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Article Excerpt
OPERATOR: Good afternoon, ladies and gentlemen. Welcome to Benetton Group's conference call on 2008 preliminary results. The entire conference call and the Q&A will be recorded. I would like to introduce the speaker of today's conference call, Mr. Gerolamo Caccia Dominioni, CEO, Mrs. Mara Di Giorgio, Head of Investor Relations, and Mr. Frederico Sartor, Head of Press and Communications. We forecast approximately one hour of call, exclusively dedicated to the financial market, and a further 15 minutes at the end reserved to the other participants. Mr. Caccia Dominioni, please go ahead.
GEROLAMO CACCIA DOMINIONI, CEO, BENETTON GROUP: Good afternoon and welcome to everybody to attend to the 2008 preliminary result conference call. Before handing over to Mara, who will present the results in detail, I would like to summarize the main goal we achieved in 2008 and highlight the 2009 strategic guidelines. The Company achieved a goal set at the beginning of 2008. Results are in line with the guidance communicated in February 2008 despite the market slowdown and negative overall macroeconomic trends.
I'm pleased to report in 2008 a revenue growth of 6% currency neutral and a net profit increase to 7%. The structural changes initiated have started to deliver expected results with positive impact effect impact in the second half of the year. The direction we are moving has been clearly delineated with the intention of transforming the Group into an agile and dynamic company, able to compete and improve its competitive position even in the turbulent times.
During this year, we focused our effort on three main topics. First of all, evolution of the Organization. And the start of this process we are progressing making some key appointment within the Organization. The second area where we were focusing is supply chain. In 2008, we have achieved EUR25 million saving versus EUR12 million budgeted. We are on line to follow the projected to deliver in the three years 2008-2010 the objectives set up at -- between EUR50 million and EUR80 million.
The key action that we were focusing on supply chain were reduction of the complexity of the collection with a minus 20% in the number of articles, improving [attractives] of point of sales and creating more efficiency in the production process. In the meantime, we are working closely with our agent to decrease the [order dispersion] and we have reached a 12% reduction in the number of order items.
The third area where we were focusing was the market. We accelerated profitability growing strategic countries such as Russia, India, Mexico and Turkey. And [think of] some other optimal situation like Germany. Emerging markets achieved a 17% growth currency neutral with over 200 net new openings in the year. And now is representing 11% of the total revenue from 9% one year ago.
I leave now to Mara to go further in detail, in a more detailed analysis of 2008. And then I will follow up with a guideline for 2009.
MARA DI GIORGIO, HEAD, INVESTOR RELATIONS, BENETTON GROUP: Thank you, Mr. Caccia, and welcome to everybody. I will comment very shortly the set of slides related to the P&L, leaving as much time as possible to the Q&A section. As you know, they are preliminary, so they are not audit yet. Results are both in line, as Mr. Caccia said, with the guidance given at the beginning of the year as a cushion and achievement of this target were not easy in the gloomy environment.
In -- so let's go to slide three immediately, consolidated revenues. In the year, sales increased EUR79 million, plus 3.9%, up to EUR2,128 million, driven by the apparel business, which was up 3.8% in the period. In the year, the total currency effect was negative for EUR37 million or minus 1.8%, mainly due to the strengthening of the euro against dollar, South Korean won and British pound. Therefore, revenues in custom currencies where up 5.7%.
The main growth drivers, as in prior quarters, was a positive volume mix and in the fourth quarter, consolidated revenues were up EUR17 million or 2.9% currency -- 2.9%. Currency neutral, they were up 4.1%. In the quarter, apparel grew by 2% or currency neutral plus 3.2% and currency was negative for EUR7 million. Volume mix added EUR18 million. Textile also grew in the fourth quarter by EUR6 million, thanks to the new commercial initiatives taken.
Let's go to slide number four. Here I would like to focus your attention on the performance by region, pointing out that the negative currency impact of EUR37 million affected the non-euro markets' performance. Non-euro markets in full year accounted around 25% of total sales. Italy, which represents 47% of consolidated revenues rose 4% over the previous period, continuing to react to our initiatives and also to good brands value products. In the rest of Europe, we deliver plus 2.3% currency neutral versus last year with positive performance in markets like France, Greece and Netherlands. Germany, a very challenging market, as Mr. Caccia said, was one of our top priorities in 2008 and reported flat sales for the entire year, positive like for like in the second half.
The reported growth in the Americas is the result of the consolidation of the US operations and the start-up of the Mexican business. It is worth to point out that the key emerging market performance was 17% currency neutral positive, accounting today for 11%.
