BRIEFING NOTE: IMPACTS OF COVID-19 PANDEMIC ON 9 MONTHS 2020 (MNES AND FTSE MIB) Area Studi Mediobanca Milan, 19 November 2020 1 ASM SHEDS LIGHT ON THE IMPACT OF PANDEMIC FOR 9M 2020 The survey analyses trends on results for 9M 2020 of: 1) Large industrial companies that have disclosed the results for the period January- September by November 16, 2020, sector by sector 2) 26 industrial and service companies listed on the FTSE MIB*: A2A, Amplifon, Atlantia, Buzzi Unicem, CNH Industrial, Davide Campari-Milano, DiaSorin, ENEL, ENI, FCA, Ferrari, Hera, Interpump Group, Inwit, Italgas, Leonardo, Moncler, Pirelli & C., Prysmian, Recordati, Saipem, Snam, STM, Telecom Italia, Tenaris, Terna That are 15 privately held and 11 state-owned companies, 16 manufacturing industry, 6 energy/utilities, 3 service companies and 1 oil and gas At the end of September 2020 the FTSE MIB companies analyzed were worth 318 €billion on the stock market and represented 76% of the total capitalization (excluding finance and insurance) 2 * Escluding Exor because does not publish quarterly reports SUMMARY 1. Impact on results for 9M 2020: Large industrial companies 2. Impact on results for 9M 2020: FTSE MIB (industry and services) 3. Overall look 3 IMPACT ON RESULTS FOR 9M 2020: LARGE INDUSTRIAL COMPANIES Section 1 4 REVENUES GROWTH IN 9M 2020/2019 Net sales 9M 2020/2019, percentage change – Multinational companies by sectors 18.4 8.8 5.7 3.7 3.1 0.3 -1.8 -5.4 -9.4 -17.4 -21.3 -30.6 -32.3 The world multinational companies average is equal to: -4.3% 5 REVENUES GROWTH IN DIFFERENT QUARTERS 2020 Net sales 9M 2020/2019, percentage change - Multinational companies by sectors 1Q 2020/2019 2Q 2020/2019 3Q 2020/2019 20.4 17.3 17.5 10.5 7.3 8.5 6.5 5.9 6.3 5.5 4.5 3.8 5.0 4.6 4.3 2.4 2.2 -0.2 -1.6 -0.8 -2.3 -2.5 -3.2 -3.0 -5.7 -9.2 -8.7 -9.8 -12.5 -13.1 -14.8 -21.7 -21.9 -28.0 -31.6 -40.5 -41.6 -42.1 -51.5 WebSoft, large-scale distribution, electronics and food are the only sectors to grow the net sales in all the different quarters of 2020. Quarters always 6 negative for oil & energy, means of transports, fashion, telco and drinks EBIT GROWTH IN 9M 2020/2019 EBIT 9M 2020/2019, percentage change - Multinational companies by sectors 25.7 14.2 14.1 6.0 neg./pos. -1.4 -2.6 -16.5 -16.7 -31.1 -65.8 -66.6 -98.8 The world multinational companies average is equal to: -22,8% 7 EBIT MARGIN 9M 2020 EBIT margin 9M 2020 (columns) and change in EBIT margin 9M 2020/2019 (percentage points) - Multinational companies by sectors -5.6 -0.8 +1.5 -2.1 -0.6 -0.4 -4.4 -7.5 +0.5 +0.6 -3.3 -11.1 -10.6 27.4 22.9 19.7 18.3 17.1 16.0 14.2 7.6 6.1 5.9 2.3 0.1 -6.4 Increase in the EBIT margin 9M 2020/2019 (percentage points): electronic, food and large-scale distribution Double-digit drop in the EBIT margin (percentage points): fashion and aircrafts The world companies average EBIT margin in 9M 2020 is equal to 13.2% (-3.0 percentage points) WebSoft companies’ without Amazon (which is at 28.7% of total 9M 2020 revenues and with an EBIT margin in 9M 2020 to 6,2% ): the EBIT 8 margin is eaual to 21.5%​ in 9M 2020 NET PROFIT 9M 2020/2019 Net profit 9M 2020/2019, percentage change - Multinational companies by sectors 21.8 19.2 11.6 neg./pos. neg./pos. neg./pos. -1.5 -10.1 -18.7 -42.3 -46.3 -64.7 -66.4 9 WEBSOFT: INCREASINGLY IMPORTANT AND INCREASINGLY GLOBAL Trend. The web giants have confirmed their flexibility and adaptability during the crisis, leveraging effectively on their digital skills and their ability to crunch big data. Different trends can be identified between the various segments: pronounced growth in food delivery, followed by video games and e-commerce, whereas online travel and transport services have slowed abruptly. There was a marked recovering in advertising revenues when the social distancing measures were relaxed between 1H and 3Q 2020. Net sales: up 18.4% in 9M 2019-20, consisting of a 17.3% increase in 1Q, a 17.5% increase in 2Q, and a 20.4% increase in 3Q; 3Q 2020 saw a 5.9% QoQ increase vs 2Q 2020. E-commerce, which accounts for over 30% of the total sector turnover, has continued its relentless growth, with total sales up 33% in 9M 2020, including a 41% increase in 2Q when the most stringent social distancing measures were in force. In terms of growth, however, the top two positions in the rankings went to food delivery (up 47% in 9M 2020), followed by video games (up 40%, including a 57% increase in 2Q 2020), which, however, account for just 5% of the aggregate turnover. Advertising revenues, which