OVS Strategy Update 20Apr - ovscorporate.it · 2017 OVS Strategy Update OVS today: the environment...

OVS Strategy Update

April 20th 2017

11

2017 OVS Strategy Update

Disclaimer

This presentation is being furnished to you solely for your information and may not be reproduced or redistributed to any other person.

This presentation might contain certain forward-looking statements that reflect the Company’s management’s current views with respect to future events and financial and operational performance of the Company and its subsidiaries. These forward-looking statements are based on OVS S.p.A.’s current expectations and projections about future events. Because these forward-looking statements are subject to risks and uncertainties, actual future results or performance may differ materially from those expressed in or implied by these statements due to any number of different factors, many of which are beyond the ability of OVS S.p.A. to control or estimate. You are cautioned not to place undue reliance on the forward-looking statements contained herein, which are made only as of the date of this presentation. OVS S.p.A. does not undertake any obligation to publicly release any updates or revisions to any forward-looking statements to reflect events or circumstances after the date of this presentation.

Any reference to past performance or trends or activities of the OVS S.p.A. shall not be taken as a representation or indication that such performance, trends or activities will continue in the future.

This presentation does not constitute an offer to sell or the solicitation of an offer to buy OVS’s securities, nor shall the document form the basis of or be relied on in connection with any contract or investment decision relating thereto, or constitute a recommendation regarding the securities of OVS. OVS’s securities referred to in this document have not been and will not be registered under the U.S. Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

The manager in charge of preparing corporate accounting documents, Nicola Perin, declares, pursuant to paragraph 2 of article 154-bis of the Consolidated Law on Finance, that the accounting information contained in this press release corresponds to the accounting figures, books and records.

This investor presentation contains measures that were not prepared in accordance with IAS/IFRS.


Index

1) OVS today – Ready to expand the business

2) The market

• Italian clothing Market, Distribution Channel, Online Market, European Market

3) Management view – The omni-channel strategy and th e international expansion

• Priorities and actions

• OVS today: the environment

• Three years action plan:

‒ Top line: Italian Market consolidation, International Growth and E-commerce

‒ Flexibility

‒ Gross Margin

‒ Cost control

4) Business Evolution and Management Assumptions


1. OVS today – Growth in a tough 2016 environment. Ready to tackle the further business expansion.

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Growth in a tough 2016 environment. Ready to tackle the further business expansion.

#1 FashionValue Family Retailer in Italy

Unique positioning Largest and Best Retail Network in Italy

• After 5 years of continuous decrease, Italian market seems stabilizing, keeping its role of one of the largest markets in Europe, while preserving its main characteristic of being the most fragmented one. The Italian market remains still very attractive.

• OVS Group is well positioned in this market, aiming to continue the consolidation and gaining market share year by year.

• Upim repositioning in the Family segment shows great results

• New openings, forceful advertising and new store concept generating attentions and positive reactions to the brand

• Great momentum of the brand

• Best price/quality ratio in every segment

• Great merchandising in all categories. Category killer in kids.

• A variety of formats able to penetrate different markets.

• Consistent profitability across all the network.

• Zero rump-up for OVS network , immediate returns on capital invested

Continuous Innovation on the back of a proven platform

Strong Growth Momentum • Integrated supply chain, with a sourcing teamcomprising 250+ employees in 5 countries. Logistic capacity to support growth

• Unceasing innovation in i) shortening leadtime, ii) improving flexibility , iii) sourcing from new countries , and iv) in season distribution

• Strong increase in sales and profitabilityin the last three years

• Ready to expand in foreign markets also through the leverage of the substantial synergies arising from the Charles Voegeledeal


2. The market

6


.

According to Sita, in 2016 Italian Clothing Market decreased by -1,6% (-3,4% excluding internet and outlets) and also in 2017 it is expected to drop by -1,1%; -2,6% if we exclude internet and outlet; prices will reduce again (-0,5%)

� Sita 2017 forecast for the apparel market is less negative compared to 2016.

� A large part of the planned reduction of the decline in clothing consumption will come from the continuation of thedevelopment of online shopping , whose increase in value in 2017 is still expected significant (+17,1% as a total, +16,1%for pure players and +21,7% for the rest of online) .

Italy 2013 2014 2015 2016 2017 2016 2017

Household Income -0,2 1,0 2,3 1,0 2,3 1,0

Household Consumption -2,9 0,3 0,9 1,2 0,6 1,2 0,6

Consumer Prices 1,2 0,3 0,2 -0,1 1,0 -0,1 1,0

Clothing Market trend in Volumes -5,8 -2,3 -0,2 -0,8 -0,6 -2,2 -1,9

Clothing Average Price Trend 0,5 -0,6 -2,3 -0,7 -0,5 -1,1 -0,7

Clothing Market trend in Value -5,3 -2,9 -2,5 -1,6 -1,1 -3,4 -2,6

Source: Prometeia, Sita - November 2016

Excluding Internet and

Outlet

1. Italian Clothing Market

7


.

� The trend characterizing the last years will continue as mono-brand retailers will continue to gain share, thus reducingfragmentation

� Only strong brands will continue to expand their network in the Italian market.

