Luxottica Group S.p.A. Q2 2010 Earnings Call Transcript

Jul.26.10 | About: Luxottica Group (LUX)

Luxottica Group S.p.A. (LUX)

Q2 2010 Earnings Call Transcript

July 26, 2010 12:30 pm ET

Executives

Alessandra Senici – Director, IR

Andrea Guerra – CEO

Enrico Cavatorta – CFO

Analysts

Antoine Belge – HSBC

Stefano Corneliani – Intermonte SIM

Daniel Hofkin – William Blair & Company

Allegra Perry – Nomura

Flavio Cereda – Merrill Lynch

Domenico Ghilotti – Equita SIM

Andrea Bonfà – Banca Aletti

Operator

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining Luxottica's second quarter 2010 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

At this time, I would like to turn the conference over to Ms. Alessandra Senici, Group Investor Relations Director. Please go ahead, madam.

Alessandra Senici

Thank you, operator. Good afternoon and thank you for joining us today. Here with me are Andrea Guerra and Enrico Cavatorta.

Before we begin, first, I have a couple of quick items to cover. As a reminder, a slide presentation which we will informally follow during this call is available for download from our website under the reading Investor Relations Presentation section. This presentation includes certain non-GAAP financial information within the meaning of Regulation G under the U.S. Securities Exchange Act.

Further information including additional information required by Regulation G is also available in Luxottica Group's press release relating to its results for the second quarter of 2010, which may be found on our website under the reading Investor Relations Press Releases section. This conference call is being recorded and is also available via audio webcast from our website.

During the course of today's call, certain projections or other forward-looking statements may be made regarding Luxottica Group's future financial performance or future events. We wish to caution you that such projections or statements are based upon current information and expectation, and actual results may differ materially from those projected in the forward-looking statements. You can read more about such forward-looking statements on page two of the slide presentation.

We also refer you to our filings with the SEC and Italian securities authorities. These filings contain additional information concerning factors that could cause actual results to differ materially from those contained in management's projections or forward-looking statements.

We will begin with our CEO, Andrea Guerra.

Andrea Guerra

Welcome to our second quarter conference call even from my side. The external demand and external world is performing more or less as we expected. We introduced a couple of quarters ago the concept of selectivity in the recovery and I think this is happening today. This a year where differences and different performance between companies, business, brands, worlds, geographies will be and it is highly visible.

I am surely happy how we performed, and I also have to add that I am happy about our July performance as well. And therefore, we are looking forward to the remaining part of the year with a positive attitude. I think we have been very careful week after week and month after month in observing and following up on trends, trying to exploit and leverage on everything possible we could get from the market.

To me, the trends are; one, a very healthy wholesale business with the good news of anticipating the return of positive results in the price mix and with the luxury premium segment, which achieved a solid double-digit growth, I think behind a number of very successful different projects in this arena.

Second, LensCrafters, very positive across the USA. Good performance in achieving the second pair and in the sun Rx units. The performance and the comp growth of LensCrafters would have been even stronger if we would have decided to keep on having the same weeks of promotional activities we had last year. We cut a couple, and therefore – if we stop, the comps comparison at 10th of June probably we were more in the region of the 5% rather than the 3.5%, but we cut the promotional activities, we are happy that we do it. June in case was slightly positive, which gives us another sign of reliability of LensCrafters and I think that third quarter can be another strong quarter for LensCrafters.

Third point about trends is the Sunglass Hut's fast recovery. If I just remember where we were a year ago, June was our record month ever for Sunglass Hut US, with sales that were just above the $100 million, our best result ever in the history of Sunglass Hut US. Fourth element, emerging markets over performing our expectation, and I still strongly believe that we can do even a better job going forward.

Fifth trend, Australia is weak. We had anticipated that, it's still weak. I think we are not underperforming the market at all. If I observe, Q2 is better than Q1, but I think that we are still having some months before seeing a positive result yet. Ray-Ban and Oakley; very solid performance, continuing GAAP [ph] double-digit growth trends.

On the financial side, I think the management of our working capital is paying off and yet we were able to improve our working capital days position by another nine days.

So, now that I'm talking about numbers, about financial numbers, I'll give the word to Enrico so we can go in more detail and color. Good afternoon, Enrico.

Enrico Cavatorta

Thank you, Andrea. Good morning, everybody. Let's have a quick look at our second quarter and first half results. First of all, we had positive results in sales. Excluding exchange rate effect, we were in the mid-to-high single-digit performance, 6.5%, with a better performance in wholesale than in retail.

