Hello, and welcome to the Ermenegildo Zegna Full Year 2021 Financial Results Call. My name is Alex and I'll be coordinating the call today [Operator Instructions]. I will now hand over to your host, Francesca Di Pasquantonio to begin. Over to you, Francesca.

Thank you, Alex, and welcome to everyone joining us today to discuss Zegna Group full year ’21 financial results and provide more details to the numbers shared in February. Today we're going to discuss our full year revenues, the full year results, as a publicly listed company for the first time. We will be using the presentation materials posted on our website earlier today. You can find the materials along with the related press release under the investor page of our group website. I am joined today by Zegna Group Chairman and CEO, Ermenegildo Zegna, our COO and CFO, Gianluca Tagliabue and Rodrigo Bazan, the CEO of Thom Browne. Gildo will begin today walking you through the results at a high level and discuss Group’s ongoing strategy and guidance. Gianluca will spend time going through the numbers in more deeper, and at the end of the call we will be leaving time for Q&A and Rodrigo will be happy to answer Thom Browne related question. Before we begin, I need to point out that we may make certain forward-looking statement during today's call. Our actual results being materially different from those expressed or implied by these forward-looking statements. All such statements are subject to a number of risks and uncertainties, including those discussed in our SEC filings. I refer you to the Safe Harbor statement which is included on Page 2 of today's presentation. And of course this call will be governed by such language. Before I turn the call over to Gildo, I also wanted to let you know that we will be holding an Investor Day at Oasi Zegna on May 17, and we will be providing further details on that after the call. Again, thank you for joining us today. And with that, I will turn the call over to Gildo.

Good afternoon to everybody and thank you very much, Francesca. Back in February, we shared our preliminary revenue, and today I'm very happy to join you all and share our first set of full year results as a publicly traded company. ‘21 was a milestone for us as a Company and the area where we performed well, showing the strength of our strategy. And I want to start with some of our top-level numbers before diving deeper into the year results as you can see from the ‘21 highlights. However, we can see from the slide that we surely outperformed 2020 by significant margin in every metric. And more importantly, however, we are approaching 2019 levels when it comes to revenues and outperformed ‘19 in adjusted EBITDA and adjusted basic EPS, both non-IFRS figures. Our adjusted base earnings in ’21 were up 65% from pre-pandemic levels reaching €0.33 per share. And we also entered the year with a cash surplus of €145 million, thanks to the cash proceeds from the business combination in December of ‘21. Let's move to next slide. And before we dive into the financial and our strategy for the year, I’d like to revisit some of the highlights that made ‘21 a special year for the family and for all of us. First and foremost was becoming the first Italian luxury house to list in New York Stock Exchange and the first stock within the sector adding €129 million in net proceed for the group. Second, was kicking off our One Brand strategy for Zegna which is the foundation of our future growth. And the continued growth in the luxury leisurewear and shoe segment as well as our focus on iconic and recognizable product have taken Zegna to the next level to meet our customer changing…

Thank you, Gildo. Good morning, good afternoon, everybody. I take it from slide number 11. Today, we'll be discussing our revenue, profitability, cash position, followed by a breakdown of results by segment, the Zegna segments and Thom Browne segment, highlights of our income statement. Then I will hand it over back to Gildo who will close with guidance for 2022. First, as shared back in February, our revenues for 2021 were up 27% at actual rates compared to 2020, reaching almost €1.3 billion. This is down 2% from 2019. The Zegna segment was up 23% compared to 2020, bringing in just over €1 billion in ’21. This was 11% below 2019 performance driven by unfavorable expected trends in formalwear. Thom Browne saw even more significant growth, growing 47% from 2020 levels to €664 million with a two year stack of 64%. We continue to see strong retail performance, reflecting our goal of gaining more control of our distribution channel. The direct-to-consumer channel represented in 2021, around two-thirds of our consolidated revenues, while in ’19 and ’20 it was at around 60%. And we have been observing solid growth versus 2020 in North America, Europe and as Gildo pointed out in the Middle East. Finally, as Gildo shared, luxury leisurewear continues to be a strong driver of growth along with shoes, especially in the Zegna brand. Together, they represent about 60% of our ’21 Zegna brand revenues. Moving now to Page 12, we can appreciate our excellent progress over the prior year. And compared to the plan that we presented in July while we were in the middle of the NASDAQ enlisting process. So when we made the plan, it means that plan that we presented in July is our business plan through 2023. Our adjusted EBIT in ‘21 was €149…

