Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Intercos Group first half 2022 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 Mr. Renato Semerari, Chief Executive Officer of Intercos Group. Please go ahead, sir.
Thank you very much. Good afternoon or good morning, everybody. As you know, the first semester of this year has been marked once more by abnormal headwinds. Just to quote the three main ones, supply chain disruption that gives no signs of improvement. The second, inflation, which has got worse due to the energy cost spike due to the Russia-Ukraine conflict. Third, the China lockdowns due to the zero COVID policy, which has been eating into the growth of the main engine of growth of this market for the past years. Despite all these headwinds, Intercos achieved very strong results in the first semester of this year. Actually, from a top-line standpoint, the best-ever semester that the company has achieved. I want to thank the teams for their efforts.
I want to thank the capabilities of this company in continuously innovating, and also I have to thank the measures we put in place to minimize the impact of the inflation. Turning page, you will see a summary of the first semester results. First of all, net sales ended at +17% growth, helped also by currencies as we grew double-digit at +13% also on a constant currency level. All the business units, the regions, and the customer clusters were positively growing year-on-year. Second, from an adjusted EBITDA standpoint, we are also posting double-digit growth despite the inflation impact and the inefficiencies in production due to the supply chain disruption.
Third, our adjusted net income was up by 54%, so a fantastic growth, and this was thanks to the EBITDA growth and also the currency effect that more than offset the debt interest cost. Fourth, from an ESG standpoint, we have reached a new milestone in the semester with the first Intercos plant, CRB, becoming carbon neutral, and this is something again that mark our efforts and our commitment to ESG matters. Fifth, our net debt reduced once more by EUR 49 million versus the same period of the year ago, taking our leverage down to 1.18x EBITDA. I will now pass to Pietro, who will give you more details on our results.
Thank you, Renato, for the really extensive introduction. Now, let's have a closer look to our performances. As said already, we have realized sales of EUR 368 million. We have achieved the growth of 17% on prior year, which means 13% at constant currency. Main currency effect came from US dollar, but also RMB, the Chinese currency, gave us a positive effect. In the Q2, we have achieved EUR 193 million of sales, growing 13% on prior year with an EBITDA of EUR 29.5 million at 15.3% on sales. This has been the highest Q2 ever of the group of Intercos. In gross margin, turn to page six.
In gross margin, we grew 14.5%. This has been overall in line with prior year on net sales, just slightly decreasing, mainly affected by the performances that we had in the business unit Hair & Body. Our adjusted EBITDA is at EUR 48.7 million, growing at 10% on prior year on the first half of 2021. This has been driven by the positive sales performance along with a stable profitability of makeup and also skincare. EBITDA on sales is at 13.2%, slightly down versus prior year. Basically, this is due to the lower profitability of Hair & Body. We will touch it in a few minutes.
The view that has been more affected by the supply chain disruption and the higher energy costs that we have incurred in. I have to say that we really had an excellent performance also in terms of net income. Our adjusted net profit was equal to EUR 20.8 million, growing 54.4% on prior year. This important growth is due obviously to the increased EBITDA, but also to our financial items. We continue to benefit from our low level of the cost of debt, but also this was more than compensated by favorable exchange gains. Net debt was at EUR 125 million, improving by EUR 49 million versus prior year.
This is in line with the result that we have achieved at the end of fiscal year 2021, slightly better, EUR 1.5 million better. This has allowed us to have a record low leverage ratio at 1.18, and a net debt without IFRS 16 below EUR 100 million. An excellent result and record high low level of net debt. Now, Renato will comment the results achieved by the different segments and the customer types and regions.
Thank you, Pietro. If you turn to page seven, I will start by giving you a look by business unit. As you can see, makeup has been the engine of growth. Its weight on the total business has progressively increased to go to 66% in the Q2 of this year. All in all, makeup had an excellent performance with a steady +24% growth year-on-year in both quarters. Right now, in the first semester, we are now up +6% versus 2019, which has been the best ever year of makeup for Intercos. In the Q2, the growth versus 2019 has been +10%. Extremely strong performance of makeup. Skincare overall confirmed its weight on our total business.
