The Board of Directors of Safilo Group S.P.A. approves the results of the first half of 2011
THE BOARD OF DIRECTORS OF SAFILO GROUP S.P.A. APPROVES
THE RESULTS OF THE FIRST HALF OF 2011
Key highlights (in millions of euro):
· 302.6 in Q2 2011, +2.8% (+10.5% constant perimeter and exchange rates)
· 603.3 in H1 2011, +4.0% (+7.8% constant perimeter and exchange rates)
· 39.5 in Q2 2011 (13.1% margin), +30.9%
· 80.2 in H1 2011 (13.3% margin), +23.8%
· 30.5 in Q2 2011 (10.1% margin), +48.3%
· 61.9 in H1 2011 (10.3% margin), +38.5%
· 12.9 in Q2 2011 (4.3% margin), compared to the Net loss of 5.0 in 2Q 2010
· 31.3 in H1 2011 (5.2% margin), compared to the Net loss of 3.3 in 1H 2010
· 240.3 at the end of June 2011, from 268.2 at the end of March 2011 and
269.4 at the end of June 2010
· Net Debt/EBITDA at 1.95x from previous 2.4x
Padua, August 2, 2011, h. 5.45pm – The Board of Directors of Safilo Group S.p.A. today reviewed and approved the results of the second quarter and first half of 2011.
In the second quarter of 2011, the Group reported an acceleration in the underlying growth trends, delivering a double-digit organic sales increase and solid improvement of margins.
Specifically, in the period:
- Revenues grew by 10.5% at constant perimeter1 and exchange rates, with the quarterly trends driven by the upbeat growth of the main fast-growing Asian and Latin American countries, the sound trading conditions of the US market and better performance of Europe;
- EBITDA and EBIT rose by 30.9% and 48.3% respectively, benefitting of the higher gross margin and the continuing deleverage of SG&A expenses both in the core wholesale business as well as at retail stores level. Below the operating line, lower financial expenses and tax rate also contributed to the consistent improvement of the Group’s net result;
- Net Debt declined both compared to the end of the previous quarter and the end of June 2010 thanks to the improved profitability of the period and the tight control on working capital management.
Roberto Vedovotto, Chief Executive Officer of the Safilo Group, commented:
“We are pleased with the additional growth delivered by our business during the second quarter of this year, especially as the positive performance of the top line came with an even more significant improvement of the Group’s profitability.
Expansion in high-growth regions further accelerated in the period, confirming both the quality of our products and of our commercial propositions, which are today further strengthened by the very dynamic work of the Group on all its strategic top licensed brands as well as its house brand, Carrera.
In our core regions, we were glad with the resilient performance of the US market and the momentum gained by our strategic European countries.
Margins were on a rise at all levels, significantly outpacing top line growth, thanks to the good quality of sales as well as the leaner operating and financial costs structure.
Quarterly results allowed the Group to close the first half of the year with a new record financial leverage of net debt to EBITDA below 2.0x.
In the period, all business areas developed according to our plans. We continued to work for the reduction of the Group’s net interest expenses through the early redemption of Euro 60 million of Safilo Capital International Senior Notes 9 5/8% 5/2013.
We are well aware that the economic and business environment in which we operate remains dotted by numerous uncertainties and we must maintain a strong focus on the sustainable improvement of the Group’s business and financial indicators.”
Key Economic data
Net sales increased by 2.8%, reaching Euro 302.6 million in the second quarter of 2011, heavily impacted by the USD devaluation against the Euro. At constant perimeter1 and exchange rates, the Group delivered an organic sales growth of 10.5%.
In the first half of 2011, revenues totalled Euro 603.3 million, reporting an increase of 4.0% over the same period of 2010. The growth was equal to 7.8% at constant perimeter1 and exchange rates.
In the second quarter of 2011, the wholesale business posted revenues of Euro 282.3 million, up 5.0% at current exchange rates and 10.3% at constant exchange rates (Euro 268.9 million in the second quarter of 2010). Sales of sunglasses and prescription frames contributed similarly to the organic, double-digit performance of the second quarter, with the prescription business growing nicely also in the more mature markets.
Such results translated into a growth, for the first half of 2011, equal to 5.7% at current exchange rates and 7.4% at constant exchange rates (Euro 566.8 million compared to Euro 536.4 million in the first half of 2010).
Net consolidated sales continued to be impacted by the non organic decline of the retail business (-20.1% to Euro 20.3 million in the second quarter of 2011, -16.9% to Euro 36.5 million in the first half of 2011), following the sale of the retail chain in Mexico at the end of 2010.
At constant perimeter1 and exchange rate, the retail business grew by 12.1% and 14.9%, respectively in the second quarter and first half of 2011, thanks to the good performance of Solstice stores in US.
From a geographical standpoint, in the second quarter of 2011, the American market reported a 6.7% decline in sales to Euro 114.3 million. Such results were affected by the strong devaluation of the USD.
The underlying performance, at constant perimeter1 and exchange rates, remained good at +8.7%, fuelled by the accelerated growth of the Latin American markets where the Group has been strengthening its organisation and commercial presence.
Momentum in the US market remained strong, driven by the healthy performance - in particular in the independent opticians channel - of the Group’s top licensed brands as well as the continuing expansion of the house brand Carrera.
