Brunello Cucinelli — Interim / Quarterly Report 2020

Aug 27, 2020

1H 20 Results

August 27th , 2020

Brunello Cucinelli

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press release 27 th August 2020

«Following this half-year - strongly impacted by the pandemic -, we are now moving towards a significant trend reversal. Since July 1 we have been looking at the company with a fresh new eye, considering this to be a year of "transition" between a "past time" and a "new time"».

«Having reached the end of August, we can envisage that this trend should result in rising sales compared to last year for both the third and the fourth quarter, therefore 2020 should feature a slight decrease in turnover of around 10%».

«The Spring Summer 21 collections have been met with much success and the ensuing sizeable order intake prompts us to envisage a good 2021 with revenues increasing by around 15%; in addition, the above leads us to view 2021 as the "year of rebalancing"».

Financial Highlights

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Characteristic Net Financial Position €22.4 mln €136.5 mln Capex

Net Revenues €205.1 mln	EBITDA Adjusted* - €14.1 mln	NET PROFIT Adjusted* - €25.8 mln
-29.6% at current exchange rates -29.8% at constant exchange rates	EBIT Adjusted* - €29.8 mln
Italian	Rest of Europe	China
market	-24.1% sales	-20.6% sales
-34.7%	North America	RoW
sales	-38.9% sales	-19.1% sales
Retail	Wholesale	Wholesale
-31.6% sales	monobrand	multibrand
	-25.3% sales	-27.8% sales

* Slide 11 includes reconciliation between adjusted results and reported results

€ mln	1H 19	1H 20	YoY % Chg
Net Revenues	291.4	205.1	-29.6%
			Constant exchange rates -29.8%
Italy	44.3	28.9	-34.7%
Rest of Europe	92.4	70.1	-24.1%
North America	94.1	57.5	-38.9%
China	28.8	22.9	-20.6%
RoW	31.8	25.8	-19.1%

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Revenues Highlights

Rest of Europe

The closure of boutiques all over Europe strongly influenced the results of the first half of the year.

Confirmation of previously collected orders and purchases made by local clients, who represent our main target of reference

China

Since the end of the lockdown, the sales trend has improved and progressively consolidated, with sales in the retail channel rising solidly compared to last year.

Taste, allure and exclusivity represented by our brand, as well as the values of human dignity we have always tried to support, fuel the extremely high potential we have in this market, both in relation to the monobrand and multibrand channel

Italy

Positive initial sales results, with 1H 20 performance very strongly influenced by the closure of retail spaces.

Positive trend in order collections for the Fall-Winter 2020 season is confirmed, with interesting signs of recovery in sales thanks to the gradual reopening of retail spaces

North America

Significant rise in revenues until the first half of March, with a strong impact on 1H 20 sales following the closure of boutiques and multibrand stores

Interesting feedback concerning the presence of and purchases made by local clients with confirmation of the orders collected for the Fall-Winter 2020 campaign

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Rest of the World

The result is influenced by store closures worldwide, which, at different times depending on the geographic area, continued throughout most of the second quarter of 2020

Revenues by Distribution Channel

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€ mln

Retail & Wholesale Monobrand

Wholesale Monobrand

30 boutiques as of June '20 (30 boutiques as of December '19)

Retail

107 boutiques as of June '20 (106 boutiques as of December '19)

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Wholesale Multibrand

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Spring Summer 2020 collections showed positive results and sell-out data until the lockdown, when corporate operations related to production were temporarily suspended, including deliveries to multibrand and monobrand wholesale channels

Fall-Winter 2020 collections deliveries about 1 month later than planned to meet the new demands in terms of re-balancing seasons inside retail spaces and launching collections, to be structural both for the Fall-Winter collections and for the upcoming Spring-Summer collections

From 4 May, these operations were resumed, with a total recovery of the Fall-Winter production in July

Confirmation of orders for the Fall-Winter 2020 collections

	1H 2019	1H 2020
Net Revenues	291 4 ,	205 1 ,
Other operating income	0 4 ,	1 3 ,
Revenues	291 8 ,	206 5 ,
First Margin	194 2 ,	138 6 ,
	66 6% ,	67 1% ,
SG&A	-115 0 ,	-142 0 ,
	39 4% ,	68 8% ,
EBITDA	79 2	-3 4
	, 27 1% ,	, -1 7% ,
D&A	-40 1 ,	-49 9 ,
	13 7% ,	24 1% ,
EBIT	39 1 ,	-53 3 ,
	13 4% ,	-25 8% ,
EBT	32 7 ,	-64 3 ,
Net Income	25 0	-47 7
Tax Rate	, -23 5% ,	, 25 9% ,

Income Statement

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* Adjusted for IFRS-16 accounting standard and Patent Box (tax relief regime for the benefit of companies generating income through the direct and indirect use of intellectual property rights, patents, trademarks, designs and other intangible asset. This was equal to € 2.5 mln as of 06/30/2019).