A good quarter one has been partially offset by a negative Q2 in comparison with the quarter two of year ago that was the highest ever quarter for this business unit. A record quarter as a base. Obviously, the China lockdowns and difficulties played a key role in these results. Third, Hair & Body confirmed a mid-single digit trend in terms of growth, pretty even by quarter, +4% in the semester, +5% in the Q2. To note that the impact in the base of the hand sanitizer business in the Q1 has artificially lowered, I would say, the results of this business unit. Without the hand sanitizer of the Q1 of last year, in the semester, we would have had a double-digit growth also for Hair & Body.
If you now turn the page, I'm gonna give you the look by region. As you can see, Americas confirmed to be the main growth driver for Intercos in the semester, gaining up to 35% of our total business in this semester. The growth has been very solid, both in the semester, +29%, and in the Q2, +27%. A very steady growth in this region. As for EMEA is concerned, in the semester, we were up 12%, with quarter two decelerating a bit the pace growth at +5%. This was mostly driven by the supply chain issues, especially in Hair & Body, with also key project delayed in this business unit that affected the overall European performance.
Asia was up double-digit in the semester, +10%, and also in the Q2, +13%. This was thanks to the fantastic performance of Korea that more than offset the difficulties we've been facing in China. Going to the next page 9, you can see the results by customer type. As we said during our last earnings call, emerging brands confirmed to be the key growth driver also in this case, reaching 35% of our total business. Emerging brands have grown 31% in the semester with a very strong +23% also in quarter two. This was mostly driven by European and U.S. prestige emerging brands. As for multinationals, they also achieved double-digit growth, both in the semester and in the quarter, respectively, +12% and +10%.
This was driven by prestige makeup, mostly in U.S. and in Korea. Last but not least, retailers at a high single digit growth, both in the semester and in the quarter, +8% and +7%, so a very even growth pace, mostly thanks to European, mass players. If you now go to the next page 10, you will see the EBITDA results by business unit. You've seen a growth of +10% in total, as Pietro just explained, and this was clearly driven by makeup with a +24%, both in top line and in EBITDA, so with a very steady EBITDA margin at 14.1%.
Skincare grew also proportionally to the top line growth, +9%, so stable EBITDA margin, +13.3%, while Hair & Body was the business unit that suffered from an EBITDA standpoint, losing about 400 basis points of EBITDA margin. This was driven by a combination of three factors. The first one is the mix of clients and projects. We had the unfortunate coincidence of three major projects which were delayed from quarter two to quarter three. These are projects at higher margin than the average for Intercos prestige clients. The second was driven by the energy cost increases that are particularly affecting this business unit due to the use of energy that is required for this production. Mix inflation.
The third is the supply chain disruption that led to a lot of cost inefficiencies, production inefficiencies in our planning of this business unit that is characterized by higher volumes per production shift. The three factors had a negative even impact of about EUR 1 million each that created the issue you're seeing in terms of EBITDA margin. I must say that we are expecting a significant improvement as of next quarter, driven by the move of the projects I was mentioning before from Q2 to Q3 as well as starting to profit from the energy surcharge that we have started to pass to clients at the end of last quarter.
Okay, now we move to the cash flow and the debt. In the first half of the current fiscal year, we have generated EUR 1.5 million in cash flow. We are down versus prior year by EUR 18 million, and this basically lower cash has been generated entirely at operating level. Operating cash flow is reflecting the increase that we had in the inventory that we have done in the first six months of the current fiscal year. We have increased our inventories by EUR 43 million, and this has been done in order to cope with the really high level of orders in this context of supply chain disruption.
Additionally, what we have done, and this was expected and foreseen, we have increased our CapEx spending to EUR 21 million in the first half of the fiscal year. Very important is the cash that we have been able to generate in the Q2 of the current fiscal year. We have generated EUR 29 million of cash. That means that we had a cash conversion on EBITDA of one, yes, basically one. Net debt is at EUR 125 million. As already said, it is important to note the really low level of leverage that we have. We are now at 1.18 times. This is a record never done by the group. Again, our net debt, without counting the effect of the IFRS 16, is below the threshold of EUR 100 million, a low ever level of debt for the group.
