Moncler's MONRF CEO Remo Ruffini on First Half 2020 Results

Good evening, this is the conference operator. Welcome and thank you for joining the Moncler First Half 2020 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Miss Paula Durante, Strategic Planning and Intelligence and Investor Relations Director of Moncler. Please go ahead, Madam.

Thank you and good evening, everybody. Thank you for being with us tonight for our First Half 2020 Financial Results Conference Call. First of all, as usual, let me introduce you to the executive team on today's call: our Chairman and CEO, Mr. Remo Ruffini, Luciano Santel, our Chief Corporate Supply Officer, and Roberto Eggs, our Chief Marketing and Operating Officer. Before starting the presentation, as always, I need to remind you that this presentation may contain certain statements that are neither reported financial results nor other historical information. Any forward-looking statements are based on Moncler's current expectations and projections about future events. By their nature, forward-looking statements are subject to risks, uncertainties, and other factors that could cause results to differ, even materially, from those expressed or implied by these statements, many of which are beyond the ability of Moncler to control or to estimate. Let me also highlight that given the nature of our business, interim results can be influenced by seasonal effects and therefore cannot be taken as a proxy for full-year trends or results. Given the later starting of this call, I anticipate that we would make our best efforts to conclude it within one hour. Therefore, I ask all participants to limit to one question at a time. Of course, if there are more questions, we'll take them after, but please limit to one the first time you speak. And finally, as usual, there are press invited to this conference in a listen-only mode. Let me now hand over to our Chairman and CEO, Mr. Remo Ruffini.

Thank you very much, thank you Remo. Let me bring you to the results, the revenue breakdown by geographic region, who will comment further on results along the presentation. This is on page five. The result of the first semester 2020: globally, we reached 403.3 million euros, which is a 29% decline compared to H1 2019, with a stronger decrease in Q2 linked, as we will see later, to the fact that we had most of our stores—more than half—closed during the second quarter. Results in the first half have been severely impacted by the measures adopted by different governments worldwide to limit the COVID-19 pandemic. Italy recorded a 39% decline, in particular in Q2. Retail underperformed due to store closures and the lack of traffic, especially on the travel retail side. E-commerce results were slightly better with revenue decreased by 23%. Here, especially Germany, Scandinavia, and Switzerland that outperformed in Q2. Asia and the rest of the world reported a 27% decline each in Q2. Japan, Hong Kong, and also Macau underperformed compared to the rest of the region, while mainland China reported double-digit growth, especially the month of June was good, very good in China. In Korea, the group performed, remained solid during the quarter and since the beginning of the year. America has reported a 41% decline with similar results both in Canada and the U.S. and in both channels, here also with a strong improvement during the month of June. Let me bring you to the following chart on page six, where we have the revenue breakdown by distribution channel. We passed the mark of 100 million for the wholesale business, which reported a decline of 21% during the first half of the year, while retail declined by 32% during the first semester with Q2 at minus 57%. This is, of course, as I was mentioning, reflecting the effect of more than half of the network being closed for around two months, mainly in April and May. The concession store growth was down 38%, while online outperformed with double-digit growth during the first semester. Let me bring you to page seven with the monobrand store network evolution. We reached 213 stores at the end of the semester. We started the year with 209. We had one planned closure that was already planned for Italy with the closure of our boutique on Via Spiga. This was something that was planned, as well as the doubling of the space that we have in Rinascente, so compensating for the closure of the dedicated store on Via Spiga. We also had the opening of a new country during the first quarter with Kiev, and just recently, we opened early July a store, a beautiful store, in Capri. Regarding Asia, we had one closure in Hong Kong that was also planned; it was the end of the lease that we didn't renew in the Garden Road location. While the increase you see on the U.S. market is driven by conversion of altering through shop-in-shops that we have in Hudson's Bay, now retail stores in Calgary, Vancouver, and Toronto, as well as the opening of one retail store in Valley Fair with Bloomingdale's on the underground floor at the entrance of the department store. Regarding the rest of the year, we have in total ten openings planned. I will just mention two that are more important for me than others. One is the opening of a new country with a retail approach, which is Barcelona. This is meant to be also at the end of the year, probably in December, as well as our flagship store in Paris on the Champs-Élysées between Vuitton and Dior. I would like to mention also one relocation that we had early June, which is a relocation in Printemps Haussmann, because it's the first time that we have been able to open a ground-floor location in a European department store. This will be followed during the months of August with an opening with the KaDeWe Group in Alsterhaus in Hamburg. We will have also there a beautiful store on the ground floor. By the way, KaDeWe is going to be the group that was one of the last important department stores where we were with a wholesale model that we will transform and convert into concession during the summer. So we plan to have two stores opening: in Alsterhaus in concession, and convert the store we have in KaDeWe Berlin in concession, as well as an opening and conversion in Oberpollinger Munich. Regarding wholesale monobrand, we are now at 63. You see one decrease; this is mainly due to the fact that we had these four conversions on the Canadian market. But in the meantime, we also had some openings. One is the airport of Taipei Terminal 2; we opened also with DFS in Cairns, Australia, and an opening of a dedicated shop-in-shop for their phone in Moscow, GUM. Let me move to the following page. Here, I'll let you go through the detailed analysis of the impact of COVID that we are reporting. I will just go through the main headlines. In February, we had five store closures; they were all located in China. In March, the number of closures went up to 111; as you see, Italy and all of Europe were closed, as well as the Americas, and some selected closures in China and Hong Kong. In April, we had 123 closures; again, Italy was still completely closed, and we started with few reopenings in Europe, Japan, and Singapore. At the time, became close as well as the stores in the Americas. May was the month where we had more openings—over 80 stores open. In Italy, some stores were still closed, but the majority was reopened, as well as France. Japan also reopened, and in the Americas, Canada and a few stores in the U.S. The U.K. reopened only in the month of June. At the end of the month, we still have nine stores that are closed: three in Italy—these are the stores that are in the airports from China, Malpensa, that are now open, understood in Padova. We had three other stores in Europe: in Istanbul, Saint-Germain, and in Printemps Louvre in Paris, and the last one that was still closed in the U.S. were San Francisco, Atlanta, and Costa Mesa, and all the stores are now open. Regarding the actions that were taken during the last few months, there was a strong effort in terms of communication to refocus digitally on the values of Moncler that we started communicating last year. There was also a fantastic event that Remo just mentioned with Weibo in China: our first digital event with the launch of one of the Genius collections, the one with Fragment and Hiroshi Fujiwara, that drove more than 32 million views. This is now still the record for luxury brands on Weibo. And regarding clients, we implemented a project that we call 'New Locals'; these are a way to reactivate or activate travel retailers when they are traveling around the world. Now, with the pandemic, they cannot travel anymore, so we have a strong project to reactivate them, mainly in China and in Europe, to activate these people who are used to buying abroad, to try to convert them and bring them to buy in their country of origin. I think we can move to the next two pictures. One I wanted to mention is an opening that took place during the quarter in Buxy Center in China; this is in Plaza 66, part of the Plaza 66 group in China, and another opening that took place just at the end of June—and here we cheat a little bit because I think it was early July, but I wanted to show you that the store is really beautiful and it's the smallest but probably the cutest store we have, and it's open in Capri. Now, pass the floor to Luciano.