Yeah. Thank you Gianluca. Please turn to Page 20. And I want to focus again on our key priorities. And we said we're encouraged by our strong performance in the ‘21 fiscal year exceeding key aspects of the business plan presented in July ‘21, many of which have been discussed today. Our growth focus in ‘22 will take place again the execution of our brand, One Brand strategy to create value for shareholders and the network will be focused on enhancing the business by capitalizing on luxury leisurewear and enhancing the customer experience to make Zegna Group the model for retail excellence across regions and generations. Please finally turn to Page 21, of course, we are keeping an eye on the geopolitical environment in ’22 which creates volatility alongside developments related to the pandemic, especially in China. ’22 has started solid over the collection and positive pricing related to our core ‘22 collection. And our fiscal year ‘22 guidance has been confirmed in low-teens revenue growth and accelerates compared to 2021. As for the profitability, we did expect a nice advancement in ‘22. However, in ‘21, we delivered an adjusted EBIT margin ahead of our own expectation and in excess of the original plan for ’22. While these higher bar may limit our margin upside for this year, we see a nice adjusted EBIT growth in absolute terms, despite the expected increase in investment costs and logistics, and the step up in leasing related overhead and rebranding costs. However, we also expected our cash operation 2020 [ph]. So overall, I would say a positive picture. And we thank you again for joining us. And with that I'll hand back to Francesca.

Thank you, Gildo. Thank you, Gianluca. We are ready to take your questions. Alex, if you want to manage the Q&A we are ready to deal with questions. Thank you.

Thank you. [Operator Instructions] Our first question for today comes from Karina Shooter of Goldman Sachs. Karina, your line is now open.

Thank you. And congratulations on the results this morning. I have a few questions, if you don't mind. So the first one, given I'm ticking off all the obvious one in terms of the question that's on all active investors mind at the moment, just in terms of the situation, given current COVID developments recently, particularly in China. Could you just give us some color and help us understand the situation in China at the moment, and just more broadly, regional trends in general that you're seeing right now? And then my next question relates to the margin. At Zegna brand, you saw a nice rebound in your adjusted EBIT margin in the second half of the year, despite the relaunch of the One Brand strategy. I appreciate that was fairly close to the end of the year. But as we think about this year, and about the investments in the program and the associated marketing, how do you think that will impact the Zegna brand margin in 2022? And then my final question is quickly on Thom Browne. That one saw dilution in the margin slightly this year, relating to expansion the store network and admin processes. Should we view these costs and particularly on the admin side as more one-off in nature, and how should we think about the margin for ‘22? Thank you.

Yeah. Okay, hi, this is Gildo Zegna. China as you know, Greater China is our key market and it represents about 4% to 6% of our sales. And I can tell you that we surely are closely monitoring the ongoing development of the COVID-19 pandemic crisis there. I must say that the start of the year was good in China. However, there is an increase in COVID cases, and lockdowns which continues the drop in sales. And we now have had some store closed being good number of city lockdown. And we’ve seen traffic there significantly if that we have to be realistic about it. However, I wish to express a positive thought, the real [ph] is that in my career in China, we have seen that the business in China is resilient and tends to be very quick to come back. And in the meantime, our e-commerce business continues to operate normally. So I believe that our guidance gives us some room to navigate development in China and the COVID situation there in-line with the Zero COVID policy. That’s what I can tell you. On margin, Gianluca…

On margin, so on margin. let's set the scene on the Zegna brand. We declared in the business plan the target for 2021, at the time we were in July, 8%. We delivered 10.7% which is higher than the plan set at 9%. So let's dissect why we came in ahead of the plan. So revenues came out higher than we expected. So there is definitely a scale effect. Scale effect also since we are vertically integrated, there is part of the cost of the production, cost of product which is fixed for us. So there is a positive trickle down effect on that. In addition, we have benefited from price increases whether that’s been activated along 2021 is going to be intensified in spring ‘22 and fall ‘22. So we are seeing the legitimacy of the Zegna brand in terms of carrying higher margin -- higher prices by consumers and also by wholesale customers. And so we have been continuing to adapt prices and this will generate also a positive effect on 2022. We are benefiting from improved full price sell through and lower bargain and markdowns at the end of the season. This is going to continue. And on the cost side we are managing products pretty well. Of course there is -- there will be a step up as I declared by being full year listed company infancy but we are ready to absorb that. So we are seeing improvements across the P&L, all of which should translate also some nice effects on 2022. So I think probably looking backwards, we were probably somehow proven when we delivered our plan on Zegna brand margins. And we will improve -- we have proven ourselves and stakeholders that the exit speed from 2021 is solid and is promising for 2022.