In the first half of 2011, sales in the Americas totalled Euro 233.0 million, down by 0.6% at current currency and increasing by 8.9% at constant perimeter1 and exchange rates.
European sales reached Euro 131.7 million in the second quarter of 2011, increasing by 9.3% compared to the same period of 2010. Business trends were generally positive in the core markets where the growth of the big Retail Network is also contributing to the recovery of the countries still beset by weaker economic conditions, like Italy and Spain.
The new markets area, represented by Russia, Turkey and Eastern European countries, continued to deliver outperforming trends.
In the first half of 2011, sales in Europe totalled Euro 261.8 million, up 5.3% compared to Euro 248.7 million in the first half of 2010.
Asian markets more than confirmed the strong path of growth outlined in previous quarters, with China, Hong Kong, Korea, India and the Travel Retail business showing the most dynamic performances. Purchases of high-end, premium branded collections represented the major driver of growth in the region, with the Group progressively more active also in introducing the house brand Carrera and other branded collections.
In the second quarter of 2011, sales in Asia were equal to Euro 52.6 million, up 9.4% at current currency and 17.3% at constant exchange rates. The region contributed, at the end of the first half of 2011, to 16.6% of the total consolidated business (Euro 99.9 million, +12.1% at current exchange rates, +14.6% at constant exchange rates).
Gross profit amounted to Euro 181.3 million in the second quarter of 2011, or 59.9% of sales, up 4.8% compared to the gross profit of Euro 172.9 million (58.8% of sales) reported in the second quarter of 2010. The 110 basis point improvement is explained by the increasing utilization of the internal production capacity, thanks to the growing flows of high-volume brands, the higher quality of products in stock and a more favourable mix.
In the first half of 2011, gross profit totalled Euro 364.3 million compared to Euro 346.5 million reported in the first half of 2010. The gross margin improved to 60.4% of sales from the 59.7% of the same period of 2010.
Operating profit (EBIT) totalled Euro 30.5 million in the second quarter of 2011, growing by 48.3% compared to Euro 20.6 million in the second quarter of 2010. Operating profitability improved to 10.1% of sales (7.0% in the second quarter of 2010), reflecting the performance at the gross profit level and the more efficient costs structure of the wholesale business in the area of selling and marketing costs as well as general and administrative expenses. The retail business - today represented exclusively by the Solstice stores chain in US – significantly improved its operating performance, contributing to the enhancement of the Group’s profitability.
In the first half of 2011, the Group’s operating profit totalled Euro 61.9 million, up 38.5% compared to Euro 44.7 million reported in the first half of 2010. The operating profitability improved to 10.3% of sales from the 7.7% margin reached in the same period of 2010.
EBITDA was equal to Euro 39.5 million in the second quarter of 2011, increasing by 30.9% compared to Euro 30.2 million recorded in the same period of 2010. The EBITDA margin stood at 13.1% of sales, up 290 basis points over the 10.2% margin registered in the second quarter of 2010.
In the first half of 2011, EBITDA totalled Euro 80.2 million, up 23.8% compared to Euro 64.8 million reported in the first half of 2010. The EBITDA margin improved to 13.3% of sales from the 11.2% margin reached in the same period of 2010.
The Group’s net profit amounted to Euro 12.9 million in the second quarter of 2011 compared to the loss of Euro 5.0 million recorded in the second quarter of 2010. The Group’s net result also benefitted of the continued decrease of the net financial charges as a result of the reduction of the average financial debt, the positive impact of exchange rate differences and better tax rate of the period.
In the first half of 2011, the Group’s net profit reached Euro 31.3 million, compared to the loss of Euro 3.3 million registered in the first half of 2010.
Key Cash Flow data
The Free Cash Flow in the first half of 2011 was positive for Euro 22.6 million compared to the cash generation of Euro 51.9 million recorded in the first half of 2010.
In the second quarter of 2011, the Group generated a positive free cash flow of Euro 29.4 million (Euro 48.8 million in the second quarter of 2010) as a result of the following factors:
- the positive result of the period;
- the tight management of working capital, especially as far as inventories are concerned. In the period, stocks remained in fact under control, declining despite the growing turnover.
At the end of June 2011, the incidence of net working capital on the last 12-month rolling sales declined to 26.6% from 30.0% in June 2010;
- the stable cash outflow for investing activities, which in the second quarter of 2011 was equal to Euro 5.5 million compared to Euro 4.5 million in the second quarter of 2010.
The Net Debt at the end of June 2011 was equal to Euro 240.3 million, declining both compared to Euro 268.2 million reported at the end of March 2011 and Euro 269.4 million in June 2010.
The financial leverage (Net Debt/EBITDA LTM) declined at the end of the period below 2.0x (1.95x from 2.4x of the previous quarter).
Outlook for the year
After reaching a significant improvement in the economic and financial performance of the first half-year, the Group remains focused on development and improvement projects. At the same time it remains cautious on the outlook for the current year in the light of the macroeconomic uncertainty, particularly in Europe and in the US.
1 Excluding the sold retail chain in Mexico, which had recorded sales of Euro 5.2 million in the second quarter of 2010 and a total of 10.3 million in the first half of 2010.