Okay, thank you, thank you Roberto, and good afternoon, everybody, and thank you for attending our call today. We are now at page 12, where we report the income statement and just the technical information. To start, we report for the first time the full set of results under IFRS 16 only, and we also report our stock-based compensation that we used to report separately in a separate line; now it is embedded in each item, in each line of the income statement for selling and D&A respectively. We also report on the side of the chart an explanation and the indication of the amount of both the stock-based compensation and the impact on our operating margin of the IFRS 16 application. So let's start with the business results: the top line, 403 million, down 29%, already fully explained by Roberto. Gross margin, 69.3%, down against the 76.7% we reported in the first half of last year. The decrease in gross margin is totally due to an extraordinary write-down of inventory for about 30 million, additional write-down, because we normally include in our cost of goods sold a physiological write-down that in the first half of this year was about 80 million, but on top of that, we provided for an additional 30 million, mostly allocated to the current spring-summer 2020 collection. Because, as you know, as you may remember, we already discussed the last time we met: after the lockdown, we immediately took action to cut our production plan for the full winter season, but for the spring-summer season, 95% of our production was already completed. So again, we took actions also to carry over some items from summer 2020 to spring-summer 2021 through a very surgical activity, very complex activity implemented by our merchandising team together with product development and supply chain, that mitigated significantly the impact of the leftover. But again, 30 million is the last number that came out and was included in the cost of goods sold, and consequently impacted gross margin. Selling expenses are lower than last year in absolute value, but of course the percentage is higher due to the fixed cost portion of our retail business, mostly and mainly rents. Even though, on this specific item, on rents, we immediately implemented actions: we opened a discussion table to renegotiate our rents, our leases with the landlords. Results are fairly good, honestly, also less than what we already planned, but discussion has been very tough, and honestly, I would say that at the end we got some good results. And second important, the fixed cost is D&A, depreciation and amortization, which by definition is fixed, but this year is even higher than last year due to the important capex we have implemented over the past few years. Honestly, we didn't save that much on the payroll item because, as you know, as we said many times, we set as a priority the protection of our people, first from the health point of view during the lockdown, but second also from the economical point of view. In fact, as you may remember, we paid them 100% of their compensation even during the lockdown, even when the stores were closed. So overall, a fairly good result considering the situation. G&A more or less the same, at the same percentage, and they are lower than last year but still, on a percentage basis, higher, also because, as you know, we have invested a lot over the past few years in our organization, and last but not least, because this is part of our communication today, in the digital department of our organization, also in view of the sourcing of the online business. Marketing: important to highlight that we included in the marketing expenses, if you want, inappropriately, but this is accounting principle, the over 10 million, almost 11 million, a charity we did for the city of Milan. Without that, marketing would have been more or less in line with the first half of last year. For the year-end, on marketing, last year you see in the chart we reported 7%; for this year, we expect a number that will be closer to 6%. At the end, EBIT is 35 million negative, but let me say that without the 30 plus 10, over 40 million extraordinary items, it would have been slightly positive. Financial income, 11 million, for the vast majority due to the lease liabilities. Tax rate, 32%, positive of course because we take advantage of the tax credit, and at the end, the net results are negative for 31.6 million. As you may see, we don't report EBITDA; we decided not to report it any longer because under the new IFRS 16, EBITDA is not a metric we use as management team, and we don't believe it is a meaningful metric any longer. But for your information, we reported on page 19 of the appendix the reconciliation between the EBITDA reported and if adjusted before the application of IFRS 16. Okay, we can move now to page 13. We report the capex, 36.7 million against 41 last year, but with a revised plan for the year-end to spend much less than last year. Honestly, we expect about 91 million. Last year, as you can see, we spent 121 million. This decision was made after the pandemic problem; we decided to cut our capex by about 30%. And the capex we spent in the first half are more or less equally distributed between retail network and infrastructure, and mostly information technology, logistics, and last but not least, again, the capex for information technology platform spent for the online business; we insourced all the online business. Okay, and go now, let's go now to page 14. We report net working capital, which is a fairly good 6.8% as compared to 5.5% last year. Not bad, pretty good and pretty well under control. Inventory, of course, much higher if you consider that 267 million are net of the 30 million additional write-down we talked about before. So inventory a problem, pretty important in this period. Let's move to page 15, and the financial position: 595 million positive, excluding lease liabilities at 200 million, better than one year ago, of course, in part thanks to the non-distribution of dividends because, as you know, we decided not to distribute dividends this year. Let's move now to page 16, balance sheet, and nothing to say unless you have questions. On the cash flow statement, page 17, we changed a little bit the format of the cash flow statement, and we start now as a first line from EBITDA. Of course, we have the D&A, the other location adjustments that are related to stock-based compensation, the IFRS impact, and all the other lines we already discussed, with only exception of a change in other assets, which is negative, much higher than last year, mostly due to the tax credit we reported in the jurisdictions where we reported a tax loss. Again, a free cash flow of course 74 million negative as compared to 71 positive last year, and the net cash flow impact mitigated by the fact, as I said before, that we didn't distribute dividends this year. Okay, so we are done with the presentation now, and we are open to answering your questions. Thank you.