So Gildo Zegma. So from a point of view as to your question about the margins, it is [indiscernible] largely and effective 2021, we had the full support of the board in 2020, to continue to accelerate the opening that took place in 2021. We also took a stock accrual that is cautious for 2021 and we believe that we are nicely accrued for that line. So certainly a one-off moment of very strong from a top line, one year of the plan is still a very important and for margin for the company looking to the long-term cost for the company. From a channel point of view, similar to Gianluca’s comments, it's obvious that there is an impact in certain capital, where we can say compared to 2020 that's a reality. There is still at some point closedown and reopening and in 2020 at least we can confirm it will start. We continue to support our efforts in China through the situation and we continue to reopen as quickly as the cities open up the lockdowns.

Karina, do you have any follow up, or can we move to the next question?

No, that's perfect. Thank you so much for the comprehensive answers.

Thank you. Next question, please.

Thank you. [Operator Instructions] Our next question comes from Jon Dye [ph] of Jefferies. Jon, your line is now open.

Yeah. Thanks very much. Good afternoon, everybody. Thanks for taking my questions. Maybe just first one to Gildo. It's pretty impressive to keep your guidance unchanged, given what you're seeing in China at the moment. So you talked about some flexibility in that guidance and seeing stronger growth in Europe in terms of rebound in UAE and also the U.S. Could you talk a little bit about the order books that you're seeing for spring, summer, fall, winter, just to give us some idea of how they're progressing as you move to, obviously to new products with new labels, and a change in the mix? That's my first question. My second question is to Gianluca around the margin. Just elaborating on the previous set of questions. Gianluca, can you provide a little bit more detail please around the cost efficiencies that you've seen, the scale of the increase around full price sell through year-on-year, or against 2019? And what we can expect going forward into ’22? And then finally, maybe -- well in addition to that, if you could also flag the really strong working capital and cash flow, I think was much much better than expected. You talk about lean inventories. If you could maybe expand on that going into ‘22 as well how you're going to keep the very good cash flow running. And finally, thinking about M&A bolt-ons, Gildo, if you can provide any sort of further details as to how you're thinking about M&A, whether it's more in the manufacturing space or a combination of manufacturing assets, plus smaller brands that don't cannibalize your existing ones. Thank you.

Yeah, I will start with the last one, M&A, we surely are considering several opportunities. But I think our first priority is right now is focusing on what's going on around the world and doing even better than we did in ’21 on our target in terms of value positioning, in terms of product mix, in terms of margin, in terms of pricing, in terms of marketing. So I would say that we are focusing right now on organic growth. But as I said that previously if something comes along we surely we will consider seriously. I can tell you that probably, right now we are thinking more about this more seriously [ph] than other one. Because we do believe that this intelligent know-how has to be preserved, in particularly the moment in which there's more enterprise that’s suffering because of the energy costs, because of the logistic issues. And so if we can give them a hand, we surely will do it. I can tell you that our supply chain is working full speed. As a matter of fact, we are hiring people, and as you saw from the press release we're very proud to say that we are hiring. We're trying to hire some of the fellows to help them out in our factories in Italy, in particular. So that's for M&A Summer and fall, winter, I must say that I'm extremely positive on how the checkout of the new products are doing in the store. We have been quick to renovate several stores, and we've seen the impact of the renovation in terms of lighting, in terms of shelf space, in terms of visual, in terms of how the product are put together, columns. And it helps the cross selling of the product immensely. And to be…

If you want to on platform with this wholesale and the current situation and then move to the margin?

The current trading, we will disclose that Q1 sales in May. But as Gildo was saying we stay positive. We are hearing bit noise. Okay, fine. That is of the line. So we are seeing good momentum in terms of sales performance. Clearly, we stay cautious on the COVID situation in China, which was more likely to be March but until February, we've seen good momentum. The same momentum has over delivered sales at the end of the year. So going, Jon to your questions about cost efficiency, good supply, performance and working capital. So in terms of efficiency, we see cost efficiency throughout the geography of our P&L. So starting from starting from the cost of the product and Gildo was saying our order intake in fall-winter ‘22 has been very high. So now the supply chain is running at full speed and full capacity. This generates fixed cost absorption that will be positive to the P&L in 2020. The full capacity volatility is huge, over shirts, menswear, over outerwear and the constructed jacket. So that is one driver efficiency. Other driver efficiency that reduced and focused collection determines lower cost of prototypes, lower obsolescence in the stores because we have less broad collection, more narrow offering, more depth, and therefore fewer obsolescence accruals at the end of the year. We also translate a more focused collection in terms of more focused retail spaces. Our remodeling tends to go to smaller surfaces more effective. So maybe the surfaces that were at 400 square meters, we don't need them anymore. We can well stay in 250 square meters. And finally, the fact that with iconic product, we are moving more and more into items that we carry on for more than one season, that continuously products also that generate a…

Got it. That’s very clear. Thank you very much.