� Small players or inefficient players will continue suffering even more.

As experienced in 2016, clothing mono-brand retailers and online pure players will continue to gain market share, while multi-brand retailers and street vendors will drop.

2. Italian distribution channel

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Distribution Channel 2015 2016 2017% Spending % Spending % Spending

Shopping Malls 31,5 33,7 35,5Outlet 6,7 6,8 6,8Online 6,2 7,6 9,0

Pure Players 5,3 6,3 7,4Rest of online 0,9 1,3 1,6

Other Channels 55,6 51,8 48,7Total 100,0 100,0 100,0

22.648 22.399

Composition in % - Calendar Year

Market Value (€ mln)

.

Clothing online market share will reach 9.0% in 2017 (about 2 bln €); OVS reference online market will be around 100 € mln.

� The online will account according to Sita in 2017 for 9.0% of the market (out of which 7.4% pure players).

� The reference market for OVS should be about 101 million euro in 2017 if we apply the incidences of the study ofPolitecnico di Milano (the retailers‘ market is worth about 16% of online, while the full price market is 31% of online).

3. Italian online market

2017 Online market:

€2,016 mln (+17%YoY)

31% Full price: €100 mln

Source: PolitecnicoSource: Sita Ricerca

16% Retailers: €322 mln

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.

Like the Italian Market, the European market has been under pressure for years, recording the most significant decline in 2016

4. European Market

Source: Sita Ricerca, GfK, Kantar consumer panels. Countries included: GE, UK, FR, SP, IT, NL, BE, AT, SW, PO, CZ

Source: Sita Ricerca, GfK, Kantar consumer panels. Countries included: GE, UK, FR, SP, IT, NL, BE, AT, SW, PO, CZ

� In a declining market, online channel is constantly growing by around €2.5bln per year, increasing its market share by 33,6% in 6 years (from 13% to 17%).

� 43-44% is sold at reduced prices, confirming the importance of promotion as an effective marketing tool

� Compared to the average of the European market, Italian market is significantly fragmented (top five brands account for only 17.1% of the whole Italian market, vs. 23.5% of the other European countries on average)

€ in bln

Source: Sita Ricerca,


3. Management view – The omni-channel strategy and the international expansion

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.

Priorities and actions to be implemented in order t o successfully create value

According to a study conducted by one of the prime consulting firms, in the chart below the most important successful factors for choosing an apparel brand for a consumer are in line with the top priorities of OVS and they are already part of its DNA. In particular:

23%

47%

51%

56%

60%

67%

69%

69%

70%

71%

74%

76%

80%

84%

90%

93%

0% 50% 100%

Brand worn by celebrities

Prestigious brand

Popular brand

Updates frequently/agile

Innovative materials

Free home delivery

Brand that expresses my …

Fashionable design

Location and no.of stores

Easy to shop online

Courteous staff

Brand&style selection

Sales&promotions

Low price

Good quality

Value for money

Branding

Pricing/promotions

Store/operatins

Online

Quality/functional

• Value for money & low price – OVS has never been “cheap” and it has alwaysfocused on quality, in line with its positioning, offering the right mix of price,quality and seasonal trends. The offer (unbeatable in kids, chinos, man shirts,etc.) and low prices will be even more emphasized thanks to strategicinvestments on low cost options. In the Italian market, some of OVS’merchandising price points are in line with the ones of Primark .

• Good quality – The number of messages delivered regarding productquality will also increase (e.g. Bio cotton campaign)

• Sales and promotions – with the “Family and Friends” we introduced in Italy avery effective formula never seen before

• Friendly Staff – focus on competence and courtesy• Location and # of stores – Network continuous expansion and new

mechanisms to attract customers in the stores will be implemented also throughthe strengthen of the integration between digital and physical channels.

Moreover, OVS is concentrating on the following aspects that believes beingfundamental for a durable and strong growth:

• Work in order to get better Data and Consumer Analytics (also thanks to theCRM tool);

• Connect with the consumer across all channels;• Expand the flexibility of the Supply Chains and integrate the business and the

assortment planning.

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OVS today: the environment

� OVS is competing in a market characterized by the following main aspects:

a) Market contraction at least during the last 5 years;b) Internet grabbing market share of about 1.5% per year;c) Zara, H&M and Primark expanding their store network and therefore

boosting the external pressure .

� OVS will therefore:

a) Continue broadening the network with versatility, opening different formats of stores, both in franchising and directly operated; continue to consolidate the fragmented market still characterized by a significant portion of small players and other big competitors that are losing market shares year by year.

b) Keep on expanding e-commerce through the utilization of its own websites and marketplaces in different markets in order to cope the increasing market share of the e-commerce channel.

c) Continue to consolidate the fragmented market still characterized by a significant portion of small players and other big competitors that are losing market shares year by year.

d) Work on new projects that will sustain the Like-for-like in a range of 0%/2% on an yearly basis.

e) Focus on the international expansion, especially in Europe (through the growth of its network and the considerable opportunity given by Charles Voegele)

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1) Top line:

i) OVS will consolidate the Italian Market, aiming to reach around 9-10% of market share in Italy;ii) OVS will drive its international growth through i) organic growth and ii) external growth;iii) OVS is investing and expanding its e-commerce presence by way of the development of i) own platforms and ii)

marketplaces.

