Intercos SpA

MIL:ICOS

Earnings Call Transcript 2023-Q1

[Operator]

Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Intercos First Quarter 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Renato Semerari, Chief Executive Officer of Intercos. Please go ahead.

[Renato Semerari, executive]

Good evening, everybody, or good morning if you are in U.S. We are here to present to you the first quarter of 2023 results. As you probably have seen, we have published a plus 34% growth of our top line with a mild positive effect from currencies. In fact, at constant rates, our growth was plus 33%. Adjusted EBITDA grew 56%, reflecting on one end, the growth of our top line. On the second, an improvement of about 180 basis points to our EBITDA margin. Net debt was at EUR 97 million, which is a reduction of our net debt of about EUR 60 million versus a year ago and leading to a leverage ratio of 0.73x EBITDA.

I will now go through the top line results in a bit more depth starting by the result by business unit. I must say that we have 3 business units, and we have registered very good results on the 3 of them. First of all, makeup kept growing at an accelerated pace, achieving a plus 35%, confirming to be over 60% weight on our total sales. Second, we had a significant acceleration of the hair and body business unit, mostly but not only driven by fragrance, which always benefited from the Dolce & Gabbana contract, but we had a stronger demand, strong demand, strong results, which are not only linked to the Dolce & Gabbana factor. Third, skin care registered an 8% growth so accelerating versus the mild growth of 2022. So pretty strong results, I must say, across business units.

Moving to regions. Also in this case, we have good news coming from all the regions. All regions registered strong double-digit increases, starting with EMEA, which registered a plus 44% growth. This was driven by both Make-up and Hair and Body as 2 main contributors. This strong growth brought EMEA to weight 54% on our total sales. Americas kept growing at a strong pace, plus 28% following 2022, where America was the engine of growth for our company. So again, a very strong performance mainly or almost exclusively driven by Make-up. And in Asia, plus 17%. This is a very good news because it's a strong double-digit growth, driven once more by Korea. But also China, giving us positive signs. And as a matter of fact, China was also positive versus a year ago in the first quarter.

Going to the results by customer type. First of all, I would like to remind you that as anticipated during our last earnings call, we have reclassified certain brands from emerging brands to multinationals following the acquisitions that multinationals have done in the course of 2022. There is also a re-class concerning retailers where retailers moved to a multi-distribution strategy going outside their own stores, and therefore, they have been reclassified from retailers to emerging brands.

Having this in mind, the engine of growth was once more emerging brands plus 57% versus year ago, but with multinationals confirming to be on a strong pace, plus 29%. The only "sore" point, and I would like to underline quote unquote is retailers which were flat versus a year ago. As a result of these trends, multinationals are now weighing for 54% of our sales, Emerging brands 37% and retailers about 9% of our total sales.

Now moving to what we are seeing. First of all, I would like to underline that this result comes after a very strong 2022 and a solid growth also in 2021, confirming the validity of our business model, the importance that -- of innovation we are bringing to the market, and the fact that we are continuing to push through diversification of our client base, geographic span and product categories. And all this is paying very good dividends so far.

In terms of market environment, I must say that the -- and I'm crossing my fingers by saying that, that the picture is getting better in the sense that, first of all, the supply chain is coming back to normality progressively. We said it starting from the summer of 2022 but is continuing and is further improving, and this allows us to execute a lot better our production schedule, is allowing us to digest the backlog that we've had in the past months over a year in reality, and this is all going in the good direction. Also, inflation volatility that was a sore point of 2022 is now under a lot better -- much better control in the sense that we don't see the volatility. There is inflation. The inflation is mainly driven by labor costs. But this has been anticipated.

