Intercos — Investor Presentation 2022

Aug 4, 2022

Disclaimer

IMPORTANT NOTICE

This presentations is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. This presentation might contain certain forward-looking statements that reflect the Company's management current views with respect to future events and financial and operational performance of the Company and its subsidiaries.

These forward-looking statements are based on Intercos current expectations and projections about future events. Because these forward-looking statements are subject to risks and uncertainties, actual future results or performance may differ materially from those expressed in or implied by these statements due to any number of different factors, many of which are beyond the ability of Intercos to control or estimate. You are cautioned not to place undue reliance on the forward-looking statements contained herein which are made only as of the date of this presentation. Intercos does not undertake any obligation to publicly release any updates or revisions to any forward-looking statements to reflect events or circumstances after the date of this presentation.

Any reference to past performance or trends or activities of Intercos shall not be taken as a representation or indication that such performance, trends or activities continue in the future.

This presentation does not constitute an offer to sell or the solicitation of an offer to buy the Group's securities, nor shall the document form the basis of or be relied on in connection with any contract or investment decision relating thereto, or constitute a recommendation regarding the securities of Intercos.

Intercos securities referred to in this document have not been and will not be registered under the U.S. Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Pietro Oriani, the Manager in charge of preparing the corporate accounting documents, declares that, pursuant to art. 154-bis, paragraph 2, of the Legislative Decree no.58 of February 24, 1998, the accounting information contained herein correspond to document results, books and accounting records.

Agenda

1H22 Executive Summary
Net Sales		Adj. EBITDA
€367.9m		€48.7m
+17.0% Rep FX +12.7% c.FX or +€53.3m vs.1H21		13.2% on Net Sales +10.4% or €4.6m vs. 1H21
Adj. Net income	ESG Latest achievement		Net Debt
€20.8m 5.6% on Net Sales +54.4% or +€7.3m vs. 1H21	players in the manufacturing of skincare products and subsidiary of the Intercos Group, has achieved Carbon Neutrality	In 1H22 CRB S.A., one of the leading	€125.1m 1.18x Net Debt to EBITDA Ratio -0.77x vs. 30Jun21
	Highest 2QSales and 2QEBITDA ever

1H22 Executive Summary - 1H22 and 2Q22 results overview

€m	1H22	1H21	% vs 1H21
Revenues	367,9	314,6	Rep FX 17%	c FX 13%
Adj. EBITDA	48,7	44,1	10%
Adj. EBITDA %	13,2%	14,0%
Adj. Net Income	20,8	13,4	54%
Adj. Net Income %	5,6%	4,3%
Net Debt	125,1	174,4
Net Debt/EBITDA	1,18x	1,95x
€m	2Q22	2Q21	% vs 2Q21
Revenues	193,3	170,4	Rep FX	c FX
			13%	8%
Adj. EBITDA	29,5	28,2	5%

• 1H22 Financials Key Financials • Net sales amounted to €367.9m, up by +17% compared to 1H21 also on a like-for-like basis (+12.7% at constant FX rates). The increase characterized all regions and all business units, with Make-up clearly outperforming 2019 pre-pandemic levels.
• Adjusted EBITDA of €48.7m, up +10.4% vs. 1H21 (or +€4.6m). The growth was driven by the excellent sales performance at Group level and stable profitability reported by both Make-up and Skincare. Adjusted EBITDA margin amounted to 13.2%, slightly down vs. 1H21 (-79Bps), due to a temporary lower productivity of the Hair&Body business unit, the one mostly affected by supply chain disruption and higher energy costs.
• Adjusted Net Income was equal to €20.8m, +54.4% or +€7.3m vs. 1H21. The significant increase reported vs.1H21 is mainly due to (i) the increase reported at EBITDA level and (ii) the low cost of debt, which was more than offset by the positive exchange rate gains.
• Net Debt amounted to €125.1m, improving by €49.3m compared to 30Jun21. Despite the increase of inventory in 1H22 needed to minimize supply chain disruption, the Group maintained a Net Financial Position in line with the previous year-end. Leverage decreased further to 1.18x, also compared to 31Dec21, thanks to the constant increase of EBITDA.