2) Focus on flexibility:

OVS will keep on focusing on the flexibility of its supply chain to further increase its response to the fast market needs

3) Cost control

OVS will preserve costs under control and consistent with the expansion planned in the following years.

3 Pillars:

Management view and action plan for the next 3 year s

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1.i) Target 9-10% market share in Italy

Starting from 7,4% of market share at the end of 2016 (+5,3% compared to the same period of the last year), OVS will continue to consolidate the Italian market, aiming to reach 9-10%.

Market share consolidation will be achieved through:

a. New DOS Openings;

b. New Franchising Openings;

c. Focus on Like-for-like performance.

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OVS SpA will continue to expand its DOS network in Italy, adding more profitable stores compared to the present network (made up of 613 Full Format DOS at the end of 2016 closing)

� OVS network is not characterized by a significant overlapping effect, while Upim network is not impacted by overlapping due to the less extension of the network. Management estimates still 150 OVS and 200 Upim DOS stores to be opened in the future with a satysfying profitability.

� New OVS and Upim Full Format DOS generate 23-24% and 21-22% of store EBITDA respectively

� Quick return on investment as Zero rump-up for OVS DOS, while 5 to 6 months required by a Upim DOS in order to reach the normal profitability.

1) i) a. Target 9-10% market share in Italy – new op ening DOS

• Each New OVS Full Format store � +450-500 €/k • Each New Upim Full Format store � +390-420 €/k

Of additional store EBITDA on a run rate basis before logistic costs

Action: to open 20-25 DOS OVS and 20-30 DOS Upim fu ll format per year in the next three years.

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1) i) b. Target 9-10% market share in Italy – new op ening Franchising

OVS SpA will continue to expand its Franchising network in Italy, mainly through kids formats (150-200 sqm). At the end of 2016 the newtork is made up of 606 stores.

� Plenty of opportunities for all the small italian entrepreneurs still playing a significant role in the Italian fragmented market but facing tough competition from mono-brand Retailers; other opportunities come from weak players specialized in franchsing, that suffered significantly over the last years .

� New OVS Kids and Blue Kids characterized by 30-33% of additional store EBITDA margin, contributing with about 65-70 €/k each with zero capex investments

Action: New 100 Franchising stores per year and int roduction of new small format stores

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OVS is the best performer in the Italianapparel market, overperforming themarket by +10,2% in the last 3 yearsand increasing its market share by+27,1% (from 5,8% to 7,37%)

1) i) c. Target 9-10% market share in Italy – L4L ev olution (1 of 2)

(*) 2014, 2015, 2016 Source: Sita Ricerca

In the last three years, +3,2% of Like-for-like growth in a market that declined by -7%.

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1) i) c. Target 9-10% market share in Italy – L4L ev olution (2 of 2)

To compensate the negative market trend, OVS is implementing different actions to continuously sustain LFL, aiming to increase sell through and traffic in present stores:

� Constant attention on stores in order to always keep up to date the network. Renovations have shown sales up to 15%

� New Merchandising projects (e.g. «Dimensione Danza», women-Back to work, Fitness, Curvy, Maternity, Underwear)

� New commercial projects (e.g. «Find your size», «Black Friday», «cash desk contest»)

� Operation projects (e.g. Pre sale merchandise and distribution realignment, increase of post distribution, increase in sourcing flexibility, best & slow replenishment)

� Strengthening the link between retail and on-line channels (e.g. CRM and fidelity improvement, «click & collect», buy on-line and return in stores, order on-line and get the good in the store)

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1. ii) International Growth

OVS international expansion will be achieved through:

a. Organic Growth:

• The proven capacity of OVS to continue expanding the network in the foreign countries

b. External Growth:

• The opportunity for OVS represented by Charles Voegele• Charles Voegele transformation• Main Steps and Assumptions • Charles Voegele evolution

2020


1) ii) a. International Growth – Organic Growth (1 o f 2)

Looking at the International expansion of OVS, the company is already in a good shape, and the spread of its network in foreign markets is proceeding rapidly,mainly through the kids franchising channel

� At the end of 2016 the network already accounted for 176 stores, out of which 14 DOS.

� Recently OVS: � opened a new OVS kids in a Mall in the city centre of Zagreb of almost 200 sqm;� announced, after the great success of the almost 50 kids stores in Spain, the first OVS Full Format store in Plaza

Norte, Madrid, whose initial results are encouraging;� Inaugurated the first OVS Full Format store in Portugal with a surface of 800 sqm dedicated to men, women, kids

and a dedicated space of 50 sqm Shaka cosmetics. Even in this case results are positive.

