Edited Transcript of SFL.MI earnings conference call or presentation 11-Mar-20 5:30pm GMT

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Gerd Graehsler, Safilo Group S.p.A. – Group CFO [3]

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Thank you, Angelo. I go then into the main presentation. And as done in the previous occasions of discussions of our periodic 2019 results, I will give you some brief introductory points to clarify and confirm the way in which we have presented and analyzed our results and performance of last year.

First of all, let me remind you that on July 1, we closed and finalized the transaction to sell the Solstice retail operations, which were out of our perimeter for the entire second half of the year. So it’s done. For the first 9 months of 2019, today we are commenting on Q4 and the full year 2019 results relating to our continuing operations, excluding the discontinuation Solstice retail business.

Let me here, just remind you that for the 6 months of last year in which the Solstice’s retail stores were in our books, they generated sales of EUR 25.7 million and a loss of EUR 26.1 million, of which EUR 17.3 million derived from the asset disposal itself and EUR 8.8 million are the net loss of the chain in the period.

The second reminder relates to IFRS 16 with the first adoption of the new standard last year, and we elected to apply the modified retrospective approach without restating the 2018 comparative information. Consequently, 2019 results and comments are provided in the pre-IFRS 16 basis in order to allow for a proper comparison with the previous periods. Third, and as always, results are provided on an adjusted basis with nonrecurring items, which this year included a number of different items, which we will be detailing separately in a moment.

Very briefly on IFRS 16 in Slide 3, you have the table providing you with the impacts of the new standard on the 2019 consolidated statement of income and the balance sheet. Just looking at the continuing operations, you can see that we have a material positive effect in terms of EBITDA of EUR 13.6 million, deriving from the reduction of operating rental expenses as the majority of the current operating rental cost is now presented as depreciation of right to use assets and interest expenses on the lease liabilities.

The impact becomes a minor negative at the EBIT level for the increase of depreciation expenses and a EUR 2.1 million negative at the net result level due to the increase in interest expenses. IFRS 16 has a total impact of EUR 47 million on the group net debt for the increase of lease liabilities.

Moving to Slide 4. I would also like to highlight upfront our nonrecurring items, which are subsequently not included in our discussion. This equaled, last year, EUR 295.9 million, a significant amount, reflecting 2 distinctive areas of intervention. The one which represents the great majority of this amount relates to the noncash impairment of EUR 227.1 million of goodwill, which we had already booked in the first semester of the year, writing down the entire goodwill balance on our financial statements, plus mainly the write-down of deferred tax assets whose amount was slightly revised down compared to June to EUR 22.4 million. So these items were already in our books at the end of June 2019. The other area relates to the restructuring activities of our manufacturing footprint in Italy, which we announced on December 10 and which required us to account already in the fourth quarter, EUR 21 million, which are part of the EUR 50 million restructuring costs that we had indicated in our group business plan 2020 to ’24. These are largely personnel costs for the closure of the Martignacco plant from the first of July 2020 and for the downsizing of the Longarone plant which, after the agreement reached with the unions and workers is now under finalization at governmental level.

Related to the same topic, we also proceeded with a write-down of fixed assets for EUR 9 million in the affected sites. The remainder of the nonrecurring costs were mainly related to the overhead savings program we undertook during the year and to our acquisition and divestiture activities.

I stop here and hand over back to Angelo.

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Angelo Trocchia, Safilo Group S.p.A. – CEO & Director [4]

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Okay. Thanks, Gerd. In 2019, we continued the work started in 2018, consolidating the business foundation to develop our medium-term strategies. Many things happened as many important things had to be done. 2019 was by sure a meaningful year for our brand portfolio, a year of important renewals from Tommy Hilfiger, Kate Spade, Hugo Boss and Marc Jacobs. And the signing of 4 exciting new partnership, namely Missoni, Levi’s, David Beckham and Under Armour.

We consider all our achievements last year as an important confirmation of our relevance in the eyewear licensing business, where we remain strongly committed to play a leading role. It was a transformational period for our group, in which we decided to exit the retail business, selling the Solstice chain in U.S. and refocusing 100% of our investment and capabilities on our core wholesale business. A year in which we had to confront ourselves, and we make decisions to internalize this higher business and in which we took the decision to pursue more strongly a digital transformation strategy initiating the acquisition of new relevant brand and capabilities.

