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The Board of Directors of Safilo Group S.p.A. approves the financial results for 2012

06/03/13

THE BOARD OF DIRECTORS OF SAFILO GROUP S.P.A.
APPROVES THE FINANCIAL RESULTS FOR 2012

Padua, March 6, 2013  – The Board of Directors of Safilo Group S.p.A. today approved the consolidated financial statements for 20121. The Board of Directors also reviewed the financial statements as of December 31, 20121, which will be submitted for approval to the Shareholders' Meeting called for April 22, 2013 in a single call.

Safilo ended 2012 with top-line growth, broadly in line profitability and further reduction of the net debt.

During the last three months of the year, net sales increased by 16.6% (+13.8% at constant exchange rates), benefiting in particular from Polaroid's sales and the continuous progression of the organic business.

In the full year, net revenues reached Euro 1,175.3 million, growing by 6.7% (+2.2% at constant exchange rates).

Group earnings proved their resilience also in the fourth quarter of the year and allowed to end 2012 with an EBITDA margin close to 10%, contributing to the reduction of the net debt, from Euro 238.3 to 215.3 million, with a leverage ratio below 2x.

Economic and financial highlights

Roberto Vedovotto, CEO of Safilo Group, commented:

"We are satisfied with the results achieved in a challenging 2012, characterized by the slowdown of the global economy and by the ongoing consumer spending reduction in Europe.

In this scenario, our strategic priority was to focus on the top-line growth of our portfolio and on profitability, as well as, to maintain a solid capital structure, despite the expected Armani phase-out negative effect.

In 2012, we adapted our industrial footprint, timely redefining the organization and costs of the Group's production capacity in Italy with a strong focus at appropriately managing the social framework.

The performance of organic sales through go-forward brands, which consistently grew around 6% throughout the year, confirmed the competitive edge and diversification of our licensed brands, supporting the portfolio enhancement also via the anticipated renewal of the Hugo Boss Group and Max Mara licenses.

In 2012, we focused on the importance of the Safilo Brands for our future growth also through the acquisition of Polaroid, which became part of our portfolio last April. During these first nine months of direct management, we have reorganized the brand's distribution in the already presided European markets and set the foundations for its international development starting from Polaroid's first market 75 years ago: the United States."

Key economic and financial performance

During the fourth quarter of 2012, Group net sales reached Euro 312.9 million, growing 16.6% compared to Euro 268.4 million registered in the fourth quarter of 2011 (+13.8% at constant exchange rates).

The wholesale business registered an increase in turnover of 17.1% at Euro 293.7 million compared to Euro 250.9 million of the fourth quarter of 2011 (+14.4% at constant exchange rates).
In the core product segments of prescription frames and sunglasses, organic growth2 confirmed the trend recorded in the previous periods of the year, standing at around 6% at constant exchange rates.

From a geographical standpoint, Safilo's revenues recorded a strong recovery in European markets, which reached Euro 128.6 million compared to Euro 101.9 million of the same quarter in 2011 (+26.2% at current exchange rates, +24.7% at constant exchange rates).

The double-digit increase was favored by the more significant contribution to the quarter provided by the sales of the new brand Polaroid, as well as by the good performance of the prescription frames business, especially in the Carrera collections


Within a still fragile market environment, particularly in Italy, Safilo benefited from its competitive strength in high growth markets such as Russia, and by the success of its commercial proposals in the travel retail and key accounts channels.

The last three months of the year confirmed the strength of the business also in the American market, which was favored by the positive sales trend in the independent opticians' channel in the United States and especially by the double-digit growth registered in the Latin American markets. Brazil and Mexico turned out to be key drivers of the Group's growth in the emerging markets, giving praise to the main collections in the portfolio, from the high-end and luxury to the diffusion segment brands such as Tommy Hilfiger, Marc by Marc Jacobs and Boss Orange.

Noteworthy is the continuous growth registered by Carrera in Brazil, which becomes the fourth main market for the leading brand of Safilo's portfolio.
In the fourth quarter, the total business in the American wholesale market reached Euro 105.8 million, with an increase of 13.3% at current exchange rates compared to Euro 93.4 million of the fourth quarter of 2011 (+10.1% at constant exchange rates).

In the United States, sales of the directly operated stores Solstice increased in the quarter by 9.7% at Euro 19.2 million compared to Euro 17.5 million in the same period of 2011 (+5.6% at constant exchange rates), overall in line with the organic trends registered by Safilo in the US sunglass segment.

In the last quarter of the year, sales in Asia stood at Euro 54.1 million, growing by 7.8% compared to Euro 50.2 million of the fourth quarter of 2011. The regional performance showed positive results also at constant exchange rates, growing by 3.6% thanks to the development of the high growth markets and channels, but also to the improvement recorded in the most mature market of the area, Japan.

For the entire 2012, net sales stood at Euro 1,175.3 million, growing by 6.7% compared to Euro 1,101.9 million registered in 2011 (+2.2% at constant exchange rates).
At the end of December, the wholesale turnover was equal to Euro 1,094.6 million, with a 6.3% growth compared to Euro 1,029.3 million of the year 2011 (+2.1% at constant exchange rates).