€m	1H22	1H21	Var. vs	% vs
			1H21 53,3	1H21 17,0%
Net Sales Gross Margin	367,9 76,4	314,6 66,7	9,6	14,5%
Gross Margin %	20,8%	21,2%	(45Bps)
Adj. EBITDA	48,7	44,1	4,6	10,4%
Adj. EBITDA %	13,2%	14,0%	(79Bps)
EBITDA (*)	45,1	37,8	7,3	19,3%
EBIT (*)	24,4	18,3	6,2	33,9%
PBT (*)	26,6	15,7	10,9	69,0%
Net Income (*)	18,2	17,4	0,8	4,5%
Adj. Net Income	20,8	13,4	7,3	54,4%
Adj. Net Income % (*) Includes non recurring items	5,6%	4,3%	+137Bps
€m	30Jun22	30Jun21	Var. vs 30Jun21
Net Debt	125,1	174,4	(49,3)
Net Debt/Adj. EBITDA LTM	1,18x	1,95x	(0,77x)

			SUJUILI
Net Debt	125.1	174,4	(49,3)
Net Debt/Adj. EBITDA LTM	1.18x	1.95x	(0,77x)

	15,7% Skincare 18,4%	65,9% Make Up	Skincare	18,0% 17,8% 64,3% Make Up
				Multinationals.
Hair & Body	66,1	63,8	4%
€m	2Q22	2Q21	% vs 2Q21
Revenues	193,3	170,4	13%
Make Up	127,4	103,0	24%
Skincare	35,5	38,4	(7%)
Hair & Body	30,4	29,0	5%	+10.4%.

• Make-up 1H22 net sales exceeded pre-pandemic levels by 6% (or+€12.6m). Growth was material in both quarters and characterized all commercial areas and type of clients, in particular North America/Europe, Emerging Brands/ Multinationals.
• Skincare growth in 1H22 was mainly driven by EMEA and US sales. Following the lockdown in China, 2Q22 reported a slight decline compared to the historical record of 2Q21 (e.g. tough comp). - Hair & Body confirmed its mid single digit growth pace also
  • in Q2. Excluding the exceptional factor of hand sanitizer sales that characterized 1Q21, 1H22 growth would have been +10.4%.

	35,1% Americas	EMEA 45,8%	33,8% Americas	EMEA 48,0% Americas
Asia	66,8	60,8	10%
€m	2Q22	2Q21	% vs 2Q21
Revenues	193,3	170,4	13%
EMEA	88,6	84,3	5%
Americas	67,8	53,4	27%
Asia	36,8	32,7	13%	above expectations.

• EMEA growth was driven by Emerging Brands, especially in the prestige segment.
• Americas continue to deliver very solid performance, supported by strong results from both Multinationals and Emerging Brands and in both prestige and mass segments.
• Asia posted good results despite the new lockdowns that affected China thanks to Korea's performance, which continues to report results above expectations.

	35,1% Emerging Brands	Multinationals 48,9%	16,8% 33,7% Emerging Brands	Multinationals 49,5%	Emerging Brands
				and Korea.
Retailers	61,7	57,1	8%
€m	2Q22	2Q21	% vs 2Q21
Revenues	193,3	170,4	13%	segment.
Multinationals	94,4	86,2	10%
Emerging Brands	67,9	55,3	23%
Retailers	31,0	28,9	7%

• Multinationals sales grew mainly thanks to the excellent performance in Make-up achieved in US and Korea.
• Emerging Brands continue to be the main driver of growth. The increase was mainly in the USA and the EMEA area, particularly in the prestige segment.
• Retailers benefitted from fewer restrictions due to the pandemic compared to last year, especially in EMEA. The mass segment was the main driver.

1H22 Group Adjusted EBITDA stood at €48.7m, increasing by 10% (or+€4.6m,) vs. 1H21, thanks to the increase in sales and the stable profitability of the two main business units Make-up and Skincare. Group EBITDA margin, decreased slightly (-79Bps), as a result of a lower profitability of the Hair & Body which has been temporarily impacted by (i) the lower production efficiency caused by the difficulties in finding production materials (ii) a less favourable product mix (ii) the impact of energy inflation on costs. Hair&Body EBITDA stood at €6.7m, down by -28% (or -€2.5m) vs. 1H21. The business unit is still essentially operating according to a contract manufacturing model, thus being more exposed to variations in the product mix, production efficiency, as well as the price of energy. 2H22

Make-Up EBITDA was equal to €33.3m, growing by 24% (or +€6.4m) vs. 1H21. Despite the continuing difficulties in managing the supply chain, and the lockdown in China that characterized the second quarter of the year, sales continued to grow exceeding pre-pandemic levels, and the incidence of EBITDA on net sales remained unchanged compared to the one of 1H21.