Moving to page 12, you will find our outlook and guidance. Overall, we are confirming the guidance that we gave since the beginning of the year, of net sales increasing in a range between +10% and +15%. As you know, looking at the coming semester, we still see significant headwinds. The main four that I want to comment on because we believe that Intercos is placed better than competition to cope with those. The first one is the longer than expected supply chain crisis. I must say that in the past 12 months, we have worked through our global network to diversify our supply sources, and also we've built inventory to be in a better position to cope with shortages and delay in components arrivals.
As a matter of fact, I'm very happy to say that the feasibility of production at the beginning of each month, which is to say the percentage of orders to be executed and complete where we have all the materials in our hands at the beginning of the month, has been increasing since June of this year. In June, July, and now in August, we are seeing an improvement of the percentage of production orders that can be executed as of the beginning of the month. This allows us to plan in a more effective way our productions in the course of the month. The second is the inflationary environment.
We've been speaking many times on the fact that the ownership of 80% of our sales being with formulas we own, and we have the IP for, gives us more pricing power than normal contract manufacturers. As a matter of fact, in the second semester of the year, we will start cashing in the benefit of the energy surcharge that we are passing to clients to temporary offset the energy costs that have skyrocketed. The third is the Chinese COVID zero policy that is still impacting the Chinese consumption overall. As we said last time, our exposure to China is much lower than many of our clients and listed companies in our sector.
The proof is that the growth of Korea has been offsetting already in the first semester the negatives popping up in China. Also, Western emerging brands are now getting into the market, into the Chinese market, and this will help smoothen the impact of lower consumptions and possible lockdowns in China in the next six months. Fourth, the possible recession that may hit U.S. and Europe. On this one, I must say that I'm pretty confident that the resilience that the beauty market has always shown in the past will still be valid. There may be trade-down of consumption from prestige to mass market, but this should have virtually no impact on our business 'cause we have basically a 50/50 split between prestige clients and mass clients.
We are well protected in case this happen. All in all, moving to following page. All in all, we keep having, I must say, a better than expected order entry inflow in makeup and skincare. The pace, yes, has decelerated a bit in total, still remaining very solid. You can see May, June, we collected order for EUR 106 million. We have no signs of slowdown in makeup, which continues to be very solid. We start witnessing a bit of slowdown in skincare, and again, the China situation is clearly not helping this business unit this year. Moving to the next page, you see that our order book continue to be extremely strong.
All in all, for makeup and skincare, our order book is +38% over 2021, +54% versus 2019. This puts us in a very comfortable position that we have the order to execute a very good year, especially on makeup that is driving the growth, as we've seen happening already in the first semester. The makeup order book is +48% versus 2021 and +57% versus 2019. We have the means to go even beyond our guidance if everything goes well and if we can execute all these orders despite the supply chain crisis. That's all on our side. We are ready to take on your questions.
This is the Chorus Call 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 touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Anna Frontani of Berenberg. Please go ahead.
Hello. Hi, Renato. Hi, Pietro. Thanks, also for the nice presentation. Actually two questions from my side. The first one on China, if you can maybe provide some more color on what you're seeing now in terms of both demand, supply chain, and more importantly, what you're seeing, what you're expecting for the next month. In particular, do you see new customers coming through despite the situation, despite the lockdowns? That's the first question. The second one, given the inflationary pressures that you're seeing, can you give us an update on the pricing actions that you're taking and also maybe, as you touched on it, on the energy surcharge, are the customers accepting that, or do you see a little bit of struggle there? Thanks.
Thank you, Anna. First of all, China. Well, China is not in a good shape overall. There is clearly this, you know, lockdowns, risks. Consumption overall is quite shy, and we are seeing, you know, some measures taken by important brands to try and control costs in a more difficult situation. Just to quote one, Maybelline has announced that it's closing its retail stores in China and remaining in wholesale and e-commerce, as an example. All in all, the situation is not very, very positive. We've seen the Chinese brand not performing particularly well during the June promotion weeks. Again, not very good signs for the time being. Now, everything is now pointing to the Double Eleven event.
