing better than any expectation. And I think the team over there is doing quite a great job, but also by the vigorous progress we kept recording in China, Australia and in most of the Middle Eastern markets. Also in the second quarter, our sales growth came largely from prescription frames, the product category which has best sustained the industry during the depth of the pandemic and which is still today outperforming alongside our winter and summer sports products. Our sales of sunglasses, which continued in the second quarter to be held back by the pandemic-related restriction which persisted in many crucial European market, at least until May, benefited on the other hand from the strength of our online channel, which grew a strong double-digit also in the second quarter, thanks to the business momentum of Internet player as well as the B2C digital sales of Blenders and Smith. Let's then look at the KPIs of our second quarter trading update. As expected, our business performance in quarter 2 recorded an exceptional year-on-year rebound of growth, with sales and profit doubling or tripling compared to the extremely small business and the losses we recorded in the second quarter last year, the one most heavily weighted down by the COVID-19 pandemic. Our comment we saw mostly refer to our performances compared to the same period of '19, the most meaningful benchmarks to measure the health of our business and the progress of our operational execution. Our net sales in quarter 2 were up by 9.4% at constant exchange rate versus quarter 2 2019, posting a sequential acceleration compared to the 6% we recorded in the first quarter of the year. Our quarter 2 adjusted EBITDA reached EUR 23.8 million and the margin on sales of 9.2%, not far from the double-digit level we achieved in the first quarter and 70 basis points better than the margin of 8.5% we reported in quarter 2 2019. The sum of the 2 quarters was a solid H1, in which the very robust sales growth and the structure of cost reductions we have been implementing delivered a significant recovery of the profit. In H1 2021, our total net sales reached EUR 510.7 million, reported a growth of 7.7% at constant exchange rate compared to H1 2019. Our first half adjusted EBITDA was just short of EUR 50 million and 10% margin, precisely at EUR 49.7 million at 9.7% adjusted EBITDA margin, a result which granted us a plus 20.5% increase in value and a 140 basis point margin improvement compared to 2019. Very meaningfully for us, the semester was back to a small adjusted group net profit of EUR 4.4 million, which compared with the adjusted loss of EUR 63.7 million recorded last year, while it was below H1 2019 adjusted net profit of EUR 8.5 million due to higher financial charges. Now the significant recovery of our operating profitability we achieved in the second period supported what we consider a satisfactory first semester free cash flow, which allowed our group net debt at the end of June 2021 to be substantially stable with the position we recorded at the end of last year despite of the cost of the restructuring. I stop here for the moment and hand over to Gerd for some additional details on our economic and financial performance.

Thank you, Angelo, and good evening to all of you connected via conference call and audio webcast. Let me add some color to the main highlights already discussed by Angelo, starting from our net sales performance in the second quarter and first semester of 2021. We are on Slide 6 of our presentation. So our Q2 2021 net sales reached EUR 259.4 million, taking the H1 top line to EUR 510.7 million, respectively up 4.3% and 3% at current exchange rates and 9.4% and 7.7% at constant exchange rates on a 2-year basis. ForEx has been quite a headwind so far for U.S. dollar-denominated sales both versus 2020 and versus 2019. As highlighted by Angelo, key for us this year was and still is the effective rebalancing of our business portfolio in line with our group plan, working on the different important business levers by product category, geography and channel. The foundation for our business model to be successful is a competitive and very appealing brand portfolio, and what we're commenting on today goes exactly in that direction after 3 years of portfolio overhaul. Also in Q2 and always in comparison with Q2 of 2019, the negative perimeter effect from the exit of Dior and Max Mara was overcome by the positive impact of the new owned and licensed brands we have been introducing to the portfolio during the last 12 to 18 months. As a reminder, we bought a controlling stake in Prive Revaux in February last year, while last June marked Blenders' first year within our portfolio. With regard to our licenses, we launched Levi's, David Beckham and Missoni in the first half of 2020 in the midst of the pandemic, Ports in China in July, while Isabel Marant in Q1 this year and Under Armour more recently in this quarter. Focusing then on our organic performance, the one driven by our fully comparable brands on a 2-year basis, this was strong, and again, leading the high single-digit growth we recorded in the [ periods ] versus 2019. We'll add some more color on our brands when moving on to our geographical performance. By product