Excuse me, this is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver and ask your questions. Anyone who has a question may press star and one. At this time, the first question is from Anne-Lise Bismuth with HSBC. Please go ahead.

Yes, hi, good evening, everyone. So I will stick to one question. Regarding the performance in retail, which was down 32%, and given that retail like-for-like were down 38%, it would imply a contribution from new space of 6%, but given that you only opened four stores in Q1, the contribution should be less significant. So if you can just clarify this point and also help us to understand what we should expect in terms of contribution from new space for the full year, please. Thank you.

Okay, thank you, thank you for your question. I mean, you're right; more or less the space contribution was 6%. Of course, first half for a couple of reasons, including seasonality, not only the breakdown is not meaningful. For the second half of the year, it should be higher, the space contribution. So we stand with our overall guideline of about 8% for the year-end. Thank you.

The next question is from Elena Mariani with Morgan Stanley. Please go ahead.

Hi, good evening. Thanks very much for the detailed presentation. I will stick to one question as well. Would it be possible for you to elaborate on your exit rate and on the trend you have observed in recent weeks globally, and perhaps with a stronger focus on mainland China? And I just would like to know how, in your opinion, we should think about Q3 and Q4, and whether it makes sense to assume that your sales will most likely remain in negative territory until the end of the year, given the lack of tourist flows. I mean, I know it's difficult to tell, but perhaps you're feeling based on how you've seen the business evolving. And if this is a good assessment, also how we should think about the evolution of gross margin and opex taking into account the write-down you recorded in inventory and also your expectation on the evolution of the cost base. Thank you.

