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Edited Transcript of BC.MI earnings conference call or presentation 28-Aug-19 4:00pm GMT

Half Year 2019 Brunello Cucinelli SpA Earnings Call

Sep 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Brunello Cucinelli SpA earnings conference call or presentation Wednesday, August 28, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brunello Cucinelli

Brunello Cucinelli S.p.A. - Chairman of the Board, CEO & MD

* Moreno Ciarapica

Brunello Cucinelli S.p.A. - Manager in charge of Corporate Accounting Documents & Executive Director

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Conference Call Participants

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* Flavio Cereda-Parini

Jefferies LLC, Research Division - Equity Analyst

* Paola Carboni

Equita SIM S.p.A., Research Division - Analyst

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Presentation

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Operator [1]

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Good evening. Chorus Call operator speaking. Welcome to the presentation of the First Half '19 Results of the Brunello Cucinelli Group. (Operator Instructions) Speakers will be Brunello Cucinelli, President and CEO; Moreno Ciarapica, CFO; and Pietro Arnaboldi, Head of Investor Relations. (Operator Instructions) And now I'd like to give the floor to Brunello Cucinelli. The floor is yours.

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Brunello Cucinelli, Brunello Cucinelli S.p.A. - Chairman of the Board, CEO & MD [2]

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Here we are, and welcome, everybody. It's a pleasure to speak to you. I hope you've had some interesting and relaxing holidays. Well, as usual, I'd like to say that, personally, I'm very fond of these conference calls because it is basically a time when we can basically talk to each other, discuss things and also draw conclusions, positive or negative. But before starting this time, I'd like to convey to you my big satisfaction -- my satisfaction, in particular, for this historic agreement that the important list of companies in New York have signed a few days ago, and I'd like to read out what it says, in order to create value, one needs to also take a look at the environmental impact, the respect of the community and the dignified conditions offered to employees.

So I wanted to congratulate all these companies, with no exception, and I think that this is a great step in the 21st century. So it is a great thank you from my behalf because it is a great gift that you have done to the coming generations. Well, this call is very important for us because it occurs at a very special time for mankind. So thank you, again, for being here.

So as usual, we are all here for you, and I'd like to give you the financial highlights, and then the CFO, Moreno Ciarapica, will dwell on the details. We'll give you a bit more of a drill down, then I'll resume the floor again in order to, first of all, give you visibility about 2019. So we are at the end of August already. The important initiatives ongoing. And then I'd like to give you quite a solid visibility on 2020 because the spring/summer collections have reached their conclusion and, also dwelling on the third -- 3-year period until 2021.

So I'd like to read out the financial highlights. Net revenues, EUR 291.4 million, plus 8.1%, at current exchange rates, 7.2%, plus, at constant exchange rates vis-à-vis EUR 269.5 million at 30th of June, 2018. EBITDA, EUR 49.9 million and 17.1% on sales. Net profit, EUR 22.8 million with 7.8% incidence on sales. Italian -- international market, plus 9.5%; Italian market, plus 1.1% sales; Europe, plus 9.7%; North America, 9%; China, 15.9%; and Rest of the World, 5.3%, all plus, positive territories. Increase in all distribution channels. Retail, 12%; mono-brand wholesales, adjusted 1.7%; and multibrand wholesale, 6.5%. Investments, EUR 18.8 million; and net financial position, EUR 46.6 million. This is my comments on the results.

We are fully satisfied with our first half results in terms of both financial performance and the brand's image and buoyancy. We like to be identified as a made-in-Italy, ready-to-wear luxury brand. Since it is the end of August, we can very serenely and confidently envisage a particularly positive 2019, with revenues increasing in line with our long-term expectations. The world-famous 8% annual growth resulting, well, hopefully obviously in double sales over the next 10 years along with a more-than-proportional increase of EBITDA with healthy and rising profits.

The feedback following the order intake for the new spring/summer 2020 men's collection as well as the first kidswear collection has been very, very positive. The latter is a great project we have put a lot of trust and energy in.

The order intake for the spring/summer 2020 women's collection has been just as good. And it is drawing to a close. As you know, it is very important the fact that we work in August. We are open for business. The current taste of the market, a very important element, at least for us, is becoming very similar to ours. So we keep claiming the importance of investments to support the brand. And the above strengthens well-founded optimism for 2022 when we expect further growth in revenues and profit in line with our long-term guidance.