It is incorporated in the price increases we have agreed with clients, and that will come into effect starting quarter 2 of this year. On the other side, everybody is continuing to fear recession. I must say that we are not seeing any softening in demand. So the softening demand is not materializing yet. To the contrary, China, which we expected to come back to growth is progressively coming back to growth, is not yet the normal pace China should have or is expected to have, but is getting closer and is improving month after month. So all in all, considering the good start of the year, or even the very strong start of the year, I would dare to say, and the outlook for the year, we are revising our guidance in terms of top line from plus 8% to 11% of growth for the fiscal year to a plus 12% to plus 14% for the year.

We -- I want to underline that the growth will be concentrated in the first half of the year because we will go and we will digest the backlog in the first 2 quarters of the year. But all in all, we have a positive view on the total 2023.

Coming back to numbers in terms of order inflow, you saw the numbers. They keep being very, very strong. In November, December, we had our all-time high in terms of order entry, followed by 2 months of solid growth. So we didn't have the -- what we could fear a big decline in the following months, because there was certainly an anticipation of order in view of the price increases that we were -- that we had announced to our clients. It didn't happen. We did EUR 112 million over Make-up and Skincare in January, February. And in March, April, we went back to EUR 120 million, which is still solid.

This being said, I must say that we are seeing reorders not as brilliant as in 2022, but this is so far compensated by a very strong pipe of new orders. So new projects that clients are buying, which is actually an even better position to have because new orders of today are reorders for the future.

Going to my last chart in terms of order book, we are now seeing a decline of order book versus the year before. This was expected and to be honest, desired, because it means that we are going back to a better service level to our clients is the function of a recovering supply chain in general. And therefore, the acceleration of production that you're seeing in our top line numbers of the quarter. So all in all, the order book trend is going towards the normalization that all our clients are expecting, and we're working very hard to make -- to materialize.

That's all on my side. We are available for questions.

[Operator]

[Operator Instructions] The first question is from Rashad Kawan from Morgan Stanley.

[Rashad Kawan, analyst]

Renato, congratulations on a fantastic set of results. If I can, I've got 3 questions. The first one is, can you break out the growth in terms of kind of the D&G contract? And are you fully ramped up there at this point? Or is there still more to go there?

The second, maybe if you can talk a little bit more about what you're seeing in China in terms of the recovery there? And are you seeing different types of demand levels for mass market products versus prestige at this point?

And then the third, with the upgraded guidance, I think that implies that your organic growth for the rest of the year will be somewhere around kind of 8%. Is that still kind of -- are you kind of baking in a level of conservatism there? Or what do you expect kind of from the rest of the year? I know you said it's more kind of first half weighted. But if you can give kind of more color around that, that would be great.

[Renato Semerari, executive]

Rashad, let me come to your questions. I'm not sure I will be able to answer to everything the way you would like me to answer, to be honest. The growth linked to D&G, it's there and is obvious and is very visible in the Hair & Body business unit. I won't spell out the numbers. Otherwise, we will end up giving numbers for every single client, I cannot do it.

Yes, we are in growing mode. We are -- in the first quarter of this year, we've been in full speed, and this is the trajectory. The trajectory remains at this pace because Dolce & Gabbana is going through -- filling the pipeline of distributors, retailers, so on and so forth. Then obviously, in the second semester, we'll need -- we'll see what is the clear demand consumption driven, which I think is still a bit blurred by this pipeline effect that they are having, which is positive for us, it's positive for them.

Because it means that Shiseido didn't overload the trade, which was one element of watch out we had at the start of the D&G adventure so that didn't materialize. So they are filling pipeline, then we will need to see what happens again in consumption terms.

But yes, we are at speed on Dolce & Gabbana already in the first quarter.

The second question is China. What is -- what we're seeing in China? Well, what we're seeing is that the market is normalizing. The retail data are becoming more positive. You probably recall, I said in last earnings call that they had gone from a double-digit decline into a plus 3.5. We are now moving to plus 8% kind of range, which, again, is another move in the right direction. We're not yet at the growth pace that China normally had before all this COVID story. So I think that -- and we expected it to be a progressive normalization. This is what is happening.