Hi Elena, it's Roberto. You started well, but you ended with two questions at the end, as usual. But let's say it's one question each between myself and Luciano. As you know, we do not comment results on a monthly basis, but I can give you maybe some flavor on how we have seen the evolution during the quarter. Of course, the worst month in the last quarter was April, where most of our stores were closed, and then gradually we reopened. So what we have seen is an improvement in performance in all regions; some are more affected than others, and some are exiting from the crisis in a faster way. China, that was locked down in March and was gradually reopening in April, did well; it was double-digit growth, and we have seen an acceleration on the Chinese market in April, May, and June was by far the best months with strong double-digit growth, also helped by the project program we had with, as I was mentioning, the New Locals, driving sales of travelers who are usually buying abroad into the Chinese market. Korea did well and was never really completely closed, so we have been continuously operating there, and despite the fact that one third of the business now is duty-free, we have been registering positive results. The semester was positive for the Korean market. Japan had also a recovery but a little bit slower than the Korean market. The Americas: different problems; we started with the lockdown, as you know, and then we had some riots where we had nine stores closed, three of them really damaged, and it took us two to three weeks to have them reopened again. But I must say that the exit of the month of June and the start, and we are now on the same trend, was pretty good, so very encouraging—a faster recovery than what we have been experiencing in Europe. In Europe, we said the northern part, with Scandinavia, Switzerland, Germany, and Austria to a lesser extent, because there is still a strong aspect of travel retail in Austria, but have been doing fine. Germany was even positive in the last two months, while the southern part of Europe is suffering more, especially, I must say, the two cities that are most affected are Milan and Paris, which are heavily dependent on travel retail. Now, to give you a flavor for the end of the year, I think it's really difficult because everything will depend on the recovery of travel retail, which honestly, for the long haul, we don't expect to have in the course of 2020, but probably more a gradual improvement towards the beginning of 2021. While we expect probably a little bit of what we call the local travelers—so the Germans traveling to Paris, the Germans traveling to Italy, and so on. So all the Chinese starting to travel to Korea and to Japan, we see more opportunities for this business to restart, and everything will be linked to this restart of the locals. I think one thing you need to bear in mind is that globally, semester one for Moncler accounts usually around 30% to 35%, so two thirds of the year is in front of us, and usually what we have towards the end of the year, the last quarter, is a predominance of local buyers compared to travelers. So travelers are very strong in Q2 and Q3 to a lesser extent; we are less reliant on travelers in Q4. Elena, about your question on profitability on gross margin: first half of the year, as you said, it was heavily impacted by the additional extraordinary 30 million write-down. Based on the visibility we have now, and consider that, as we said before, we took immediate action to cut our production plan for the current following season, we don't expect any additional need to write down inventory in the second half of the year. Having said that, considering that the first half of the year represents about one third of the total, the impact on gross margin for the year-end should be significantly lower and mitigated, because the 30 million should not be higher, and the sales should be much, much higher. About operating margins: you know that our sales, as I just said, in the first half represent one third of the total, but our opex represent much more, less than 50%, but again, the weight of our organization overall is much higher because it's not variable; it's mostly fixed. And we said that, and based again on our current visibility, also operating margins, because of the impact of opex, should be better, of course much better in the second half. I can't tell you any number, but of course, this is the thinking process in our mind. Thank you to both of you, have a good evening.

Sorry, I just take a question from the web. Julian is asking: can you please explain what are the incremental costs related to the digital internalization, both capital and opex, and how will you manage to minimize disruption risks? So, leave it to Luciano, I think. Okay, so I take the first part of the question. The capex is something we said in the past, and we confirm that we are spending for the new online platform about 15 million, one-five, excluding the second phase of the project that will be implemented next year, that relates to China mainland, because all the world where we have the online business will be under the Salesforce platform and the cost is together, not only Salesforce. Of course, reporting in our capex is 50 million. Of course, we started to spend last year; we have spent a lot, reported a lot of this 15 million last year, another important portion this year, and the last part of this capex next year. About opex: variable opex are consequent to the concession fee we will pay for Salesforce. About the majority of opex, we related to the organization we just discussed about before, because of course, we have been building this organization starting last year, even in 2018, and of course, the cost of this organization is quite important. We never disclosed any number, but it is quite important. Having said that, of course, we aim and we plan to maintain and to protect the online business profitability we have now. Of course, the most important reason why we insource this business is not to increase profits that are already very good, but to take advantage of the huge opportunities we see in this channel. On the minimization of the disruption risk, let me say that we started this project with a pilot on the Korean market already more than one year ago, because the kickoff of the e-commerce on Korea took place at the beginning of June 2019, based on exactly the same platform as the website that we are...