Thank you. Operator?

Thank you. [Operator Instructions] Our next question comes from Rogerio Fujimori of Stifel. Rogerio, your line is now open.

Hi, thanks for taking my questions. I have one about retail productivity for the Zegna brand. Could you give us an idea of the sales density for Zegna brand in 2021? And looking ahead, what level of sales productivity the Zegna brand can achieve in three to five years? And which retail KPIs offer perhaps the greatest opportunity for improvement? And then if I may add a second quick one on Europe, have you seen any changing in Western European consumer behavior since the start of the war in Ukraine? Thank you.

Hi, Rogerio. On your retail productivity question, we don’t disclose the metric, I'm afraid. I can tell you that you can -- you have all the elements to calculate it yourself to because we disclose the sustainability [ph] revenues, you have the number of stores. And I think that you can be fairly accurate estimate with these elements. Gianluca and Gildo can elaborate about at the metrics and the KPIs that we look at. Clearly the growth in the Zegna brand is all going to be organic, because we are not expecting any major changes to the footprint store, but also that you are seeing that we have projected in our channel foot overall is all coming from activities. And Gianluca can take you through the key drivers of these productivity improvements. [Multiple speakers]

In European consumption, we have not seen to be honest with you any slowdown in European consumption since the Ukraine crisis, which is good news. In America, very, very strong trend. I must say that the new brand position surely has something to do with that. As I said before the store innovation, also. But I must say that in particular, the UK trend has been extremely brilliant during the past two months. Probably more in the strong market, in the stronger market in the bigger cities than in small cities. And we've seen some results, I would say in the past two months also. So overall, a positive trend and also down for some renewal beside Russia operationally, is what it is. And sorry, in the last part, I mean, I know this is not Europe, we consider part of big Europe, Dubai, the Emirates -- the Emirates are already running, they keep going at an incredible speed and going beyond the numbers, the good numbers really ’21.

Just add one point to the driver productivity summer, I mentioned before the sale throughput price is tend to be one important metric, which is directly related to performances also the average ticket. Average ticket is going up for several reasons. One definitely is the like-for-like price increases that we have been applying starting from spring ’22. And also we started in fall ’21. But it will come to full steam in spring ’22 and fall ’22. So like-for-like price increase has been one driver. Second unit for transactions is going up, moving from formalwear to casualwear. We are seeing people coming, buying casualwear more units for specific items. So they buy two pairs of triple stitched. They buy three pairs of knit wear that they like different colors. So we are seeing also the cost, the numbers of units per transaction going up. And of course we reduced the level of offering because we decided definitely to focus on luxury position. So the move to the One Brand means that we are leaving behind some price points that were covered by Zegna. Also this is an important factor to raise the store productivity and euro per square meter. On the other side, the fact that any kind of renewal will consider the need to add those surfaces or rather, we can make a small bit in terms of square meters, because we carry more focused products.

Rodrigo, you want to say something on Thom Browne?

Thom Browne contributed obviously -- don't disclose the details. But what we can tell you is that we have extremely healthy KPIs both from sales force coordinator, both from the average ticket. You have to remember that we're still approximately by the one which is large, but extremely healthy. We do compare ourselves to the number of established designers and luxury brands, mostly European. And we are turning extremely positive numbers in comparison to them. And looking to the future, we will continue to strengthen the growth in client value management and growth in the quality of clients. And then in terms of stores, or the network just to the point that it makes a lot of sense to Thom Browne. Also the growth plan more than specifically opening new doors or expanding such stores.

So on positive trend, I don’t know where it is trending at the beginning with made-to-measure. We have seen made-to-measure getting back close to 2019, which I think is important. So it's good indication that gradually retail base is back and seems we are quite unique in offering and the service and people are coming to us. The wedding season has been blocked for a number of seasons. So people want to get dressed and take advantage. And so that's really -- it's very helpful. And every season so we continue to see a good traction on that side worldwide.

Thank you very much for the comprehensive answer.

Thank you. I will now hand back to Francesca for any additional questions and any closing remarks.