But I must say I have no signs of worry. It's coming in as we had expected and it's following that path, which is pretty good.

In terms of differences between mass versus prestige in China, I don't have that granularity of information, I would like to have it, to be honest. But frankly speaking, we are not seeing -- or we are not getting from clients any message of trading down in terms of price point or anything like that. So I think that there is normalization across the board including mass and prestige. Then you may have effects of de-stocking of certain retails or certain channels.

But in terms of consumption, things are normalized -- are normalizing progressively, as I said, and we are not getting any sign of shift in between the 2 channels, prestige versus mass.

In terms of our guidance, yes, you're right. It's a plus 8 in the year to go based on what we're giving as new guidance. I would love to say that there is conservatism, I don't know. I think we are trying to be realistic. Again, we have -- we are going to have a first semester that is going to be strong, then things -- we'll need to see what happens and what is the pace of the market and all the rest. We always said, and I keep repeating it, although you may not take me seriously, that the normal pace of this company is between a plus 8 and a plus 12, so more or less on average plus 10% is the historical trajectory this company had.

So I don't think it's very surprising to have an expectation of a plus 8% in the year to go, given that we are coming out from a quarter where we had much, much better results. But they also are a consequence of the backlog digestion that we're going through. So all in all, again, I would be super happy to disappoint you and give better numbers than what we are saying. But at the moment, this is what we think is correct and to give us a guidance to the market.

[Operator]

The next question is from Kate Rusanova from UBS.

[Kate Rusanova, analyst]

Renato, Pietro, and Andrea. My first question relates to your profitability. With Q1 adjusted EBITDA margin expansion of 180 bps year-on-year. Do you think that achieving 50 bps margin expansion this year is now within reach? And would it be fair to assume that your gross margin expansion in Q1 was at or above 200 bps year-on-year considering strong operational leverage and the benefit on pricing?

And maybe you can also provide us with the margin on added-value sales considering a slightly dilutive impact from the partnership with Dolce & Gabbana.

Then I wanted to ask about your growth in Asia, which came in a sharp contrast to some of the beauty brand owners. In particular, we're not hearing a lot about the challenging situation in Travel and Retail business in Korea due to the change in post-COVID regulations. So can you please elaborate on how this has impacted in your business specifically, which of your 3 businesses is most impacted and whether you see some incremental risk in the near term?

And maybe just for housekeeping purposes, can you remind us what portion of your sales comes from Korea and China?

And finally, it would be great if you can provide an update on the Indian opportunity, because you seem to indicate an unprecedented level of interest in your industry from new countries, in particular, India. So I'm just wondering if you could provide us with an update on your plan there, your recently acquired a factory in India. Do you think this opportunity can be rapidly significant?

[Renato Semerari, executive]

Thank you, Kate. You speak super-fast so I hope -- I've written everything, I may ask you to complement if I didn't get everything right. I'll start from the bottom where I'm sure I've understood.

India opportunity, again, actually, I'm back from India. I've been in India in the past weeks, I came back a few days ago. I had not been in India for a while so I was very impressed by the level of progress in general, I've seen. I've seen shopping malls and stores that I've never seen before that are very modern. They are way better than what you can imagine in U.S. or in Europe. So they are really jumping.

There is a kind of leapfrog kind of development there, which is still very scattered. But it's evident that this country is going to go through quite a remarkable rate of growth and progress. For the -- our market, India today is very small. But again, huge population, a very developing economy, middle class. So everybody talks there will be a diamond-shape kind of design in the population between different classes.

Middle class is developing. But again, we need to think about it in a very progressive manner. There won't be India being among the big consumption countries in the near future. It will get there progressively over time so I'm super bullish and positive about India, but it will take 10 years to get to sizable numbers, at least in our industry. Again, middle class is developing very fast. But what I've heard is that for them, someone who gains $12,000 a year is in the middle class. So as you can imagine, the spending power is still relative, and it will take a while before it gets closer to the western world or even China.

