Good evening, conference call operator speaking. Welcome to the presentation of the first half 2017 results of the Brunello Cucinelli Group. I would like to remind you that all participants are in listen-only mode. Following the presentation, there will be an opportunity to ask questions by the financial market. The speakers will be Brunello Cucinelli, President and CEO, Moreno Ciarapica, CFO, and Pietro Arnaboldi, investor relations. In order to receive help from an operator during the conference call, press star followed by 0. I would now like to give the floor to Mr. Cucinelli. The floor is yours. Good evening, ladies and gentlemen, and very warm thanks from myself as usual. I would like to also thank you on behalf of all the people working in our company. Thank you, investors, analysts, and the press for the esteem that you have been displaying to us for a long time.
I hope you are all well rested, both in your body and soul, because at the end of the day, I think that we all need to rest in order to feel better. As you know, I am always very, very happy to release these calls because it is a way to communicate, to speak to you, to convey to you our vision of the world and the business. Of course, in this call, we will just communicate economic data. I would like to devote maybe a few more minutes in order to talk about product, visual merchandising, and also the fact that we need very special salespeople in our stores. I would also like to dwell on the web. As it is our habit, I would like to give you the general highlights, then the CFO, Moreno Ciarapica, will drill down a bit more.
I will get the floor again in order to provide you with visibility on 2017, great visibility on the summer 2018 collections because they are drawing to a close, and I would like to talk about product, market, and tackle the great topic of online. As for the results, net revenues, EUR 243.3 million, +10.7% at current exchange rates vis-a-vis 30th of June 2016. EBITDA, EUR 41.6 million, +13.1%. Net profit, EUR 19.9 million, +10.6%. It is very important to report increases on international markets, +11.7%, and also the Italian market, +6%. We are always, as usual, very, very pleased with our splendid Italy. North America, +9.3%. Europe, +9.9%. Greater China, +34.6%. We keep repeating that this is just a small market in absolute terms. Rest of the world, +11.4%. Increase in revenues in all distribution channels.
Retail, +21.7%. Wholesale monobrand adjusted, +2.6%. Wholesale multi-brand, +6.7%. Net financial position, EUR 59.4 million against EUR 79.7 million last year. CapEx investment plan, EUR 22.2 million, including the large multi-year investment plan 2017-2019 to support the prestige exclusivity of the brand, both in the physical channel and in the online virtual channel, always keeping our eye on achieving sustainable growth. This is my comment on the first half results. We are very pleased with the performance of our business the first half of the year. Both revenues and profit show strong growth. Sales of the winter collections are going very well. All this considered, we expect 2017 to display double-digit growth in both revenues and profit. I am about to read a very important piece now. Order intake for summer 2018, which is now about to end, is truly positive.
The feedback on our collections is particularly positive, as well as the allure surrounding our brand, it seems to us. As a result of a careful analysis of the above-mentioned elements, we can express a very positive view on 2018 and keep envisaging more double-digit growth for the near future. We have recently celebrated our fifth anniversary since our listing on the Italian Stock Exchange. Going public has been an important choice, and we are immensely glad with it, I have to say, because we have confirmed all that we had planned back then with our coworkers, you analysts and investors, in terms of constant double-digit gracious growth, the growth that we call gracious. I'd now like to give the floor to the CFO, Moreno, who will provide you with more detail. Good evening, ladies and gentlemen, and thank you, Brunello.
I'd like to immediately start commenting the financial economic data, starting from slide 11 of our presentation, where we compare results of the first half 2017 with the adjusted figure of the first half of last year. I'd like to point out that adjusted results of the first half 2016 factor in the exclusion of non-recurring personnel costs amounting to EUR 1.5 million, and also the sterilization of the theoretical tax effect of such non-recurring costs. The comparison with the reported income statement is shown on slide 19, where you will find some more detail. Now, back onto slide 11. The comparison between the first half 2017 and the first half 2016, adjusted, shows the following. An increase of revenues by 10.7% at current exchange rates and 9.7% at constant exchange rate, with a subsequent impact of foreign currency of about EUR 2 million.