We always talk about China as if it was a market where you have steady consumption. It's not the case. Consumption is very much concentrated in these big promotional events. We are seeing conservatism from the Chinese brands for the Double Eleven, relying more on their star products rather than new launches and new initiatives. I think that the year will be marked by this uncertainty, and I'm confident that the market is gonna grow overall in the year, but nowhere near what we were used to, and especially Chinese brands are being a lot more concerned about their results than in the past.
I shouldn't quote specific brands or clients, but you know, I think that what is happening to Perfect Diary is a very good example of the attention and the shift of focus from growth to protecting bottom line. That is a bit the situation. Yes, there are some new customers coming in, but it's not the usual pace in China. Very different from what we are seeing happening in Korea, at least for what we are concerned, where we are getting extremely positive results, not only driven by Korean customers, but especially by Western clients wanting to be more performing with specific assortment for the Asian countries and sourcing them out of Korea.
Korea is going beyond our expectations, to be honest, and this is offsetting China that clearly we were not estimating at the beginning of the year in the shape it is today. Coming to your second question, pricing. You know that we have increased our prices at the end of last year. We announced to our clients an extraordinary measure, which is a temporary energy surcharge that is based on the productions run for them in any given month. We had quite tough discussions with clients because, you know, normally when you increase prices, you increase your list prices, which means that the price increase applies to the new orders they are placing, but not on the orders they have placed in the past. Our measure touches the whole order book.
No matter when the order was placed by the customer, it is increased, thanks to this measure. The discussion took a bit longer. Right now we've had the agreement of all, virtually all the clients, with the exception of a couple of them. I'm obviously thinking, you know, thinking about the top 20-25 clients, so those who really count. We are now getting into motion to apply it to virtually everybody. As of July, we will start cashing the benefit of this action. You see nothing of it basically in the first semester or in quarter two. You will start seeing the impact of it in Q3. I hope I've answered your questions, Anna.
Yes. Thank you very much. It was very clear.
The next question is from Kate Rusanova of UBS. Please go ahead.
Good afternoon, Renato, Pietro. Thank you for taking my questions. I have three. First of all, would you be able to provide any indication on the adjusted EBITDA margin development for the rest of the year? At the Q1 results stage, you were quite confident about the relatively stable level of profitability this year. Can you reiterate that, or do you feel it is now looking a bit of a stretch or that profitability has deteriorated? Second question is on the order intake for makeup. You mentioned there has been no slowdown in the demand. Is the EUR 90 million or EUR 95 million order intake for the category a normalized level going forward?
Finally, it would be very interesting to hear any insight you can give on the performance of the outsourced beauty market during previous recessions. Did the outsourced beauty market underperform the underlying beauty market back in 2008, 2009? In other words, were brand owners less inclined to outsource production? If we're going to see softer consumer purchasing power, do you think there could be a shift away from emerging brands and prestige brands towards more mass products and potentially retailer products? If that is the case, what mix impact do you expect to have on your margin? Thank you.
Hi, Kate. I'll try to answer all your question, but then you can come back if I missed anything. First of all, you asked the question about what is our guidance about EBITDA margin. The guidance I would feel, you know, confident to give you now is to reiterate the guidance we've given since the beginning of the year, so basically stability of EBITDA margin in the year.
This would mean that in the second semester, we should be running at about 20 basis points of EBITDA margin higher than last year, which I think is feasible, given the order book we have, given the prospects we have in Hair and Body, which should be a significantly better second semester versus the first semester, especially because of the big projects that were shifted from Q2 to Q3, and obviously because of the impact of this energy surcharge that we are going to benefit in the second semester. Gaining 20 basis points in the second semester versus last year is absolutely possible, and we think it's realistic to assume that will happen. Our guidance doesn't change neither in top line nor in EBITDA margin guidance.
