Ermenegildo Zegna N.V. — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS and presented in euros.
Business context
Zegna is a global luxury group operating the Zegna and Thom Browne brands, alongside textile manufacturing and third-party brand supply. It sells through directly operated consumer channels and wholesale. The Group reported 2022 revenue of €1.493 billion; APAC generated 43.2% of revenue, including 33% from the Greater China Region.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | €1,492.8 million | €1,292.4 million |
| Operating profit/(loss) | €147.8 million; 9.9% margin | €(94.0) million |
| Profit/(loss) | €65.3 million; €51.5 million attributable to parent shareholders | €(127.7) million |
| Adjusted EBIT (non-IFRS) | €157.7 million; 10.6% margin | €149.1 million; 11.5% margin |
| Adjusted EBITDA (non-IFRS) | €329.6 million | €303.8 million |
| Net cash from operating activities | €146.4 million | €281.2 million |
| Capital expenditure | €73.3 million | €94.3 million |
| Cash and cash equivalents | €254.3 million | €459.8 million |
| Borrowings, excluding lease liabilities | €471.1 million | €628.9 million |
| Net Financial Indebtedness/(Cash Surplus) (non-IFRS) | €(122.2) million, a cash surplus under the company’s definition | €(144.8) million |
Other current financial assets were €320.9 million, including €316.6 million of securities. The Group had €240 million of committed revolving credit facilities, undrawn at year-end. Gross lease liabilities were €443.5 million. Approximately 71% of borrowings were floating-rate. The Group reported compliance with its debt covenants at December 31, 2022.
Material changes versus FY2021
- Revenue increased 15.5% reported, or 11.0% at constant currency. Zegna segment revenue rose 13.7%; Thom Browne rose 25.3%.
- Greater China revenue fell 16.1% to €494.1 million, while revenue in the rest of the world increased 42.0%. Fourth-quarter Group revenue in Greater China was down approximately 30% year over year, according to the filing, amid restrictions, store closures and lower traffic.
- Adjusted EBIT increased 5.8%, but its margin declined from 11.5% to 10.6%. The Zegna segment’s adjusted margin declined from 12.7% to 12.0%; Thom Browne’s edged up from 14.4% to 14.5%.
- Operating profit and net profit recovered from FY2021 losses. FY2021 included €205.1 million of items related to the Business Combination in the Adjusted EBIT reconciliation, which materially distorts the comparison.
- Operating cash flow decreased by €134.8 million, primarily reflecting working-capital absorption, including a €103.1 million inventory increase, and other operating cash outflows. Trade working capital rose to €317.1 million from €275.8 million.
- Cash declined by €205.5 million as the Group repaid €159.7 million of borrowings, paid €121.6 million of lease liabilities and distributed €21.9 million in dividends.
Outlook, commentary, risks and unusual items
- Management priorities: Continue the Zegna One Brand strategy and luxury-leisurewear positioning, grow Thom Browne, develop retail and digital channels, strengthen the Made in Italy supply chain, and diversify by geography and product. The filing does not provide quantified FY2023 revenue or profit guidance.
- Acquisitions: The proposed acquisition of the remaining 85% of Tom Ford International and a 20-year TOM FORD fashion and related-products license was expected to close in Q2 2023, subject to approvals and other conditions. The license includes minimum guaranteed royalties. The filing also describes a March 2023 acquisition of a 25% stake in Norda Run.
- Dividend: Zegna paid €0.09 per share in July 2022. The Board proposed €0.10 per share for 2023, subject to statutory conditions and shareholder approval.
- Key operating risks: Greater China exposure and renewed public-health disruptions; inflation and higher energy, labor and raw-material costs; currency and floating-rate exposure; tourism and discretionary luxury demand; supply-chain constraints; brand, fashion-trend and store-lease risks; and geopolitical developments, including the Russia-Ukraine conflict. Russia represented 0.3% of 2022 revenue; deliveries to Russian franchisees and distributors were suspended.
- Internal controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end because of material weaknesses involving experienced accounting resources, control implementation and review, IT access/segregation/change controls, information quality, and timely testing and escalation. Remediation was ongoing. The financial-statement audit opinion was unqualified; the auditor issued an adverse opinion on internal control.
- Legal and unusual items: Zegna excluded €7.5 million of Thom Browne trademark-litigation costs and €2.3 million of acquisition costs from adjusted results. A jury found Thom Browne did not infringe adidas trademarks in the U.S. case; adidas appealed. Separate German proceedings remained pending after default judgments were challenged. A U.S. lease dispute was settled for a €25.7 million payment in 2022.
- Other exposures: The Group carried a €155.6 million liability for the put option on Thom Browne’s remaining 10% non-controlling interest, valued using forecasts and discount-rate assumptions. A €6.9 million guarantee supported a TFI bank loan due in 2025; no claim had been made.
Investor verification priorities
- Review the year-end internal-control weaknesses, remediation milestones and whether controls have operated effectively over subsequent reporting periods.
- Assess the sustainability of revenue and margins amid the sharp Greater China decline and the approximately 30% fourth-quarter year-over-year revenue decline reported there.
- Reconcile operating cash flow with the inventory build, working-capital movements and the Group’s cash and investment balances.
- Examine debt maturities, floating-rate sensitivity, lease commitments, covenant definitions and the availability and conditions of revolving facilities.
- Verify the closing status, financing, royalty obligations and integration assumptions for the TOM FORD transaction and license, and track the Thom Browne put-option valuation.
- Check the status of adidas litigation, the settled lease matter and other provisions or contingencies, and distinguish IFRS results from management’s non-IFRS adjusted measures.