The increase of the first margin by 40 basis points from 64.5%-64.9%. An increased impact of SG&A on sales from 47.8%-47.9%, i.e., plus 10 basis points. The increase by 30 basis points of the EBITDA margins, which moved from 16.7%-17.0%. It is important to point out that the hedging operations on revenues, net of cost in foreign currencies, are made in order to neutralize the impact of exchange rate fluctuations on the absolute value of the Brunello Cucinelli Group EBITDA. Also considering that the very same incurred costs abroad are subject to the same Forex performance. As to our expectation for the full year, as far as the absolute value of EBITDA is concerned, do not change following Forex fluctuation.
In the second half of the year, if the Forex developments confirm the current exchange rates, the impact of Forex on revenues could be potentially negative. However, it will not at all impact on the estimated absolute value of EBITDA. As to depreciation, it increased by EUR 1 million from EUR 9.6 million-EUR 10.6 million, with an unchanged impact at 4.3%. We expect a slight increase of this impact towards the end of the year because of higher depreciation and amortization being accounted for in the second half. As to the net financial expense, it moved up from EUR 1.8 million-EUR 3.0 million. The increase, given the reduction of the average net financial position and the subsequent drop in financial expense, has to do with Forex fluctuation.
This increase is mainly linked to the accounting of exchange rates hedging, in particular to the accounting of unrealized foreign exchange losses relating to the intercompany financing in foreign exchange, which are temporary by nature, as they depend on the exchange rate at the end of the period concerned. Tax rates amounted to 29.1% compared to the 29.8% adjusted last year. Net income EUR 19.9 million, with an increase of +10.6%. Now, moving on to slide 12. We provide some detail on the first margin change, operating costs and EBITDA. Always still comparing it with the adjusted figures of last year. The increase of the first margin is driven by the business performance, by the excellent sales results and like-for-like results, also by the channel mix, with the impact of retail revenues amounting to 49.8% against 45.3% last year.
The increase of operating costs, the details of which are reported on slide 13, is in line with the business performance. In particular, the increase of rents has to do with the retail network evolution. The number of direct boutique went from 86 as of 30th June 2016 to 91 as of 30th June 2017, considering also the four conversions in Russia from the monobrand wholesale channel to the retail channel. There were some relocations and footprint increase. Personnel costs increased by 10.6%. This was mainly to do with the development of the retail direct network and also the direct management of five shop-in-shops at the Canadian luxury department store, Holt Renfrew, which before were managed and handled with a wholesale formula.
As to the other operating costs, EUR 44.9 million impact 18.4% against EUR 39.6 million, impact 18.0%, including the structural costs relating to the network development and the direct management of our footprint, of our presence in the digital world. Within these costs, investments in communication devoted to supporting and protecting the image of the brand increased by EUR 1.3 million from EUR 11.2 million to EUR 12.5 million. Impact still stable, flat at 5.1%. Let's now move on to net working capital, slide 14, showing a reduction of the strictly commercial net working capital, whose incidence on the rolling revenues moved from 35.8% last year down to 31.5%. Inventory increased slightly in absolute values with a reduction of the impact on sales.
33.1% as of 30th June 2017, thanks to the very positive sell-out figures and with a value that is in line with the impact as of 31st December 2016, because it amounted to 33.9%. Trade receivables decreased, thanks to a positive management of inflows and also the conversion from third-party management to direct management, also thanks to online boutique, the four stores in Moscow, and the five Canadian shop-in-shops. Trade payables, stable and flat. Slide 15 shows the performance of CapEx, amounted to EUR 22.2 million, which is part of the new investment plan of the three-year period 2017-2019, whose aim is to safeguard exclusivity, prestige, and protection of the brand, both in the brick-and-mortar channel and in the online one.