In the other countries, I remind you that Korea was not part of the deal we had with Yoox-Net-a-Porter, so we were free to launch this market and operate it ourselves. It has been now one year of testing that we have been doing. We have been discussing and assessing the possibility to further develop the culture internally, and we have been investing both in terms of supply chain and in terms of talents that we have recruited. We are now putting in place a new digital organization within Moncler that will cover the digital part, engagement, and all the transformation parts including innovation, CRM, and social media. We are now pretty confident that we have the setup ready, so we have been working on a plan to internalize the e-commerce part. Basically we have two streams running in parallel. One is the internalization starting with the US and Canadian market by October this year. We will start migrating with the go-live expected at the beginning of Q4. In parallel, we have already started the design phase for the EMEA market, which is by far the more complex because we are in more than 30 countries with different VAT levels, and we want to provide the full omni-channel service from the beginning. We have already started and put the team in place for EMEA, then that will be followed by Japan, and at the end the launch of the Chinese market, which requires a specific organization located in Shanghai with a strong connection to headquarters. In parallel, there is another stream that started at the end of last year, which is the new UX redesign. We want to bring a little bit of the flair of the entertainment industry and give more fluidity in the way you navigate the website, with the objective to launch this new website by the end of H1 2021 or beginning of H2 2021.

Okay. The next question is from Thomas with Société Générale. Please go ahead.

Good evening. I have just a quick follow-up question for Roberto on e-commerce, and then a question on Genius. Just Roberto, on the press release you made earlier, you said you expect the share of e-commerce to double in three years. Do you mean direct e-commerce, which I think is around five percent of your sales, or your total online business including third parties?

Yes, we mean the full business, both what we are managing directly through our own website, so our own e-commerce, and also the one through e-tailers and different partnerships with department stores and other websites selling Moncler. Basically we want to move from 10 percent to roughly double the weight, so 20 percent by 2023.

Okay. And my main question is on Genius. Have you made any major change in recent weeks or months to the timing or the depth of the collaboration planned for the rest of the year? And within your 30 million euro of inventory write-down, was this relatively broad-based across Genius and the Moncler collection? So what was the respective share of each business and the bigger weight for Genius within that write-down? Thank you.

Regarding Genius, yes, we had to review the calendar of the different launches, linked to the fact that our rhythm is more or less one launch per month, and when we had two-thirds of our network closed, obviously we decided to postpone the launch because the way we leverage Genius is not only online or digitally, but it's always a combination with the retail store and the online store. Also, we had a month without a launch, and now we have restarted with Fragments. In terms of comparison, last June we had a strong launch with Palm Angels and we didn't have any this year, so there will be a few more launches in the last four months of the year, linked to the pandemic and the lockdown in most countries. There is no more write-down on Genius than in the past; it's something that is similar. For launches and Fragments, we haven't seen a difference in terms of weight of sales, also driven by the fact that Japan, China, and Korea were back to normal. Of course, a little bit of impact in Europe because when we sell, we sell both to local clients and to travelers who were not present.

Thank you. The next question is from Susie Tibaldi with Oddo BHF. Please go ahead.

Good evening. Given that Q3 is your most important quarter for the wholesale channel, I just wanted to check what are your expectations there given your current order visibility. Thank you.

Let me re-explain which quarter is important for which channel. Q3 is usually the quarter where we do the results of the wholesale part because it's where we ship the full winter season. This has started and is obviously made a little bit difficult in some areas like the US by the fact that department stores are under pressure, but with most of them we have found an agreement and coverage ensuring business continuity. Then Q4 is the quarter for retail. Q3 for retail is a little bit more important than Q2, more or less at the same magnitude of Q1, but not as important as the last quarter where we do 45 percent of sales. So the efforts in terms of product launches are concentrated in the last four months of the year. Regarding Genius, of course we have now started to sell for the winter season. The decision we took, in discussion with our wholesale partners and our regions, was to extend the presence of the spring-summer season a little longer to give our clients the opportunity to buy, because with two months of closure they didn't really have the time. So in July we are still selling something very balanced between fall-winter and spring-summer, while last year we were already selling 70 percent fall-winter. But this will be back to normal. We have a catch-up in terms of fall-winter distribution, and by beginning of August we will be back to comparable figures compared to 2019.

The next question is from Luca Sulka with Bursting. Please go ahead.