I hope I've answered your first question. Second question was about order intake in makeup. The order intake in makeup kept being very, very strong. I can tell you that even July remained very strong, so on par with previous months. I must be honest, I will keep telling it sooner or later it should slow down or it's reasonable to expect to slow down. So far it didn't happen, but you know, I think that you know, we should expect to see a bit of a valley after the peak, then go back up again for the future. Again, this is not happening so far.
We are sitting on an order book on makeup, which is extraordinary, to the point that our operations team is desperate because of the many orders that they need to execute, and it keep flowing in at a very strong pace. I hope I keep being wrong and that the pace is gonna stay, although logic says it's bound to slow down for a moment in the coming months. The third question is the most difficult one, first of all, because neither of us was in Intercos at the time, but also because as you know, there is no panel that tells you what is the outsourcing market and doesn't track it on a regular basis.
The first study that was commissioned by Intercos to see what was the trend and which were the market shares in the outsourcing market was commissioned in 2014, so way after the economic recession you're referring to. At the time, you know, the outsourcing market was a lot smaller than what it is today. I don't think there are any fundamental reason why it should change because of a recession, because you know, what brands are trying to avoid and escape from is the complexity of, especially in makeup, the complexity of producing certain production in-house.
No matter what, you have right now, as we speak right now, 55% of our sales are done with emerging brands and private labels, and they have no way out other than maintaining the outsourcing. I honestly do not expect any big change in fundamental trends because of a recession. What can happen is what you mentioned about a possible trade down between prestige and mass market. This is something that historically happened during recession, so it is very possible this happens.
We need to bear in mind that, since the last recession, the emerging brands phenomenon has developed in a major way, and a lot of emerging brands have positioned themselves in what we call masstige segment, which is, you know, either the entry point to prestige or the top of the mass market price points, which I think will be a sweet spot, I think, in a recessionary environment. Because someone who buys a very expensive prestige brand is more likely to trade down one step rather than going all the way down to mass market. Again, we have a 50/50 business between prestige and mass, so from a top-line point standpoint, there shouldn't be a major shift. There could.
There might be if there is a massive shift towards mass market, there might be a bit of a mix impact on the EBITDA margin. Again, I think that the emerging brands will play the cushion here and provide us with a tempering, a minimizing factor into that. To be honest, what we have, what we are seeing till today, and you know that better than me, is that, especially in U.S., is that prestige market is not giving any particularly worrying sign of a slowdown. Actually, it's probably better the performance in prestige than mass market, so far. It's also true that we're not yet in a truly recessionary environment. You know, we will see, but we are not very worried about that. Kate, I hope I answered your questions. Otherwise, I'm more than happy to.
Yeah.
Yes.
Very clear. Thank you.
Thank you, Kate.
The next question is from Martin Deboo of Jefferies. Please go ahead.
Good evening, gentlemen. Martin Deboo here. I've got three. I'll try and keep them brief. Renato, just building on what you've just been saying about recovery in makeup, good to see it now back above 2019 levels. Getting away from the numbers, what is going on out there, just trend-wise? Are we seeing lip coming back? Sort of what sort of level of innovation are we seeing out there? Just sort of bring it to life a bit for us, what the shape of the makeup recovery is looking like. We can see what the numbers are, but I just wanna go behind the numbers. Second question is more about the guidance and the laydown of the year. You know, you kicked off the year at something like 18% LFL. You're at 8% LFL in Q2.
You need double-digit LFL in H2 to get in the middle of the guidance. Did you always see the second semester as the slower semester? Just how is the year panning out, and do you see something of a rebound happening in H2? The third question is for Pietro. Pietro, are you doing the sensible thing, I think, in optimizing service level and just building the inventory that delivers that? Should we expect a similar net working capital outflow in H2 to what we've seen in H1? Those are the questions. Thanks.
Okay. Hi, Martin. Let me try to give you a bit what's happening behind the scenes in makeup. To be honest, we are seeing growth in all the segments of makeup. Lips are certainly growing in an important way, but powders are growing even more. Now, this may be driven by the fact that we've always been known to be, you know, the undisputed number one in formulations for powders. Powders are extremely strong. Pencils are going very well as well. All segments are performing well for us this year in makeup.