category, prescription frames continued to register strong momentum, up by a meaningful double-digit also in Q2 and consequently in H1, reflecting the sustained business activity in optical stores, quite broad-based by brand and market. Such trends have been supporting our work of shifting more of our business towards prescription frames. The latter accounted for 39% of our H1 2021 sales mix, up from 36% in H1 2019. The rebalancing would be clearly even more evident in looking at the business ex the acquisitions, which are largely sunglass businesses. Smith's winter and summer sport products were the other winning categories, growing exponentially in Q2 and driving a strong over 80% increase in H1, also boosted by the surge of outdoor activities. Sales of sunglasses, which doubled year-on-year in Q2 were, on the other hand, still slightly below 2019 levels, due to the impacts of lockdown restrictions on retail and travel and to a particularly difficult comp space given the terminated licenses' high weight to these products. As highlighted by Angelo, our sales of sunglasses in Q2 and in the semester were supported by the strong growth of the product category in the digital channel, clearly driven by the significant contribution of our acquisitions, Blenders in particular, but indeed also by the strong ongoing progress of Smith's renewed digital direct-to-consumer channel as well as by the outperformance of Internet pure players. Let's have the usual quick zoom into our group's total online business performance in the next slide. At the end of June, our total online business represented roughly 14% of the group's total sales or around EUR 75 million on a constant currency base, with a channel growing 2x and almost 4x compared to H1 2020 and 2019, respectively. For online, the most meaningful comparison to make is with last year, as the channel experienced its strongest development indeed in 2020 concurrently with our acquisitions. In H1 2021, the doubling of our total online sales came from the significant addition of Blenders, but also thanks to Smith, up 39% at constant exchange rates and to the revenues generated through the Internet pure players, which increased by 38% in the period. In Q2 of 2021, the group's online business continued to record a strong development, up 64% year-on-year, still benefiting from the positive perimeter effect of having Blenders in the base period just for the month of June. On the other hand, the organic performance of the channel started to normalize a bit in Q2 compared to the extraordinary growth rates experienced last year when online was the only way for consumers to buy, remaining, nevertheless, very meaningful. Moving to the drivers by geography of our sales performance in the second quarter and first half of this year, we can generally say that on a 2-year basis, Q2 trends were quite consistent with what we recorded in Q1, with some accelerations and decelerations reflecting specific base effects. Starting from what is today our biggest region, representing 47% of our total sales, North America was again the key driver of our sales growth, thanks to the buoyant consumption trends persisting within the United States, to the strong momentum our portfolio is enjoying in the market and today now to our acquisitions. Meaningfully, excluding the acquisition, our sales growth in North America accelerated in Q2 to plus 20% from the plus 17% recorded in Q1, again, driven by a wide-ranging improvement across brands, product categories and channels. Amongst all, a special mention goes to Smith, whose revenues in Q2 this year almost doubled versus 2019 behind the sizable development of all its product categories through its traditional distribution and, more significantly, through its renewed B2C channel. Reading out our total reported performance in North America, in Q2 2021, net sales grew 60.3% at constant exchange rates and 50.6% in H1 versus 2019. In Europe, our Q2 net sales recorded a very significant year-on-year rebound, which was, on the other hand, still not sufficient to allow our business to match pre-pandemic levels and to fully compensate the gap generated in the region by the terminated licenses. After a weak start to the sun season affected by the impact of retail restrictions until May and the lack of tourists in key cities in summer locations, sales trends improved in the U.K., Italy and some Nordic countries, but they remained more subdued in markets like Germany, France and Spain and in those channels more exposed to the terminated businesses, in particular, license-at-home boutiques, department stores and travel retail. Also in Q2 2021, sales of prescription frames in Europe were up double digits compared to Q2 of 2019, while sunglasses remained subdued, also reflecting the still negative trading environment for Polaroid, in particular, in some of its core sunglass markets like Spain. In the comparison with the respective 2019 periods, our Q2 net sales in Europe were down 11.4%, with constant exchange rates recording, however, an improvement compared to the decline of 17.8% reported in Q1 of 2021. Overall, in H1, our net sales in Europe declined 14.7% at constant exchange rates, mainly as a result of a very challenging base