OVS Kids in Zagreb

OVS FF in Madrid

OVS FF in Portugal

56

16

10

10

OtherCountries

34

2016 OVS International Netwok (*)

22%FF, 62% kids, 16% Other store format

3

47

(*) Network as of Jan17

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1) ii) a. International Growth – Organic Growth (2 o f 2)

OVS will continue its internationalization process through the enlargement of its network, developing a profitable scalable business in key competitive markets abroad:

� New highly experienced manager dedicated to international expansion

� Multilateral market entry strategy : i) Full Format Stores; ii) Kids and other small format stores mainly in franchising; iii) Online

� Strengthen the presence in markets where OVS is already reaching great performances: Spain, Balkans, and general Eastern Europe where Like-for-like performances are all positive. Present network made up of 176 stores, mainly in Franchising.

� Continues to expand in new markets, among which China, where after signing an important contract with Li & Fung, OVS will open about 18 stores already in 2017.

� During 2017, OVS will improve also its foreign operations, opening an HUB in Hong Kong. The hub will allow the company to penetrate more efficiently foreign markets in terms of stock management, flexibility, and timing, especially in Far and Middle East countries.

Action: Selling square meters are expected to incre ase by more than 50% in 2017. Continue expansion in the following years. As of today around 3% of the total Net Sales are realized out of Italy.

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1) ii) b. International Growth – External Growth

Charles Voegele represents an incredible opportunity to accelerate the international expansion with minimum financial risk (CHF14,1m of investment):

� OVS will have the access to a network of around 400 stores in 5 European adjacent markets (Switzerland, Austria, Slovenia, Germany and Hungary)

� The network is aligned with OVS network standards and all capex required for store’s convertions into OVS and Upim formats will be fully paid by Charles Voegele

� After store conversion, Charles Voegele will recognize royalties fees based on Net Sales realized through stores under OVS and Upim brands (3% of net sales). In addition, OVS will benefit on COGS due to the synergies arising from the incremental volumes that will be purchased from vendors (estimated to increase by 30% the normal OVS’ level of purchases already in 2017)

� The minority in Sempione Retail is a Financial Asset for OVS. Starting from 2019, OVS will have the possibility to exercise a call option on the 44,5% minority stake of Sempione Retail at the OVS’ EBITDA multiple discounted by 25%.

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� Store network at the time of the acquisition: around 800 stores in Switzerland, Austria, Slovenia, Germany, Hungary, Belgium and Netherlands with about 18% of Store EBITDA on average

� High Central costs � mainly due to personnel (HQ based in Switzerland), Logistic and Marketing expenses

From a vertical integrated company to a pure retailer with a network already profitable at the time of the acquisition.

Charles Voegele Business Model

� Store rationalization, keeping around 50% of the store network: disposal of no profitable Belgium, Netherlands (154 stores already disposed) and a portion of Germany. More than 200 stores already converted by the end of 2017. First pilots opened.

� Downsize the HQ costs and proceed with the disposal of the Far East procurement office. Marketing and Logistic costs will be aligned to OVS business model. The first redundancy process related to the product development structure has already been accomplished (more than 100 employees).

Actions implemented

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Main Steps and assumptions (1 of 2)

� As of today :

� the company sold the Swiss Real Estate, generating CHF190m of cash-in, and allowing Charles Voegele to fully pay back the financing in place at the time of the acquisition.

� A new credit line of CHF60m has been made in order to cover the financial needs for the NWC and for the capex required for the store conversions (a portion will be paid also through a vendor financing)

� Netherland and Belgium business have been disposed, as characterized by negative EBITDA and weak markets� HQ downsizing and closure of the far east sourcing office started� Slovenia has been fully converted (10 stores), while pilots in Switzerland, Austria, and Germany have been opened. First

results are encouraging. � The company reached remarkable savings thanks to new logistic contracts.

� By the end of 2017:

• All stores based in Switzerland will be converted (around 150 stores).

� By the end of 2018:

• New setup of logistics and HQ downsizing completed • All network converted, with still some opportunities to transfer to a third party a portion of the German network.

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Main Steps and assumptions (2 of 2)

� Main Business Plan assumptions :

• Sales density is envisaged to increase by 10% on average after each store conversion, as a result of i) traffic increase, ii) average price reduction and iii) the introduction of strong offer to kids.

• HQ downsizing will contribute with about CHF60m of cost savings.• Logistic costs will decrease by around CHF20m after the new set up: distribution through Pontenure and the

merchandising managed through the OVS’ systems (from 2016 to 2019).• Total capex are expected to amount to about CHF90m, of which around CHF65m for the network conversion• One-off costs are expected to amount to around CHF12m from 2017 to 2019.

� Current year trading:

� Sales of existing perimeter performing better than expected with a positive Like-for-like .� Pilots ’ performances are overall in line with the expectations. Pilots located in Switzerland and Slovenia are above the

envisaged results, confirming the strategy implemented of reducing the average ticket, increasing traffic and enlarging the offer dedicated to kids.

� Cash and profitability much ahead compared to budget, generating good buffers to sustain capex and growth� The downsize of the HQ is in line with the plan.

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� According to our estimations, even excluding the impact of the Swiss real estate disposal, Charles Voegele 2016 EBITDA was positive.