** Adjusted for IFRS-16 accounting standard and Inventory write-down of € 30 mln.

		Inventory write-down	/ Rents IFRS Impact 16	/ Other Revenues IFRS Impact 16	/ Amortization IFRS Impact 16	Charges / Financial IFRS Impact 16	Taxation
	EBITDA							EBITDA Adjusted
as of 30 06 2020	-3 4 ,	+30 0 ,	-40 0 ,	-0 7 ,	-	-	-	-14 1 ,
as of 30 06 2019	79 2 ,	-	-29 5 ,	+0 2 ,	-	-	-	49 9 ,
	EBIT							EBIT Adjusted
as of 30 06 2020	-53 3 ,	+30 0 ,	-40 0 ,	-0 7 ,	+34 1 ,	-	-	-29 8 ,
as of 30 06 2019	39 1 ,	-	-29 5 ,	+0 2 ,	+26 1 ,	-	-	35 9 ,
	EBT							EBT Adjusted
as of 30 06 2020	-64 3 ,	+30 0 ,	-40 0 ,	-0 7 ,	+34 1 ,	+6 8 ,	-	-34 0 ,
as of 30 06 2019	32 ,7	-	-29 5 ,	+0 2 ,	+26 1 ,	+3 6 ,	-	33 0 ,
	Profit Net							Profit Net Adjusted
as of 30 06 2020	-47 ,7	+30 0 ,	-40 0 ,	-0 7 ,	+34 1 ,	+6 8 ,	* -8 4 ,	-25 8 ,
as of 30 06 2019	25 0 ,	-	-29 5 ,	+0 2 ,	+26 1 ,	+3 6 ,	** -2 5 ,	22 8 ,

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Income Statement Reconciliation

* 1H 20 taxation

reconciliation mainly due to fiscal effets related inventory writedown of € 30 mln

reconciliation mainly due to

** 1H 19 taxation Patent Box impact

Income Statement Highlights

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Production Costs

Production costs amounted to 67.9 million euros at 30 June 2020, compared to 97.6 million euros at 30 June 2019, with an incidence on turnover that fell from 33.4% last year to 32, 9% and a simultaneous slight improvement in the incidence of the First Margin

Operating Costs

The dynamics of operating costs correlated to the initiatives in progress, which support the prospects of future growth projects and keep the company structure solid, including development of the boutiques network, digital projects, consolidation of all the new projects launched last year (kids collections and "Sartoria Solomeo")

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€ mln

DOS Network from 30/06/19 to 30/06/20

Rent cost

Net Working Capital

FY 19
58,6
204,9
-89,5
174,0
28,6%
-18,9
155,1
25.5%

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* Other Credits/(Debts)* trend mainly due to the measurement at fair value of outstanding hedging derivatives

Inventory increase strongly impacted by the effects related to the lockdown period, with the deliveries of the Fall Winter 2020 collections that have been postponed for about the same period of lockdown. This slippage has been efficiently recovered with an intense work schedule, which is allowing us to bridge the delivery times for goods to customers in July / August.

Business development contributed to inventory rise, in presence of network boutiques development (including 5 DOS in the last 12 months, 2 hard shops, expansions of prestigious boutiques), development of the new KIDS collections and the "Sartoria Solomeo" project, expansion of the digital channel

• Trade receivables decrease reflected the sales trend in the lockdown period and some deferred payment terms, coherently with our commercial policy of collaboration with consolidated and high quality multibrand clients, managing receivables with flexibility allowing to further strengthen relationships and opportunities for current and future business
• Trade payables reduction of 5.7 million euros; we highlight the confirmation of payment times to all its suppliers, collaborators and consultants

	1H 2019	1H 2020	delta	FY 19
Trade Receivables	79 9 ,	72 4 ,	-7 5 ,	58 6 ,
Inventories	179 8 ,	218 1 ,	38 3 ,	204 9 ,
Trade Payables	-79 7 ,	-74 1 ,	5 7 ,	-89 5 ,
Strict Working Capital Net	180 1 ,	216 5 ,	36 4 ,	174 0 ,
Incidence on 12 months rolling Net Revenues	31,3%	41,5%		28,6%
Other Credits/(Debts)	-17 6 ,	-21 4 ,	-3 8 ,	-18 9 ,
Capital Net Working	162 4 ,	195 0 ,	32 6 ,	155 1 ,
Incidence on 12 months rolling Net Revenues	28,3%	37,4%		25,5%