And now I'd like to give the floor to the CFO providing you with the details, and then I'll resume the floor again.

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Moreno Ciarapica, Brunello Cucinelli S.p.A. - Manager in charge of Corporate Accounting Documents & Executive Director [3]

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Thank you. Good evening, ladies and gentlemen, and it's a pleasure to hear from you. Following the communication of the preliminary results on last July the 11th, confirmed the final results. I'd like to start from the Slide #10 highlighting that the figures as of 30th of June 2019, have all been reprocessed and presented eliminating the effects generated by the application of the new IFRS 16 principal in force as of January 2019 in order to allow for the comparability of figures with June 30, 2018, the impact of the IFRS are reported in the slide of the Annex on Page 18 and 19.

As of June 30, 2019, sales grew by 8.1%. The current exchange rate is 7.2% at constant exchange rate with a positive impact of currency that was just below 1% because our -- of our very careful hedging for foreign risk because, as you know, its objective is always that of neutralizing the impact of currency fluctuation on the absolute value of EBITDA. Considering the current level of exchange rates and hedging, existing hedging, it is reasonable to expect a positive ForEx impact in line with the trends of the first half.

The EBITDA in the first half of 2019 amounted to EUR 49.9 million, with 7 -- EUR 3.7 million growth and margins in line with last year and amounted to 17.1%. The first margin increased significantly, i.e., 130 basis points from 65.3% to 66.6% due to a positive impact of like-for-like growth, i.e., 3.7% as of June 30, 2019, and the incidence of the retail channel shifting from 49.7% of last June to 51.5% of this June.

This figure increased thanks to the new direct spaces, among which 3 boutique openings and 2 conversions in the last 12 months, some extensions of existing boutiques and 5 new spaces directly operated in concession within the luxury department stores. These spaces were previously managed with a wholesale formula.

Operating costs also increased, mainly personnel and rent, and these costs have to do with the development of the business, the higher incidence of the retail channel and the new initiatives, in particular, the natural extension of the collection offered to kidswear starting from the next seasons and, also the made-to-measure suits initiatives and the digital investments. The incidence of D&A increased from 4.4% of June last year to 4.8% June this year.

And this -- the latter value is in line with our expectations for the full year vis-à-vis an incidence at the end of 2019 -- at 2018, that amounted to 4.6%. The incidence of net financial charges amounted to 1.0% vis-à-vis 0.4% of last June. This value had been positively impacted by the valuation of put options on minority stakes of subsidiary companies. We'd like to highlight that the incidence of net financial charges had been of 1.1% of 31st December 2017, and 0.8% in the 31st December 2018, in line with our full year expectations.

If we exclude the estimated tax benefit ensuing from the so-called Patent Box highlighted in the box on the bottom right on Slide 10, the adjusted net income in the first half 2019 amounted to EUR 22.8 million vis-à-vis EUR 23.8 million last year, with a tax rate adjusted at 31.1%.

This adjusted tax rate at the end of last year amounted to 29.5%. At the end of the year 2019, we expect an adjusted tax rate in line with the incidence reported as of 30th of June 2019. As you know, our Group, most of the Group's taxable income is generated in Italy. And the increase of the taxes, the first half was impacted by the effects of the repeal of this -- started this year, repeal of the ACE legislation, which is the economic growth aid.

And then now moving onto the working capital on Slide 13. There was an increase of its incidence from 25.8% to 27.9%. As to inventory, incidence from 30.2% to 31.3% is really linked to the openings of new direct boutiques, extensions, conversions from the mono-brand wholesale channel to the direct channel and the new spaces directly managed within the luxury department stores.

On top of this, there were the following factors: An expansion of collections to children -- kidswear, starting from spring/summer 2020 but with an initial capital collection for winter 2019 in selected spaces starting from the end of October, then made-to-measure suits and the digital initiatives.

Considering the healthy management of cash collection, the increase in trade receivables incidence from 12.0% to 13.9% is ascribable to the development of the wholesale business whose sales as of 30th of June 2019 improved by 6.5%. And it is also due to the increase of retail sales within the luxury malls and the payment terms.