Going to next slide, number five, apparel revenue drivers. As already mentioned, apparel grew EUR74 million or 3.8%. Meaningful impact from volume and mix in the year, around EUR100 million worth, the business performance by channel was wholesale, which is almost 80% of total revenues, up 2.5% or 3.7% currency neutral. Retail, up 8.4% or currency neutral plus 13%. Retail like for like for the entire year was negative for 1.4% and it was minus 2.9% in the fourth quarter. It is important to mention that like for like is calculated on 66% of retail sales, which represents 22% of the total. We kept expanding our store network with almost 400 net new openings in the year and almost two-thirds were made by wholesalers. It is worth to mention that, in the fourth quarter, wholesale was almost flat, currency neutral plus 1%. Retail was up 10%, currency neutral 12%.
Going to the next slide, slide number six, brands and collections, I would point out that all our brands in the year recorded growth driven by more than, as we said, 400 net new openings. The rising revenues came also from shifting sales towards higher value products and categories. As far as collection performance is concerned, spring-summer '09, which today is close to 90% of the total expected orders is growing low single digits compared to previous year, while autumn-winter '09 just started to be collected, is demonstrating, is maintaining same values, same levels as previous year. So collection trends really are losing speed in terms of building up backlog orders. And this is a clear signal that the economic scenario starts to create pressure on the network.
Gross profit -- so going to gross profit, slide number 7, gross profit was EUR981 million compared with [EUR908 million] in '08, increasing by EUR73 million. In the year, margin improved by 180 basis points and apparel margin uplift drivers were volume mix was up EUR54 million volume mix and operational efficiencies, as Mr. Caccia already point out, which accounted for EUR25 million, due to a higher portion of merchandisers from Far East and Tunisia and due to the higher efficiencies in the production planning.
EUR25 million savings coming from operations are the result of a number of actions, accelerated in the second part of the year and, as already Mr. Caccia mentioned, guidance given last February '08 was considering a range of savings in the EUR12 million area. The additional savings achieved were possible and were realized, thanks to some of the projects accelerating during 2008. And as you may remember, the aim is to deliver in the next three years a progressive and cumulative number of savings in the range of EUR50 million to EUR80 million.
In the year, we boasted also EUR7 million of negative currency impact on gross margin. In fourth quarter, it is very important to point out that there was a strong negative currency effect equal to minus EUR8 million and we had EUR2 million favorable volume mix and EUR12 million savings.
Going to slide number eight, EBIT in the 12 months of the year reached EUR254 million from EUR243 million last year, maintaining the level of 11.9% margin of revenues. The EUR11 million increase has been led by EUR73 million coming from gross profit, which was driven by apparel segment performance, EUR8 million increase of variable selling expenses mainly related to freight and duties already recorded by the Group in the nine months. And then we had EUR57 million increasing ordinary G&A, that were mainly due for EUR33 million to retail and EUR24 million to the other group sectors.
In retail, the consolidation of the new operations in US and Taiwan are the main drivers of the increased cost, coupled with the startup of new 70 DOS. In the other sectors, consultancy costs related to strategic projects like the supply chain or the markets, that could be considered one-off costs are worth EUR5 million. Depreciation and provision increased by EUR10 million. EUR2 million increased in textile and EUR6 million are really quite fragmented.
Then we have also non-recurrent income which was contributed with the variance of plus positive EUR4 million. After the impairment, according to IAS 36 was, more or less, as last year, EUR7 million -- in the range of EUR7 million. Currency neutral -- sorry, currency EBIT in the fourth quarter was EUR72 million, minus EUR5 million. Currency neutral in the quarter, EBIT means EUR80 million. FX, as we already said, was particularly important in the quarter, equal to minus EUR8 million. So currency neutral in the quarter means that EBIT increased by almost 4%, in line with revenues. In detail in the quarter, as far as margins is concerned, I would say that retail was under pressure, like for like was -- the like-for-like sales were negative, FX affected negatively the gross margin. The consolidation of US operations accounted around EUR7 million of SG&A. And we had new DOS that [biases] EUR5 million SG&A.
Going to slide nine, net income, while below EBIT, we reported something like EUR12 million increase in financial charges. Furthermore, as a result of our currency hedging policy in the 12 months we posted EBIT of EUR1 million of negative currency impact compared to minus EUR10 million last year. Tax rate as 26.5% versus 25.9% previous year and net income was EUR155 million, EUR10 million higher than prior year or 7.3% of revenues. Now I would like to pass to Mr. Caccia for the 2009 outlook and strategic company guidelines.
GEROLAMO CACCIA DOMINIONI: Thank you. Sorry. Thank you, Mara, and let me outline the economic scenario we are facing the current year and some of the crucial decisions we will make in these coming months. Nevertheless to say that the situation in 2009 is worsening for everyone and this situation will make quite clear the need to increase the pressure on margins, which are starting to become evident also in our Q4 retail margin.
As a consequence of these -- of...
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