period for sunglasses due to the terminated businesses and a still patchy business environment. In Asia Pacific, our Q2 2021 net sales recorded a year-on-year growth of plus 49.6% at constant exchange rates and an almost equal decline of 48.5% in its comparison with Q2 2019, a very tough base period, as travel retail was particularly strong then and as we know, heavily exposed to the terminated business. In the second quarter of this year, sales trends in Asia Pacific were highly divergent, reflecting on one side, the ongoing rebound of China and Australia, up respectively 21% and 12.4% versus Q2 of 2019, thanks to a supportive business environment where we could effectively relaunch our brand portfolio, and on the other, the still highly subdued travel retail business at many other markets in the regions still affected by the pandemic and lockdown restrictions. In H1, our net sales in Asia Pacific declined 39.1% at constant exchange rates. Finally, in the rest of the world, Q2 was another supportive quarter for the group's business recovery and growth, with our net sales in the region recording an exponential rebound compared to last year's extraordinary decline and plus 4.9% compared to the same quarter of 2019. Both Middle Eastern markets and core Latin American countries, Mexico in particular, contributed to the upside of the period, while our total H1 performance in the area equaled the growth of plus 14.4% in the comparison with H1 2019. Let me now move to our economic and financial performance. Slide 10, building on the highlights already provided by Angelo. I would say that the second quarter was similar to what we saw in Q1, more sales, better operating leverage as sales volumes increased, additional progress on our cost efficiency plan, accelerating now also at the cost of goods sold level. But also as expected, an acceleration of some SG&A investments and higher inflationary pressures. Let me give you an update on our total structural cost savings in these first 6 months. These amounted to around EUR 13 million with just under EUR 9 million on COGS which, as I said, had quite a significant acceleration in the second quarter. In the 6 months, we also had some EUR 4 million of cost avoidance in relation to the contingency measures still in place due to the COVID-19 emergency. In the period, we incurred some additional nonrecurring costs, mainly at the gross profit level, and depreciation for the write-off of manufacturing assets in relation to the closure which occurred as expected in June of the Ormoz production plant in Slovenia. Total nonrecurring costs in the first semester equaled EUR 19.3 million. And as said, these were mainly related to our industrial restructuring plan. As you will probably have read, on the 22nd of July, the French Competition Authority, following the investigation initiated in 2009 regarding a number of alleged practices in the eyewear sector in France, dismissed all the charges which have been raised against Safilo and which we have been vigorously challenging. We are clearly very happy with this decision, which meant that no sanctions were applied to Safilo, thus allowing us to release the provision for risk of charges equal to EUR 17 million which we booked in 2015 in order to cover the potential estimated liability. This release has had a positive impact on our reported Q2 and H1 2021 results, which is not included in our adjusted key performance indicators as it is treated as a nonrecurring income. Q2 2021 gross profit rose to EUR 135.6 million and to a margin of sales of 52.3%, marking an exponential increase compared to the exceptionally low levels recorded in Q2 of 2020. On an adjusted basis, gross profit in Q2 was EUR 3.8 million higher, equal to EUR 139.4 million and to a margin of 53.7%, accelerating quarter-on-quarter versus the 52.2% adjusted gross margin recorded in Q1. On a 2-year basis compared to Q2 of 2019, gross profit was up 2.6% in value terms and down 100 basis points margin-wise. And looking at the key dynamics which drove this performance on the positive side, we have the sizable accretive growth of the D2C channel, which is largely but not fully offsetting the double negative impact we suffered in these quarters from the terminated licenses, very high and accretive in the base period yet residual and dilutive in their final depletion periods this year. In the quarter, we had also a quite meaningful positive contribution from lower obsolescence costs, an important component of our structural cost savings plan, which together with some other manufacturing and purchasing savings supported us in counterbalancing the rise of inbound transportation costs. In the first semester, our gross profit reached EUR 262.2 million, up 76.5% compared to H1 2020, with a gross margin which bounced back to 51.3% from last year's 44.3%. On an adjusted basis, H1 2021 gross profit equaled EUR 270.6 million and a margin of 53%, respectively up 1.7% and down 70 basis points compared to H1 of 2019. Moving down the P&L. Our SG&A cost structure benefited from the recovery of operating leverage, led by the strong top line growth and by our now leaner overhead cost structure, which we continue to manage with disciplined cost control. Let me say that