Let me say that in the quarter, for the first time since many quarters, we had a positive result from currencies, not just the U.S. dollar that was stronger 7% in the quarter versus last year, but also basically all other currencies that are important for our growth, they were stronger than the euro, even double digits. And I'm talking Australian dollar, Canadian, South Africa, Brazil, Japan – Japanese yen, and the other currencies that are important for our Group. This is important to understand because when – then we go to the first half where the dollar is most neutral, still you will see an important exchange rate effect.

Thanks to the growth in sales, also our operating profit doubled that growth. Our operating income was 27% up versus last year as compared to a 14% growth in sales. And not surprisingly, our margin improvement in wholesale has been better than in retail, due to the stronger growth and also due to the positive price mix effect that we've mentioned.

Wholesale margin was 160 basis point higher than year ago; retail, 70 basis point. Also, our net income grew by more than 30%. To a certain extent, the growth could have been even better than that. We had higher financial expenses than last year and also higher losses on P&L [ph] exchange.

These numbers should not surprise us; with the strong revaluation of the dollar that we had in the last couple of months of the quarter, our hedging instruments, to a certain extent, generated a loss. And just by looking at the past, clearly, when the dollar gets stronger in such a rapid manner, you would have been – you would have better results if you had not the hedging instrument in place, but of course, this would be against our policy. So this is just to explain why we had higher loss on P&L exchange than a year ago. And increase in financial expenses is due to a slightly higher rate increase versus a year ago and also to a higher debt, and we will talk about that in a minute.

If I look at the first half, again, we had an exchange rate effect even if the dollar on average has been flat versus the first half of last year, but still the other currencies played a positive role for our Group. That's why we had a 10% reported growth in sales as opposed to a 7% – almost 7% growth at constant exchange rate.

Again, our growth in operating profitability was twice as much, 20%, and again, with a higher gain in our wholesale margin versus retail due to the higher growth in sales, but also due to the fact that we had a positive price mix effect in wholesale for the whole six months; after the first quarter was flat, we were positive in the second quarter. And the net income was 26% above that. And here, if I look at the total of six months, the negative bias that we had in the second quarter on financial expenses and other losses was much less evident.

Turning to debt and cash flow, clearly, the positive profitability results has driven our free cash flow generation. It has been a strong quarter with EUR160 million free cash flow generation. This was broadly in line with expectation. Clearly, the growth in EBITDA and operating cash flow has been the main driver of this.

And the reason why our free cash flow generation has been lower than last year has been entirely due to the tax effect. This was largely anticipated. If you recall, last year we had a positive tax effect on our cash flow because we paid much less taxes than what was accrued in the P&L during 2009, but this was a non-recurring – of course a non-recurring effect. In this year, we are normalizing our tax payment and basically, that difference is explaining the whole difference of free cash flow generation.

Also, it's important to note that with such a strong free cash flow generation, our net debt, though, has increased versus the end of March. There are a couple of reasons, very clear. One is that we paid EUR160 million dividend during the month of May. Also, we have acquired our minority shareholding in Luxottica Turkey. EUR60 million has been expensed and this is, of course, below that free cash flow line. And this was an investment that was largely anticipated because of – it was part of the shareholder agreement with the minority shareholding. And let me remember that the Luxottica Turkey is one of the most profitable subsidiaries in our wholesale vault.

Finally, there has been a huge translation adjustment at the end of June as compared to the end of March in the way we report our dollar-denominated debt. For perspective, the final exchange rate at the end of June was $1.23 per euro as compared to $1.35 at the end of March. But even more importantly is the difference between the exchange rate we use to report the debt that was $1.22, and exchange rate we use to report the latest 12 months EBITDA, it was at almost $1.40. So there are almost – there is a 15% difference between these two rates; it's one of the highest ever. So that's why there is EUR152 million negative translation adjustment in our debt.

Excluding that exchange rate effect, our gearing ratio has been lower at the end of June that has been at the end of March, and has been lower than at the end of December. So, if I look at the number without that bias, our gearing ratio that was 2.8 at the end of December went down to 2.7 at the end of March and 2.6 at the end of June. So it is in line with our year-end target to approach 2 times EBITDA. We are still confident that that target can be achieved.

Back to Andrea.