� 2017 EBITDA was originally expected to be slightly negative due to: i) negative impact of about CHF10m of higher rents (as a consequence of the real estate disposal) and ii) no sales for the closure period due to conversion. In light of today results, breakeven might be achieved thanks to cost reduction and sales increase on converted stores.

� 2018 and 2019 are expected to be significantly positive as the company will complete the restructuring process at the HQ level, switching from a vertical integrated company to a pure retailer, and adopting OVS’ business model. Moreover, EBITDA will also benefit from the run-rate impact of the conversions occured in 2017 and 2018.

� Capex from 2017 to 2019 are estimated to be equal to around CHF90m, out of which about CHF65m related to store conversions.

CHF million

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~400620

Stores Stores

� The network is envisaged to decrease from 620 stores to around 400 Stores. This is the result of: i) the disposal of Netherland (as of today already achieved), ii) the disposal of a portion of the German network, iii) the closure of no profitable stores. At the same time a slight impact on Net sales is expected after store conversion due to the enlargement of the kids’ offer and a better merchandising assortment, increasing sales density of about 10% on average.

� Main EBITDA contribution will be achieved through the savings arising from HQ overhead rationalization, partially offset by the Royalties due to OVS and incremental rental fees after the disposal of the Swiss real estate.

CHF million

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1) iii) E - Commerce

The e-commerce channel represents a great opportunity for OVS. The aim of the company is to grow significantly in the following years, offsetting the impact in physical stores caused by the constant overall growth of the channel in the apparelmarket.

Even if in 2016 the total amount of e-commerce net sales are still not material compared to the ones of the whole group, OVS is experiencing a constant impressive growth, with all KPIs notably improving. At the end of March 2017, looking at the KPIs of the web site «www.ovs.it» on an yearly basis, i) gross sales more than doubled, ii) customers and orders increased by 68%, iii) average monthly visits grew by 29%, iv) time per session increased by 10% and v) average ticket by 23,9%. Moreover, OVS highlights the launch of «www.ovsekids.it», a website fully dedicated to kids, which is growing fast.

OVS E-commerce channel will be even more competitive in Italy and it will spread its presence in new markets through:

a. Online websites

b. Marketplaces

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1) iii) a. E-commerce competition - Online websites

Net Sales realized through the online websites are growing more than 100% per year, underlining the success of the OVS’ platforms, particularly integrated to the physical network:

� All websites’ KPIs are improving. Retail and online channel more and more integrated;

� OVS has been continuosly strengthening its online presence also through a new e-commerce platform in Spain (www.ovs.es).

Action: Omni-channel strategy, strengthening the in tegration of physical and digital world, will incre ase online competition as well as sustaining DOS perfor mance in the long term. 2017 new markets for new platforms will be Switzerland, Austria and Slovenia .

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1) iii) b. E-commerce competition - Marketplaces

Marketplaces represent a great opportunity to increase OVS’ multi-channel strategy as well as being an effective way to enter foreign markets and address international growth:

� 2016 has seen the start of a profitable agreement between OVS and Zalando on a wholesale model. The sales of collections take place in 13 European countries excluding Italy;

� Also Upim started a cooperation with LaModa a marketplace covering three other countries, including Russia.

� All marketplaces reported good results, especially in kids categories, characterized by lower return rates compared to the average

Action: In the future, cooperations with marketplac es will be strengthened. New agreements with market places such as Myntra, which serves the Indian market, alr eady started in 2017.

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2) Focus on Flexibility (1 of 2)

� OVS Sourcing is well diversified :

• the company sources its products in Far-East and Middle-East countries as well as in other Europen countries, including Italy, Spain, Portugal, Romania and other near countries such as Turkey and Egypt.

• OVS has a lead time that varies from 2 weeks to 6 months, depending on the gender, volumes and merchandising of products sourced. Thanks to this diversification the company is characterized by a business model able to quick respond to the market needs, maintaining low prices and in the meantime focusing in great quality.

• Diversification is considered decisive, and therefore it will continue going forward in order to maximize the right mix between price-quality ratio and fast fashion.

In an environment that is continuously changing, OVS will keep the organization up to date in order to face the challenging factors characterizing the future of the industry This is one of the reasons why flexibility is gaining more and more importance. This element has always been addressed by OVS’ management, but it is considered to become even more crucial in the near future. Sourcing from different markets, process improvements, and material investments in logistic , allowed the company to achieve a good level of flexibility and to create the right infrastructure for further quick improvements.

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2) Focus on Flexibility

� Also thanks to the specific attention given to processes and logistics, OVS business model is developing consistently in terms of flexibility and responsiveness , being able to:

• split the seasons into two parts and therefore refurbishing stores with two collections per season over the year, with a monthly rolling in-store merchandising supply

• increase its post distribution (20% of the whole merchandising),

• introduce in season products (5% on the average),

• introduce open to buy sourcing,

• introduce the «multi shuttle» , with the possibilty to implement a one by one product delivery to the final destinations,

• develop the «PLM» (product life cycle Management), implemented starting from the F/W17, that will allow the sourcing standardization, and which is expected to further decrease lead times by 1 month.