as expected and anticipated, we closed the first semester of this year with a substantial completion of our original overhead productivity plan of EUR 20 million. We had, in fact, some EUR 4 million additional euros of structural overhead savings in the 6 months to June. On the other hand, as planned, marketing and advertising expenses reaccelerated compared to Q1 2021, mainly as a result of the expected easing and lifting of the restrictions which have prevented our core organic business from trading regularly in the first month of the year. The acceleration of these costs was quite significant also compared to the second quarter of 2019, as the period represents the peak season for the online business, thus the month in which a great deal of Blenders marketing investments are concentrated. Starting from Q2, Blenders, like many e-commerce marketers across industries, have been experienced advertising price increases on social media, coupled with the impact of the recent iOS updates on ad targeting. Quite interestingly, always in our 2-year base comparison, the higher mix of marketing or higher weight of marketing was compensated by lighter royalty expenses, in line with our now different brand mix in the portfolio. Briefly on the numbers. In the second quarter, our reported EBITDA soared to EUR 37.7 million as it accommodated the release of the EUR 17 million provision discussed before, which meant more than doubling the profit of EUR 17.4 million reported in Q2 2019, with the margin jumping to 14.5% from 7% in Q2 2019. Q2 adjusted EBITDA equaled instead EUR 23.8 million compared to the loss of EUR 34.1 million recorded in Q2 of 2020, increasing plus 12.2% compared to the adjusted EBITDA of EUR 21.2 million reported in Q2 2019. In Q2, our adjusted EBITDA margin increased to 9.2%, 70 basis points higher than the 8.5% margin recorded in Q2 2019. This solid result allowed us to close H1 2021 with an adjusted EBITDA of EUR 49.7 million, posting an increase of 20.5% compared to the adjusted EBITDA recorded in H1 2019. Meaningfully, in H1, our adjusted EBITDA margin was very close to the double-digit level at 9.7% of sales, marking 140 basis points improvement compared to the 8.3% adjusted EBITDA margin recorded in H1 2019. After D&A, our H1 2021 operating result was back to profit of EUR 22.3 million and to an EBIT margin of 4.4%, with an adjusted operating result of EUR 24.7 million at 4.8% of sales, meaning an increase of 85.5% compared to the EBIT of EUR 13.3 million recorded in H1 2019 and an improvement of 210 basis points compared to the 2.7% margin recorded in H1 2019. Our operating performance in H1 allowed us to close the period with the group net result back to a small reported profit of EUR 2 million while the adjusted net result equaled a profit of EUR 4.4 million compared to the adjusted net loss of EUR 63.7 million in H1 2020 and the adjusted net profit of EUR 8.5 million posted in H1 2019. Below the operating line, net financial expenses equaled EUR 11.6 million, remaining absolutely in line with last year, although with a different mix, driven by higher financial interest and a lower negative impact from exchange rate differences. Financial charges were, on the other hand, higher than the EUR 2.9 million recorded in H1 2019, mainly as a result of the higher average net debt and of the higher interest on the shareholder loan. Moving to our cash flow. In the semester and group net debt at the end of June, Slide 14. As already remarked by Angelo, our solid economic performance allowed us to close the first semester with the satisfactory free cash flow, which was driven by the positive cash flow from operations of EUR 10.1 million, which was achieved thanks to a significant recovery of operating profitability, notwithstanding a cash out of around EUR 12 million relating to the definitive closure of the Ormoz production site, with which we took another significant step forward in the execution of our industrial restructuring plan. In the first half of 2021, we recorded a relatively contained absorption from working capital of EUR 9.4 million with the net working capital dynamics which were characterized both by the normal increase of trade receivables and payables accompanying the surge of trading activities and by a reduction of inventories by EUR 6.7 million. In H1, the cash flow for investments amounted to EUR 9.8 million, primarily devoted to the group's current digital transformation and overhaul of its IT infrastructure and to maintenance CapEx for our industrial footprint. In H1, our free cash flow equaled a small cash absorption of EUR 4.8 million compared to the slightly positive generation of EUR 2.5 million before the acquisition of Blenders and Prive Revaux recorded in H1 2020 thanks to, at the time, a strict COVID-related cash protection approach. As regards our net debt, at the end of June 2021, it stood at EUR 226.9 million, EUR 186.7 million pre IFRS 16, pretty much stable compared to the position of EUR 222.1 million or EUR 179 million pre-IFRS 16 recorded at the end of December 2020, and the position of EUR 223.9 million or EUR 181.3 million pre-IFRS 16 recorded at the end of March this year. If we look at the key components of the group's net debt position at the end of June, we moved from a gross debt of EUR 298.1 million, of which EUR 40.2 million was the IFRS 16 impact, EUR 96.5 million the shareholder loan for the acquisitions, EUR 108 million the term loan facility guaranteed by SACE and EUR 55 million the renegotiated term loan facility signed in 2018. We then closed the semester with a cash position of EUR 71.2 million and our EUR 75 million revolving credit facility undrawn. I'll stop here and I hand over to Angelo for his further remarks on the business evolution after the closure of the semester.