December 2019 was a turning point for us when we announced the acquisition of Blenders. And fast-growing digitally [enacted], California brand, which will become part of our own core brand portfolio and the most important building block to support the development of our direct-to-consumer capabilities’ fence. This is a key pillar for the new group business plan, 2020, 2024, we presented in the same month of December. And which also laid down a new course of our manufacturing footprint, rescaling its Italian capacity to the future production needs of the company. But safeguarding our competitiveness and financial solidity for the long term, while retaining an important made-in-Italy presence. At the beginning of October, we renewed the supply agreement with Kering Eyewear for additional 3 years. An important achievement to retain important made-in-Italy products and skills. And which testifies the good work we do in product development and production.

Our 2019 results were supportive in line with the targets we have given ourselves and share with you. Thanks to a strong plan to recover top-line growth and with the execution of our cost savings initiatives, making a significant step forward toward restoring a profitable company.

Let me now go through 2019 key figures and our main economic and financial achievements. As anticipated by the publication of our preliminary results at the end of last January, in 2019 the net sales of our continued operation slightly grew by 0.9% at constant exchange rate, thanks to our wholesale revenue posting a positive 2.8 percentile growth, while we recorded, as expected, a decline of the Kering supply business.

Our proprietary business gave an important contribution to this positive results with all our — all core brands, Carrera, Polaroid and Smith growing together up to 5.7% at constant exchange rate. These result is, for us, particularly encouraging and supporting of the strategies — strategic choice to sharpen commercial execution, focusing skills and investment in fewer, more brand vigilant markets. At profit level, we landed where we want to be with an adjusted EBITDA margin of our continuing operation at 5.5%, thanks to the savings in the cost of goods sold and to our action to reduce overhead expenses.

These results represent a significant progress on our underlying operating performance. A 350 basis point improvement over 2018, which is shown in the slide at 2% adjusted EBITDA. Thus, excluding the accounting income of $39 million for the early termination of the Gucci license. Our balance sheet remains solid, and we closed December 2019 with a net debt position of EUR 27.8 million and an adjusted financial leverage of 0.5x.

I’ll now hand over to Gerd to go into more detail on the economic and financial highlight of our continuing operations.

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Gerd Graehsler, Safilo Group S.p.A. – Group CFO [5]

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Okay. Thank you, Angelo. Let me then start from our net sales, which reached EUR 939 million in the full year. Up 3.1% at current exchange rates after foreign exchange tailwind of 2.2%, mainly deriving from the U.S. dollar appreciation against the euro. Sales were up 0.9% at constant currencies, factoring in 2.8% growth on our core wholesale business and the expected double-digit decline of the Kering supply business, which materialized mainly in the second half and in the fourth quarter, in particular.

This was, therefore, the driver behind the net sales performance recorded in the last 3 months of the year with net revenue standing at EUR 230.4 million and posting a decline of 2.8% at current exchange rates and minus 4.3% at constant exchange rates. In the quarter, our wholesale business was resilient, up 1.8% at current exchange rate and flattish or plus 0.1% at constant currencies. As expected and anticipated, Dior had a pretty evident deceleration in the period after a strong run in the first 9 months and some immediate side effects from the announced nonrenewal.

On the other hand, we had a nice progression of our own core brands, growing overall in the quarter by 8.8%, fueled by the positive recovery of Smith after the temporary hiccup of the third quarter, as we were consolidating the distribution operations in Denver, but in particular, by the further acceleration of a strong Polaroid in the period.

Back to our annual performance and with regards to our licensed portfolio, I would then like to highlight the very positive year for Hugo Boss and Tommy Hilfiger. 1 of the other side local U.S. licenses like Banana Republic, Liz Claiborne and Juicy Couture lagged behind.

One additional point I’d like to provide with regards to our sales relates to the online business, which last year grew high-single digits, mainly thanks to the positive performance of Internet-pure players. In 2019, our efforts and projects focused on strengthening the customer trust in Safilo, strenuously improving customer care and customer service levels, while reshaping the commercial organization around relevant [and competencies] and strong local accountability. This new approach has just started to pay out, and this is more evident when looking at our sales performance by geography.