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2) Focus on flexibility – Lead time

The average OVS Lead time is 145 days . The average lead time is estimated to decrease by about 30 days after the fully completion of the PLM (Product Life Cycle Management) roll-out. Fast fashion and Speedy orders are characterized by lead times that go from 2 to 9 weeks.

Analyzing the main competitors’ capacity to address a flexible/short lead-time business model, OVS is just below one of its peers, and is envisaged to almost achieve the same supply chain performance by 2018.

Source on competitors data: Goldman Sachs Global Investment Research

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3) Gross Margin Evolution

Over the years, OVS has proven the capacity to keep gross margin stable in spite of exogenous headwinds.

Also in 2017, Gross Margin is expected to remain stable , even considering: • more aggressive franchising expansion compared to DOS, • negative exchange rate impact (in 2016 the USD was hedged at 1,14, while in 2017 at 1,127), • a selling price reduction of around 2% without considering the merchandise mix effect • cotton price increase.

In the meantime positive impact is envisaged thanks to: • synergies with suppliers (as a result of increase of volumes purchased) and stronger negotiations, • new markets for sourcing, • favourable exchange rate of some local currencies (mainly Reminbi and Turkish Lira), • introduction of new suppliers• Synergies arising from the increase of purchases also thanks to the Charles Voegele transaction

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4) Cost control

The business expansion will allow the company to take advantage from its operating leverage , which has always distinguished the company over the years. No Material savings are envisaged in the near future.

Most of the break through initiatives generating cost savings have been achieved (e.g. rentals, Led project) and we expect from now a cost in line with infaltion.


4. Business Evolution and Management Assumptions

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Top Line evolution

Net Sales are expected to grow as a result of:

(i) network expansion –increasing surfaces by 4-5% per annum;(ii) Positive Like-for-like in the range of 0%/2%, thanks to the continuous development and implementation of special projects;(iii) Steady growth of Franchising of about 100 stores per year (+1% of selling surface per year); (iv) e-commerce.

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EBITDA Evolution

EBITDA will continue growing as a result of a mix of:(i) Proven profitable network expansion(ii) International expansion(iii) Further e-commerce development(iv) Charles Voegele contribution (Royalties and Synergies)(v) Stable Gross Margin

€ million

3939


Net Debt Leverage ratio

265.8

1.4x 0.9x

0.6x

Leverage including dividends distributionLeverage excluding dividends distribution(*)

Net Debt

Leverage on EBITDA

� 2016 ratio of net financial position to EBITDA is x1.4. Management envisage a gradual decrease of the ratio with an improvement of x0.5, considering dividends distribution cash out in line with 2016 and 2017, while a decrease of x0.8 with no dividends distribution in 2018 and 2019.

� The projected decrease of the Leverage on EBITDA is the result of the normal operating expansion of OVS and the consequent increase of EBITDA and the pertaining cash generation based on historical figures. No extraordinary cash-out (e.g. M&A operations) or cash-in have been considered within the above estimations.

1.4x

€ million

EBITDA

(*) No dividends cash out in 2018 and 2019

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Tax Rate

Tax Rate estimation

� 2016 tax rate of 24.5% has been positively impacted the ACE.

� Going forward tax rate will be slighter higher than 2016 and lower than 2015, as a result of i) less positive impact given by the ACE (even if still material), and ii) lower IRES according to the new Tax Authorities regulation.


FY16 Results

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Source: Sita Ricerca for market share

FY16 Highlights

+3.3%Increase in Net Sales

+35Full format DOS

+167 other storesmainly kids in franchising

+3.9%EBITDA Growth

Sales (€1,362.6m) grew by 3.3% driven by network expansion in a tough 2016 market

€186.7m EBITDA, €7.1m higher than 2015 (+3.9%), with EBITDA margin increasing to 13.7% of sales (+1 0 bps), as a result of (i) a higher GM and (ii) effec tive cost control activities

€121.6m EBT, €6.7m higher than FY15, benefitting from the improved EBITDA and lower financial expenses

Net profit of €91.8m (€0.40 EPS), up by €10.7m vsFY15, benefitting from (i) an improvement in the operating result and (ii) decreasing financial expe nses

Over the year, network expanded by 35 full format DOS and 167 other stores (mainly Kids formats in franchising). The increase in terms of surface amounts to about +6% (normalized for the franchisin g network sell-in/out ratio)

Market share at 7.4% (+37bps vs. Dec 2015)

Proposed total dividends €34.05m, or €0.15 per shar e, representing a pay-out of 37.0%

€91.8mNet Income (€0.40 EPS)

4343Key Income Statement ItemsSales and profitability growth driven by network de velopment

• FY16 Net Sales increased by 3.3% driven by network expansion, while like-for-like sales closed in line with 1H16 results (-3.2%), reflecting the tough external FY16 market conditions, particularly unfavorable in May and September, which represent key months for OVS’ turnover.

• Positive performance of UPIM brand both in terms of sales and EBITDA following (i) the success of the brand’s repositioning and (ii) the expansion of the kids franchising network.