What we are doing there is we have bought this plant. We are progressively keeping this plant with the Intercos technologies. So we are sending them the machines that allow them to produce the formulas of Intercos from the rest of the world. We have already started with lipstick. So we have already started producing lipstick of Intercos technology for a couple of clients there. Powders is the next step. Machines arrived already, so we are mounting them. And then we will start doing tech transfer of our formulas there. And progressively, you will see all the technologies being there by the end of this year.

In terms of clients, we have good connection with a number of local players, so there will be progressive growth. Again, I believe a lot in this country. We will do anything possible to gain a lot of market share there. There is an inherent difficulty in pricing terms nowadays because of the price points that the Indian brands have that we need to take into account. But we are committed to be there and to be a key player in India soon.

So it's very interesting. I'm very positive out of my visit there, but it will take a while before it becomes material in terms of numbers.

Korea and China. So all in all, you know that Asia in total weighs in the quarter 15% of our sales. The split between the 2 is almost 50-50, which in reality is driven by the fact that Korea serves a lot of Western brands for the Asian markets in general, not only for the local market. Actually, the local market is a minority of what they buy from Korea. And again, within Korea, you will have about 50-50 coming -- maybe 60-40 in the first quarter, coming from local clients and Western brands buying out of Korea. So this is a bit the split that we have between the 2 countries.

Private retail. Korea, I must say that we do not have a direct exposure to that. So I've obviously read what L'Oreal and Lauder have declared about retail in Asia in general. It's a phenomenon from what I understood of de-stocking of retailers. Again, we don't have a direct impact. We may have an indirect impact, but the proportion of it, it's not big in our numbers or at least I cannot isolate it from the rest.

And so we're looking at it in terms of repurchase from the prestige clients all in all. And I must say that, yes, there are differences client-by-client, product-by-product. But all in all, we are not seeing any visible turmoil from that effect, at least in our numbers again.

In terms of -- then I come to the difficult questions because I'm not sure I got it completely. The first one, I think that you were saying that based on the results we had in terms of profit margin in the first quarter, whether I believe it was possible to realize a 50 basis points increase in the year versus a year ago. To be honest, at this point, I would not modify what we said. We always said that 50 basis points is what we should expect from a company like us in a normal year. We always said that there will be a dilution coming from the Dolce & Gabbana effect. This dilution is there, is visible. We are seeing it. So we -- I would tend to confirm what we always said so far.

Now it's true that in the first quarter, we are getting a gain which is more sizable than the 50 basis points. Even the 50 basis points is also true that the comp was particularly depressed and that there is a lot to run before we cross the ending line. So I wouldn't move by 1 inch for the time being.

Then again, like I told to Rashad, I would be super happy to disappoint you and to deliver 50 basis points and if possible, even more. But for the time being, I don't think we have enough facts to say that we will do more than what we said in the previous occasions we had.

Then you had another question on margin, which I'm sorry, I didn't get.

[Kate Rusanova, analyst]

Yes, sorry, that was about the gross margin. Just wondering if it's fair to assume that the increase in gross margin was above 200 bps.

[Renato Semerari, executive]

Yes. We don't disclose numbers of gross margin. I will only give you a qualitative answer because I don't want to leave you without any answer at all. Gross margin has improved in the first quarter. That is a function of 2 elements. One, obviously, is the absorption related to higher volumes. And the second is that as any normal year, we have restarted working on productivity projects that are bringing good results. So we are pretty happy about the results we got in terms of gross margin all in all. But I won't give you numbers, I'm sorry.

[Operator]

The next question is from Anna Frontani from Berenberg.

[Anna Frontani, analyst]

Congratulations on the results. I have 3 questions for you. The first one, if you could split the 33% growth in pricing and volume. The second one, if you can provide the level of the EBITDA margin but on value-added sales? And then the third one, maybe on Cosmoprof. Can I ask how was client attendance and maybe what are the product innovation worth highlighting?