Andrea Guerra

Thanks, Enrico. Looking in more detail to our geographies, I think one of the most encouraging result is our performance in North America. It's now eight months in a row in which we are experiencing constant growth. This time in the quarter, we have grown overall sales by 8%. Basically, all businesses were positive from retail to wholesale brands, Oakley, Ray-Ban, luxury.

So, again, just a small and minor remark on LensCrafters, recovering what we lost a year ago, very successful in all regions and as I would say, excellent season in terms of sun Rx, and therefore, multiple pairs sold.

Oakley, still maintaining a fantastic rhythm of growth. The growth has – even being more balanced than ever in terms of Oakley, Rx frame and women frames have been successful in gaining momentum and gaining space in the market. And I would like to point out as Oakley Rx frames all over the world, Europe first, is becoming with its very clear positioning a very clear choice by consumers.

Sunglass Hut, we said, fast recovery and I am extremely happy of how the team is performing. The experience in the store is very well appreciated and in the comp growth we had, we have a good balanced mix between average ticket and units, good penetration and good growth of luxury and polarized. So all – all-in-all, U.S. had good first six months and July was in trend with that.

Looking to Europe, we have been discussing at the end of April how important the sell-out season was in the Mediterranean region. And I have to tell you that Italy, Spain, and Portugal that were the most critical areas and where we were focusing the most had a successful season. Greece was negative and decreased almost 20%. July is yet again a good month, not much in terms of Spanish market, but in terms of Italy and Portugal for surely accelerated. So, nothing more to talk about Europe; our organization scheme, our approach to the market is still very well appreciated, Ray-Ban and Oakley growing.

When we talk about Europe and when we talk about wholesale and luxury and premium, I think that we need to remark how successful our – what we call special project and special collections have been. And I could list a number, so I didn't want to look at the history, but again, we are looking to the second semester with a number which is very close to 10, very special projects in the next six months of which these four, Chanel Bouton, Prada Swing, Burberry April Shower, and Tiffany Key Collection, I think are really strong collections, strong events that are able – really able to attract and focus customer attention and consumer appeal.

So I think that the way we are working, which is everyday closer to our customers and everyday more intriguing in terms of consumer attention, is working.

Regarding emerging markets, it's not easy today to say this has gone better than the other. I think that they all over-performed, as I was saying, our expectations. And I – I am happy to report that the initial signals – because these are just initial signals, about our dedicated collections in all emerging markets have been driving Ray-Ban sales to a healthy plus 41% in all these countries.

Retail in China is doing good. As Enrico was saying we, became again 100% owners of our Turkish subsidiary after 20 years of longstanding partnership and well appreciated partnership, and we are very happy of the team running Turkey since a couple of years, and on the other side, as usual looking for new opportunities.

We didn't give up during 2008 and 2009 in terms of long term. We have working – we have been working hard even on being able to deliver to the market new ideas, new concepts. I think OPSM eye hub in a very special place of the world, which is Australia today, which is not really performing the best, I think has been really a breakthrough in our industry in the way we serve consumers, in the way we are able to tell stories to kids, elderlies, sporty men, Rx sun, and really it's a home of many different experiences and attracting the attention of media today and very hopefully, many consumers tomorrow.

The same thing about our Sunglass Hut flagships. They are attracting an unbelievable amount of people. It's amazing looking at our store in Oxford Street and 5th Avenue what kind of traffic they are generating. And I really think that in a complete year we can target somewhere around $10 million for the sum of the two flagships and therefore, really paying off – paying off is too little; really paying off the investments we did.

So, six months have gone – basically, seven months have gone. We are still missing the next five. Obviously, the replenishment of our wholesale customer at the end of the summer is yet very important. For sure, there is a little bit less euphoria in the markets across the world, but I think that we ended up with a very solid portfolio of orders. As I said, the July comps were positive, and therefore, we really think that we are on track to meet full-year objectives, which are very important to all of us, because they put Luxottica and all of us back in a track record, in a trend that we had forgotten for a year.

So we are pleased. This is it. Thank you for listening. And now, obviously, we are here to answer to all your questions, information, or doubts you have. Thank you very much. Back to the operator.

Question-and-Answer Session

Operator

Excuse me. This is the Chorus Call conference operator. We will now begin the question-and-answer session. (Operator Instructions). The first question is from Mr. Antoine Belge of HSBC. Please go ahead, sir.