What we are seeing is after, you know, if you want a more qualitative point of view, what we're seeing is the comeback of color, which is what we've always thought it was going to happen after COVID. You know, I still remember everybody saying, you know, everybody's moving to, you know, natural, no makeup, no color, everything is going to be more minimalist and all that. This is typically something that happens when, you know, our clients, our consumers are in a down period, allow me to say, which, you know, COVID obviously brought that. As soon as, you know, the restrictions went away. There was the revenge of color, I would say. You know, bright colors coming back, again, socialization, opening up occasions, boosting the usage of makeup.
We've been fortunate or clever, I don't know, in getting some new clients, emerging brands doing particularly well, and this was clearly what brought us above and beyond the general makeup market trend. It was a mix of makeup coming back, consumers willing to go back to color and to smile again, allow me to say so, and the fact that we've gained. During the pandemic years, we've been developing new emerging brands that have come to the market doing extremely well, as well as some more established, either emerging brands or multinationals doing initiative with us, with our innovation, doing extremely well in the market. Those are the reasons behind our performance in makeup. The second question is the question about like-for-like in H2.
Frankly speaking, if I look at the order book we have in our hands, our worry is to execute all these order books. If we convert to production, and therefore invoicing all the order book we have already on hand, we're gonna be doing double digits in the second semester. Again, my worry is not what we can potentially do. My worry is how much we will be able to convert given the difficulties in supply chain. We've never had such a rich order book and, honestly, if we could deliver that, we would be able to deliver a fantastic second semester.
Net working capital. We have done an extensive job in the Q2 in order to absorb part of the increase that we had in basically receivables and the lower payables that we had. We have been able to absorb all of that. Today, we are still seeing quite a high level of inventories. I already said why we do have this high level of inventories. We do have this high level of inventories because on one side, the supply chain disruption does not allow us to finalize completely all of the production that we have. That means that we have leftovers in terms of semi-finished products or different components. We are not able to finalize completely everything.
We did increase the level of safety stocks in order to cope with the difficulties in availability of certain raw materials. That said, if I look to the days of inventories, and I compare the days of inventories versus prior year, and the days of inventories looking to the amount of open orders that we do have for the upcoming months, we are at exactly the same level as prior year. In reality, we have been able to maintain, in terms of days, the same level that we had in 2021.
That said, going back also to what Renato was saying, we are seeing now the visibility of our orders, which is increasing, especially in the last couple of months. That means that if we continue to have the same level of the increased level of visibility, we should see our inventories going down as we are able to ship, produce, and ship all of the goods that we have. We will still have a high level of inventories at the year-end. Also, we will have an absorption coming from inventories, but not at the same level that we have today.
In another way, Martin, if we divide inventory in buckets, you have the raw materials inventory. That will remain high because we need it to make sure that we minimize the impact of supply chain disruption. You have semi-finished inventory, which is the part that we expect to go down because we convert it into finished products that can then get shipped. Our focus is in finalizing the production of what we have today in stock of semi-finished, so that the total level of inventory goes down, invoicing goes up.
Very clear, very insightful. Thank you very much.
Thank you, Martin.
The next question is from Tilly Eno of Morgan Stanley. Please go ahead.
Hi, good afternoon, Renato and Pietro. Thanks for taking my questions. I have three, but hopefully they'll be relatively quick. The first on order intake, I mean, you called out the slowdown in skincare. Is that just China related, or is it in other markets as well? You mentioned also executing the order book will be the real challenge. Can you update us on your lead times? Do you expect things to improve with what you're doing in terms of working capital management? The second question, just quickly on the surcharge, can you give us a sense of how large it is? Then, you know, did it all kick in in July, or will it be phased with different clients over the quarter?
Last question, just on prestige versus mass market. You talked about the split, but maybe if you can just talk about how each of those kind of grew in the Q2. I assume there hasn't really been a slowdown in prestige, but if you can just confirm that would be helpful. Thank you.
