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The Board of Directors of Safilo Group S.p.A. approves the results of the First Quarter of 2012
THE BOARD OF DIRECTORS OF SAFILO GROUP S.P.A. APPROVES THE RESULTS OF THE FIRST QUARTER OF 2012
ACQUISITION OF THE POLAROID EYEWEAR BUSINESS
COMPLETED ON APRIL 3, 2012
Padua, May 4, 2012 – The Board of Directors of Safilo Group S.p.A. today reviewed and approved the results of the first quarter of 2012.
Safilo ended the first three months of the year recording net sales of Euro 288.7 million, an operating profit of Euro 23.1 million and a positive net result of Euro 12.0 million. These results allowed the Group to keep the financial leverage at 2.1x (Net debt / EBITDA LTM), substantially in line with the record level achieved at the end of 2011.
In the first quarter of 2012, the Group’s performance has been characterized by lower sales volumes due to the Armani phase-out and the market weakness in some European countries.
The North American market continued to perform well in the period, especially in the prescription frame business of the independent opticians, a channel in which Safilo is strengthening its leadership.
In Asia, the backlog orders confirmed the good trend and the strength of Safilo’s organization and brand portfolio in the region.
The business continued to be challenging in some Southern European countries still affected by the general slow-down in consumption.
Roberto Vedovotto, Chief Executive Officer of the Safilo Group, commented:
“In this first quarter of 2012, results were in line with our expectations both in terms of sales and operating performance.
The strength of our brand portfolio, with particular reference to the high-end, diffusion and fashion segments, enabled us to consolidate and selectively improve our competitive positions, proving the effectiveness of our distribution and product activities.
Among the strategic actions implemented in this quarter, the most significant ones are the global roll-out of Carrera and the launch, on a worldwide scale, of the new Céline collections in the prescription frames and sunglasses markets.
The acquisition of Polaroid is a key strategic step towards our long term objectives and we are enthusiastic of the market opportunities that we will be able to exploit.
Polaroid represents a significant event in the marketplace, seizing a great opportunity to move way beyond the current industry focus of fashion-oriented products, by embedding high quality lens expertise in the fast growing specialist and value-for-money segments.
Despite the several challenges we are facing today, we are confident to reach our medium-term goals thanks to the strategic activities being implemented.”
Key Economic performance
As expected, the first quarter of 2012 was influenced by the phase-out of the Armani Group licenses, with sales decreasing in the quarter, impacting the Group performance especially in Europe and to a lesser extent in the United States and Asia.
The Group net sales of the period reached Euro 288.7 million compared to Euro 300.7 million recorded in the first quarter of 2011 (-4.0% at current exchange rates, -6.3% at constant exchange rates).
The wholesale business recorded revenues of Euro 271.5 million compared to Euro 284.5 million in the first quarter of 2011 (-4.6% at current exchange rates, -6.8% at constant exchange rates).
However, the organic performance of the business highlighted a slightly positive trend, with the Group top licenses consolidating their competitive positions in the main emerging markets, while Tommy Hilfiger, Boss Orange and Marc by Marc Jacobs kept expanding and strengthening in Europe.
The plan to expand Carrera on a worldwide level continued in the quarter with the launch of the brand in the Chinese market. In the period, Carrera progressed in Latin America and the United States, where the development of special product editions contributed to its expansion in such markets.
From a geographical standpoint, the organic performance of the American market was characterized by the solidity of the prescription frame business at the US independent optician stores, where the Group achieved positive results, confirming its leadership position in this channel.
In the United States, the retail business also recorded positive trends, benefitting from the good like for like performance posted by Solstice sunglass stores, reaching a 3.7% growth in the period. At the same time, Safilo moved forward with its efficiency plan started in 2011, closing eight additional non-performing stores in the quarter.
In the first quarter of 2012, sales in the American market were equal to Euro 117.4 million compared to Euro 118.7 million in the first three months of 2011 (-1.1% at current exchange rates, -4.8% at constant exchange rates), also influenced by the returns of unsold products relating to the discontinued brands .
Asian markets recorded a good performance, as demonstrated by the strong sales campaign in February during the Shanghai and Seoul trade shows. Safilo keeps strengthening its competitive position in the fashion and diffusion segment, which is becoming even more relevant alongside the already mentioned success of the top licensed brands.