• EBITDA increased by 3.9% vs. FY15 and EBITDA margin grew by approx. 10bps to 13.7%, tempered by negative Like-for-like and driven by (i) operating leverage due to cost control activities (savings on rent costs and on energy expenses, thanks to the LED project) and (ii) improved gross margin (as a results of sourcing reshoring activities and improved distribution)

• PBT increased by €6.7m and net income improved by €10.7m, thanks to (i) positive operating results and (ii) slightly decreasing financial interests.

(*) Excluding extraordinary costs

FY16 FY15

GrowthKey Metrics* € mln % of Net Sales € mln % of Net Sales

Net Sales 1,362.6 1,319.5 3.3%

EBITDA 186.7 13.7% 179.6 13.6% 3.9%

EBIT 136.2 10.0% 130.0 9.8% 4.8%

PBT 121.6 8.9% 114.9 8.7% 5.8%

Net Profit 91.8 6.7% 81.1 6.1% 13.2%

4444Sales and EBITDA Performance in FY16

Agg

rega

te P

erfo

rman

ce

EBITDA (€mln)

13.6% 13.7%

14.5% 8.6%

Margin %

14.3% 10.6%

Net Sales (€mln)

Per

form

ance

By

Bra

nd

1,320 1,363

4545

€ mln 31 January '17 31 January '16 Change

Trade Receivables 75.3 71.0 4.2

Inventory 340.6 289.7 50.9

Trade Payables (367.7) (368.8) 1.2

Net Working Capital 48.2 (8.1) 56.3

Consolidated Net Working Capital

• The working capital increased vs. January last year:

– Higher trade receivables (+€4.2m vs 31 January 2016) as a result of the development of the network (with stable average collection periods).

– Growth in inventory caused by (i) the acceleration in the network expansion, both in Italy and abroad, (ii) the development of the commercial plan agreed with Charles Vögele and (iii) unfavourable weather conditions that impacted 2016 market. A sizable amount of this increase will be absorbed by good sales of February, pilot stores and the conversion of Charles Voegele’s network.

– Trade payables substantially in line with last year (+€1.2m vs 31 January 2016).

4646Capex

IT and special projects (c. 19%), mainly related to operational projects

FY 2016 Capex breakdown ( € mln)

New openings (c. 45% of total)

Total €62.5m

Capex for the maintenance of the headquarter building, logistics and others

Refurbishment and maintenance of existing network (c. 27%)

4747Net Debt and Leverage

€ mln 31 January '17 31 January '16

Net Debt 265.8 235.0

EBITDA LTM 186.7 179.6

Leverage 1.4x 1.3x

• As of 31st January 2017 net debt was slightly higher vs. last year, given (i) the €34m dividend pay out in June 2016, (ii) the payment of higher taxes vs FY15, despite a decreasing tax rate (tax advances were not due last year) and (iii) the investment of CHF14.1m (€13.8m) in Sempione Retail AG.

• The average interest rate was 2.6% in FY16 vs 3.4% in FY15.

4848Consolidated Cash Flow Statement

€ mln FY16 FY15

EBITDA 186.7 179.6

Change in Net Working Capital (56.3) (5.6)

Change in other assets (liabilities) 7.3 12.4

Capex (62.5) (68.3)

Operating Cash Flow 75.2 118.0

Financial Expenses (15.3) (20.2)

TFR (Employees’ leaving indemnity) (2.1) (2.5)

Taxes (36.6) (20.5)

IPO costs (excl. bank commissions) 0.0 (3.6)

IPO proceeds (net of bank fees) 0.0 349.1

Dividends (34.1)

Participation in Sempione Retail AG (13.8)

Other (3.2) (6.1)

Net Cash Flow (before MtM derivatives and amortized costs) (29.9) 414.1

Change in MtM derivatives and amortized cost (0.9) (24.7)

Cumulated Net Cash Flow (30.8) 389.4

Operating cash flow for the year reached €75.2m.

The increase in operating working capital is mainly

related to (i) the development of the network, (ii) the

international expansion through the Charles Vögele

deal and (iii) unfavourable market conditions.

4949Outlook

• Positive top line performance in the first months of 2017 thanks to (i) more favorable weather conditions vs 2016 and (ii) new commercial initiatives.

• The network continued to expand in the first months of the year: +37 stores, including 8 DOS.

• The action taken in 2016 with the acquisition of the minority stake continued with the formalization of the business agreement with Charles Vögele. Under this agreement:

(i) the parties agreed to start the progressive conversion of Charles Vögele stores to the OVS and Upim format with investments borne by the Swiss company. The plan provides for the conversion of over 300 stores in Switzerland, Austria, Hungary and Slovenia, to the OVS and Upim brands by the end of 2018.

(ii) OVS will benefit from the payment of royalties equal to 3% of the net sales generated by the stores from the conversion date, as well as from the relevant synergies generated by the increased purchase volumes.

