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The Board of Directors of Safilo Group S.p.A. approves the results of the First Quarter 2008

06/05/08

Results for the First Quarter 2008:

  • Net Sales at 326.0 million Euro (341.4 in the first quarter 2007)
  • EBITDA at 46.7 million Euro (58.5 in the first quarter 2007)
  • Operating Profit at 36.9 million Euro (48.9 in the first quarter 2007)
  • Net profit at 13.2 million Euro (20.8 in the first quarter 2007)
  • Net financial position at 552.2 million Euro (514.6 at the end of 2007 and 556.1 in the first quarter 2007)

Padova, 6th May 2008, h. 14.45 – The Board of Directors of Safilo Group S.p.A. today reviewed and approved the results for the first quarter 2008 and furthermore assigned the roles of Chief Executive Officer and Executive Vice Chairman. Internal committees were also renamed.

The performance of the first quarter 2008 has been influenced by the strong devaluation of the US dollar, which penalised by more than 5% all the main lines of the income statement. At constant exchange rates net sales registered a growth of 0.9%.
Positive results were achieved in the American market thanks to the strong progress seen in the quarter in the retail channel which benefited from the acquisition of new stores in Mexico.
Sales of prescription frames continued to register good performance, highlighting the quality of the collections proposed. Sales of the sunglass collections have instead been affected by the greater cautiousness in the purchase of consumer goods in a time of economic uncertainty.

“We were aware that the first three months would have been the most challenging of the year, due also to the difficult economic climate which worldwide markets are currently experiencing.” Stated Vittorio Tabacchi, Chairman of Safilo. “The strong development of the retail channel and the strengthening of our structures in the wholesale markets confirm the soundness of the development path undertaken by Safilo.”

Consolidated Income Statement

Net sales of Safilo Group, in the first quarter 2008, reached 326.0 million Euro compared to the 341.4 million Euro registered in the same period of the previous year. At constant exchange rates net sales would have registered an increase of 0.9%.
In the geographical breakdown, America achieved, in the first 3 months of the year, an increase of 14.9% at constant exchange rates (+2.4% at current exchange rates), thanks to the good performance of the sales of the prescription frame collections in the independent opticians channel, and to the contribution of the Mexican Sunglass Island stores, acquired at the beginning of 2008.
Asia registered an increase of 4.5% at constant exchange rates (-3.0% at current exchange rates), thanks above all to the good results of the Chinese and Korean markets, counterbalanced by the persisting difficulty of the Japanese market.
The comparison with the same period of the previous year was more challenging for the European market, which registered, in the first quarter 2008, an overall decrease of 3.2%, against a growth of 28.5% in the first quarter of 2007.
Performance by distribution channel highlights an evident progression of the retail business, which, at the end of March, counted 268 directly operated stores (152 in March 2007). The growth of the channel, in the period in question, reached 71.8% at constant exchange rates (+56.9% at current exchange rates), and is due above all to the two acquisitions finalised at the beginning of the year in Mexico and Australia (for a total of 77 stores).
In the United States, the sunglass chain Solstice saw a double-digit improvement in sales at constant exchange rates, thanks to the contribution coming from the new stores. In Spain the refurbishment of several Loop Vision stores continued.
In the first quarter of 2008 the wholesale channel registered a decrease of 2.5% at constant exchange rates (-7.5% at current exchange rates), affected above all by the slowdown in the sunglass business.
The progression of the wholesale business in the first quarter of the previous year was 10.7%.

In general terms the first three months of 2008 have been characterised by the following factors:
- the negative impact related to the strong devaluation of the US dollar;
- the greater contribution from the retail channel deriving from the new acquisitions in Mexico and Australia and the new Solstice openings in the United States;
- the comparison with the strong growth seen in the first quarter of 2007.

Gross profit in the first three months of the year reached 192.9 million Euro against the 204.6 million Euro in the same period of 2007, with a margin on sales of 59.2% (59.9% in the first three months of 2007).
This result was affected by the negative impact deriving from the strong devaluation of the US dollar during the quarter and by an unfavourable country mix related to the greater incidence of sales in the American market, currently less profitable.

Ebitda in the first quarter of 2008 was equal to 46.7 million Euro compared to the 58.5 million Euro in the first quarter of 2007. The gross operating profitability, which fell from 17.1% to 14.3%, is explained by the factors described with reference to gross profit, as well as by the seasonality of the retail channel which, especially in the sunglass business, registers in the first quarter of the year the lowest profitability.
Selling, administrative and general costs in the wholesale channel, although lower in absolute amounts compared to the first quarter 2007, increased their incidence on turnover.

Operating profit was equal to 36.9 million Euro compared to the 48.9 million Euro of the first quarter of 2007. The operating margin in the quarter reached 11.3% compared to 14.3% in the first quarter 2007 .