Thanks, Gerd. There are certainly a number of important developments in our business, and I would like to briefly update you on it. Starting from where we stand with our You & Safilo B2B e-commerce platform, which was officially launched this time last year in Europe, and which represent a key investment in our digital transformation strategy when it comes to our customer-centered strategy, improving heavily their relationship with our clients. So 1 year after it launched, we look at where we stand with this project and what results it is giving us. You & Safilo is online in 19 countries, launched first in the Italian market and then followed by 18 other countries in the EMEA region. The number of the registered customers increased by 80% to our old platform last year. And today, we have more than 27,000 registered users. Customer care has also been integrated into the platform. And today, Salesforce Service Cloud is used daily by our entire EMEA customer care organization, around 100 people. Now our job is to ensure that those customers who have already started using You & Safilo use it as the main channel to work with us for all of those activities that they can do conveniently from their shop in total autonomy, and of course, to keep tempting the customer who have not yet registered to do so. In the first semester of 2021, ordering value through our You & Safilo platform increased by more than 60% compared to H1 '19. To be noted, also thanks to the recent digitalization of warranty returns in Europe, 50% of the warranty transaction has now moved into You & Safilo from the customer care channel, which testify our focus on the continuous upgrade of our post-sale service. The last major goal we achieved was the digitalization of our retail process, which was a 90% physical activity before that. The project is not yet completed and is being constantly updated to always better address the needs of our many different customers. With regards to the major -- the other major part of our commitment to a 360-degree digital transformation, the D2C business, Blenders is now progressing on its growth and development product to fuel the international expansion outside the U.S. Following the go-live of the brand's e-commerce business in Canada, and in Australia in the first quarter of 2021, Blenders will now enter the United Kingdom and Ireland, targeting European largest e-commerce [indiscernible]. Blenders' digital-native business model allow us to open the brand fast to new markets, and that's exactly in line with our strategic plan to fuel the growth potential of such an amazing brand, not only in North America but also outside North America. At the same time, we continue to work to reshape our [ wide ] portfolio with targeted additions that will allow us again to gain a leading position in the various eyewear segment and references market. After having signed with Dsquared2 in May, a few weeks ago, we announced a new partnership with Carolina Herrera, an iconic fashion luxury brand valued worldwide for the extreme elegance and femininity of its product, which represent a great, great addition to our portfolio and a significant immediate opportunity to strengthen our women proposition and to effectively counterbalance some recent brand exits. Carolina Herrera is already a relevant brand in the eyewear sector, and it will restrengthen our portfolio in particular in Spain and in Latin American market, while we will be working to strengthen the brand's image and geographic reach thanks to our product design and distribution capabilities. Now before concluding our presentation, I'd like to give you an update on the most recent performance of our business. In July, our total net sales performance was again strong, with the U.S. and China remaining the markets with the highest growth momentum. So our better-than-expected H1 2021 results and the continuation of the positive trend into the beginning of the third quarter allow us to look with optimism at the growth prospects for the current year, consolidating our ambition to exceed already in 2021 the pre-pandemic business level of 2019. We now expect the group's full year 2021 net sales to grow mid-single digit at constant exchange rate compared to 2019. Adjusted EBITDA for the year is also forecasted to surpass 2019 levels. Clearly, it is important to underline, such expectations are based on the assumption of a stable business environment with no further significant COVID-19 related restriction to be introduced in the second half of 2021. As you will have read a few days ago, the Extraordinary Shareholders' Meeting approved the share capital increase we announced at the end of June, for