• The process of disposing part of the German network is under going. The cost rationalization phase has already been launched in Switzerland, enabling Charles Vögele to significantly improve the operating leverage. The results of the rationalization process are currently in line with forecasts. A this regard the redundancy process has been already been accomplished.

• The Charles Vögele transaction will allow for significant acceleration in the international expansion of the OVS SpA Group, with an extremely limited financial risk.

• From 16 December 2019, OVS will be able to exercise a call option to purchase another 44.5% stake in Sempione Retail at the OVS multiple at the option exercise date, discounted by 25%.

• In the first months of 2017, pilot stores were opened to test the format and the product offering, in order to gather all the feedback from the various markets, in view of the major conversion phase scheduled to begin in the summer of 2017; the first results and feedbacks are very encouraging. Sales EBITDA and cash generation are overall above the expectations.

• The management is looking ahead to the new year with confidence and conviction for its strategy and believes that its proven ability to execute and react in a costantly changing and increasingly competitive market, will result in sustainable and remunerative growth in 2017.


Appendix FY16 Results

5151P&L Adjustments Bridge 1/2

€ mln31-Jan-17 Reported

o/w non-Recurring

o/w Stock Options,

Derivatives and PPA

31-Jan-17 Adjusted

31-Jan-16 Reported

o/w non-Recurring

o/w Stock Options,

Derivatives and PPA

31-Jan-16 Adjusted

Net Sales 1362.6 1362.6 1,319.5 1,319.5

Purchases of consumables 576.8 576.8 565.0 565.0

Gross Margin 785.8 785.8 754.5 754.5

Gross Margin % 57.7% 57.7% 57.2% 57.2%

Personnel Cost 277.8 0.2 2.5 275.2 261.9 0.3 1.4 260.2

Services 176.3 0.9 175.4 171.6 2.1 169.5

Rents Net of Other Income 126.0 126.0 124.5 1.0 123.5

Write-downs and Accruals 1.2 1.2 1.8 1.8

Other Operating Charges 24.1 2.7 21.4 23.4 3.6 19.8

EBITDA 180.4 (3.8) (2.5) 186.7 171.3 (6.9) (1.4) 179.6

EBITDA% 13.2% 13.7% 13.0% 13.6%

Depreciation & Amortization 59.0 8.6 50.4 58.2 8.6 49.6

EBIT 121.3 (3.8) (11.1) 136.2 113.1 (6.9) (10.0) 130.0

EBIT % 8.9% 10.0% 8.6% 9.8%

Net Financial Income/(Charges) 15.6 (0.9) 14.6 14.6 (6.8) 7.2 15.0

PBT 105.8 (3.8) (12.0) 121.6 98.5 (13.7) (2.8) 114.9

Taxes 27.8 1.0 0.9 29.8 11.9 23.5 (1.6) 33.8

Net Income 78.0 (2.8) (11.1) 91.8 86.6 9.9 (4.3) 81.1

5252P&L Adjustments Bridge 2/2

Non-recurring items

To give a clearer representation of the financial performance of the OVS Group, the income statement informationshown for 2016 has been adjusted for: i) non-recurring expenses of €2.8 million, mainly related to costs incurred forM&A activities; ii) other normalizing elements relating to the accounting treatment of stock options (“non-cash”expenses of €2.5 million), iii) currency derivatives for which mark-to-market accounting is required (costs of €0.9million), and iv) amortisation of intangible assets related to PPA (€8.6 million). In the same way, the comparativefigures for 2015 do not include: i) non-recurring net income of €9.9 million, mainly deriving from tax entries (€19.7million relating to the “non-cash” impact of the release of deferred tax liabilities due to the announced reduction in theIRES rate in 2017), partly offset by costs associated with the IPO (€3.6 million) and with the simultaneous refinancingof the company (€6.8 million in financial fees); ii) other normalising elements relating to the accounting treatment ofstock options ("non-cash" expenses of €1.4 million) and currency derivatives, for which mark-to-market accounting isrequired, resulting in high volatility (revenue of €7.2 million) and the relative tax effect (€1.6 million); and iii)amortisation of intangible assets relating to PPA of €8.6 million.

Net Profit in 2016, not adjusted for the above elements, was €78.0 million.

5353

€ mln 31 January '17 31 January ‘16 Delta

Trade Receivables 75.3 71.0 4.2

Inventory 340.6 289.7 50.9

Trade Payables (367.7) (368.8) 1.2

Net Operating Working Capital 48.2 (8.1) 56.3

Other Short-term Non-financial Receivables (Payables) (79.0) (91.3) 12.3

Net Working Capital (30.9) (99.5) 68.6

Net Assets 1,368.9 1,357.2 11.7

Net Deferred Taxes (140.9) (142.7) 1.8

Other Short-term Non-financial Receivables (Payables) (11.8) (6.1) (5.7)

Severance Indemnity Provision and Other Provisions (47.7) (48.7) 1.1

Net Invested Capital 1,137.6 1,060.1 77.5

Equity 871.7 825.1 46.7

Net Debt 265.8 235.0 30.8

Total Sources of Funding 1,137.6 1,060.1 77.5

Consolidated Balance Sheet Statement

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