Net profit attributable to the Group was 13.2 million Euro compared to the 20.8 million Euro of the first three months of 2007, with an incidence on sales which moved from 6.1% to 4.1%.
The incidence of net financial costs increased as a result of the greater negative impact of the exchange rate differences, while the gradual reduction of the tax rate continued, reaching 37.5% in the quarter compared to 38.6% in the same period of 2007.

Consolidated Balance Sheet

Net working capital, equal to 436.4 million Euro in the first quarter 2008, saw an increase of 41 million Euro compared to the end of 2007 due to the normal seasonality of the business. It remained substantially stable if compared instead to the 434.1 million Euro recorded in the first quarter 2007.and was influenced by the following factors:

  • the lower incidence of the trade receivables due to the greater incidence of retail sales;
  • the planned containment of stock;
  • the decrease in trade payables.

Consolidated Cash Flow

The Free Cash Flow relating to the first quarter 2008 recorded a cash absorption of 44.7 million Euro compared to 25.5 million Euro registered in the first quarter 2007. The result was influenced by the investment of around 27 million Euro for the two retail acquisitions carried out at the beginning of the year in Mexico and Australia, while the cash flow management linked to net working capital improved, due especially to the inventory policy.

The Net financial position, which increased in the first quarter 2008 to 552.2 million Euro compared to the 514.6 million Euro at 31st December 2007 as a result of the normal seasonality of the business and the acquisitions made at the beginning of the year, has remained substantially stable compared to the 556.1 million Euro of the first quarter of 2007, benefiting from the improvement in the generation of operating cash flows.

Outlook for the year

On the basis of the quarterly result, substantially in line with the expectations for the first part of the year, and the current visibility on the order book, the objectives for the financial year 2008 are confirmed.

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.

Disclaimer

This document contains forward-looking statements, in particular in the “Outlook for the Year” section, 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.

Conference Call

At 3.00pm CET, 9.00am EST today a conference call will be held with the financial community during which the Group’s economic and financial results will be discussed.
It is possible to connect to the call by dialling the following number: +39 02 802 09 11 (for journalists: +39 02 802 09 28) and to listen to the playback by dialling the number +39 02 806 137 80 (access code: 707#).

Company Positions and renewal of the Internal Committees
The Board of Directors’ Meeting, held today for the first time since its appointment by the Shareholders’ Meeting held on 30th April 2008, confirmed Vittorio Tabacchi as Chairman, Claudio Gottardi as Chief Executive Officer, and appointed Massimiliano Tabacchi as Executive Vice Chairman.
The Board of Directors furthermore proceeded with the verification of the qualifications of its members (7 members, 3 of whom - Carlo Gilardi, Antonio Favrin and Ennio Doris - possess the independence requirements foreseen by the Corporate Governance Code promoted by Borsa Italiana S.p.A, and the first two also the independence requirements foreseen by Italy's Financial Markets Consolidation Act) and the verification of the compatibility of the positions held by the members outside the company with the duties related to their positions as directors of Safilo Group S.p.A..
* * *
Lastly, the Board of Directors renewed the Internal Control Committee and the Remuneration Committee, calling as their members the Board members Carlo Gilardi (independent member chosen from the majority list), Antonio Favrin (independent member chosen from the minority list) and Giannino Lorenzon (non-executive member).

Consolidated statement of operations Safilo Group S.p.A.

 

Q1

 

(Euro/000)

2008

2007

Change %

 

 

 

 

Net sales

326,020

341,395

-4.5%

Cost of sales

(133,080)

(136,833)

-2.7%

 

 

 

 

Gross profit

192,940

204,562

-5.7%

 

 

 

 

Selling and marketing expenses

(122,021)

(123,627)

-1.3%

General and administrative expenses

(34,003)

(32,304)

5.3%

Other op. income and (expenses), net

(36)

279

n.s.

 

 

 

 

Operating profit

36,880

48,910

-24.6%

 

 

 

 

Share of income (loss) of associates

38

39

-2.6%

Interest expense and other financial charges, net

(13,671)

(12,315)

11.0%

 

 

 

 

Profit before taxation

23,247

36,634

-36.5%

 

 

 

 

Income taxes

(8,723)

(14,132)

-38.3%

 

 

 

 

Net profit

14,524

22,502

-35.5%

 

 

 

 

Net profit attributable to minority interests

1,318

1,654

-20.3%

 

 

 

 

Net profit attributable to the Group

13,206

20,848

-36.7%

 

 

 

 

EBITDA

46,698

58,542

-20.2%

 

 

 

 

Basic EPS (Euro)

0.05

0.07

 

 

 

 

 

Diluted EPS (Euro)

0.05

0.07

 


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