Good evening. If I may, I would like to ask you a question on like-for-like calculated differently. If we are to compare apples to apples, we need to consider that many of the stores were actually closed during the first half. What would be the like-for-like growth number if you just took sales of stores in existence last year for the days they were open, this year year-on-year?

Yes, Luca. Of course it's difficult to give you a precise answer. What I can tell you is that of course the result would have been better, but to be honest with you, after we reopened the stores, if I look at June, as Roberto said before, June was much better than May and even better than April, but still with very low traffic in some regions, not in all of them. China very well, as we said before, but on an aggregate basis June was still negative comp. Let me give you some additional flavor that will not completely answer your question, but the effect of the pandemic is not only on whether stores are open or not; it's linked to consumer confidence to go back and buy, and also the fact that travelers are not traveling anymore and are buying more locally. Let me give you two examples. China had very strong months in June with strong double digits. If we had to calculate the comp sales there, it is the positive effect of the pandemic and not having people traveling, so the density is higher than last year. Similar to the Swiss market, where the Swiss used to buy abroad and are now staying, so the results on our resort stores in the Italian ski resorts are excellent. We are doing figures similar to what we usually do in the winter season, and we have to ship more product to the ski resorts. Others are completely affected by the lack of travelers. If you look at like-for-like for Paris and Milan, it's really, really negative.

Understood. If you were to break down the like-for-like that you reported, how much would you say is from stores being closed, and how much is because people are not traveling and the feel-good factor has been affected and so on, so that we get a good understanding of the real underlying like-for-like?

Excuse me, Luca, your question was how much of the comp is due to store closure?

Yeah, correct.

And how much is instead because people are not traveling, or because the feel-good factor is not there, people are more conservative about their finances, they lost their job, whatever?

Okay. The second one is clearly very important. Also the first one, remember that most of our stores were closed in Q2, which is from a retail standpoint a low quarter, but March was important and we started there. Also, the travelers are very important. So we don't have a precise figure, and we don't really think it's something we would even calculate, but of course remember that travelers are for sure very important, particularly in these summer months in EMEA where they count a lot. Hong Kong is still a very difficult market because of the absence of Chinese visitors. So travelers are for sure very important.

Maybe one element, Luca, is the performance of the locals. What we have seen, and here I see really similar figures as I was mentioning in Europe for the performance, is that all the northern part of Europe where the locals are performing better than usual, so in some cases even a double-digit growth with the northern European nationalities, while in Milan and Italy the performance on locals is still negative, and in Paris it's the same.

Understood. Thank you very much.

The next question is from Andrea Randone with Intermontagna. Please go ahead.

Thank you. Just a quick question about your negotiation of rents. Can we think your talks are to have a temporary effect, or can this also be a permanent benefit? Thank you.

Yes, the way we approached the landlords and this problem, honestly, was to fix the problem now based on the current situation, with the mutual agreement to sit with them again if the situation should continue in the future. This is for the vast majority of negotiations and rent reductions. Of course, some of the leases we renegotiated will have an impact also in 2021 and the years after, because we renegotiated all of the lease for the full term. But again, the vast majority, and this was the approach and strategy we decided to implement when we opened this negotiation, was to fix the problem now and then we will see in the future. So the benefit will be for the summer and also for the future, but not so important.

Very clear. Thank you.

The next question is from Flavio Tereida with Jefferies. Please go ahead.

Thank you, good evening everybody. Quick question on supply chain. We're seeing that a number of countries in Eastern Europe, including Romania, are unfortunately experiencing significant spikes at this moment in time of COVID-19. So I was wondering what mitigating actions you can take, and is there a backup plan if you have issues even in your own production plant? Thank you.

Hi Flavio. On supply chain, we are facing problems every day, but having said that, I have to tell you that, crossing fingers, we never stopped our production. Our own factory has never stopped, with only two out of 1,000 people positive cases, not serious cases, thanks to some luck for sure, but also because we implemented very strict procedures and protocols. In the rest of our production network, we had and are still having some problems in the countries you mentioned, but honestly, production for the full winter season is, for the most part, completed. So we have some delays as compared to last year, but not that much. So I would say we are in pretty good shape. Of course I can't anticipate what may happen in the future, but so far, so good. The same in our logistics activity, which is located in a very hot region of Italy in Piacenza. Notwithstanding the location, operations in our logistics hub never stopped. So we could not only ship out finished products to our regions and customers, but also, most importantly, feed and ship raw materials to our production network even during the lockdown. So we don't see any material problem on that side, honestly.

Thank you, Luciano. Welcome.

The next question is from Paula Carboni with Equita. Please go ahead.