The organic increase of trade payables incidence from 13.1% up to 13.9% has to do with the increase in the business volume in the first half. And in particular, it is due to the new initiatives besides the new important investments, including communication investments. As to the other credits and debts, negative by EUR 19.8 million vis-à-vis EUR 17.8 million last year, and they have to do the valuation at far -- at fair value of the outstanding hedging derivatives.

Investments and net financial position. Investments, on Slide 14 of our presentation, amounted to EUR 18.8 million. Included in the multiyear plan to maintain our company modern over the long time supporting our presence on the market and availing ourselves of the most innovative and modern productive logistic and IT structures. Commercial investments amounted to EUR 12.9 million; other investments, EUR 5.9 million. And the latter includes the investment for production, logistics and IT digital. In 2019, the bulk of investments happens and occurs in the second half of the year with an incidence of investments on the total revenues amounting to 8% approximately as already mentioned previously.

On July 29, as our long-standing North American partner has accepted to sell their minority stake, we have acquired 30% of the share capital of the subsidiary company, Brunello Cucinelli USA Retail, amounting to EUR 4.5 million and 30% stake of the Brunello Cucinelli Canada company, EUR 2.2 million. These transactions enable the parent company to hold 100% stake in both companies. And the effect will be accounted for in the equity reserves in compliance with IFRS and the level of expected debt as of 31st December 2019, will increase by the same amount. The net financial position as of June 30, 2019, Slide 15, amounted to EUR 46.6 million against EUR 44 million 30th of June last year with a positive cash generation of the operating activity and a very healthy management of working capital.

The NFP achieved its usual peak in between June and September, and then it drops towards the end of the year. Therefore, the debt expected at the end of the year, including the new ongoing initiatives and the impact on the working capital, so the debt is expected to be between 5% and 6% of total sales.

So this is the end of my presentation. I give the floor back to Brunello. Thank you for your attention.

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Brunello Cucinelli, Brunello Cucinelli S.p.A. - Chairman of the Board, CEO & MD [4]

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So here we are. So what about 2019 because, of course, it is drawing to a conclusion. In terms of product, it is a very important momentum for us. There is a very good momentum. As I was saying, the winter collection sales have set off to a good start. And an important thing is that we are shifting towards a men's and womenswear taste that is very suitable to what we feel is proper, you see.

Following many years of strong taste, we are now moving towards something that is less garish, more chic, more understated, and this is basically our nature. And we are happy with that because, this way, we can work with more serenity because for the less young among you, at the end of the '80s, there were 2 exceptional Italian brands, Armani and Versace, whose taste was exactly the opposite between the 2 and 5 years, one was winning; the following 5 years, the other one was. So we believe, and you see this is a very strongly perceived feeling, there is a lot of demand for luxury ready-to-wear, ready-to-wear, mind you. And for us, of course, this is very positive news. So we can say that in the coming years, well, in terms of taste, these years should be very favorable, very much in keeping with our taste.

So we have just started our first discussions on the 2020 winter collection, and we have stated the same. We have to keep pursuing novelty, special visual merchandising able to describe your world. Stores and showrooms must be very fresh, new. Stepping into a store must be a great experience, experiencing the product, the manual skills, the creativity.

This morning, we said something that I find very special. Undoubtedly, you see, as time passes, basically, objects acquire, take on more value, and this is true. And this is something that you, especially you, young people, value, you see. I'll just give you an example, just a couple of seconds. There is someone here in the village, who loves cars. And he says to me, Brunello, I really like this car because I changed one of its lights. I changed this and that, some different parts. But now since it is more difficult to actually act upon things with your own hands, you feel that these things belong to you a bit less and the fact of being able to touch things is very important.

Then the Internet, we have a great organization. We are very much poised and prepared for the coming years. This is actually a culture for us, not so much a technology, and we would like this technology not to steal our soul. We keep repeating this. And now I'd like to devote 3 minutes to the value of physical stores. We actually attach a lot of importance to the brick-and-mortar stores, especially for the luxury segment. Of course, it must be very welcoming but what really matters is that the people working at the store must be fascinating and charming.