[Renato Semerari, executive]

Okay. Anna, thanks for the congratulations and for the questions. The first one is super easy, out of the 34% growth, 1% was currency, 1% was pricing, the rest is volume. So I would tend to say simplifying things that is basically all volume-driven in reality. As you know, we have increased prices, but the price increase was done on the purchase orders that were issued as of January, which means that we will start seeing an effect in Q2 and the following quarters. Nothing basically in Q1. So that is the first one, which was pretty easy.

The second one is EBITDA margin on value-added sales. I have your friend Andrea and Pietro here banging on me. We do not disclose it here, only half year. So you will need to be a bit patient to see that. Obviously, it's progressing. Again, sorry, but I will give a qualitative answer. Obviously, it's progressive in the good direction in terms of EBITDA and value-added sales as well.

Cosmoprof was, I probably mentioned it already in the previous call we had, but it was a very positive Cosmoprof. For the first time, I really had the sensation that we had turned the page of COVID. And a lot of clients, a lot of new clients, a lot of new players -- coming back to the example of India, we had a number of big companies that are not present in beauty that are getting interested into beauty and are starting to move in that direction. So a lot.

We had Chinese coming back, Asian coming back. There were Americans, probably a bit less in proportion. All the Europeans were there. So a lot of interest again, and energy again in the industry. We, as a company, met 350 clients in a week, which I think is -- I don't know whether it's our record, but I can tell you it was super busy. And we had a number of innovations that were particularly interesting.

I will mention a couple of them. One, which is related to skincare, but not only it's a new ingredient that we are -- we have developed -- actually more than developed it, we found a way to use it in a very effective way, which is called phytocerasome. It's -- I think it's still pending, but we have -- how do you say it? Patented. Thank you, sorry.

It's a new -- it has applications because it creates kind of a second skin. But on top of that so which are peculiar soothing capabilities, and it really gives a texture to your skin, which is unique. And on top of that, it works a bit like liposomes, carrying other actives so you can customize it to give it antiwrinkle purposes, properties or sensitive skin properties or moisturizing properties. So it's a very flexible technology that allows -- there are several applications, and this is a very strong innovation that I think will give us very good results on skin care.

The other thing which is very interesting, it is of -- it's a natural raw material and -- that we are finding applications that are equally interesting for makeup. So during Cosmoprof, we presented, as an example, a mascara and a powder foundation that has phytocerasome as a binder, which is, again, natural. So it's going in the clean "direction" and has a very, very strong performances. So we are super excited about this one.

Another one is that we have we found a way, for instance, to formulate lipsticks without waxes, which we've checked on ChatGPT and is something that ChatGPT says it's impossible where we've done it, and we are presenting it to clients. And this one is also raising a lot of interest from a number of clients. So in terms of innovation, I think that we have a lot going on.

The fact that we are seeing new orders increasing, it's a good sign, as I said before, because it confirms that the innovation we are bringing to markets and to our clients is responding well commercially, which is what counts at the end of the day.

[Operator]

The next question is from Molly Wylenzek from Jefferies.

[Molly Wylenzek, analyst]

I wanted to come back on the comments you made about softening reorders a little bit, but being compensated by new orders. Just -- what's driving that? Is it client mix, more emerging brands versus multi? Is it shortening innovation cycle? Your innovation pipeline? Just any color on that would be great.

[Renato Semerari, executive]

Yes. Molly, no, this is just, I think, the first signs of what I've been advocating for about 18 months. I always said that clients were anticipating orders to cope with supply chain disruption that was creating a lot of problems in terms of fill rate for them in the stores linked to the unpredictability of the supply chain, but also linked to the longer lead times that the supply chain was driving.