Hi, Tilly Eno. Order intake in skin, it's certainly driven by Asia, but we have had a bit of a slowdown also in Europe. This is driven by the fact that a lot of what Western brands sell goes to China, and so they as well are adopting and controlling their buying, related to the fact that a lot of skincare goes to China. On top of that, we had some emerging brands, in particular one that I won't name, but one that found itself in a bit of an overstocking situation, and so slowed down significantly their orders in skincare.
Mostly, just to summarize again to make sure that I was clear, mostly Asia, but you see a bit of softening also in Europe, always driven by the end market being Asia many, many times. Lead times have increased of about 3-4 weeks. In reality, we have measured in the past 6 months what was the average delay versus the normal lead times of our suppliers. This, on average, you have a lot of variation between packaging, glass, plastic, paper, and all the different raw materials, so I'm doing a bit of mixed bag of things. On average, the delay of our suppliers is an average of 55 days. We've been trying to minimize the impact of that, and on average on our side is 3-4 weeks.
Again, as I said before, and Pietro repeated it, we are getting very encouraging signs because the percentage of feasible orders at the beginning of each month is increasing, and this is the best sign all we can get, so we hope that is gonna continue. Because, you know, the one thing that you need to bear in mind is that when you start the month with a low feasibility, it means that for the first 10-15 weeks in the month, you have little to produce, and so you don't run your plants in a very efficient way. Then you need to add extra hours, Saturdays and Sundays, to beef up the second half of the month when productions become feasible.
If we can start planning from the beginning of the month in a better way, then you get a lot more efficient productions in the course of the month. Surcharge. In July, you should expect to see the vast majority of the impact because most of the clients had already signed off for the month of July. There are a few that have accepted it for August. I would say by and large, in the Q3, we should cash the vast majority of the benefits of it, if not the totality of it.
It's only U.S. and Europe.
Yes, it's U.S. and Europe because Asia is not really suffering from the same energy impacts as the Western world. It's particularly Europe and a bit less U.S. as well. Prestige, mass, in the first half, the growth was particularly on prestige. Prestige was growing faster than mass. This mirrors what we've seen in terms of retail data, where prestige tended to do better, but is also driven by the fact that the new emerging brands I was mentioning before to Martin were positioned in that segment. There was this extra boost touching especially prestige. This is what has happened in the first half. If I look at the order book, it's still in that shape, so, it should continue with the same trend. At least for Q3. I hope, Tilly, we've answered your questions.
Yes, this is perfect. Just one quick follow-up. On the surcharge, can you share with us how big the surcharge is? Is it kind of a couple of percentage point increase?
Yes.
Okay.
Exactly that.
Perfect. Thank you very much.
For any further questions, please press Star and One on your telephone. Mr. Semerari, sorry, we have a question from Mikheil Omanadze of BNP Paribas. Please go ahead.
Hi, gents. Just a quick one from me. If I'm not mistaken, you mentioned that your order book provides means to go beyond your guidance if you manage to produce despite supply chain disruptions. In that comment, did you refer to the midpoint of your guidance or to the upper end? Thanks.
I mean, the end has not ended. The year are not ended, so there will be orders coming in. They're coming in this month. They're coming in every day. In theory, we would have the means to go at the top level of the guidance or even a bit beyond that. Actually, yes, we would have the means to go beyond that if I take it also into account what is gonna come in in terms of orders, what has come in in July and what is coming in in August, in September, also, for especially for the Asian clients that are faster to execute. The que.
The real question is we will undoubtedly end the year with a certain number of orders in backlog, orders that we will not be able to execute within the year and that we will carry on to next year. How we're gonna be landing in terms of top line in the year is very dependent on how large is this number in terms of backlog. That's why I'm saying I'm more worried and more focused on the output in terms of productions than to the order intake.
The order intake remains very important because, you know, we will need orders for next year. It's a rolling thing. To make this year, the real question mark is how much is gonna be the output that the supply chain situation will allow us to execute and how large is gonna be the backlog at the end of the year.
That's very clear. Thank you.
Mr. Semerari, there are no more questions registered at this time.
Okay.
Thank you.
If there are no more questions, I thank everybody for your attention and I wish you a good summer.
Thank you very much, everybody.