a maximum amount of EUR 135 million, aimed at the early repayment of the subordinated shareholder loan of EUR 90 million provided [ by HAL last year in order to finance the 2 acquisitions in North America. The objective of this repayment is to provide our group with a more cost-efficient financial structure to support us on the path of recovering a solid and sustainable operating but also group net perform. The share capital increase is also aimed at harder strengthening our capital structure, supporting our future development by external line. Taking into account the performance of the business and the market situation, we believe that the condition exists today for this capital increase, with which we have the opportunity on one hand to pursue with the termination of our consolidated cost saving program, considerably limiting financial charges for the next 5 years; and on the other hand, to further enable our growth strategy with additional resources and new strength. The share capital increase is supported by HAL, which we will subscribe the option rights related to its existing holdings and subject to an agreement with the company on the issue price and new shares which would remain unsubscribed after the offer in option and the subsequent offer on the stock exchange. We believe in the work we are doing in Safilo and we believe that we are moving in the right direction to catch future opportunities for the group. As we have been discussing, the strategy we outlined in December 2019 in our Group Business Plan 2020-2024 are all up and running. And their implementation is today effectively supporting us in recovering from the negative effects of the pandemic and in continuing to pursue our 2024 sales, economic and financial targets, which now also include the effect of the acquisition of Prive Revaux, the new license signed in 2020 and 2021, and the expected proceeds on the capital increase. This concludes our presentation, and we are now ready to take any of your questions.

[Operator Instructions] The first question is from Cédric Rossi of Bryan Garnier.

Actually, I have 3 questions. The first one is regarding your -- so your implied outlook over the second half of the year. So I understood that you were expecting a relative normalization in H2. But since the U.S. and China are still driving the growth, how do you expect Europe and Asia to behave in the second half, assuming that we saw some new lockdowns in Australia? So I was wondering how you were seeing Europe and Asia behaving in the second half of the year. My second question relates to the marketing expenses. So I understood that you were -- you had some pickup in marketing expenses in Q2, also probably related to the launch of Blenders Eyewear in the U.K. So I assume that we can expect this cost expenses, these marketing expenses to continue to increase in Q3 and Q4. So could you confirm that? And my third question is regarding the prescription and the performance in the prescription category. So of course, the COVID had driven this category. But what did you change in your strategy or in the go-to-market approach to really sustain that growth because in the past, Safilo was, let's say, quite weak in that category. So what did you change in the marketing strategy or in the commercial strategy to really have this very strong performance?

I will answer to the third question, and then I'll leave Gerd to answer to the first 2 questions. Prescription categories. I think we did 2 important things. First, we have been revisiting our portfolio. So we have been enriching the optical bit of our collection. This has been action number one. Just for give you a concrete example, we have launched -- we have launched a full range of Polaroid prescription which is flying, where before Polaroid was fundamentally a brand which was only sun. Today, Carrera is becoming almost a 50-50 brand between prescription and sun, and that was not the case before. So first action, worked on the portfolio, with new launches and or -- sorry, a new part of the collection or rebalancing the collection. This is action number one. Action number two, we have been doing the last 2 years quite some enhance of the sales force because selling optical products, you need a little bit a different set of capabilities. So we have been training almost all our sales force, repeating or improving or teaching them how important are some characteristics when you go to the optician and you sell optical product versus when you sell some product driven by big license. So second dimension, training on the sales force. Third dimension has been a step improvement of the level of service because more you move toward optical product prescription product, more the level of service becomes crucial. And here, especially in Europe, the implementation of the new B2B and the new focus on the customer care has been a crucial bit to rebuild the trust with the customer. We have done now for 2 years in a row a customer survey, and we keep improving, for the second year in a row, the judge in the score that the customers are giving us. So 3 elements: enlargement of the collection, training on the sales force, step improvement of the customer level or the service level. I pass to Gerd.