We basically call them our brand ambassadors, the sales assistants -- associates. And because of this, we have started a school here at the village. You are well familiar that with our arts and crafts schools, and by the year -- by the way, we're going to start this course for the fashion lady -- womenswear fashion, the so-called premier in French. So basically, a premier those who are given the sketch by the designer, and then they produce the garment. So we have started this brand ambassador classes. Now for the time being, just for men's because it is a very important that when you basically step into the physical store, you are met with someone who is very friendly, elegant, refined, a representative and brand ambassador. Someone who knows the brand down well. So this is a new initiative.

And now I'd like to mention 2 further important initiatives: the Sartoria di Solomeo that you are already familiar with, and it has already -- it is already developing nicely. We're already very satisfied with this initiative because we have many young people who opt for made-to-measure suits or jackets, which means that maybe if you have a patent, textile, so not the whole suit, just a jacket, you are 35 -year-old, and you want it made-to-measure. This is precisely -- this was precisely our aim last year. You see, the New York Times defined us as those who were able to trust the new 21st century CEOs, so we were very pleased. So the Scuola Sartoria di Solomeo is really developing nicely taking on its suitable identity.

So as you might know, 2.5 years ago, what we started conditioning -- reconditioning garments. We have a great team, skilled team, and we are also very pleased to recondition the garments made by other brands, and we're very happy with that because if you are to recondition them, you have a new garment in your hand.

Of course, this is especially true for menswear because if you have a great coat dating back to 8, 10 years ago, maybe the lining is ruined, we can replace the lining and the coat is as brand as new. It's as good as new. For example, I usually wear the same 2 coats: one is 18 years old, the other one 20. I changed the lining twice because that's what basically lasts less.

I started my business with colored cashmere but also because I wanted to make products that are never to go to waste. I do not like to throw away things. I bought a bicycle, and my hope is for my granddaughters to use this bicycle one day. So maybe you have a small flaw, a small defect, and you go to the Beverly Hills tailor's shop. But if -- since we have a true factory here, you send -- you ship your garment to us, and it takes 1 day to mend, and then we ship it back to you. And this is very interesting.

Another project, ongoing, we have devoted a lot of energy to it. It is the kidswear collection. We have dealt with this project in a very serious manner: 250 items for boys and 250 for girls. But numbers aside, I believe that this line is very important for the brand, for its image. There will be some dedicated spaces in stores for these items. And at run rate, we believe that kids should get -- account for 4%, 5% of revenues. But what really matters besides sales, what really matters is the identity of the taste, and we have tried to achieve some sort of Mini-Me ready-to-wear. So we are very happy with this children collection for the identity, for the taste and, hopefully, for sales, too.

And then the Internet. You are already familiar with it. We still attach lots of importance to this culture. In China, we have our own warehouse, China on China. And so we -- at the end of July, we decided to restyle the website we had created 2.5 years ago. So 7 years for the first website. And the second one, we felt the need to upgrade it -- or to revamp it, 2.5 years down the road. So at the end of September, beginning of October, there will be the e-commerce on the one side, and then on the other side, we have tried to clearly identify the great themes that we value human sustainability, harmony with creation and the idea of humanistic capitalism because I don't want to repeat myself.

But what happened 4, 5 days ago in America, you see, I was very, very favorably impressed by it. I was struck by it. So this website will show very clearly what the values are on which our company rests, and that's basically what you and the rest of investors were asking from us. Because at the end of the day, I have the following impression. We're were just talking about it today. We want to make a fair profit, but we also want to be useful. And in Italian, useful and profit is, it's the same word. We wanted to do something useful for the world. We wanted to make profit and the world to profit from it because maybe the positioning of the company comes before the positioning of the product. Obviously, if the product doesn't work, the company does not work either. But if the product works, the company positioning has an extremely important value.

We have made a great investment in London, a store to be opened next year. We are very happy, very pleased, and we're also happy with the surface, 500 square meters. This is the typical size for great stores in great positions, great prime positions. And of course, the rent was not that low, but we never had this degree of low rents in Milan or New York either. But I believe that great location is very important for our brand because it will resonate also in the rest of the world.

Another important transaction, well, Moreno told you about, we reacquired 30% of the American company. So the -- you see, the ideal conditions happened with Massimo. Massimo is 52 now. He has been with us for 20 years. He has always been our man in the United States and North America, and he has been with us for 20 years, as I said. And we hope that we can keep managing together this great market, top market, 33%, by conveying this culture, this Italian/American culture, that is always very much appreciated.