represent 21% of total sales, rose by 9% in 9M 2020 (despite a 1% contraction in 2Q 2020). Online travel and transport services bucked this trend, reducing by 52% in 9M 2019-20 (consisting of reductions of 17% in 1Q, 83% in 2Q, and 49% in 3Q 2020). Margins and profits: the WebSoft companies appear to have overcome the negative repercussions of the pandemic which had caused their earnings margins to erode, albeit only slightly, in 1Q and 2Q. Indeed, 9M 2019-20 EBIT and net profit both grew, by 14.2% and 21.8% respectively, with the Ebit margin down just 0.6 pp and the net operating margin up by 0.4 pp. This improvement in margins was due to both the increase in turnover and the more efficient cost structure, despite additional expenses in connection with the medical emergency situation being charged, in 1H especially. In the online sales segment, conversely, logistics and delivery charges continued to increase in 9M 2020 (up 35%); delivery charges alone reached 15% of total sales in 9M 2020 (up from 13% in 9M 2019). Outlook. The social distancing measures in place and the change in many consumers’ habits deriving from them have proved to be a powerful boost for some of the sectors in which the web giants operate. However, for those operating in online travel and transport, a sector which has been hit hard by the new restrictions, 2020 looks set to be a negative year. The internet and software multinationals have substantial liquidity and are financially very solid, which allows them to invest consistently in high-tech research in the most lucrative segments, such as cloud computing and AI, and which acts as drivers for continuing growth in size. 10 LARGE-SCALE DISTRIBUTION: THE PANDEMIC CONTINUES TO FILL UP SHOPPING TROLLEYS Trend. Large-scale food distribution, unaffected by lockdown (apart from being unable to sell certain non-food goods), has derived a competitive advantage from the restrictions imposed on the hotels/restaurants/catering channel, from the increase in working from home, and from the increased propensity to accumulation on the part of consumers, all evident during 1Q in particular and likely to resume as from November 2020. The global sales trend has been different at different times in the different geographical areas, depending also on the scope of the restrictions imposed, and in some cases – at the height of the emergency especially – has put pressure on the logistics and transport chain. Cash and carry stores have seen drastic reductions, due to the restrictions on the out-of-home channel, whereas the growth in online sales has been double-digit. There has been an increase in the private label segment, which has responded to the need for substantial content offering at reasonable prices. Consumer habits also continue to change: average receipts have increased, shopping less frequency, different shopping basket composition in terms of articles purchased 1, increasing recourse to smaller, local stores, discount stores and supermarkets in preference to hypermarkets. The customer experience has also become more digitalized, with web platforms for online shopping exploding (click and collect, and home delivery), and an acceleration in the development of innovative payment methods (e.g. using mobile devices and automatic checkouts). Net sales: up 8.8% in 9M 2019-20, consisting of a 10.5% increase in 1Q, a 7.3% increase in 2Q, and an 8.5% increase in 3Q. The acceleration in e-commerce continued in 3Q as well, with average growth of over 80%. Margins and profits: EBIT up 25.7% and net profit up 19.2% in 9M 2019-20. The Ebit margin increased by 0.6 percentage points, while the net profit margin increased by 0.2 pp. Despite the continuing strong sales, growth in the EBIT margin slowed during 3Q, due to the impact of higher costs in connection with the medical emergency situation (protection of staff and clients, incentives to personnel) and digital investments in new means of sourcing (logistics) and sales (online platforms, home delivery, etc.). Outlook. The second wave of the Covid-19 emergency in Europe and the ongoing critical situation in the Americas point to a scenario in which large-scale food distribution is likely to continue to absorb much of the demand that would otherwise be met by the out-of-home channel. The second wave will likely lead to the new models of consumption that emerged with the first wave becoming more entrenched, and the reduction in households’ purchasing power should help those formats which leverage on price (i.e.