Looking at our markets. Let’s consider what happened in Europe. Our biggest region last year, 48% of our total business. Total net sales in Europe were slightly down in 2019. And minus 0.7% after posting a decline of 11.8% in the fourth quarter. As explained before, this was due to the Kering supply business recorded in Italy, which declined by 18% in the full year and by 40% in the fourth quarter. More meaningfully, if we look at our wholesale business, which excludes the product supply business, full year revenues in Europe were up by 3.2%, a positive performance, which was supported by our proprietary brands in Polaroid, which grew double-digit in the year, followed by Carrera and Smith, both recording a mid-single-digit growth in the region.

Within our license portfolio, Hugo Boss should be highlighted for the progress the brands achieved both in our independent opticians chains but also in chains.

Last [came] (inaudible) whose expansion last year, we accelerated out of the U.S. home market whose performance, on the other hand, was more subdued. In Q4, our wholesale business in Europe was down 4%, which was explained both by the challenging comp space we had with the same quarter in 2018 when you may remember, we posted a strong recovery of plus 12% in Europe after a poor performance in the first 9 months of the year, and then Dior, as I was commenting earlier on.

In North America, the year was, in the end, just slightly negative. Minus 0.6% at constant currency, while reporting a 5.2% ForEx tailwind. Q4 recorded a positive recovery after the hiccup we suffered in the third quarter due to some delays in the ramp-up of the new Denver warehouse where all our North American logistics operations are now consolidated. The quarter ended up plus 4.2% at constant exchange rates plus 7.6% at current currencies, clearly registering a double-digit improvement of Smith. The year in North America was also positive for Carrera, while Polaroid still lagged behind.

Today, we are working on a different project for the brand in the U.S., strengthening its polarization content and story-telling, moving more in digital and other projects that we will unveil in the course of the year. Also looking to our new acquisitions to provide some of the key capabilities needed to accelerate the brand in the U.S.

As said, overall, 2019 was an excellent year for Tommy Hilfiger, which progressed very solidly, in particular, in North America, its second largest region in eyewear after Europe.

Moving to what are, for the big majority, our emerging markets, Asia Pacific and the rest of the world, together, 16.6% of our total net revenues. It was overall a positive year. Strongly driven by the double-digit growth of Asia and its main countries and channels, China, Hong Kong, our travel retail business and also [retailers]. Asia Pacific was up in the year by 19.2% and at constant exchange rates with a nice progress also in the fourth quarter, up 8.9%. As far as our own brands in the regions are concerned, Carrera grew low-single digits while we continue to develop well, Smith, in Australia and New Zealand. Rest of the world was up last year by 1.1% at constant currencies and here, we have 2 different sets of results. On one side, Latin America, which grew mid-single digits, led by a broad-based positive performance by Carrera, Polaroid, but also the main licenses in our key markets, Brazil and Mexico. On the other side, our EMEA region, which remained behind in 2019, despite recording an improving positive trend in the fourth quarter.

Here, we were focused on building stronger foundations for our business in India, which is expected to improve again starting from this year. Q4 trends in the rest of the world were mainly affected by a deceleration of the business in Mexico after the market’s important run in the first 9 months, but also less responsive market environment. Let’s then go to the key items and topics of our economic performance, starting as usual with our gross profit and margin. We closed the year with EUR 477.2 million, up 5.3% versus 2018. With the 100 basis points margin improvement to 50.8% compared to 49.8% the year before. It is now important to highlight that the gross profit, as reported was not adjusted for the portion of fixed asset write-down, executed in the fourth quarter, which fell for EUR 6.6 million into the gross profit.

If we exclude such a nonrecurring noncash item from the picture, our underlying gross profit improved by 6.8%, with the margin up by 170 basis points. This improvement resulted from higher manufacturing efficiencies cost savings mainly in our procurement activities, lower obsolescence costs and a more favorable sales mix, mainly due to a lower weight of the caring supply business. As said, Q4 gross margin was impacted by the fixed asset write-down, which fully explains its decline and margin dilution. Net of this, gross profit in Q4 slightly grew by 0.3%, with the margin improving by 140 basis points.