Considering the positive cash generation, favored by the performance of the net working capital and following the investment for EUR 22.2 million, the net financial position that you can find in slide 16, is dropping significantly, amounting to EUR 59.4 million. We would like to point out that our net financial position, slide 17, reaches its usual peak between June and September due to seasonality, and then it moves down in the last half of the year. The reduction trend in the first half will also continue in the second half of the year with an expected full year net financial position, that it will be lower than the 31st December 2016 figure. This is the end of my presentation. I give the floor back to Brunello.
Yes, thank you, Moreno. What about the current year? We can say that actually things are going very, very well.
We are very pleased with the mood surrounding the brand itself. We have enjoyed a great spring/summer season. The collections that are now displayed in the stores seem to be particularly appealing. Besides beautiful collections, also the visual merchandising, we're particularly pleased with. We can say that this is a good start of the winter. Another important year is the culture that we have tried to circulate and spread with our workforce, because I think this is high time for the sales assistants to show their kindness, their professionalism, their politeness. I would like to go back to this, because I deem it a very important topic. As to visibility on 2017, of course, only four months to the end of the year. We can confirm that we expect a strong double-digit growth in terms of both revenues and the EBITDA and profit.
EBITDA more than proportional. We can say that we envisage 2017 as a beautiful year, so to speak. As we have just completed the men's sales campaign, and we have reached 60% of the women's sales campaign for the spring/summer 2018 collection, we can say that the feedback on our collection has been particularly positive. This is what our customers say, these are the two best collections that we designed. You see, we keep repeating this, but this is actually the way things are. These collections are particularly pleasing, and seriously speaking, you know how important it is that you receive a good feedback from the multi-brand stores. The order intake has been particularly good, and therefore, we forecast that 2018 will also display double-digit growth in terms of both profit and revenues.
As for the 2018-2020 business plan, I wouldn't dwell on this because you are familiar with it. I would only like to stress that the next three years should maybe be the three years when cash will be consolidated, and we feel pretty comfortable now because debt is so low that this is definitely not an issue. The real issue is to keep innovating product-wise. Now I would like to devote three, four minutes, to spend three, four minutes on this important topic, product, visual merchandising, and also the fact that you need to have very special salespeople in the shops. Communication is important. I know that I might sometime run the risk of repeating myself, but I have always been hammering that product is always key in any company. You need a well-made product displaying great identity.
In this case, for us, it must really be the true expression of the Italian culture, Italian heritage, modern and contemporary. It is also important that this product is ageless and very easy to wear, because this is also another issue for many multi-brands worldwide, who keep complaining that maybe some products are not very easy to wear. Visual merchandising, as you all know, is essential. It's key for us. It is fundamental for women, but it is definitely essential, indispensable for men. Especially for menswear, how can we possibly attract a male customer unless your shop window is very special? You see, just tiny details make the difference. How you combine things, the slightly wider trousers, for example, may be matched to another contemporary piece.
I really believe that in order to have a contemporary menswear, well, it is more difficult for men's than for women's. Well, the women's style team always tells me that it's easier to design menswear, but in my opinion, it is more difficult to be strongly innovative in menswear, also maintaining the taste of the brand. Then the sales assistant. This is a very important topic in my view, because when you actually step into a store, in a shop, you don't want your store assistants to hustle you, to push you. You don't want to receive 20, 30 emails per day showing and displaying outfits, because at the end of the day, the impression I have is that we're all fed up with it. This is true for many different industries.
With all our sales assistants, we are focusing on making them very elegant and young. Young is important for fashion. I'm 64 years of age, and I can't possibly be inspired by a sales assistant who's my very same age. I'd like to be approached by maybe a 35-year-old sales assistant, dressed in a special manner, who appeals to me, and because my aim is that of looking maybe five years younger. All these sales assistants must be very chic, elegant, and polite. Somehow, they need to epitomize, to represent kind advisors, because when you come across them, they come to you, they approach you, and help you find the suitable outfit for you. They need to establish a friendly relationship with customers, because we definitely need to have a gratifying relationship with our customers. Then distribution is always an important topic.
