The Board of Directors of Safilo Group S.P.A. approves the results of the First Half 2009
The Board of Directors of Safilo Group S.P.A. approves the results of the First Half 2009
Main results for the first half 2009:
• Net sales at 562.1 million Euro
• EBITDA from ordinary activities at 51.5 million Euro, 9.2% margin on sales
• Net Financial Position at 592.1 million Euro
Padova, 4th August 2009, h 6.00pm - The Board of Directors of Safilo Group S.p.A. today approved the results for the first half 2009 and mandated the Chief Executive Officer, Roberto Vedovotto, to continue to implement all the initiatives to strengthen the Group’s capital structure, in line with the Group’s industrial strategy and with the support of all the stakeholders of the Group.
As discussions with financial investors have been terminated, the Group will continue to focus on its core business, carrying out all the necessary actions to further improve its operating performance, fully supported by its lending banks.
General market conditions remain challenging, and the contraction of sales in the high-end sunglasses segment persisted in the second quarter of 2009. Sales of prescription frames, despite registering a contraction, have however shown to be less sensitive to the continuation of the global economic crisis.
The collections of the house brand Carrera have performed beyond even the best expectations, and during the quarter have further accelerated their growth and gained additional market shares.
The American market, given its greater exposure to prescription products and to a product mix capable of reaching a wider consumer base, remained stable, while the performance registered in the semester in the European and Asian markets was weak. The retail channel registered a slight improvement, while the wholesale business experienced a contraction in line with the first quarter.
The results of the second quarter and the first half of 2009 have been impacted by non recurring items for a total of 128.1 million Euro, relating to the Group’s industrial reorganisation and to the write-down of goodwill related to single Cash Generating Units.
“In line with our expectations, the second quarter of 2009 confirmed the end consumer’s move towards more “accessible” products”, stated Roberto Vedovotto, Chief Executive Officer of Safilo.
“In this contest, the slight improvement in the operating performance and the limited decline in sales compared to the first half of 2008, must represent a stimulus to reach the goals that we have set ourselves,also through the ongoing implementation of all the projects related to the production processes, commercial organisation, relationship with our clients and competitive positioning of our products.” concluded Roberto Vedovotto.
Consolidated Income Statement
Net Sales of Safilo Group, in the first six months of 2009, reached 562.1 million Euro, down by 11.7% compared to the 637.0 million Euro registered in the first half of 2008.
At constant exchange rates, net sales registered a decrease of 15.4%.
In the second quarter, Safilo recorded revenues for 274.2 million Euro, a decrease of 11.8% compared to the same period of 2008. At constant exchange rates, the slowdown in the second quarter was equal to 15.7%.
In the geographical breakdown, America continues to be the area which has recorded the least fall in sales compared to the previous year. The market experienced in the first six months a slight contraction at current exchange rates of 1.5% (-11.2% at constant exchange rates), while in the second quarter of 2009 sales in the area were in line with the same period of the previous year (-0,2% at current exchange rates, -10.0% at constant exchange rates). This performance can be explained by the lesser penetration, in this area, of sunglasses, and by a product offer oriented towards more accessible price ranges. As in the preceding quarter, sales in department stores and in the large retail chains were weak, while the sales performance of the independent opticians, normally used by the American consumers for the purchase of prescription frames, was satisfactory.
The European market closed the first semester with a fall of 19.5%, recording a decrease of 17.8% in the course of the second quarter. The slowdown of sales in the area, due above all to the greater penetration of sunglass collections belonging to brands positioned in the highest price range, evened out, although different variations were still evident at a single country level.
The further acceleration in growth of the house brand Carrera in the second quarter of 2009 is worthy of note, confirming Carrera as one of the reference brands for the younger consumer.
The performance in Asia, which decreased by 10.3% at current exchange rates in the first semester, (-18.8% at constant exchange rates), registered a slowdown during the course of the second quarter of 2009(-16.8% at current exchange rates, -24.8% at constant exchange rates) due to the deterioration of the Japanese market and the duty free business. During the period other important countries also suffered a further slowdown and among these, China in particular.
Performance by distribution channel. In the first half of 2009 the wholesale turnover reached 507.7 million Euro, compared to the 584.0 million Euro of the first half of 2008, highlighting a contraction in the channel of 13.1% at current exchange rates (-16.8% at constant exchange rates). In the second quarter of 2009, the wholesale turnover reached 245.2 million Euro compared to the 282.6 million Euro of the second quarter of 2008. The decrease in the channel in the quarter was equal to 13.2% at current exchange rates (-17.1% at constant exchange rates), confirming the market and product factors already mentioned.
The retail business, which at June 2009 counted 327 directly operated stores (283 stores in June 2008), recorded, in the first half 2009, a growth of 2.6% at current exchange rates (+0.6% at constant exchange rates).
In the second quarter of 2009, the retail channel grew by 2.1% at current exchange rates (-1.8% at constant exchange rates).
The result of the directly operated channel was penalised by the negative performance of those stores open for at least a year, and by the difficult market conditions, in particular in Mexico.
The improvement of the Gross Profit which, in the first half of 2009 reached 58.9% of sales at 331.2 million Euro, compared to 58.6% registered in the first half 2008 (373.0 million Euro), is the result of the new development and industrialization processes for the collections, and the lower costs relating to obsolete products, achieved thanks to the policy employed by the Group for those collections with a slower inventory turnover.