So to wrap up, we think that 2019 can be a very positive year. But for us, it is a year with great change for mankind. You see, I think that this overall idea of sustainability pervades everything. So we expect EUR 600 million revenues in the years ahead and more-than-proportional EBITDA, a fair profit and just a couple of words on the tax rate. On average, over the last 7 years of a listed company, we paid 30% more or less, Moreno, right? But over the last 5 years, the Patent Box -- thanks to the Patent Box, we saw the tax rate drop to 22%, 24%.

What I mean is that we do our business in Italy, and you see, I'm very much in love with my Italy. I want to keep manufacturing in Italy. So I'm very pleased with this tax rate. So if at the end of the day, the result is approximately 30%, it's fine by us. The dividend 2019, 10% more. And they should represent 45% -- account for 45% of our profit.

So investments around 8% for the year. But as we said 1.5 years ago to remember when we mentioned that maybe luxury and fashion maybe because of technology or others, well, I think that it needs massive investments. And then personally speaking, I'm always scared of my brand aging. So I keep saying that I've always been scared of debt. As you know, my father says that debt works on Sundays, too. But be careful, we must always be modern and contemporary. We very often mention the fact that you need to revamp your showrooms every 6 months.

Your website, we thought it would last for 5 years, whereas we have to upgrade it 2.5 years down the road. So the net financial position could be around 5%, 6% of revenues. But honestly speaking, we do not feel that we carry that much debt, which means that if an important opportunity arises, we might seize it.

For example, it's been -- we have been looking for spaces in Paris for many, many years, and we haven't achieved results yet. But if it does happen overnight that a space becomes available, then, of course, we will seize the opportunity. Of course, you can't always budget for unexpected opportunities. So 2019, a very interesting year.

And now a couple of words on 2020 because we have a very high important number in terms of orders for men's, women's and kid's. Since the collection has been extremely successful by -- with multibrands and press -- and the press, we feel that the collection is very well-liked. And if the collection receives a positive feedback, then you basically face the following year with a smile on your face because of the positive feedback. That's why we feel that we are very confident about 2020.

For 2020, we envisage the following: An 8 -- plus 8% revenues, more-than-proportional EBITDA, more-than-proportional profit. Yes. I wanted to mention something on this. When I talk about net income, of course, because I based my consideration on the tax rate. But of course, if the government changes something, this does not depends on us. So 8% investments.

As for dividends, we'd like to achieve a 50%, the optimal level, and net financial position improving in 2020 because 2019 is the most important year for investment. Then 2021, end of the 3-year period, and we keep envisaging for this year plus 8% sales, more-than-proportional EBITDA, the same for profit, dividend, 50% as established and an improving net financial position.

So to conclude this call and before leaving the floor for questions, we'd like to say that '19, '20, '21, the first 3 years of this 10-year plan are very important years in terms of numbers. But my dear friends, they're also very important in terms of taste because we are moving towards that kind of taste that really represents the identity of the brand. So we work at peace knowing fully well that there are great changes taking place in mankind at large, and we have to go with the stream.

So thank you very much, and we open the floor for questions. We are available.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question from Flavio Cereda.

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Flavio Cereda-Parini, Jefferies LLC, Research Division - Equity Analyst [2]

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Brunello, you're AC Milan supporter. Well, I found out that I could actually ship you some garments that are not made by Brunello Cucinelli, and you recondition them.

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Brunello Cucinelli, Brunello Cucinelli S.p.A. - Chairman of the Board, CEO & MD [3]

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Well, seriously speaking, Flavio, for us, reconditioning a sweater by some other brand really is nothing.

But you cannot really understand -- fathom, what customers say to us when they receive this communication. And I think it is a very important thing. It'll just be 2 or 3 garments at the end of the year but what matters is the service. Sorry, I really wanted to apologize for interrupting.

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Flavio Cereda-Parini, Jefferies LLC, Research Division - Equity Analyst [4]

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Well, after the call, there might be more than 2, 3 garments.

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Brunello Cucinelli, Brunello Cucinelli S.p.A. - Chairman of the Board, CEO & MD [5]

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No, it's been 3 years, Flavio, that we've been doing it.