In Europe, sales in 2012 reached Euro 470.6 million, registering an increase of 5.7% compared to Euro 445.1 million of 2011 (+4.9% at constant exchange rates).
Revenues in the American market stood at Euro 488.7 million compared to Euro 454.5 million of 2011 (+7.5% at current exchange rates, +0.5% at constant exchange rates), with the contribution from Solstice retail chain equal to Euro 80.7 million (+11.2% at current exchange rates, +2.7% at constant exchange rates).
In Asia, 2012 closed with a turnover of Euro 198.8 million (+7.3% at current exchange rates, flat at constant exchange rates).

In terms of economic performance, in the fourth quarter of 2012 the gross profit stood at Euro 170.6 million, growing by 10.2% compared to Euro 154.7 million of the fourth quarter of 2011. The gross margin, which went from 57.6% to 54.5%, was influenced by the impact of turnover from the phasing-out brands.
For the full year 2012, gross profit was equal to Euro 679.7 million, growing by 4.2% compared to Euro 652.3 million of 2011, with an incidence on revenues that stood at 57.8% compared to 59.2% of 2011.

In the year, Safilo reorganized its industrial footprint, in light of the declining production volumes due to the phase-out of the Armani brands. This included the reduction of working hours in the Italian plants, on the basis of the solidarity contracts signed in July with Trade Unions, which will be effective until August 2014.

EBITDA for the quarter stood at Euro 29.2 million compared to Euro 25.0 million registered in the last quarter of 2011, with the margin on revenues that remained steady at 9.3%, benefiting also from the improvement on the operating leverage due to significant growth trends of the period.
In the full year, EBITDA reached Euro 115.1 million, with an incidence on sales of 9.8% (Euro 122.6 million and a margin of 11.1% in 2011). The consolidated result was reached also thanks to the appreciation of Solstice retail stores profitability, which went from 10.6% to 12.3% following the store rationalization plan operated by Safilo throughout the year.

The operating profit (EBIT) for the fourth quarter of 2012 was equal to Euro 17.0 million, with a margin of 5.4% compared to Euro 16.2 million and an operating margin of 6.0% registered in the fourth quarter of 2011.
The year 2012 therefore closed with an EBIT of Euro 73.9 million compared to Euro 86.2 million in 2011. The operating margin for 2012 was equal to 6.3% compared to 7.8% in 2011.

Below the operating profit, net financial interests decreased by 14% in the fourth quarter and by about 17% in the entire year, due to the combined effect of the reduction of the average debt and the relative cost following the early partial redemption of Euro 60 million of the High Yield Bonds undertaken by the Group in June 2011.
In June 2012, the Group repaid about Euro 80 million of Senior debt related to the Facility A1 – Tranche 1, Facility A2 and A3. In the year, there was also a further reduction of the negative impact deriving from exchange rate differences, of which the net balance diminished from Euro 3.1 to 2.0 million (from Euro 4.2 to 1.0 million in the fourth quarter).

In the last three months of the year, the Group net result reached Euro 5.0 million, with an incidence on revenues of 1.6%, compared to the net profit of Euro 1.3 million recorded in the last quarter of 2011.
For the full year, the Group net profit reached Euro 25.9 million, approaching the net result of Euro 27.9 million registered in 2011.

Key Cash Flow data

In the fourth quarter of 2012, the cash generation from operating activities continued, registering a positive flow of Euro 21.9 million which was influenced by the improvement of the net result of the period and by the non-monetary items which characterized the quarter.

Free Cash Flow was positive by Euro 12.1 million compared to Euro 4.4 million registered in the fourth quarter of 2011, contributing to the improvement of the cash flows as at 31 December 2012, primarily linked to the positive flow from working capital, equal in the year to Euro 21.7 million, driven by a reduction of inventory. The Free Cash Flow was impacted by the net consideration of Euro 58.4 million for the acquisition of the Polaroid Eyewear business, funded for Euro 44.3 million by Multibrands Italy B.V., controlled by HAL Holding N.V., via a reserved capital increase.

The Group net debt at the end of December 2012 was equal to Euro 215.3 million, down around Euro 23.0 million compared to Euro 238.3 million at the end of December 2011 and Euro 8.5 million compared to the end of September 2012.

In consideration of the full year results and the current business environment, the Board of Directors deemed it appropriate not to propose at the Shareholders' Meeting the distribution of any dividend.

**********************

Today, the Board of Directors of Safilo Group S.p.A. also approved the terms and conditions of a new financing transaction for a total amount of Euro 100 million, which provides for adequate financial flexibility in the context of the reimbursement of the High Yield notes maturing in May 2013 and of the Group's ongoing business development needs and it is in line with the Group objective of further reducing its average cost of debt

Therefore, the  Board of Directors authorized the Chief Executive Officer, Roberto Vedovotto, to finalize the terms and conditions of:

  • A new revolving credit facility (part of the existing Senior Loan), for a total amount of Euro 60 million, maturing June 30th 2015, with Banca IMI, Unicredit and BNP Paribas as Mandated Lead Arrangers, Intesa San Paolo, Unicredit and BNP Paribas as Underwriters, to be also proposed to the other senior lenders;
  • A new revolving financing, for a total amount of Euro 40 million, maturing June 30th 2015, underwritten by a company controlled by HAL Holding N.V..