So they were all anticipating orders. And this, again, I said it last time again, it's not normal and time to market will inevitably and should go back to where it was before the supply chain crisis. So since things are normalizing, as I said before, and our numbers are showing it and the fact that our portfolio of orders is going down despite the inflow of orders remains strong, is the proof that we're now going back to a normalized situation, it's obvious that clients go back to their normal order pattern, which means that there will be a period where we will see orders going down because they have issued orders in advance, and they will not continue to keep that pace. So they will renormalize based on that.

Obviously, this impacts reorders because new orders are new products. So they don't have it. And so that is a different game. So reorders going down, it's normal. It's nothing to worry about, it's -- it will take some months to go through a normal situation. It was -- it is what I expected to happen a lot before, and that's why I've lost a number of bets on the topic. Now we start getting the first signs that this is happening. So again, I'm super happy. It happens at the moment when the new orders are going up because at the end of the day, the reorder thing is, by definition, a temporary thing because if consumption is there, they will have to reorder.

And then the new products are there for the future, and they are the insurance for the years to come in terms of business. So all in all, I'm not surprised. Number one, I'm not worried; number two, and it's all normal, I would say. I hope I have answered.

[Operator]

The next question is from Roberto Casoni from Otus Capital.

[Roberto Casoni, analyst]

This is Roberto Casoni. Some of my questions have been already asked and answered. I have some few others. One is related to your price increase for '23. You said that most of the impact will start to be seen in Q2. But already in Q1, we saw a margin expansion. Can you give us an idea, as much as you did, by giving us a split price volumes in Q1. Can you give us an idea of what has been the average price increase we should see appreciate from Q2?

And the other thing is on cost inflation. You say now it's, visibility is there. There's much less volatility. Wage inflation is possibly the main component of the inflationary trend. Last year, you had around EUR 230 million, I think, in staff cost. What should we be expecting as an organic growth, so excluding your employees in terms of wage inflation?

[Renato Semerari, executive]

Roberto. Thanks for your questions. Well, the price increase we've done was 4% on average, knowing that in the Western world, it was more 5%, and in Asia it was about 2.5%, 2%, 3%, depending on the client, on the category and so on and so forth. So 4% on reorders, again, which are 70% more or less of our business gives you a 2.8%, 3%, call it, price impact, which is, by and large, what we are expecting in terms of inflation related to labor. This is, again, there is a huge differences by country.

Again, if you go to Poland, it's double digit in terms of labor cost increases. If you go to Italy, it's low single digits again. All this is -- there is the labor cost, but you cannot take mathematically the cost of last year and increasing it by the labor cost percentage I'm giving you for the simple reason, I'll just give you an example.

We are -- in our operations working to automatize more and more our plans, so we will have less need of temporary workers or workers on the lines because we are improving the automation of our industrial footprint. So all in all, the price increase we did was meant to absorb the impact of labor inflation, which we had expected.

We did a bet that we would have not had the -- an increase in general in terms of raw materials and components and transportation, which is another important element in terms of costs. And this is so far materializing. So the visibility we have tells us that, yes, we've been right in doing so.

To be honest, I don't expect a margin improvement related to the price increase, but I do expect it to come from the efficiencies and the productivity that we can bring and we are bringing into our system in a more normalized year.

[Roberto Casoni, analyst]

Right, right. That's very clear. But if I may comment on your answer. If I look at Q1, and given the answers you gave earlier into this question, I should expect that in Q1, you had already the labor cost and the wage inflation. But you didn't have the 2.8%, 2.9% increase in prices. Nevertheless, we had quite a considerable expansion of margins, which is possibly due to the best use ever of your capacity. Sometimes when you're basically operating at 100%, 110% capacity, you have some extra costs. And you work on starting in Sundays adjust to deliver on time, something that maybe we are not seeing in H2.

So my question is, despite all these, I mean it makes me feel like the 50 basis points margin expansion with or without Dolce & Gabbana, it sounds pretty conservative, is it?