In contrast with the significant weakness of Japan, revenues in the Travel Retail business and South Korea registered strong growth rates.
Total revenues in Asia reached Euro 48.9 million compared to Euro 47.3 million in the first quarter of 2011 (+3.5% at current exchange rates, -1.3% at constant exchange rates).
In Europe, the still uncertain economic environment is negatively affecting the top line, especially in the Italian domestic market at the independent shops level, and in nearby southern European countries, such as Spain, Portugal and Greece.
Sales in Europe were also impacted by the strong decline recorded in the quarter by the sport business of ski goggles and helmets, due to the particularly adverse weather conditions.
On the other hand, sales grew in France and Germany, where the general positive performance of prescription frames was coupled with the progress of the sunglass business of Safilo’s key accounts.
Russia, which experienced a strong growth in 2011, registered a double-digit growth rate in the period, becoming one of the best engines of growth for the European area going forward.
In the first quarter of 2012, European sales were Euro 118.4 million compared to Euro 130.1 million in the first quarter of 2011 (-9.0% at current exchange rates, -9.2% at constant exchange rates).
In terms of profit and loss, gross profit amounted to Euro 174.2 million in the first quarter of 2012 compared to Euro 183.0 million in the first quarter of 2011, or 60.3% of sales (60.9% in the first quarter of 2011), only partially influenced by the decline of sale volumes.
In the first quarter of 2012, the Group operating profit (EBIT) was Euro 23.1 million compared to Euro 31.4 million registered in the first quarter of 2011.
Beyond the above mentioned factor, the operating margin, equal to 8.0% of sales (10.4% in the first quarter of 2011), was impacted by the costs related to the strategic strengthening of the organizational structures and the incidence of fixed costs related to the discontinuing business, unavoidable in the short-term.
EBITDA, in the period, amounted to Euro 32.3 million compared to Euro 40.7 million in the first quarter of 2011. EBITDA margin equaled 11.2% of sales (13.5% in the first quarter of 2011).
The first quarter of the year ended for Safilo with a net profit of Euro 12.0 million and a net margin of 4.1% of sales (Euro 18.4 million in the first quarter of 2011). In the period, net financial expenses declined compared to the same quarter of 2011, mainly thanks to the advanced partial redemption of Euro 60 million High Yield bond undertaken by the Group in June 2011. Tax rate was instead equal to 32.7% of the Group pre-tax profit.
Key Cash Flow data
In the first quarter of 2012, Free Cash Flow was slightly negative for Euro 5.9 million compared to the absorption of Euro 6.8 million in the first quarter of 2011.
Free Cash Flow was influenced by the lower net profit of the period, the lower absorption of resources from net working capital and total investments slightly up after increasing to 75.5%* the shareholding in the subsidiary in China, one of the Group’s most strategic region.
In the period, the ratio of the net working capital on the last twelve month sales remained around 28.5% (28.8% in the first quarter of 2011) and it was mainly influenced by the decline in sale volumes.
Net debt at the end of March 2012 was Euro 243.2 million compared to Euro 238.3 million at the end of December 2011 and Euro 268.2 million at the end of March 2011.
The financial leverage (Net debt / EBITDA LTM) was thus equal to 2.1x compared to 1.9x at the end of December 2011 and 2.4x at the end of March 2011.
On April 3, 2012 Safilo Group S.p.A. completed the acquisition of the Polaroid Eyewear business, a world leader in optics and polarized lens technology and a global eyewear manufacturer and distributor, with a strong and recognizable market positioning.
The effects of the acquisition and the contribution to the Group income statement will be recorded starting from the second quarter of 2012.
The transaction, completed for a consideration of Euro 59.8 million, was funded for Euro 44.3 million by Multibrands Italy B.V., controlled by HAL Holding N.V., via a reserved capital increase at Euro 9.00 per share. Following the capital increase, Multibrands Italy B.V.’s stake in the share capital of the Group has increased from 37.2% to 42.2%.
* On April 30, 2012, the shareholding in the Chinese subsidiary was increased to 90.0%.
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Last update: 04/05/2012, 18:28