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investment plans to protect brand allure, the production, and an exclusive presence

the Brunello Cucinelli brand has gained, and to always maintain the company on the

€ mln

Net Financial Position € mln

• Characteristic Net Financial Position (excluding lease liabilities arisen from the adoption of the IFRS 16 accounting principle) increase driven by dynamics related to Covid-19 pandemic
• New credit lines provided by leading Italian credit institutions to face NFP increase amounted 116,5€ mln

Outlook

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Since 1 July, we have been seeing the company with new and fresh eyes without being too influenced by the past semester, and have tried to consider this moment as a year of 'transition' between a 'past time' and a 'new time'. Today, we can say that we have steered the company into 'safer waters' and given our esteemed employees physical security in what they do as well as the security of being employed.

The entire company has acquired an even stronger awareness about the fact that they need to be fast, flexible, concrete, and brave as they have realized that we have to coexist with this virus which can still evolve every day.

To date, the company is fully operating with its 2,024 employees (as it was in February before the pandemic), who are all physically on the workplace with COVID test being performed every 15 days. This project will end when the pandemic is over.

We have concluded all our deliveries for the winter merchandise within the planned deadlines. All stores around the world are stocked exclusively with Fall-Winter 2020 merchandise, as usual; this is leading to very positive results both in terms of sell out and in terms of image.

All Spring-Summer 2021 collections have been presented physically in the showrooms of Shanghai, New York, London, Monaco, Milan, Solomeo, within the planned deadlines, as always in July.

We would now like to focus on the following big issue: we may have created the most beautiful collections of our entire history, at least that is what our multibrand customers and managers of our DOS have declared. This is an outstanding result, spurred on by the new trends, which have moved in the direction of our taste.

The order collection of about 60% is very very significant, we would dare say thrilling. All this gives us hope about an important recovery in the second half of the year, as well as an excellent kick-off in 2021.

It is our impression that many multibrand clients are rigorously selecting their suppliers, both according to the taste of their collections and based on the companies' solidity: they are seeking precision in deliveries, special assistance during reassortments, the value of seeing physically produced collections, and the fact of being able to touch the garments live.

Outlook

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Considering our true and good multibrand clients, we would like to express a highly positive assessment of the kind of new redesign cycle they are implementing as they try to figure out with which reliable companies they can develop their projects on a 3 to 5 year basis. We are therefore highly satisfied with this new and very interesting design, and think it is perfectly in line with our retail business which we are investing on very strongly.

This is all accompanied by the excellent performance of our e-commerce channel, which we have invested on so strongly in recent years, both financially and in terms of time and minds, as it is clearly a fundamental source of communication. It has been structured in such a way that it can sustain the important growth of years to come.

We have already given full visibility to the excess stock we had during the first half of the year. However, we would like to add 2 very positive notes, which have somehow frankly moved us. The first is that we have been contacted by so many people around the world who are concerned about supporting and improving humanity. To mention but one example: the, in our view, fascinating and highly humane Sharon Stone. The second: we have conducted several very important interviews on this delicate and pleasant issue. The last and most recent one appeared yesterday on the highly prestigious New York Times. Maybe it is safe to say that this 'extraordinary' project, "Brunello Cucinelli for Humanity", can be truly considered a 'great resource' in these particular times we are experiencing, both for humanity and for the company.

Our important investment project continues, and we confirm that our investment plan remains unchanged for the second half of the year. Since we have now reached the end of August, we can safely say that on July 1st we saw a significant inversion of the trend, which should take us towards an increase in revenues in the third quarter compared to last year, and a gradual return to healthy margins. We also expect this trend for the last quarter. Overall, we imagine a 2020 with slightly lower revenues than in 2019, a drop of about 10%. In 2021, since the order collection for Spring Summer 2021 was so strong, we are confident that we will go back to a rise in revenues, around 15% compared to 2020, and expect to continue our process of generating a healthy profit, confirming the important investment project.