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Flavio Cereda-Parini, Jefferies LLC, Research Division - Equity Analyst [6]

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So I wanted to touch upon 4 themes. So this one for Moreno. So as far for the working capital, what about the reserves at the end of the year? And then the trade receivables. What is the risk, especially with your North American customers? This is the first question.

The second question on CapEx second half of the year. And the transaction with Massimo that although you said he's 52, I hope he is definitely on holiday on some fancy destination. I don't know if he is at work now. So I was wondering why now? Not that I'm worried about it, but wanted to know why now instead of a year ago?

And the third question. Over the last 12 months, you mentioned that there is more demand for understated garments. But are there some distinctions between menswear and womenswear, for example? And then if you also agree on the fact, but this is not your problem, it is an industry-wide issue, the cost of customer acquisition is growing, especially for the industry. So everyone needs to spend more to attract more customers.

And then last thing on sustainability. If you can disclose more of what you do?

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Brunello Cucinelli, Brunello Cucinelli S.p.A. - Chairman of the Board, CEO & MD [7]

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Yes. Moreno, the floor is yours.

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Moreno Ciarapica, Brunello Cucinelli S.p.A. - Manager in charge of Corporate Accounting Documents & Executive Director [8]

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So North America receivables. As to the working capital, as of 30th of June, 2019, as far as what we can imagine that the figures at this time of the year can be projected also for the full year. As far as trade receivables for North America are concerned, there has never been any losses on trade receivables in North America. You see, ultra hyper-selected customers never provided for any unpleasant surprises.

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Brunello Cucinelli, Brunello Cucinelli S.p.A. - Chairman of the Board, CEO & MD [9]

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Flavio, I'd like to add that over the years in our business usually lose 0.1%, 0.15% of our revenues without an insurance. Just think if we had paid an insurance for that, so we have always worked without worrying about the trade receivables because we are talking about the most wealthiest customers in the world. Of course, our most important customers, Neiman Marcus and Saks, they are very serious and confident. And so we feel very confident about the payments, they are very regular with their payments and very punctual and very, very positive, very timely.

So Flavio, as far as Massimo is concerned, we have known each other for 20 years. I have known him for 30 years. He is 53 years of age. So we discussed with him maybe it is high time for you to have gained something for your family, we keep managing the company the same way, and I think it is the ideal solution for him and for us.

As for the product, this has always been the rule of fashion. As you can see from the demands of customers when they make their orders, while you can tell that the taste is going that way, customers keep -- clients keep telling us that we will become some sort of beacon in the coming years because fashion is going that way. So we are the beacon reference company, not, of course, in terms of quantity but because of the way we combine garments because the fit is more useful, and then I would -- but I wouldn't like to boast too much about this, Flavio.

And then sustainability, a very important topic. As you know, you see, we did not use any plastics 20 years ago already because we prefer to use glass, for example, when we had lunch. By September, we want to disclose all this online, and then we will also provide employees and suppliers with a booklet about this, our subcontractors. But we thought it was high time to actually talk about this. There are 2 or 3 articles on the press. One on the Avvenire, an Italian newspaper, and they all talk about sustainability. So hopefully, all this will be circulated online. It will be easier to find.

At one point, I said we -- I said that the company must come before the product. Of course, the product must work otherwise the company shuts down. So the product comes first, but we have actually -- we actually notice that before making a purchase, many customers or potential customers want to know about the company, how the company is doing. Next week, I'm going to China, and we have 4, 5 events there. And all the great journalists keep saying to me, you should talk to us about mankind, the way you work, your craftsmanship. So it means that there is a great change in the offing.

And that's why we said that this call is very, very important because I would have never expected these 200 companies to do this thing. Yesterday, I received a very important call from a Londoner and he said, since you (inaudible) friends came to your place in May, is that when they changed their mind? I said, "Well, no, we are talking about companies that really represent 20% of the world's GDP, mind you." But there is actually a need to make a profit but also to make others profit from this.

Oh yes, investment, sorry, I forgot the last question. 1.5 years ago, I said -- you see, I was inspired by Andrea Guerra, who used to say that a company should always invest 5%, 6% of sales to stay young and contemporary. And 1.5 years ago, I said to you that I think that this is maybe not enough to be contemporary. You see, every 3 days, you need to have a new video.