[Renato Semerari, executive]

Roberto, again, I will repeat what I said. I hope you're right. And I hope that we will get to the ending line. And you've been right, I will be the happiest in the world, and I will give you a call to tell you were right. And then even buy you a beer.

In reality, let me talk first about the wages and the price and what you said. What you're saying is correct, starting from an assumption that is not exactly correct, which is that the wage increase starts January 1, and this is not true. It starts at different points of the year in different countries.

China is doing it as we speak now, as an example. In Italy, it's even later than that. So it's captured through the year and is actually -- in no one of our countries, we have wages increases starting January 1.

[Roberto Casoni, analyst]

So that was my assumption and it's proven to be wrong, okay.

[Renato Semerari, executive]

Yes, but your reasoning is correct, but the starting point is what makes it being incorrect in terms of results. And again, we are only at quarter 1. I'm sorry, I'm paid to worry about the future more than being happy about the past. I'm happy, obviously, about the quarter 1, don't get me wrong. It's, I think, a very good set of results.

But we still have 9 months to run, and I don't like to promise things that I'm not -- I wouldn't say 100% sure because I'm never 100% sure. But even 70% sure, I can deliver. So I would be more than happy to do a lot better than 50 basis points. At this point in time, I don't think we are yet in a position to be confident about saying that.

[Operator]

The next question is from Mikheil Omanadze from BNP Paribas Exchange.

[Mikheil Omanadze, analyst]

Two questions from me. The first one is on the order book and please correct me if I'm wrong, but -- the way I understood your comments is that by the end of Q2, you expect to have delivered all the orders, which comprise the order backlog i.e., does it mean that you expect your order book to be at sort of a normalized level at the end of Q2? And how should we think about that normalized level as a percentage of sales? That's question number one.

And question number two is on Dolce & Gabbana again. I just came across an interview with the CEO of D&G Beauty, Gianluca Toniolo today -- it's actually from today where he says that he aims to triple the business in terms of sales in the next 3 years. And I was wondering just -- do you actually have enough capacity to meet such demand, if that's the case? And if not, do you have any plans already to expand your capacity for fragrances?

[Renato Semerari, executive]

Mikheil, order book, yes, I expect to be in a situation at the end of Q2 where we will have digested the vast majority of the backlog. And so I think we will be at that point in "normal situation" and normal trend. This means that you will have in -- you had it already in Q1, you will have in Q2, part of the -- this digestion showing positive numbers in our P&L. From there on, we will be getting into a normal consumption order production and therefore, invoicing kind of situation.

Coming to the -- what Gianluca said, it's finally because I spoke to him 10 minutes prior to the -- to our call. Well, it's -- he wants to triple the business. I would love him to do it. To be honest, I hope they're going to make it. I think it's pretty bullish. I think he didn't say how long will it take, so we will see. Again, I hope that they will be growing. I hope that they will be growing as fast as they are planning to.

As you know, we've made an investment very recently because we -- we opened our new fragrance all in Italy for the production of fragrances in January so it's pretty fresh. And yes, we are ready to invest more. Obviously, if they really triple the volume, we will need more space. No question about it. It's for sure.

Are we ready to do it? No question about that. Yes, we are ready to do it. Let's see what happens and how long it's going to take. They have very ambitious plans. I know that. We will do everything we can to support them as much as possible. Again, I would tend to -- they are -- I think they are in a moment where they see the pipeline filling numbers and they are getting super enthusiastic about what it is. Then consumption is the real jury.

Pipeline is a one-off. Consumption, it really gives you the sense of what is going to be in the future. And again, I hope they're going to be super successful. So we are partnering with them. We hope all the best for them.

[Operator]

Mr. Semerari, there are no more questions registered at this time.

[Renato Semerari, executive]

So I thank you all for your time and your attention and for your questions. Thank you very much.

[Pietro Oriani, executive]

Thank you. Thank you. Bye-bye. Bye.