Skincare EBITDA amounted to €8.7m, up by +9% (or +€0.7m) vs. 1H21. Also in this case, despite the substantial inflationary impacts, the profitability of the business unit remained unchanged compared to last year, with sales and EBITDA growing by the same percentage.

profitability is expected to improve.

1H22 Financials – Cash Flow & Net Debt

1H22 Cash Flow amounted to €1.5m, down by €18.1m vs. 1H21. Lower cash generation was entirely due to less cash generated at operating level (€1.1m in 1H22 vs. €19.3m in 1H21).

1H22 Operating cash flow reflected the increase in inventory made in the first six months of current year (+€43.4m), in order to cope with the high level of orders in a context of supply chain disruption. As expected, also capex increased vs. last year, reaching €21m in 1H22.

30Jun22 Net Debt amounted to €125.1m, improving by €49.3m compared to that of 30Jun21. The constant growth achieved at the Adjusted EBITDA level together with the reduction in Net Debt, further reduced the leverage ratio, which is now equal to 1.18x (-0.77x vs. a year ago and -0.07x vs. 31Dec21). Net Debt includes €26.8m of liabilities arising from the application of IFRS16: once such impact is excluded, 30Jun22 Net Debt was for the first time below €100m. (*) Refer to the cash impact only of the adjustments at EBITDA level (€1.7m out of €3.5m of total 1H22 Adjustments).

			Var. vs
€m	1H22	1H21	1H21
Adjusted EBITDA	48,7	44,1	4,6
Adjustments (*)	(1,7)	(5,0)	3,3
Change in TWC	(39,3)	(9,9)	(29,4)
Other Chg, in WC	14,5	7,5	7,0
Capex	(21,0)	(17,4)	(3,6)
Operating Cash Flow	1,1	19,3	(18,2)
Changes L/T Assets & Liab.	(3,1)	(4,3)	1,2
Fin. Expenses	2,2	(2,5)	4,7
Taxes	(8,4)	1,7	(10,1)
Chg in Equity & Others	9,7	5,4	4,3
Cash Flow	1,5	19,6	(18,1)
Net Debt Opening	126,6	194,0
Net Debt Closing	125,1	174,4

Outlook and Guidance

We confirm the guidance provided at the beginning of the year: the Group expects FY22 net sales increasing in a range between 10-15%. We summarized in the following table the main short/medium term possible headwinds of the sector in which we operate and why we believe we are better placed than competition to successfully go through each one of them :

Possible market headwinds	Intercos positioning & view
Longer than expected supply chain crisis	Intercos global presence allows to diversify supply sources and this, together with the 1H22 growth of stock of raw materials, allows the Group to face the second half of the year with improved production feasibility compared to 1H22.
Inflationary environment	Intercos pricing power is unique as the Group generates approx. 80% of sales through products whose formulations are owned and developed internally, leading to not replicable innovative products. 2H22 will benefit from the agreed temporary extra-charges to clients in order to cope with unexpected increases in direct and indirect energy costs.
Chinese Covid-zero policy still impacting (temporarily) Chinese consumption	Intercos exposure to Chinese customers compared to the large beauty Groups is significantly lower, and Chinese market slowdown will be mitigated by the undergoing impressive growth of other Asian countries (e.g. Korea). Western Emerging Brands, which today account for approx. 30% of the Group's turnover, are starting now to expand into the Chinese market, and this will allow Intercos to grow in any case in the country, given their still negligible size of their market shares. Multinationals in China are mainly selling skincare products made internally.
Possible economic recessions, mainly impacting US and Europe	For the ones that know the beauty market, in the past it has always been resilient in times of recessions. Economic recession might lead to a market shift from prestige to mass/mastige segment, but also in this case, the unique diversification of Intercos sees the total amount of sales equally split into both segments.

Make Up Skincare

Outlook and Guidance - Strong firm order book continues, well above the previous years