Okay. So on the first question on the implied or the outlook for the year, I think we wanted to give an outlook as to how we see the rest of the year coming in. We do still take, let me say, a prudent stance on this outlook considering the macroeconomic scenario is still quite uncertain. I think Asia, we see quite a difficult market environment, to be honest. I mean other than China, most of the Asian markets are still in lockdown or like Australia are going again into lockdown. Vaccination rates are low, et cetera. So I think the Asian recovery in the second half is still going to be -- it's going to be challenging. Somehow also in Europe, I mean we do have a better performance from local consumption. We see that clearly in the prescription France performance. But we are still missing, let me say, the tourists that used to be a big and important driver of the business. So looking at H2 and always looking at versus 2019 that we say, we do have some base period effects. Of course, not only did we have the terminated business of Dior and Max Mara, which were stronger in Europe than in other parts of the world, plus now also Fendi, as you know, the Fendi license has ended on the 30th of June. And so we do have some base period effects that are impacting more in Europe when it comes to growth along with the typically lower seasonality of the business in H2. On the North American side, so far, we do see a very good trend continuing. I mean I have to say that the H1 performance of Smith has been quite extraordinary. It's a great supporter of our growth. We do expect Smith to keep growing also in H2, but possibly a different magnitude of what we saw in H1. So we decided, all considered, to take a reasonable stance on the year. With regards to the question on marketing, let me say, I mean it's a good thing that now that we have more own brands, we are spending more on marketing in building our own brands rather than on licenses for licensing the brands of others. Clearly, the peak period for marketing investment is the summer months. This is now even more true for us compared to the past, significantly because of Blenders. So here we have, as you know, a much higher gross margin, but much higher marketing expenses, which are concentrated in the peak months. So let's say, May, June, July and to some degree, August are the most important months. So we will continue seeing these kind of marketing dynamics also in the third quarter. The U.K. launch of Blenders is pretty much new. I mean we started really in July. So I wouldn't expect this to be a significant contributor yet in the third quarter or the fourth quarter when the seasonality changes. But going forward, clearly, the expansion of the direct-to-consumer business of Blenders globally will also lead to higher marketing investments in the overall mix of Safilo.

The next question is from Oriana Cardani of Intesa Sanpaolo.

The first one is on expected gross margin in the second part of the year. Do you see any specific pressure on gross margin in H2? Or can you assume a gross margin at least at the level of last year in H2? The second question is on expected net debt ex IFRS. Without taking into consideration the cash-in from the capital increase, which is your target for net debt by the end of the year? And how much cash out for restructuring cost and for working capital do you incorporate in it? The third question is on Blenders. In the press release, you said that the new licensees and the acquisition fully offset the business terminated at the end of 2020. Can you quantify the amount of this business terminated? And how much is the contribution of Blenders? And can you give us an idea of potential revenues in 2022 and 2023 for Blenders coming from its international expansion out of USA? And finally, you stated that the capital increase is and also to support opportunities that may come in the sector. So what kind of company may be an ideal target of acquisition for you in terms of market and stage of development?

Okay. I start from the last one. Look, I need to start over from the last one, the last question. Look...

Capital increase opportunities.