Good evening everybody. Two very quick questions. The first one is on your cost control actions. Given what you did in H1, should we expect the pace to accelerate in H2, or to slow? How do you look at your cost containment actions for the remainder of the year? Secondly, you commented about June, which was sharply recovering from the previous month. Would you expect this pace of improvement to continue as much as you are seeing in July, or to stabilize a little bit? And just a quick comment if you can on the really current trading. Thanks.

Let me start, Paula, with the current trading. What we have seen in Asia is something that is solid, and unless there is a second wave that we cannot plan for, things there can only improve. We still have the situation in Macau and Singapore, where in Macau we are not closed, but 99 percent of the business is done by Chinese coming to the casinos, and currently they are not traveling. So as soon as this will reopen, it will clearly further improve the APAC results. We have the situation in Hong Kong, which is a mix of political and COVID situations, so if COVID is solved, there also we will see improvement. The action that we have started with the new locals, the travelers that are not going abroad from China, is continuing and we see improvement on the Korean and Japanese markets. The US seems to also be on the right track, but there, as you know, the fact that there is the presidential election may also cause some further discontinuity in the business that we cannot foresee. I think the situation that is more difficult to evaluate is Europe, because more than half of the business is driven by travel retail. So if there is no travel retail coming back, I don't really see an improvement in the months to come. Maybe a little bit more towards the end of the year, because the last quarter we have the proportion of locals in Europe inverted, so we have more sales to locals in the last quarter, it's 60 percent locals, 40 percent travel. So if the travelers are not there and if we do a good job with the locals, there is a possibility to catch up a little bit. But all this will depend on elements that are not really in our hands: the reopening of borders, travelers, and especially the health situation. Regarding cost control, cost control is part of our culture. To answer your question, second half we will implement the same actions with the same attitude and approach we had in the first half. Of course some OpEx are associated with projects we decided to put on hold, other objects are associated with ordinary business activities like travel. During the lockdown we didn't travel, but we hope to start again in the second half of the year. Having said that, we have a very deep culture of cost control.

In the second half of the year, our OpEx, we will apply the same approach and attitude as the first half. Difficult to give you a precise number, which normally we don't do, but both the selling and the D&A, of course selling for the most part associated with retail expenses. Again, we talked about the rent; a part of the negotiation will produce an important impact in the second half of the year. Just to clarify what I said before, because in the long term the impact is not important, but the impact in the second half of the year will be visible and pretty material. Again, we decided and still maintain our strategy not to save and cut expenses on the people's side, because we consider people an asset more than a cost. On marketing, we said before it's not just a cost control but more a strategy to reduce the pressure of marketing expenses this year, for obvious reasons, to end up by the end of the year in the region of 6-something percent on sales.

Thank you very much. The next question is from Melanie Fluke with JP Morgan. Please go ahead.

Good evening, thank you for taking my question. I will actually endeavor to have two, sorry. The first one is regarding cost. In H1, in selling and marketing they were down five percent or four and a half percent. Some of your peers have reported strong double-digit declines on lower declining sales, so I was wondering whether you can understand a bit better your commitment to investments. Maybe your fixed cost base is higher, but how would you describe this compared to your peer group? And my second question is on online and your ambition to double the share of online as a total business. How much of a game changer and contribution of China is embedded into your assumption? Thank you.

Melanie, good evening. Regarding the marketing expenses, as you have seen, we have been investing 44.3 million during the first semester. Out of these 44 million, there is roughly 11 million that were exceptional investments we did for charity, so we should be looking at a figure more around 33 million investment compared to the 43 million we had in H1 last year. So there is 10 million less investment, but these investments were already in place and were invested during January and February for the launch event we did in Milano, again very successful, just before the lockdown. After that, we kept mainly the investment on the digital part and cut the investment on traditional media, because having the stores closed was not really making sense for us.

I was looking at selling and marketing together, because most companies are reporting them together. So your rights reported minus five excluding the 11 million, minus nine or minus eight point five. That's still not the decline that we saw at your peers. Kering reportedly minus 16 on the lower timing. So is this because you're in a different investment phase, or is it because you had a higher fixed cost base, for instance, in your rents that you could negotiate?

Maybe, and I think Luciano will complete the answer, the way we usually plan in terms of staffing in the store is to have additional people coming to help with the peak we experience towards the end of the year, that we start recruiting usually in August-September to cope with the Q4 attack, and they stay with us until January-February. The base we have for the months between March and August is personnel that is fixed, and we don't have additional recruitment there. Of course we didn't recruit. We also think we will be able to manage the end of this year with a reduced number of temporary people, maybe even without temporary people, depending on how the results are going. We have been taking leverage on layoffs wherever possible, and currently in Europe we are running with 50 percent of the personnel working one week and on layoff the week after, because of the tourists that are missing.