Antoine Belge – HSBC

Yes, good evening. Antoine Belge, HSBC. Three questions. First of all, can you give us the comps on a worldwide basis for retail? There must have been some contribution from store openings in the 5.6% increase that comes from forex. Then second question on wholesale, you were talking about a very strong portfolio at the end of June, and can you explain us about – is it orders split over three months, six months, and how we could use this number in our forecast? And finally, the performance of wholesale was 7.8% in Q2 organically; you had double digits in many areas, Oakley, Ray-Ban, luxury. Can you maybe comment on the product did a bit less well?

Andrea Guerra

Yes. So first of all, comps worldwide, they were in trend with the first quarter. So I think between 3.5% and 4%, but I do not remember now the exact figure because it's a figure that we never use internally.

In terms of portfolio orders, we have always said that that is just telling us the current performance, does not give you any idea long term, and we always said that our ability to look forward is in the region of the 30 to 45 days. But in any case, it's still positive. When we look at double digits, obviously, we talked about all those double digits, because the reported numbers were in the 13% region. Therefore, we are quite balanced, all positive, and as I said, Europe was in the region of a 6%, 7% and that is obviously organic, because it's mostly euro.

Antoine Belge – HSBC

Okay. And maybe just one follow-up. I mean, you've mentioned a positive price and mix effect. Do you expect this to continue in the second half?

Andrea Guerra

I think this should improve, especially in the third – yes, in the second half. Third and fourth quarter had been the worst last year where we lost 6% or 7% and therefore, we should really benefit in the third and fourth quarter from this effect.

Antoine Belge – HSBC

Many thanks.

Andrea Guerra

Thank you.

Operator

The next question is from Mr. Stefano Corneliani of Intermonte SIM. Please go ahead, sir.

Stefano Corneliani – Intermonte SIM

Good afternoon to everybody. Three more questions. First one is about the profitability on the retail side. If you could just spend a few words on the fact that the EBITDA margin on the retail side didn't improve that much Q2 versus Q2 of last year, notwithstanding, I would say, a significantly better channel mix or retail chains mix we are seeing this year vis-à-vis second quarter of 2009, and also due to the fact that you mentioned the lower promotional activities during the quarter.

The second is about the acquisition of the minority stake in your Turkish subsidiary. If you could give us a little bit of flavor on this, particularly on the lower contribution in terms of minorities we are going to see in the future? And thirdly, if you could spend a few words on the evolution of your retail operations in Greater China? Thank you.

Andrea Guerra

Yes. In terms of retail profitability, basically two effects. One effect is the Australian performance, which is obviously pulling back some of the excellent performance we are having in North America. In Australia, the Sunglass Hut portion is not so small and there is where the fixed costs are normally impacting the most. And I really hope and think that we will see an improvement soon.

There are – the other is a number of accruals that we had in the first six months of last year, in the first three, four months of last year that we reversed when we had seen that the performance was not excellent and mostly related to salaries and bonus payments and this – things like that. The underwriting – the underlying performance of retail, especially in North America, is very positive and we will see the benefit of that profitability enhancement in the third and fourth quarter. In terms of contribution, Enrico, do you want to give some highlights?

In terms of contribution, Enrico, do you want to give some highlights to Stefano?

Enrico Cavatorta

Yes. Clearly the minority interest will diminish now that we no longer have the minority stake holding in Turkey. You have already seen that effect on the second quarter number, where the minority were slightly up, approximately half than those of last year.

Andrea Guerra

In terms of retail, I don't –

Stefano Corneliani – Intermonte SIM

China.

Andrea Guerra

Very good performance in China, but still we are – it is more business and therefore, we are not highlighting it yet. We had a very solid double-digit comps performance and what is excellent is now, nine months that we are having a very good performance in all the four regions where we are in China today, and therefore it's really becoming pleasing.

Stefano Corneliani – Intermonte SIM

Is it still loss making or is it approaching breakeven from an operating standpoint?

Andrea Guerra

So fully loaded, it – it's still negative.

Stefano Corneliani – Intermonte SIM

Thank you.

Operator

The next question is from Daniel Hofkin of William Blair & Company. Please go ahead, sir.

Daniel Hofkin – William Blair & Company

Good afternoon. Congratulations on a very nice quarter. I had a question I guess regarding, first of all, the advertising expense rate in the quarter, if you could just quantify how much was related to incremental ad campaigns this year versus last year?