Yes. The opportunities, I think that we have outlined a very clear strategy in -- when we presented the strategic business plan. And the 2 strategic directions are B2C and prescription area. As you remember, we were a company which were 70% sun, 30% optical or prescription. Clearly, strategically, we said we cannot be like this because we are completely different from what the market is. So we have defined like to grow on prescription in a heavy way compared to the sun. So our potential target needs to be or in the D2C arena because I think that there is space there and we are currently at 14%. And I think there is an opportunity to go higher as a percentage of our total top line. And the other dimension is optical because I think that we need to strongly shift our portfolio from being a 70-30 company to a 50-50 company. Just already to give you a reference, this year, I think we would be a 60-40 company. So we will start having a more balanced portfolio. But the 2 priorities, D2C and optical, so any target which fits along these 2 directions. On Blenders, then I leave to Gerd, Blenders clearly, when we bought Blenders, Blenders is a 98% D2C company. It will stay like this. I think still there are great opportunity in U.S. because I think U.S. remains the biggest market. And if you look to the number, it is a market which keeps growing, especially in sun because part of the sun strategically is moving on the D2C. So Blenders is going to gain out of it. But obviously, the international expansion is another huge opportunity of Blenders. So we start with Canada. We start with Australia. Now we are coming to Europe. And obviously, there is all the Hispanic world speaker, which is another big next step of expansion. So I don't think we should give a number, but then I leave to Gerd, but obviously, it's going to be a crucial bit out of the Blenders strategy, the weight and the strength of the international expansion, and you will keep hearing from more and more in this direction. Gerd?

Yes. So I think maybe just completing the perspective on that question, I mean we do not -- without comment, let me say, on individual brand numbers or individual parts of the portfolio. What I can say is that at the end of 2019, so when we had all that terminated business in our base, that was roughly EUR 200 million. And our ambition is that over time, with the M&A and with the addition of the new licenses, we can offset that. This is what has happened in the first semester of 2021. Clearly, there is a bit of a different profile of seasonality with the B2C business. But in 2022 and 2023, our ambition would be to basically offset what used to be that block of the business back in 2019. With regards to the gross margin, I think that we should have a good opportunity to be above the numbers of 2020 and 2019 in the second half of the year. I mean we had 51% now in H1, adjusted close to 53%. So I think here, we should have the possibility to be above 2 years ago, especially in Q4, where we had some quite low gross margins in the base periods. I would expect additional cost of goods sold savings to be delivered in the period. We do -- we are facing, let me say, also quite an impact from rising transportation costs, so both from the route from Asia to U.S. and Asia to Europe. And we think that this will persist. And we see a risk, to a lesser extent, that there may also be some inflation on the raw material side. So we will have cost savings, and we are looking at some potential risks to offset. But I think all in all, we should be able to deliver or exceed the gross margin in H2. With regards to the net financial position, I mean let me comment excluding the capital increase, then you can obviously easily add the EUR 135 million against that. I would expect that the net debt at the end of the year will be higher than the net debt that we recorded at the end of June, which means de facto a free cash flow negative for the rest of the year, just as we also had in the first part of the year. On the one side, we do have a lower business seasonality. So the level of revenues in H2 is seasonally always lower, so there will be lower operating flows than what we saw in H1. I would expect a higher absorption from net working capital because we will see possibly a bit of a reacceleration of inventory levels. We have quite a favorable effect in H1, but as we also start going towards the inventory for the new January 2022 releases, we will probably see some rebalancing on the stock. Receivables and payables will obviously depend on how the business will perform, but we should probably see some reduction there. On CapEx, we sold about EUR 10 million in H1. I would expect another more or less EUR 10 million in the rest of the year. So that's something quite similar. But at the end of the year, I do expect to close 2021 with a negative free cash flow, which was always expected as this was a year in which we are executing a lot of the restructuring. We mentioned the cash out of EUR 12 million in the first semester. And clearly, we still have some way to go on completing the restructuring, depending on when that will also be possible within the legal framework, especially in Italy. So I think in terms of restructuring, we are, let me say, I would say maybe 80% there in terms of what is to be accrued on the P&L, as you know, because of delays in the implementability of some of those plans. I would say that probably we are about halfway through on the cash side, respective to the overall restructuring envelope that we announced in 2019 of about EUR 50 million at the time.

The next question is from Domenico Ghilotti of Equita.