Just to add something. We normally say that our OpEx all together, selling, G&A, and marketing, are 60 percent fixed and 40 percent variable. If you look at the numbers, excluding the 10-11 million charity activity, we ended up with roughly 35-65. But if you consider that this is the first half of the year, which seasonally is much lower than the second half, it is totally consistent with our guidance, also considering that in our OpEx, in selling mostly, we include the D&A that are high and higher than last year, not lower but even higher, because of the capex of the past few years. Also something important to highlight about productivity: we could be more aggressive honestly on productivity, but we preferred at least for the time being to be very sensitive with our people, to maintain their motivation, not only for health but also for the next future. We could be more aggressive, but this is not what we decided to do.

Thank you. Does that change your strategy with Tmall? Can you, or where are you planning anyway?

We had a test that we did with Tmall two years ago, in September 2018, and I think both in terms of team and digital experience we were not ready. So it was a kind of warm-up. We have been keeping discussing with them, and I don't see why we shouldn't be entering Tmall one day at the right moment. Currently we are discussing and working on the strategy for the Chinese market, assessing if it's better to enter first with our new website or with Tmall. These are discussions going in parallel, and probably in a few months we'll be able to give you a more precise answer. We are also keeping discussions with Farfetch on the table, as they have been improving a lot the services they are providing. So discussions are going on there as well.

It's very late, so we have already time for the last one. Thank you. The next question is from Louis Singlehurst with Goldman Sachs. Please go ahead.

Good evening everyone, I shall keep it very brief. Just following on from Melanie's point on digital, actually, is there anything else on the product category mix as well? Ten to twenty percent by 2023 is a very big jump, and I just wonder if there's anything else in terms of the product category mix, in addition to digital. Does it change at all your views of the long-term store ambitions? Obviously at the moment there's lots of question marks regarding store footprints, but in a normalized environment, the longer-term ambitions? And then thirdly, following on from the announcement with Interparfums, I just wonder if I could quickly get a comment on your ambitions there as well with perfume. Thank you.

A lot of questioning, one question at a time. First of all, regarding the product, as you know we have been doing a tremendous effort to develop new product categories that we call now new core categories within Moncler: the Tricot, the knitwear, the shoes, and the leather goods, which have been growing in these past three to four years at a pace that was even higher than outerwear. So now we have in the product portfolio something that is more balanced. We are going to also implement on the website, which is now shot with pack shots just with the product, more total looks. So I think there is definitively room for improvement and growth at a higher speed for these product categories, which will get more visibility on the website. We think also that if you want to be serious on the digital channel, you need to start seeing also dedicated product that you will find on this channel. So it's something that we're working on between my digital department and my merchandising team. It's something that will go along and will further reinforce the performance on the e-commerce side. I agree with you the target is challenging, but in Moncler we like challenges.

Yes, I think here we'll give you the standard answer on which we believe. We have now 213 stores worldwide, which is less than half of what the big players have, so I think we still have room to grow. We probably maybe not at 15 doors per year, maybe it will be a little bit less, always looking more at the quality of the location rather than the number of openings, but you can count on something slightly more than between 10 and 12 openings per year. I think it will depend also on whether travel retail restarts or not, because we are underpenetrated in terms of stores in airports; we have 22 stores now. So if travel retail restarts, there is probably a possibility to add a few other stores on this channel.

I think this has been a discussion we had with Mr. Finney since I joined, and from what I've heard, he was having discussions and the idea was in his mind even before I joined. So it has been now one year that we have been discussing with them, starting the development. It's something where everybody in Moncler, and I think everybody in that apartment, is believing a lot in the potential. It's a license, so they are going to be the ones developing the product with us, but in terms of communication and so on, I think it's an additional boost we'll have in terms of visibility for Moncler as a brand, and we want to do something also in the Moncler way. It's a project that we have started; as we mentioned in the announcement, we plan for a launch early 2022, and we are all very excited. But I don't want to disclose more than that, because we want to keep the surprise for the moment of the launch and not disclose it too early. But everybody is very excited about this launch and this collaboration.

Very clear. Thank you for taking my questions.

Okay, so with this last one, in terms of leaving you with a little bit of curiosity, we thank you all of you for the participation. Let me say that the next release on Q3 interim management statement will be on October 22nd, and our silent period will start on September 23rd. Thank you very much for all the very interesting questions. Sorry if we have been a little bit later than planned, but in any event, if any follow-up you still have, Aditya and myself will remain at your disposal. We wish you all a nice summer break. Thank you, ciao, good night.