Thank you, Alex. We have received a few questions through email. There is a question about marketing, and what are our intentions in terms of the marketing spend going forward? And if we plan to increase the spending in absolute terms and as a percentage of sales. There is a question on digital, and what the digital present for us in terms of percentage of revenues and opportunities? And there is a question on the U.S., inquiring about the trends that we're seeing in the U.S., what is the most successful business? And what can we comment about U.S. performance in general, by customers and by challenges.

I say, with the U.S. stellar performance. I haven't seen a trend in the U.S. for years. And I think there are two reasons. Most retail, I would say, we know that in the United States, we still have a good number of processers, our wholesalers even though we are converting more and more door. And I think that they are coming out and we've got inventory. And so finally, we’re going to get into some good traction with the new inventory that we delivered. And so good sell-through and good interest not only on the luxury sportswear, as I was saying before, also the retailing, because many of that -- many guys have been buying for the past two years. And they just do -- they leave their work. So that’s a part of it. I must say that the new sneaker, with the stitch is doing extremely well, across the world, also in United States. And we have noticed that the price, we will increase prices in the middle of the season. And in South America in particular in the iconic item and in certain categories. And we've seen a good response. So no resistance to buyers. In our retail stores, we have a few new stores. We have also One Brand and we started well the journey we've seen a good amount in traffic in New York and in Los Angeles. But I would say it's good numbers across United States and Canada. And if we want to talk about in America, then Latin America is healthy as in the past six months. So good performance both in Brazil and in Mexico, where we have a very strong brand awareness. In terms of marketing spending, I talked about Zegna, and Rodrigo can talk about Thom Browne. Yes, in absolute terms, we decided to increase our spending, and that the spending goes I would say for rebranding for sure, goes individual, goes into project that we have, goes into social media. And I would say that this area is very good. I think is pretty well spread across the region. But we want to highlight the strong progress of the season which is -- which are the one we talked about, the luxury leisurewear in particular the knit wear, the outer shirt, and the bigger stage. And we are going to roll also to support the new outdoor collection which we tested last fall and rapidly built out. In terms of Thom Browne?

So for Thom Browne continuing the marketing questions, we traditionally have always invested in PR, in special shows in the work that we're doing, celebrities, which is all organic and in branding. But we have a tendency to -- and last year the Board truly supported and passionately approved last year an increase on pure marketing. We talk about increase in absolute value as well as percentage. IT’s a significant increase. And marketing is different for us, going after a specific story to communicate product to communicate to our clients. So faithfully our Board supported us last year. We will continue to plan that type of significant investment.

And then we have a question on digital.

Digital, yes, in digital we are seeing an extremely positive trend. The trend is across on our dotcom, across platforms such as [indiscernible] and across new localized titles such as Tmall that we launched last year in China. We are looking for the local platforms in certain market and continue to serve our clients extremely well with a better traffic response. We continue to see a very full price non-promotional trend for us. And we're extremely -- you can say that total [indiscernible] we have across DTC which for us became the majority of our sales last year.

And Zegna?

On Zegna, we see digital holistically, not only looking at e-commerce per se, but also looking at sales that are digitally enabled. So we have what we called internally B2C. So Zegna to consumer outreach, all customer advisors are now enabled to outreach their customer portfolio and invite them to either visit the store or to select through WhatsApp WeChat in China. The proposal of a total low cost category items of this -- of the new winter collection, and then the customers can either buy it online or come in to the stores. So this outreach helps us greatly to activate traffic into the stores. And in the last month, we have seen this activity, digital activity as enablers of sales that are percentage wise solidly double digits in terms of representation of our repeat sales. So that is a big component, especially for waking up sleeping customers that we would like to make aware of the new collection. So every single customer advisor is making the activity of proactively reaching out through digital tools to customers. And then ultimately and eventually this becomes a brick and mortar but is native as a digital activation. Then the fact of pure e-commerce sales, I think that Thom Browne is likely higher than us because they have more iconic and recognizable pieces. But the move of Zegna to pay postage for iconic pieces will favor this journey of stepping up. Today, we are probably in the mid-single digit percentage in terms of DTC sales coming from pure e-commerce through our zegna.com or e-commerce platform. Another part that is nicely growing up is the sales, not existing but through retailers, which is which is becoming more and more successful, especially with the new collection that was presented in fall ’22.

Thank you. Operator, I think, are there any more questions on the line? Otherwise, I think we need to wrap up.

We currently have no further questions.

Okay. I think it’s now 3 o'clock. And we can close the conference call. Thank you very much everyone for participating. And as said we will be hosting our Investor Day on the 17 of May at Oasi Zegna. And we will be reaching out with other details and a fully detailed conference at the end of the day.

Thank you.

Thank you for joining today's call. You may now disconnect.