In the second quarter of 2009, the Profit decreased slightly compared to the corresponding period of 2008, reaching 57.1% of sales (57.9% in the second quarter of 2008). The result was affected by the lower production efficiency registered in the production sites during the transition process given the reduction in the production capacity.
With regards to selling, administrative and general costs, the greater incidence of costs in the first half of 2009 was due to the new openings in the retail channel and the negative performance recorded by the directly operated stores open for more than a year.
The greater incidence on sales of advertising and marketing expenses can be attributed to the guaranteed marketing and advertising commitments for licensed brands which are based on the previous year’s sales and to the numerous activities related to the brand Carrera.
The agreement reached with the trade unions regarding the resizing of production capacity in Italy and Slovenia, which involves around 750 people, led to the definition of an incentives plan and unemployment benefits for the workers for a value of 7.4 million Euro, the full amount being set aside in the first semester 2009.
EBITDA from ordinary activities (gross of the provision for non-recurring costs) in the first half of 2009 was equal to 51.5 million Euro compared to 85.2 million Euro registered in the first half of 2008. The gross operating margin reached 9.2% of sales compared to 13.4% during the same period of the previous year.
In the second quarter of 2009, EBITDA from ordinary activities was equal to 21.3 million Euro (7.8% of sales) compared to the 38.5 million Euro registered in the second quarter of 2008 (12.4% of sales).
In consideration of the evolution of market conditions, the Group considered it appropriate to carry out a complete impairment test on its goodwill value, to coincide also with the half year results. This test takes into consideration both the evolution of the market in which the company is operating, also in the light of results already illustrated, and the increase of the risk rates and “g” growth rates, consistent with the persistent world crisis. All these factors put together, applied to the single Cash Generating Units, suggest writing down the value of goodwill to Euro 120.7 million (equal to 14.9% of the total value of the goodwill), of which about a third is the direct result of the trend of the above risk rates.
Operating profit (EBIT) from ordinary activities (gross of the provision for non-recurring costs and the goodwill write down), in the first half of 2009, was equal to 29.3 million Euro compared to 65.1 million Euro of the first half of 2008. The operating profitability reached 5.2% of sales compared to 10.2% in the same period of the previous year.
In the second quarter of 2009, the operating profit (EBIT) from ordinary activities was equal to 10.2 million Euro (3.7% of sales) compared to 28.2 million Euro registered in the second quarter of 2008 (9.1% of sales).
The Group’s net result from ordinary activities (gross of the provision for non-recurring costs and the goodwill write down), in the first half of 2009 was minus 7.9 million Euro compared to the net profit of 21.1 million Euro in the first half of 2008.
In the second quarter of 2009, the net loss from ordinary activities was equal to 9.6 million Euro compared to the net profit of 7.9 million Euro registered in the second quarter of 2008.
The net result of the period was affected by the lower incidence of the net financial costs, following the greater incidence of positive exchange rate differences, while income tax, equal to 13.4 million Euro in the semester, negatively affected the result due to the non accrual of deferred tax assets.
Consolidated Balance Sheet
The Free Cash Flow relating to the first half of 2009 registered a cash absorption of 18.6 million Euro, compared to a cash absorption of 2.4 million Euro in the first half of 2008.
This result was due to the greater absorption of operating resources owing to the lower net result and an increase of the working capital in the component relating to trade payables in the first quarter of the year.
Cash flow for investments in the first half of 2009, amounting to 19.5 million Euro, fell compared to the 57.4 million Euro recorded in the first half of 2008. The cash flow in the period concerned, above all, the investments allocated for the renewal and improvement of the production sites and the completion of the new production site in China.
The Net Financial Position reached, at the end of June 2009, 592.1 million Euro, was an improvement compared to the 617.7 million Euro registered at the end of March 2009. The increase compared to 570.0 million Euro at 31 December 2008, is instead due to the normal cyclical nature of the business.
Outlook for the year
The volatility of the current market demand suggests the management should provide only quarterly updates.
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 Francesco Tagliapietra, 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.
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 financial position 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 Financial Position;
- 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.
At 6.30pm CET today a conference call will be held with the financial community during which the results of the first half 2009 will be reviewed.
It is possible to connect to the call by dialling the following number: +39 02 36269665 or +44 203 0379162 (for journalists: +39 02 36009085) and to listen to the playback by dialling the number +39 02 36008100 or +44 208 1961998 (access code: 6670820#). The conference call can also be followed with the webcast on the site www.safilo.com/en/investors.html.
The presentation is available and may be downloaded from the company website in the Presentations section.
Financial statement as of June 30th, 2009
Please note that before the end of the day, the half-yearly financial report as of June 30th, 2009 - containing the simplified half-year statements, interim directors' report and the declaration pursuant to article 154-bis subsection 5 of ‘T.U.F.’ (Testo Unico sulla Finanza or Italy's Financial Markets Consolidation Act) – will be made available to the public at the company’s registered offices and the offices of Borsa Italiana S.p.A.; the report will be published on the company’s internet website, at the address http://www.safilo.com/it/investors.html. Furthermore, the Auditors’ report and any eventual observations made by the Board of Statutory Auditors will be made available to the public in the same way, as soon as they are available and in accordance with the law.