And then, secondly, in terms of the wholesale end market, if you will, the end consumer, can you characterize what you are seeing to the degree that you are able to get a view on that from your wholesale customers what the end demand is in – I guess, particularly in Europe and also North America? And then, finally, with regard to price mix, how much of that is mix versus so-called inflation unlike items or less promotion unlike items? Thank you.

Andrea Guerra

I would start from this last one, mainly is a brand mix effect. So we are selling again some more, let's call it expensive stuff. So it's more a brand mix rather than basically – we only had a small inflation, price increase in Ray-Ban at the beginning of the year, very small.

In terms of Europe and consumers' attitude, I would say that in Europe, we are gaining share. I think we are gaining share in many different parts of the world, especially in Europe. And I don't see – as much as we can see even and more than anything else through our Star system and Star services, I don't see any kind of inventory piling up in our customers, especially in Europe in the last four, five, three months.

In terms of advertising, I think we are going back to our normal standards, and then you have to consider that this – there is also a currency effect, which is in the cost opposite to what we have in the revenues. But basically, we are going back to our normal standards.

Daniel Hofkin – William Blair & Company

Okay. Thank you very much.

Operator

The next question is from Ms. Allegra Perry of Nomura. Please go ahead, madam.

Allegra Perry – Nomura

Yes. Good evening. I have three questions, please. The first one on retail, in the presentation you talked about April and May being stronger and June being soft. I was just wondering if you could give us a little bit more color around how each of the months did within the quarter, and if possible, quantify a little bit more on the current trading side of things.

Secondly, on LensCrafters, I was wondering if you could give us an idea of how much the change in promotional activity may have affected traffic in the quarter, and also, how you expect a shift in focus to back-to-school to affect the third quarter going forward. And then lastly on Pearle Vision, I noticed there was not much mentioned here and of course it was the one kind of negative performing banner. I was wondering if you could give us a little bit more detail on why it's still negative and what's affecting that banner particularly. Thank you.

Andrea Guerra

In terms of Pearle Vision, it's tough to say, so negative from 5.2 – I mean, in terms of comps basically that grows to the zero. So last year, we have been very, very aggressive. It's not that we have reduced the number of promotional weeks, but we are a little bit less aggressive on promotion and we lost some volume. So I am not really worried about Pearle Vision.

On LensCrafters, the change in the (inaudible) promotion wouldn't make it too long and too difficult. We stopped the normal promotion activities 12, 13 days before normal in the second Q and we are starting in the third Q some days ahead. And the – we lost some conversion in June and I have to say that most probably in July we took it back. So, quite happy to see our numbers in July, and let me say, if I exclude the first three, four days, it's really back to the first couple of months' trends. So I think there is nothing special around any specific weekly or – movement or promotional activities in LensCrafters. It's really a solid coming-back.

Andrea Guerra

Thank you. And perhaps a little comment on current trading if possible?

Enrico Cavatorta

Yes, I said it's – it's really good.

Allegra Perry – Nomura

And that's for the whole group, not just LensCrafters?

Andrea Guerra

No, I'm talking for the whole group.

Allegra Perry – Nomura

Okay. Perfect. Thank you.

Operator

(Operator Instructions). The next question is from Mr. Flavio Cereda of Merrill Lynch. Please go ahead, sir.

Flavio Cereda – Merrill Lynch

Hi, good afternoon. Most questions of mine have been answered. Just a quick one. Can you give us a sense of where we stand in terms of manufacturing outputs or volumes compared to a year ago, please?

Andrea Guerra

So we are, let me say, just a little bit behind. We were quite a bit behind in the first five months, but in the last 40 days we worked all Saturdays. So I don't have the precise number in front of me, but I think we are more or less in line with last year in terms of recovering the pace to sales. So, in terms of overall output of manufacturing, we are up, let me say, between 8% or 9%. But in terms of the plan we had, we are exactly on line.

Flavio Cereda – Merrill Lynch

Okay. Thank you. Thank you very much.

Operator

The next question is from Mr. Domenico Ghilotti of Equita SIM. Please go ahead, sir.

Domenico Ghilotti – Equita SIM

Good afternoon. I have a question on your retail operating costs. So we will have to understand a bit more your attitude in budgeting, let's say, the retail costs for the second half if you are working to face another – or some kind of slowdown or if you are budgeting some recoveries, and so you are pushing a little bit more on your operating costs to sustain this recovery.