I have the feeling that, you see, it's full everywhere, full of products. We are flooded with products, it's very important to maintain exclusivity for your products and brand. I think that we, all human beings, are in the lookout for something exclusive, somehow almost tailor-made. Jean-Jacques Rousseau fascinated me with his statement, "I can barely imagine a human being that is similar to me." Every single one of us would like to look a bit different, and, of course, the online world definitely makes everything a bit more massified, this is definitely where we have to focus on in the future. This is true for all industries. The other day, I was talking politics with a very important scholar, I said to him that political leaders, in my opinion, are massifying their image. This is a very, very, utterly contemporary topic.
For example, personally speaking, I'm fed up of seeing the very same face everywhere, 10 times a day with the very same face, saying about the very same things. Maybe it is high time for politics to think about this, too. The political leader maybe should be less exposed, less visible, more exclusive. As to the online world, we also tend to bear in mind whatever political leaders write. I have one dating back to a few days ago, when just two Twitters were published, were posted, which means that you should not overdo things. Another important thought I'd like to share with you concerns the Internet world, the online world. I think that the Internet is very fascinating, but also very complicated to interpret. We have to safeguard our brand from massification.
As you know, as of January 1st, 2017, we started this grand project, which does not consist of financial investment, but which involves all of us in protecting the brand worldwide through our multi-brand presence, through our boutiques, and also within our company itself. Because I know that I might be boring, but this great posting of pictures, of documents, of everything, really deprives everything of fascination. We enjoy a great business relationship with MR PORTER, NET-A-PORTER, and I always say about them that they are the top online multi-brands worldwide. Mytheresa They also have a very high-end physical store in the German market. They're also very, very good. Beautiful multi-brand stores.
I'm deeply convinced, and I was talking to Riccardo and Luca, my Co-CEOs, this morning, I think we are actually experiencing and seeing the growth of very important, excellent multi-brands worldwide because this is the future for every company. Since January the 1st, we are now operating directly online from Solomeo, and we have two websites. On the one hand, we have the institutional website, which is actually receiving positive feedback because if you log in, you can basically experience Solomeo firsthand. You can see who we are, where we live, where we work, how we behave, how we work, and the relationship we have with the creation, with our Mother Earth, and with the people, because this is a very interesting thing. On the other hand, we have the best worldwide boutique that we opened in January, and also the most important one.
Sorry, I'm just having a sip of water. We had a great ham today, but it was very savory and salted. It's part of our culture. We have this great boutique, and honestly speaking, we'd like to say that it is performing very, very well. It is displaying strong growth. We do not know at what speed this online boutique will move and perform, but you should know that we have a very important growth protection, which means that if in three, four years' time it was to multiply fivefold or fourfold, it will just mean hiring some more human beings, some people, to help with the packaging and the shipment. Everything needs to be shipped from Solomeo, and we try to always focus on the craftsmanship, the manual work, so packaging, visual merchandising, special relationship with customers, especially from the human point of view.
Obviously, if we have a special relationship with you might be sent some olive oil, some books, some flour. This year, we harvested eight hectares of wheat. If you like wheat flour, you should know that we have produced very high-quality flour through our wheat. We also have a very interesting project with all our customers, which is maybe mending and darning their old cashmere pullovers because we always have moths in our wardrobes. Our customers basically send in their old pullovers, and we darn and mend it and to bring it back to become as new. It is some sort of one-to-one friendly relationship with our online customers, with handwritten notes accompanying the packaging. We want to set up a very loving, a very human, highly human relationship. We are also working on something very special. The great value of anticipation.