Moving on to our adjusted EBITDA. We closed 2019 with EUR 51.8 million of EBITDA and a margin on net sales of 5.5%, as anticipated, after posting EUR 7.9 million and a 3.4% on sales in the fourth quarter. As already highlighted, the underlying improvement of our adjusted operating performance can be more easily assessed when excluding from 2018 results, the annual income of EUR 39 million were $9.8 million in the fourth quarter accounted at the time for the early termination of the Gucci license. On a fully comparative basis, 2019 adjusted EBITDA improved exponentially compared to the previous year, with the margin up by 350 basis points and results, which we achieved, thanks to the progress just commented at the gross profit level and to an effective cost productivity plan, which allowed for a total overhead saving of EUR 15 million, contributing to making a significant step forward towards restoring higher operating margins.

On the same basis, Q4 adjusted EBITDA margin increased by 190 basis points. Further down our P&L, some additional items to mention our net interest expenses totaling EUR 5.8 million, more than halving compared to the EUR 13.8 million in 2018, thanks to the lower average net debt and a neutral impact from exchange rate differences as well as a lower tax burden. The 2 supporting our work of restoring a profitable Safilo. We closed 2019 with a net adjusted loss of EUR 4 million compared to the loss of EUR 14 million recorded in 2018. On a fully comparative basis, our net margin improved by 540 basis points compared to 2018.

Moving to the financial highlights of the group’s total operations in 2019, always before IFRS16. In 2019, and our free cash flow equaled an absorption of EUR 13.8 million compared to the negative flow of EUR 25.6 million recorded in 2018. In the period, the cash flow from operating activities before the change in working capital was positive for EUR 19.5 million, benefiting from the significant improvement of the underlying operating performance. On the other hand, our net working capital needs for the year declined, resulting in a lower absorption of cash compared to the previous year. This trend reflected on 1 side an intentional increase of inventories at the end of the year to more promptly hit the market at the beginning of the New Year with our new collection, enhancing service levels, while on the other side, the normalization of trade payables. Our net capital expenditures for the year totaled EUR 30.6 million, mainly related to investments in product supply, logistics and IT.

We then had EUR 10.4 million of other charges mainly linked to the proceeds from the disposal of the retail business. These free cash flow dynamics, coupled with the remaining proceeds received on the second of January 2019 and equal to EUR 17.7 million from the share capital increase executed in 2018, and brought our group net debt at the end of December to EUR 27.8 million compared to EUR 32.9 million at the end of December 2018. And EUR 24.3 million at the end of September 2019. At the end of December, our adjusted financial leverage stood at 0.5x EBITDA compared to 0.7x at the end of December 2018. On a post-IFRS 16 basis, our group net debt stood at EUR 74.8 million. I hand it over to Angelo for his final remarks on some of the meaningful events that follows the closure of the year.

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Angelo Trocchia, Safilo Group S.p.A. – CEO & Director [6]

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Thanks, Gerd. So the 2020 has started under the banner of our new strategic direction with the acquisition in February of the new brand Prive Revaux, another fast-growing U.S. origin brand, which enriches our proprietary brand portfolio and contributes a millennial-focused digital marketing strategy, with a clear mission to offer affordable beautifully design eyewear using celebrities’ endorsement to drive brand awareness and sales.

Prive Revaux is a young brand, founded in 2017 in Miami by David Schottenstein, co-founded by celebrities Jamie Foxx, Hailee Steinfeld and Ashley Benson, who will continue to run the company. It was a $20 million business in ’19 and almost doubling previous year sales, roughly 20% online and 80% off-line. Carrera has successfully created a repeatable and scalable strategy of distinctive capsule collection programs, co-branded by major celebrity influencers that can be introduced into various markets around the world. A consumer-centric business model from which we can learn and leverage on, while putting our capabilities at its disposal for this global expansion. And let me anticipate that starting from mid this year, Prive Revaux will arrive in Europe in some of the big retail chain, and we are clearly very, very excited to start this new journey with the brand.

2020 had also a very promising start to the New Year for the group from our own core brands. Key license and the (inaudible) launch of new licenses with Missoni, Levi’s and David Bekham. We have been particularly pleased to see Carrera, Polaroid and Smith starting the year with an acceleration in terms of sales and order book. We are indeed progressing with the good work done in 2019, very consistently on some of the key projects which has been driving our results so far. Carrera has just celebrated the third year of this partnership with Alfa Romeo Racing Orlen team by launching a special capsule collection with a cool and sporty feel, in line with our work to recover strongly the bread sport and racing heritage. At the same time, building its coolness site.