This facility replaces the original commitment undertaken by HAL in 2010 in the context of the Company's recapitalization plan, providing more financial flexibility for Safilo in the coming years and confirming Safilo's main shareholder's commitment to the Group.

The revolving line to be granted by HAL represents a "transaction with related parties of lesser importance" pursuant to the Regulation approved with CONSOB resolution no. 17221 of March 12, 2010 and subsequently modified and, therefore, all the requirements provided by the Regulation itself – and by the relevant internal procedure adopted by the Board of Directors of Safilo Group on November 5, 2010 – have been duly complied with.

HAL financing transaction has been cleared by the Control and Risk Committee of Safilo Group, which – availing itself of the support of an independent expert – has issued a favourable opinion on its execution, and has been also expressly approved by all other Independent Directors during the relevant Board meeting.  

 

Events after the year-end and outlook

During the first months of 2013, Safilo renewed the licensing agreements for the American brands Liz Claiborne and Banana Republic, extending the contracts respectively until December 31, 2017 and January 31, 2019.
On February 11, the Group also signed a new licensing agreement for the design, production and distribution of prescription frames and sunglasses branded Bobbi Brown, iconic American name in high-quality makeup.

These events demonstrate the Group's intention to consolidate and strengthen its competitive positioning during a year which will nevertheless remain characterized by uncertain market scenarios and conflicting business components.
In 2013, on one hand Safilo can count on the full consolidation of the Polaroid Eyewear business (for nine months in 2012) and on the start of its expansion in non-European markets, on the other the Group faces the deconsolidation of the Armani business and a market environment in which visibility remains low due to persisting economic weaknesses, especially in Europe.

In this context, Safilo remains focused on the projects of regional and brand development carried out and planned in the past eighteen months with the aim of providing further engine to the organic business performance.

Other information

As required by Article 84-bis of the Regulations for Issuers, approved with Consob Resolution no. 11971 on May 14, 1999 and subsequent amendments, notice is hereby given that, with reference to the Stock Option Plan 2010 – 2013, the Board of Directors today awarded the Options of the Fourth Tranche, after having identified, on the basis of the proposal of the Remuneration Committee, the eligible beneficiaries.
All information are indicated in the table in Appendix B.

The features of the instruments awarded are the same as those described in the press release issued on October 4, 2010 and in the documents related to the Plan, available on the web site of the company http://www.safilo.com/en/investors.html.

 

1 The consolidated Financial Statements and Financial Statements are currently subject to audit activities as yet not concluded.
2 Excluding the sales of the new brand Polaroid, the brands not renewed at the end of 2011 and being phased-out in 2012.

Statement by the manager responsible for the preparation of the company's financial documents

The manager responsible for the preparation of the company's financial documents, Mr. Vincenzo Giannelli, hereby declares, in accordance with paragraph 2 article 154 bis of the "Testo Unico della Finanza", that the accounting information contained in this press release corresponds to the accounting results, registers and records.

Disclaimer

This document contains forward-looking statements, relating to future events and operating, economic and financial results for Safilo Group. Such forecasts, due to their nature, imply a component of risk and uncertainty due to the fact that they depend on the occurrence of certain future events and developments. The actual results may therefore vary even significantly to those announced in relation to a multitude of factors

Alternative Performance Indicators

The definitions of the "Alternative Performance Indicators", not foreseen by the IFRS-EU accounting principles and used in this press release to allow for an improved evaluation of the trend of economic-financial management of the Group, are provided below:

  • Ebitda (gross operating profit) is calculated by Safilo by adding to the Operating profit, depreciation and amortization;
  • The net debt is for Safilo the sum of bank borrowings and short, medium and long-term loans, net of cash in hand and at bank;
  • The net capital employed for Safilo is the sum of current assets and non-current assets net of current liabilities and non current liabilities, with the exception of the items previously considered in the net debt;
  • The Free Cash Flow for Safilo is the sum of the cash flow from/(for) operating activities and the cash flow from /(for) investing activities.

 

Conference Call

Today, at 6.15pm CEST (5.15pm GMT; 12.15am US EDT) a conference call will be held with the financial community during which the results of the full year 2012 will be discussed.
It is possible to participate to the call by dialing the following number: +39 02 38591420 or +44 207 1362056 (for journalists: +39 02 30410450) and quoting the following confirmation code: 4085724.
The playback of the conference call will be available until March 8, 2013 by dialing the number +39 02 30413127 or +44 203 4270598 (access code: 4085724).
The conference call can also be followed with the webcast on the site www.safilo.com/en/investors.html. The presentation is available and downloadable from the company website.

Notice of the call of the Ordinary Shareholders'Meeting

In the coming days, the notice of the call of the Ordinary Shareholders' Meeting will be available on the
website www.safilo.com/en/investors.html, where the Report from the Directors to the Shareholders' Meeting

on the proposals regarding the items on the agenda, will also be made available.

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