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Article Excerpt
OPERATOR: Ladies and gentlemen, welcome to Benetton Group's conference call on the 2008 nine months' results. The entire conference call and the Q&A will be recorded.
Forward-looking statements are based on the current expectations of the management team and involve certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.
I would like to introduce the speakers of today's conference call, Mr. Gerolamo Caccia Dominioni, CEO; Ms. Mara Di Giorgio, Head of Investor Relations; and Mr. Federico Sartor, Head of Press and Communications. We forecast approximately one hour of the call exclusively dedicated to the financial market, and 30 to 50 minutes at the end reserved to the journalists.
Mr. Caccia Dominioni, please go ahead.
GEROLAMO CACCIA DOMINIONI, CEO, BENETTON GROUP: Good afternoon, and welcome to the nine months results conference call. Before handing over to Mara, who will present you with results in detail, I would like to show you the highlights of the nine months result, and to share with you the full year estimate 2008 expected target.
The first point that I would like to highlight to your attention is the top line acceleration in the nine months revenue, which are up 6.3%, currency neutral, and same segment of activity.
The new accountable organization, with focus on brand and market, has started to deliver results. As part of this overall statement, I would like to mention two points. The first one is, the increase in the proportion of the total group revenue in the five selected high-potential markets, ex-USA, Turkey, India, China, Central and South America, up to 11% from the 9% in 2007, which means it's called a double-digit growth.
The second key element is the contribution of sales of product of more value, and new brand lines. And particularly, I want to underline the growth of Sisley, with 11 dedicated stores so far, and further expansion of UCB menswear, achieving a 22% of brand revenue today.
Moreover, valuable to mention the acceleration of Sisley Young performance, 15 standalone shops, and the recent launch of the Sisley underwear that you may have opportunity to see also in this date advertising on press, that's already opened three stores and over 150 corners.
The second fundamental topic for us is the like-for-like improvement in the quarter. Basically, attention to detail, and passion for the product, which was one of my master keys that I had in mind is being translated into collection, with even more concentration for the final consumer.
We have reinforced our link with store. In order to make sure that our clients are absorbing and taking on board these revitalized elements of our company culture.
In addition to that, the strong balance between high quality of product and price position have represented a strong competitive advantage, particularly in this day where we are facing a tough economic environment.
The other point that is important is the positive trend in gross profits. The significant improvement achieving gross margin has been obtained as part of the process to review the entire supply chain.
In the nine months, we were able to add EUR66 million of margin, leveraging on (inaudible) of the guidelines, aiming at developing the best selling strategy.
Increasing flexibility of production and logistics, focusing on sourcing areas, which shorten lead time and more competitive price.
And last, reduction of the complexity of our collection, and increase our (inaudible) proposal.
Next highlight is our ability to improve cash flow from operating activity. The strong discipline in working capital management, and the improved profitability of the business has allowed the Group to achieve two goals -- finance the growth, and improve the operating cash flow.
Last, as I show you, I share with you what is going to be the full year 2008 target, and I would like to say that this target has been confirmed, which also, I would like also to emphasize the capacity of our Company to channel its energy to deliver expected results. Even if it is necessary to stress the importance of the Group, to act now with even more rapidity, in view of economic situation the market will be facing in the coming months.
I would like to let Mara now go through the numbers, and, obviously, I will be at your disposal after her presentation, to answer to any questions that you may have about the nine months' result.
Thank you. Mara, off to you.
MARA DI GIORGIO, HEAD OF IR, BENETTON GROUP: Thank you, Mr. Caccia, and good afternoon, everyone. I will comment very shortly the set of the slides, leaving as much time as possible to the Q&A section.
Consolidated revenues in the nine months increased EUR63 million, plus 4.3%, to EUR1,534 million, driven by the apparel business, which was up 4.5% in the period.
In the nine months, currency effect was negative, for EUR29 million, mainly due to the strengthening of the euro against dollar, the South Korean won, and the British pound. Therefore, revenues in constant currency were up 6.3%.
The main growth driver, as in prior quarters, was a positive volume effect, plus 6%, in the nine months.