This has been (inaudible) testified by Carrera’s strong coverage and appreciation to the last Milano fashion week.

If we move on Polaroid. Polaroid has also been a protagonist of the latest women fashion show 20 in Milano, exploring the never-ending Polaroid (inaudible) [hunt], looking for shapes, stories to mix together. Massimo Giorgetti, the founder and designer of MGSM gave life to the new Polaroid MGSM capsule collection. A very exciting collaboration, which goes in 1 of the core direction we are keeping to track.

Strengthening the Cool segments targeting millennials and generation z, alongside new projects featuring Polaroid capsule collection linked to music and festival experience.

As you know, we already covered — we have launched 3 new license, David Beckham, Levi’s, Missoni and Tommy G. Any 1 of these license has a different position as has a different reason, but let me say that in these days, daily [data], we keep receiving amazing feedback for the market, and we are combining the strength of a great collection and the strength for a great social base that we serve, about — more than 60 million follower on its instagram page.

Tommy Jeans is being characterized also from the launch of sustainable material, and we are very confident that seeing how the sustainability dimension is becoming more and more relevant, we are sure that these brands and this part of the collection will be very, very successful. Levi’s and Missoni, we had a late launch. So it’s a little bit too early to comment, but the feedback we have received from the customer on both collections are very, very good. So we feel that these 4 — 3 new license and the launch of Tommy Jeans will be — will give, definitely, a strong contribution to our strategic plan.

As said, our business has got off to a good start with both most of January and February, very supportive, and ahead of our expectations. In clear, we are now as all facing the challenges posed by the outbreak and spread of the coronavirus.

Let me see — let me give you some more information on where we stand with relations to the coronavirus on 2 important topics: supply chain first and supply and demand.

First of all, on the supply front, as of today, the situation is more quickly normalizing and it is not an issue. With the objective to arrive early in January, February with all — our new collection, we closed last year with the level of inventories, which has then allowed us to enter well 2020, profitably serving the promising order book we have and — had on hand, but also not to become short of stock between January and February when the outbreak spread of COVID-19 became an issue in China, forcing the closure, as we all know, of the main suppliers.

Our own factory in Suzhou reopened, as anticipated at beginning, on the 10th of February, slowly recovering capacity in the month, while it has been accelerating since the beginning of March, reaching as I said before, 85% of the capacity. And also the other supplier in China are picking up slightly faster than what was the original plan.

In our European plants, in February, we had some delay in the delivery of the components, which has been now overcome and workflows are up and running with no issues at [projects]. On the demand front, how the current situation will evolve in the coming days, weeks and months is indeed very uncertain. Certainly not foreseen in this very moment. Sellout in China and nearby countries has first drastically fallen and now that the virus is spread in Europe, with Italy particularly impacted and the decision taken by the Italian government to step up measures in the entire country is still to be fully understood.

How much more and deeper it can spread in Europe and outside Europe before then slowing down and fade away is all to be understood and tested.

So far as Safilo, we have seen limited impact on our sales and order books. As said, business demand was positive in the past couple of months and supply was not an issue, thanks to the good level stock.

On the other hand, the scenario has changed significantly between the end of Feb and this first days of March. With sell out now starting to be affected also in Europe, but in particularly in Italy. Now based on the visibility we have in this very moment of the severe drop occurring in sellout in Italy over the last few days, but also first signs of a deceleration in the U.S., plus what has happened, has been happening for some weeks now in travel retail and in Mainland, in China. We expect our sales in the second part of March to register a significant drop that based on the current assumption could flatten out the improvement we have been recording so far. As you know on December 10, last year in the context of the release of our group business plan 2020, 2024, we communicated our outlook for 2020. And to remind you, we will target net revenue at EUR 960 million to EUR 1 billion adjusted EBITDA margin before the impact of IFRS 16 at around 6% of sales and financial leverage 1 — between 1x and 1.5x. The group’s 2020 estimates include the acquisition of Blenders, signed and communicated on December 8 and [fees] will be closed at the present date.

While we don’t want to include the acquisition of Prive Revaux, signed and simultaneously, closed on February 10, 2020. At the same time, these estimate do not include any potential impact deriving from the COVID-19 outbreak and spread.