Skincare Make Up

P&L and related adjustments

€/mln	1H22	1H21	Delta Var.%
Net Sales COGS	367,9 (291,6)	314,6 (247,9)	53,3 17,0% (43,7) 17,6%
Industrial gross profit	76,4	66,7	9,6 14,5%
% on net sales	20,8%	21,2%
Research & Development and innovation costs	(18,4)	(16,9)	(1,4) 8,5%
Selling expenses	(13,8)	(11,7)	(2,2) 18,7%
General and administrative expenses	(22,1)	(16,5)	(5,6) 34,2%
Other operating income (expenses)	2,4	(3,4)	5,8 (170,4%)
Operating Profit (EBIT)	24,4	18,3	6,2 33,9%
% on net sales	6,6%	5,8%
D&A	(20,7)	(19,6)	(1,1) 5,7%
EBITDA	45,1	37,8	7,3 19,3%
Adjustements (*)	(3,5)	(6,3)	2,7
Adjusted EBITDA	48,7	44,1	4,6 10,4%
% on net sales Financial income (expenses)	13,2% 2,2	14,0% (2,5)	4,7 (185,9%)
Profit before taxes (EBT)	26,6	15,7	10,9 69,0%
Income taxes	(8,4)	1,7	(10,1) (591,4%)
Net income	18,2	17,4	0,8 4,5%
Adjustments (*)	(2,5)	4,0	(6,5)
Adjusted Net income	20,8	13,4	7,3 54,4%
€/mln	1H22	1H21
IPO costs	(0,6)
Costs related to M&A transactions		(0,0)
Management Long Term Incentive Plan	(1,6)	(1,3)
One-off costs related to re-organizations (mainly personal costs)	(1,0)	(4,9)
Contrubution to the Ukrainan population	(0,2)
Other minor one-off costs	(0,1)
Adjustments (*) at EBITDA level	(3,5)	(6,3)
Accrual regarding previous years taxes Fiscal impact due to goodwill realignment		(5,0) 13,5
Tax impact mainly arising from above adjustments	1,0	1,7
	(2,5)	4,0

Contrubution to the Ukrainan population	(0,2)
Other minor one-off costs	(0,1)
Adjustments (*) at EBITDA level	(3,5)	(6,3)
Accrual regarding previous years taxes		(5,0)
Fiscal impact due to goodwill realignment		13,5
Tax impact mainly arising from above adjustments	1,0	1,7
Adjustments (*) at Net Income level	(2,5)	4,0

Balance Sheet and Cash Flow

€/mln 30Jun22 31Dec21 Delta Tangible Assets 212,4 210,6 1,8 Intangible Assets 44,4 43,3 1,2 Goodwill 132,8 132,1 0,7 Investments 2,1 2,1 0,1 Deferred tax assets 20,0 20,5 (0,5) Other non-current Assets/Liab. (11,5) (15,1) 3,6 Non-current Assets 400,3 393,4 6,8 Inventory 186,3 142,9 43,4 Trade Receivables 124,0 120,1 3,8 Trade Payables (157,0) (149,1) (7,9) Other current Assets/Liab. (37,4) (22,9) (14,5) Net Working Capital 115,8 91,0 24,8 Capital Employed 516,1 484,5 31,6 Net Debt 125,1 126,6 (1,5) Equity 391,0 357,8 33,2 €/mln 1H22 1H21 Delta Cash flows provided by (used in) operating activities 13,4 35,0 (21,6) Cash flows provided by (used in) investing activities (20,8) (15,0) (5,7) Cash flows provided by (used in) financing activities (42,4) (62,5) 20,1 Net increase (decrease) in cash and cash equivalents (49,7) (42,5) (7,2) Cash and cash equivalents, at beginning of the year 207,0 225,4 (18,4) Of which, change in exchange differences (2,6) (2,2) (0,4) Cash and cash equivalents, at end of the year 159,8 185,1 (25,3)

Definitions

For the purpose of providing information in line with the performance analysis and control parameters of the Group, non-IFRS alternative performance measures are used by management to provide information for a better assessment of the results of operations and the financial position of the Group as described below. Such performance measures should not be interpreted as a substitute for the conventional performance measures established by IFRS. The details of the content of the alternative performance measures not arrived at directly from the financial statements are defined as follows: • EBITDA: is defined as the sum of profit for the year plus income taxes, financial income and expenses and the effects of the valuation of

• investments using the equity method net of equity investments held for financial investment purposes and amortization, depreciation and writedowns.
• Adjusted EBITDA: is given by EBITDA less items of a non-recurring nature, that is, by particularly significant events that are not in the ordinary course of business or that have no effect on cash flows and/or changes in equity.
• Adjusted Net income: is given by Net income less items of a non-recurring nature, that is, by particularly significant events that are not in the ordinary course of business or that have no effect on cash flows and/or changes in equity net of the related tax impacts.
• Net indebtedness (cash) or net financial position/net debt: is given by the sum of current and non-current financial payables net of current and non-current financial receivables, including cash and cash equivalents.
• Order-in-take: indicates the aggregate of legally placed and processed orders by a company during the reporting period.
• Order Book: is the order backlog opened at any one given date.