We actually noticed that when we say that a specific product will come out of production tomorrow, and then we will stitch the personalized tailor-made label, customers appreciate the value of anticipation. I do not think that our service will be one-hour delivery. We don't want that. Fast delivery is not for us. Now to wrap up, we would like to thank you all for all that you do for us. Honestly speaking, we keep working with serenity, very focused, but with a lot of pleasure and passion. We always try to strike a perfect balance between life and work, because when you are well-rested, the quality of your labor definitely improves. Human beings need rest. I have always thought that unless there is rest, there is no creativity, because creativity can only be spawned by rest.
Thank you very much for all that you do, and best wishes, too. May the creation enlighten our path. Thank you very much. We now open for questions. We will meet you in November in New York, then in America, then in Milan, in England. I'd like to say that we are experiencing a great time of serene work. Thank you.
Conference call operator speaking. We will now open the floor for questions. Whoever wants to ask a question, please press star followed by one on your keypad. In order to exit the booking list, press star followed by two. Please ask your question speaking into the microphone. Whoever wants to ask a question, please press star followed by one now. The first question is from the Italian conference call, Andrea Bonfà, Banca Akros.
Good evening, ladies and gentlemen.
Brunello, if I may, I have quite a general question on the situation of American multi-brands and retail. Are you maybe concerned by the recent performance in that industry? I refer in particular to Neiman Marcus, just to mention one name. The second question has to do, if I may, with the multiplier between franchising and retail. If you can say that if we assume 1.5, this multiple is correct. The last Sorry, we didn't really get the second question. I'm sorry, there is some disturbance on the line. The second question, whether we are correct in assuming a multiplier of 1.5 between wholesale and retail price, or what kind of multiplier it should be.
The third question is whether the -20, -21 of the franchisee that you reported?
In the first half can be replicated for the rest of the year, too. As far as the -21 is concerned, Moreno, -21 does not factor in the constant perimeter. We can say that considering constant perimeter, we have a so-called like-for-like that is positive for the first half, and we are confident we will keep it in the second half. As to the absolute value, obviously, having excluded the stores that have now become part of the retail network, the absolute number is negative. That is basically the same as the first half. As to the first question, I have to say that things are going very well in America with the U.S. department stores and also with Neiman's.
The truth is that they are on the lookout for very exclusive special products, because when they turn up at our doorstep in our showroom, they want to buy exclusive products. They want to know who you sold your products to. It is very important that visual merchandising is performed properly in these department stores. Sales assistants must know the product and the company very well. I am not concerned at all. On the contrary, I believe that they need exclusive special products that are easy to sell with a high taste. It's always the very same old story. I do not think that generally speaking, there is any difficulty.
As far as the second question is concerned about the multiplier between wholesale and retail, it changes as a function of the fact that we have full price sales or maybe discount rebate sales, and this, of course, gives way to changes. If we were to view an average, it is above two. There is no homogeneity there because in direct retail, we have both full price and reduced price sales, and whereas wholesale, we have one single markup applied. Yes, thank you very much. Thank you. Next question from the Italian conference call, Andrea Randone, Intermonte. The floor is yours. Thank you and good evening. My first question has to do with a very hot topic nowadays, which is the exchange rate. You explained that you have a hedging on the full year EBITDA.
Just to make things clear, I'd like to ask you whether the indication for revenues double-digit growth for 2017-2018 is at constant exchange rates. I'd like you to specify this, and then, if possible, a comment on 2018 at current exchange rates, and in case, what you want to do in terms of price rises in order to counterbalance the Forex effect. The second question, if I may, has to do with your openings strategy. In the previous conference calls, you spoke about this, and if you can provide us with an update on your current expectations for new store openings over the coming years. Thank you. As far as the Forex hedging is concerned, as we have always maintained, we have tried to be as transparent as possible, always, since when we started our conference calls. We always hedge, but we never speculate.