Pending more evidences on how the situation will level in Italy, Europe and U.S., we remain very vigilant. Closely monitoring the impact, planning and already implementing mitigation action, such as [freeing] the — all discretionary spending, adopting marketing plan to the new consumption scenario in the affected markets, while rebalancing investments to an affected area. Prudently managing working capital to ensure continuum of cash collection and special focus to leverage available inventory in the market. In the meantime, we remain fully committed to progressing on the strategic choices [and] of the project of our group business plan.

Now let me finish on that. Still in the situation we are [leaving], we need to be always focused on what’s going on with the COVID-19, but only means in the business has to move according to the direction we find a strategic plan, and we keep being very active in looking to the business opportunity. And it is in this light, that 2 days ago, we have announced the agreement with Isabel Marant, which was not in eyewear, it’s a French brand — luxury French brand, focused on millennials. So really fitting with what our strategy is looking for. And again, we will keep looking to any other opportunities as long as this opportunities are going to be — are in line with our strategy.

So I’ll stop here and open for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first call today is from Cedric Rossi from Bryan Garnier.

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Cédric Rossi, Bryan Garnier & Co Ltd, Research Division – Analyst [2]

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I’ve got 2, actually. The first 1 is on what you have just said, Andre, regarding the COVID sales impact in Q1. So did I understand correctly that the growth you registered in January and February will be offset by the steep decline in March? Or are you expecting some flattish sales growth in Q1? And the second question is on the margins for 2020. So you were kind enough to give a guidance on 2020. How do you see the sequential development, especially with regard to the gross margin? What could be the sequential development between H1 and H2, especially given the — your phase out in H2?

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Angelo Trocchia, Safilo Group S.p.A. – CEO & Director [3]

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I leave the second question to Gerd. I answer to the first question. As I said, the business has been trading very positive in January and in February, with 2 months which have been turning ahead of our expectation, especially on our own brand on the main license. But as I said, that we expect in the second half of March quite an important drop of the order, which means that it’s going to flattening our overall Q1 performance.

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Gerd Graehsler, Safilo Group S.p.A. – Group CFO [4]

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Yes. The — and on the second question, I mean in terms of the plan that we outlined for the year for the EBITDA margin of 6%, and we had indeed assumed a slightly better gross margin in H1 compared to H2. I would expect that in Q1, we’re going to be slightly below our ingoing expectation on the gross margin side because clearly, when factories are not working or are working under capacity, there is some impact from the stranded fixed cost. But as long as the full year picture remains confirmed, I think, the production scenario should be able to recover this in the remainder of the year. And we should have a slightly better gross margin in H1 than in H2.

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Operator [5]

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And the second question for today is from Domenico Ghilotti from Equita.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division – Co-Head of Research [6]

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My question is related to the current situation. So could you give us a sense on how are you managing the business in the current situation? So are your agents visiting clients? Do you see in the drop, any difference between prescription and sum? So I wanted to have some — why — what is driving the lower sales, is it just the sellout or concern from supply from Italy? So I wanted to have some more color. And do you think that you can recover? So there is some postponements, maybe in orders or you have already lost some sales that are not recoverable?

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Angelo Trocchia, Safilo Group S.p.A. – CEO & Director [7]

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Okay. In terms of how we are approaching these weeks or months? Let me say, first of all, as — let’s — if we start from the office, I mean we have people working in the smart working in Milano and in Padova, except people in logistics and in customer service. So we have been assuring all — 100% of continuity. So in terms of business, we didn’t have any disruption at all.

In terms of delivery performance for the reason I have expressed before, we have been also assuring a high level of service to our customer, main locations and key accounts. Going specifically — so in terms of supply chain, I mean as I said, our Chinese factory has restarted producing from the 10 of February and now is 85% of the throughput. On the Italian factory, except a phasing is alignment between China and in Italy, now we don’t have any disruption on the manufacturing side. If we go on the sales organization team 2 days ago, especially in Italy, because the rest of the world, we didn’t have any main disruption. Obviously, the situation in the last 2, 3 days after the government — after the decree of the government has changed, so we — the agents and our salespeople are going around but only, we saw a drop of the level of order from some customers and some customers have started canceling the meeting only — mainly in the North of Italy.

In terms of category, sum is obviously more penalized in this model. But as I said, really, there’s been a dramatic shift from end of February till the current base. This is if we look to Italy. In the rest of Europe, we have just a very small sign of slowing down. The question mark is more what is going to happen in the next days and how fast, let me say, the situation will get deteriorated in the other European countries?