And once upon a time, we would change the showroom once every 3 years and the Pitti stand once -- every Pitti booth once every 3 years ago. Now it's once every 6 months. And stores, you need to renovate at least once every 6 months. So I've always said that I've always feared those who hesitate and do not want to invest.

If you invest enough, you will definitely be safeguarding the modernity of your brands. I'm 65 years of age, and I have seen many, many companies with a lot of cash, but the brand was aging nevertheless. So I say to my young managers, let's invest. Of course, we're talking about a net financial position, EUR 20 million, EUR 30 million of EUR 600 million revenues, not EUR 300 million net financial position. Otherwise, I wouldn't know what to do with it. When we went public, we had EUR 45 million, EUR 46 million net financial position, and it was out of a smaller revenue, so it was higher than now. But that's why we need to seize all the opportunities that arise. But I'm always in favor of innovating, changing.

This morning, we started working on the winter collection next year, and we have made some changes inside the showroom. So for example, the -- we have changed the armchairs from a dark gray to a lighter gray because we think that the colors will be lighter next winter. But I attach a lot of importance to this.

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Operator [10]

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(Operator Instructions) The next question from Paola Carboni, Equita.

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Paola Carboni, Equita SIM S.p.A., Research Division - Analyst [11]

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I have a few questions. First, if you can give us an update on what is happening in Hong Kong and mainland China with your company? Although, we're less exposed than other players but we wanted to have a feedback on this geography, too.

Then another point on the mono-brand channel in franchising. What can we expect for the full year based on the timing of the conversions that have already taken place or of the coming conversions?

And then one last thing on the working capital. Well, the inventory has been clearly explained and the trade receivables. But if I'm not mistaken, this is not a temporary development. So I'd like to know whether this is the incidence of net working capital you have to expect on a nonannual basis?

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Moreno Ciarapica, Brunello Cucinelli S.p.A. - Manager in charge of Corporate Accounting Documents & Executive Director [12]

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Yes. As of the net working capital, as I said before with Flavio, envisaging that the incidence of June 30, well, the incidence of June 30, the inventory will be the same or usually is the same for the full year.

Trade receivables. There's a peak on June 30, and there will be some dwindling towards the end of the year because of the usual developments in the year. This is something we've always written on our report to the financial statements.

It always normalizes towards the end of the year. Franchising channel, adjusting the conversions. We expect full year growth that is the same as the healthy like-for-like between 3% and 4% organic, an interesting figure for us because this means that we do not have to stress these stores.

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Brunello Cucinelli, Brunello Cucinelli S.p.A. - Chairman of the Board, CEO & MD [13]

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Well, I'd like to add that our franchising is -- we adopt the franchise formula for the regions that are more difficult to reach. Or maybe, it's not worth to set up company. So we have the best partner in Bulgaria, for example, and we enjoy a great relationship with them. Then China. We are very happy with the way China is performing. Things are going well for us.

Hong Kong situation. You see for us, there is not a lot of business in Hong Kong. But Paolo, I'd like to say that when we actually set up the budget at the beginning of the year, there is always -- you should always take into account some one-off events, New York or Paris or an earthquake, now there is the Hong Kong issue. But you see Shanghai is performing very well, Beijing, Chengdu as well. So it is not a problem for us.

So at the end of the day, Hong Kong is not a large business, it's 1.4%, 1.6% . So even if you lose something there, beloved China is nevertheless giving us 16%. It is already the end of August, so that's why we can have a view on the full year, sales are performing well. So we are confident, we are confident.

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Operator [14]

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(Operator Instructions) If there are no further questions, thank you very much for everything.

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Brunello Cucinelli, Brunello Cucinelli S.p.A. - Chairman of the Board, CEO & MD [15]

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Well, you see, I know that I have spoken a bit more at length than usual, but I really wanted to tackle the issues of sustainability and the great companies signing this agreement in America. And I hope that our children and grandchildren can maybe live in a better way. Whatever you might need, please give us a call. Thank you very much. Thank you. Goodbye.

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Operator [16]

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Chorus Call operator speaking. The conference call has now ended. You can now disconnect your phones.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]