As far as the Q3 consolidated revenues, revenues were up EUR35 million, currency was negative for EUR8 million, volume mix added EUR38 million. Textile, also in the third quarter grew, EUR5 million.
Going to slide number 5, I would like to focus your attention really on the performance by region, pointing out the effects negatively affected the non-euro markets performance. Non-euro markets in the nine months accounted around 29% of total sales. Italy, which represents 47% of consolidated revenues, rose mid single digit over the previous period, continuing to positively react to new product and brand, product categories, and stores.
In the rest of Europe, we delivered plus 4.6%, currency neutral, versus last year, with positive performance in markets like France, Greece, and the UK. The reported growth in Americas is the result of the consolidation of the US operation and the stock up of the Mexican business.
It is worth to point out that, as Mr. Caccia just said and just mentioned, the five key emerging markets performance was 20%. And they account about 11% of total revenues compared to 9% as of September last year.
Going to the next slide, Apparel Revenues Drivers, so, as already mentioned, apparel grew EUR63 million, or 4.5% during the last nine months. The business performance by channel was wholesale, which is almost 50% of total revenues, up 3.6%, or plus 4.8%, currency neutral. Retail up 7.8%, currency neutral, 13.4%. In the retail business, over 50% of sales are non-euro denominated, and the strong negative currency effect of minus EUR16 million recorded in the retail part of the business partially offset incremental revenues due to the consolidation of the US business and the Taiwan operations.
Retail, like for like, was positive in the third quarter. It's worth to mention that like to like is calculated on 68% of the retail sales, which represent 20% of the total.
Anyway, retail was positive, I repeat, in the third quarter. The performance was 1.7% positive. Since the start of the autumn/winter collection in July, we've seen positive evidence in terms of consumer reception.
Of the winter, we confirm was up 6%, and this is confirming the strength of our commercial proposal, and the competitive aspect represented by the quality of our products in a very challenging trade environment.
We kept expanding our store network with almost 300 new net openings, of which almost half in Europe.
It is worth to mention that in Q3, wholesale was up 4%, currency neutral 5%. Retail was up 15% and, currency neutral, 18%.
Going to the next slide, Apparel Revenues by Brand. All our solid brands reported growth in the nine months, driven by more than 300 net new openings, as well as higher sales density. The rise in revenues came also from shifted sales towards higher value products and categories. UCB adults and children brands performed very well in Europe, reporting mid single digit growth. Internationalization process, Sisley, achieved an important positive result in Asia, thanks to the partnerships set up in that area.
Just in India, it is worth to mention that we opened eight Sisley new stores in the last nine months.
Playlife produced a strong performance in Italy, where the bulk of the sales are today realized.
Going to the Gross Profit, slide 8, gross profit in the nine months was EUR790 million euros, compared with EUR643 million, increasing by EUR66 million. I would like to remark, the consistent improvement of gross margin reported in all quarters during this year.
In the nine months, margin improved over 250 basis points, compared to the same period '07.
Margin uplift key drivers were volume mix and operational efficiencies, which account EUR13 million, mainly due to a higher portion of merchandise sourced from (inaudible) and Tunisia, and due to the higher efficiency in the production planning.
In the nine months, we posted also EUR1 million positive FX impact on gross margin. In Q3, gross margin has been impacted by favorable volume mix, additional EUR1 million savings, and a slightly negative currency effect.
EBIT Variance, moving to slide 9. EBIT, in the first nine months of the year, reached EUR182 million, or 11.9% on revenues, from EUR166 million last year, or 11.3% on the revenues. EUR16 million increase has been led by EUR66 million coming from gross profits, which were driven by apparel segment pro forma, EUR8 million increase of variable selling expenses mainly related to freight and duties. Transportation costs increase due to the higher oil price. EUR42 million higher, all generally SG&A, mainly due to the consolidation of the new retail operation, US and Taiwan stores, consultancy shop-- costs, sorry, related to the supply chain and market strategic projects, which are one-off in the year, IT expenses and depreciation more than one-off are not recurring for the next coming years. Then, non-recurrent items were in line with the comparable periods.
EBIT in the third quarter was EUR66 million, plus EUR7 million, reaching 12.3% on sales, versus 11.7%...
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