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Domenico Ghilotti, Equita SIM S.p.A., Research Division – Co-Head of Research [8]

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And what about North America?

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Angelo Trocchia, Safilo Group S.p.A. – CEO & Director [9]

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North America in this moment, we have just a few signs in some parts of the U.S. But there are really, really small signs. Again, we need to understand really if the coronavirus is going to pick up in the main cities, then obviously the picture is going to get worse. In this moment, we are just a small sign in some part of U.S.

In terms of the fact, if these are lost sales we’ll recover? It depends, I think, how long the problem is going to stay. So I think if we — if the situation is going to improve within April, I think that this order will be recovered. If the phenomena will be a little bit longer then some of the order will be considered lost. It depends, I think, year 1 critical [values] how fast or let me say, how slow is this problem is going to stay. It’s very important that the speed here, but to be honest, currently, is very difficult, I have to say, almost impossible, how to elaborate how much can the recover be.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division – Co-Head of Research [10]

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Just a couple of additional questions. First, do you have a sense of what is the exposure that you have on, in particular, on travel retail and most touristic areas because for sure, these are already factoring very bad hit on — say, on the sell-out?

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Gerd Graehsler, Safilo Group S.p.A. – Group CFO [11]

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Yes, I think our — in terms of the share of our business, which is in travel retail is round about 4% of the global sales. We have seen the impact primarily in the Asian travel retail in Europe and in North America, we don’t have a particularly large travel retail business. But that’s more or less the magnitude.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division – Co-Head of Research [12]

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And last question, if there is any restriction applied to Italy for say for workers, say for the production facilities. Are you able to manage the situation as you did in China?

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Angelo Trocchia, Safilo Group S.p.A. – CEO & Director [13]

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The current — I mean — as it stands today — now you know the situation is quite — here is quite fluid and dynamic. In this moment, we have applied higher, let me say, safety standards, both in the fashion and distribution center in the sense that people cannot be tighter than 1 meter. The use of the coffee aisle is limited and regulated. We have increased the clinic operation. So from this perspective, again, as it stands now, I don’t see main issues, except that the government will come with different decisions. In terms of restructuring, I think that we have closed the negotiation. So I don’t see any issues there. In terms of restriction for the workers, I think we are absolutely aligned with what the government is asking us. So we are using, and we are fully aligned on the requirements from the government that if the requirement will change, obviously we will adapt to it.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division – Co-Head of Research [14]

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But just to understand, in this, say, worst case. And do you have an issue in serving the rest of the world or you can manage it through other distribution centers? So if you have an issue, for example, for just a couple of weeks in the production, do you have a big disruption in serving the clients? Or do you think you can manage?

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Angelo Trocchia, Safilo Group S.p.A. – CEO & Director [15]

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Look, it’s — I mean we have the backup plans, obviously not — I mean first of all, most of the products are produced outside of Italy. So from this perspective, the fact that China is picking up is putting — and our factory is picking up is putting us in a good position, let me say it like this. Second, we have the factory in Slovenia, which currently is not in a critical area. Going back to the distribution center, we have some backup plans. The question, it will be how long the eventual restriction going to take? But backup plan are in place for Padova.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division – Co-Head of Research [16]

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Okay. Last question, changing, let’s say, the topic, Blenders. When do you expect to close the deal?

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Gerd Graehsler, Safilo Group S.p.A. – Group CFO [17]

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So we are, at the moment, let me say, not yet closed. We are finalizing, let me say, 1 or 2 open items. There is obviously some interrelation required with public authorities. If everything goes according to plan, we believe that from the first of April we will have the business with us, but we cannot fully control the exact outcome of the process. But there is nothing at this point, that has, let me say, raised any alarm bells that we will not be closing it. So current target is from 1st of April.

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Operator [18]

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(Operator Instructions) So there are no further questions that are coming through. I’ll hand back to yourself.

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Angelo Trocchia, Safilo Group S.p.A. – CEO & Director [19]

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Okay. So thanks very much for everyone, and have a nice evening and safe evening, especially for the people in Italy.

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Operator [20]

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Thank you very much, sir. Ladies and gentlemen, that does conclude the call for today. Thank you all for joining. You may now disconnect.