And the second question is on your CapEx. You are currently basically investing 60% of your D&A. Could you remind me the target in terms of CapEx for the full year, and let's say, a normalized level of CapEx in your opinion looking, let's say, in two, three years?

Andrea Guerra

So, the number you are saying about the 60% of the D&A doesn't look familiar to me, because I think we are investing more or less our D&A even in this year slightly – the – slightly lower than our current rate.

Domenico Ghilotti – Equita SIM

Okay, I will check.

Andrea Guerra

Yes, we will invest in the region of EUR210 million to EUR215 million in our ordinary activities. The other question in terms of budgeting, I think that I mean we learned two things. On one side, yes, we are investing more in advertising that's true. The second is, we are now really budgeting, let me say, three weeks over three weeks and therefore, in terms of our sales and operating expenses, we are trying to follow-up with demand as quickly and as correctly as possible. So we are not planning for the six months in advertising, yes, slightly more, but in terms of our operating expenses, we are really following up.

Enrico wants to give you some more colors about D&A?

Enrico Cavatorta

Yes. I think the 60% is – I mean, the total CapEx of EUR82 million on total D&A, that D&A includes amortization of intangibles. That of course should not be included in this. If you take that out, it is – EUR42 million is intangible amortization – if you take that out, basically the ratio is approximately 80%, and we expect it to be 100% in the second half.

Domenico Ghilotti – Equita SIM

Do you think that you can keep, let's say, the CapEx at the current level or do you see some increase going forward, let's say, to a normalized –?

Enrico Cavatorta

No, we expect in the second half to invest more than in the first half.

Domenico Ghilotti – Equita SIM

Okay.

Enrico Cavatorta

And as I said – Andrea mentioned, the target is in excess of EUR200 million. We spent only EUR82 million in the first half. So clearly, in the second half, we will outspend it.

Domenico Ghilotti – Equita SIM

Thank you.

Operator

The next question is from Mr. Stefano Corneliani, the Intermonte SIM. Please go ahead, sir.

Stefano Corneliani – Intermonte SIM

Stefano again, just a clarification on the carryover capital commitment. The EUR250 million CapEx plan for this year, does they – do they include also the EUR60 million for – devoted to the Turkish subsidiary that is EUR190 million net of this item or they would be on top?

Andrea Guerra

Stefano, the number is EUR215 million and the EUR60 million for Turkish is on top.

Stefano Corneliani – Intermonte SIM

Okie-dokie, thank you.

Andrea Guerra

Yes.

Operator

The next question is from Mr. Andrea Bonfà of Banca Aletti. Please go ahead, sir.

Andrea Bonfà – Banca Aletti

Hello. Good afternoon to everybody. Very quickly, I would like to know if it is possible to have the global price mix effect at consolidated level or otherwise, the retail one. Thank you.

Andrea Guerra

So we normally give it in terms of wholesale and it was global 1.6% up.

Andrea Bonfà – Banca Aletti

Okay. So it's not possible to have it for a consolidated level?

Andrea Guerra

So, first of all, consolidated comps, it's a figure – it's an item we don't look at. And as I said, the only one which I think it's important is Sunglass Hut. And I said before that with 5.5% positive comps, we are well balanced between mix and volume.

Andrea Bonfà – Banca Aletti

Okay. Thank you.

Andrea Guerra

Pleasure.

Operator

(Operator Instructions). We have a follow-up question from Antoine Belge of HSBC. Please go ahead, sir.

Antoine Belge – HSBC

Yes, just a bit of technical and boring question on inter-segment and corporate adjustments. I think in Q2, this line was down EUR5 million. Can you explain if it was more related to a decrease in overheads or more linked to lower eliminations?

Andrea Guerra

I will ask Enrico to answer this question.

Enrico Cavatorta

Yes. I mean, the – one of the item cost is the depreciation and amortization, where we have a depreciation of intangible that of course had some exchange rate effect. The balance is the corporate cost. And of course, last year, we had some accrual for severance and restructuring costs that we don't have this year.

Antoine Belge – HSBC

Thank you.

Operator

(Operator Instructions). Gentlemen and Ms. Senici, the questions are finished. There are no more questions registered. Thank you.

Alessandra Senici

Thank you, operator and thank you all for listening to today's conference call. And we wish you a very good summer, but we will be available for any follow-up you – follow-up questions you may have. Thank you and bye.

Operator

Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephones.

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