We always hedge for our revenues net of cost, our revenues in foreign currencies. This way, we can be confident that the effect on margins in absolute values is never a positive or negative surprise. There is never a loss or a gain. Vice versa, as far as the current exchange rates revenues are concerned, the impact of Forex can give way to fluctuations. At this moment in time, at constant exchange rate, well, there is one percentage point less than results at current exchange rate. Of course, the performance of foreign the last two months is actually reversing this trend. As I said previously, at current exchange rate, we Against June 30th, it is likely the constant exchange rate will be higher than current exchange rate. As far as expectation is concerned, we are still confident that at current exchange rate, the double-digit growth is guaranteed.
Obviously, if foreign exchange rates were to lose 30% against the USD, this cannot be the case. About 2018. Well, at current exchange rate, we expect growth above 10%, but with this kind of Forex situation, as I said before. As far as 2018 is concerned, since the spring, summer 2018, sales were very good, and the orders were very interesting. As of today, for 2018, we account double-digit growth in terms of both revenues and EBITDA. As far as store openings are concerned, our plan usually is for three openings a year worldwide. Maybe one year it could be two or maybe three. On top of the three openings, there can be maybe an expansion of a store like it happened in Milan. Generally speaking, this is the strategy we pursue.
We therefore envisage a very comfortable three-year period with CapEx amounting to 5%-6% of our revenues, and a three-year period where the quality of sales and income statement augurs very well. We are very confident. The main topic is the one I mentioned before. However, we must at all costs safeguard our brand, even if this means giving up revenues. Online, you see there's a flood of product, massification of products, and this can wreak havoc for the image of the brand and the value of the brand.
Thank you for your answers. Thank you.
Next question from Paola Carboni, Equita SIM.
Yes. Good evening. Good evening, Brunello. I have a few questions. First of all, for the rentals, the performance of rentals, because there has been some operating leverage in this first half that had not been there before.
I'd like to know to what extent this has to do with the fact that you insourced the online business, internalized it without any costs, or whether there are any other elements like rent renegotiation on other markets. Also, whether this improvement is sustainable for the full year, too. Another question has to do with conversions, recent conversion from franchising to DOS or from multi-brand to DOS. We saw this in Canada and in Russia. Are there any further opportunities in the future in other markets? I have another question on the other revenues component, which went up in the first half of this year compared to last year. If I can have some more detail, some more colors on this, and I'd like to understand what the effect of this was on m argins.
If you can give us your expectation for the full-year debt.
I can answer nearly all questions. As far as the other revenues, you see we're talking about EUR 1 million a year. Moreno speaking. There are some insurance-related refunds, not very material items. This is ordinary business for us. In the second half, we think that the performance will be very similar to the first half. As far as rents are concerned,
Brunello Cucinelli speaking, we think that in the prime locations worldwide, you see this is the level of rents. As far as we are concerned, for the next three year, we think that the incidence of rents will stay flat. As far as conversions are concerned, there is nothing specific to report this time.
Maybe something will come up in a couple of years' time, for the time being, nothing in view. As far as the full-year debt is concerned, actually, the line is not very good for us today. We can't really hear properly. Generally speaking, we are very happy with how things are going debt-wise. I think that between EUR 30 million-EUR 35 million debt out of EUR 500 million in revenues. We think that it is a pretty interesting figure. As I keep saying to my coworkers, we should not worry about debt or net financial position. The true issue, daily issue, is to design contemporary products and have our customers feel a special mood when they enter our stores. You see, many sales assistants, they work on provision basis. The more they sell, the more they earn.
Therefore, they push and hustle customers. A very famous American journalist said, "How can it be possible that as soon as I step into a store, I'm approached by three people asking me, 'What do you need? What do you want? How can I help you?'" My answer is, "Well, just let me take a look around first, and then I'll ask you. I'll call you if I need something." We need to get rid of this attitude, especially in our stores, because this is the reason why many customers decide to shop online instead of physical brick-and-mortar stores. Thank you, Paola Carboni. I'd like to remind you that if you want to ask a question, you can press star followed by one on your keypad now. As there are no further questions, we'd like to thank you immensely. If you need anything, please give us a call.
Best wishes, best wishes for the new start of the year. Thank you. Bye-bye.