1H 20

Annex

Detailed Income Statement

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€ mln

	1H 2019	1H 2020
Net Revenues	291 4 ,	205 1 ,
Other operating income	0 4 ,	1 3 ,
Revenues	291 8 ,	5 206 ,
Consumption Costs	(39 6) ,	(10 7) ,
Cost Raw Material	(56 0) ,	(55 8) ,
Change Inventories	16 5 ,	45 2 ,
Outsourced Manufacturing	(58 0) ,	(57 3) ,
First Margin	194 2 ,	138 6 ,
Services Costs (excl Out Manuf )	(58 4) ,	(49 9) ,
Personnel costs	(53 8) ,	(57 5) ,
Other operating costs	(3 4) ,	(4 3) ,
Increase in tangible assets	1 0 ,	1 4 ,
Bad Debt and other provisions	(0 4) ,	(31 7) ,
EBITDA	79 2 ,	(3 4) ,
D&A	(40 1) ,	(49 9) ,
EBIT	39 1 ,	(53 3) ,
Financial expenses	(23 4) ,	(26 5) ,
Financial income	16 9 ,	15 5 ,
EBT	32 7 ,	(64 3) ,
Income taxes	(7 7) ,	16 6 ,
Tax rate	(23 5%) ,	25 9% ,
Net Income	25 0 ,	(47 7) ,
Minority Interest	(0 3) ,	(0 1) ,
Group Net Profit	25 3 ,	(47 5) ,

Detailed Balance Sheet & Cash Flow Statement

€ mln

	1H 2019	1H 2020
Net Income	25 0 ,	(47 7) ,
D&A	40 1 ,	49 9 ,
Ch NWC In and other	(33 4) ,	(56 0) ,
Cash flow from operations	31 7 ,	(53 8) ,
Tangible and intangible investments	(18 6) ,	(20 5) ,
Other (investments)/divestments	0 0 ,	6 7 ,
Cash flow from investments	(18 6) ,	(12 9) ,
Dividends	(20 5) ,	(1 1) ,
Share capital and increase reserves	0 0 ,	0 0 ,
Net change in financial debt	8 4 ,	111 0 ,
Cash Total Flow	1 1 ,	43 2 ,

	1H 2019	1H 2020
Trade receivables	79 9 ,	72 4 ,
Inventories	179 8 ,	218 1 ,
(-) Trade payables	(79 7) ,	(74 1) ,
Other assets/(liabilities) current	(17 6) ,	(21 4) ,
Capital Net Working	162 4 ,	195 0 ,
Goodwill	7 0 ,	7 0 ,
Intangible assets	383 0 ,	473 6 ,
Tangible assets	132 9 ,	148 1 ,
Financial assets	9 1 ,	11 0 ,
Total Assets	532 1 ,	639 8 ,
Other assets/(liabilities)	18 7 ,	39 2 ,
Capital Net Invested	713 2 ,	874 1 ,
Cash Cash & equivalents (-)	(67 1) ,	(111 8) ,
Short Debt term	126 4 ,	184 7 ,
Long Debt term	377 1 ,	549 0 ,
Net Financial Position	436 4 ,	621 9 ,
Shareholders Capital	13 6 ,	13 6 ,
Share-premium Reserve	57 9 ,	57 9 ,
Reserves	180 2 ,	227 3 ,
Group Profit Net	25 3 ,	(47 5) ,
Group Equity	277 0 ,	251 3 ,
Minority shareholders	(0 2) ,	0 9 ,
Total Equity	276 8 ,	252 2 ,
Total Funds	713 2 ,	874 1 ,

Investor Relations

Significant Shareholdings*

Trust Brunello Cucinelli (Fedone s.r.l.)	51.0%
FMR LLC (Fidelity)	10.0%
Invesco LTD	4.2%
Other	34.8%

Board of Directors

Brunello Cucinelli	Excutive Chairman and Creative Director
Riccardo Stefanelli	C.E.O.
Luca Lisandroni	C.E.O.
Camilla Cucinelli	Director
Giovanna Manfredi	Director
Carolina Cucinelli	Director
Andrea Pontremoli	Independent Director
Stefano Domenicali	Independent Director
Anna Chiara Svelto	Independent Director
Emanuela Bonadiman	Independent Director
Maria Cecilia La Manna	Independent Director
Ramin Arani	Independent Director

Investor Relations & Corporate Planning Director

Pietro Arnaboldi	Brunello Cucinelli S.p.A.
mail: pietro.arnaboldi@brunellocucinelli.it	Viale Parco dell'Industria, 5
	Solomeo (PG)
Tel. +39 075 6970079	Italia

* As of the date of this document based on Consob major shareholdings disclosures

This presentation may contain forward looking statements which reflect Management's current views and estimates.

The forward looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward looking statements.

Potential risks and uncertainties include such factors as general economic conditions, foreign exchange fluctuations, competitive product and pricing pressures and regulatory developments.

Figures as absolute values and in percentages are calculated using precise financial data. Some of the differences found in this presentation are due to rounding of the values expressed in millions of Euro.

The Manager in Charge of preparing the Corporate accounting documents, Moreno Ciarapica, declares pursuant to and to the effects of article 154-bis, paragraph 2 of Legislative Decree no. 58 of 1998 that the disclosures included in this release correspond to the balances on the books of account and the accounting records and entries.