The Board of Directors of Safilo Group S.p.A. approves the financial results for 2014
THE BOARD OF DIRECTORS OF SAFILO GROUP S.P.A. APPROVES
THE FINANCIAL RESULTS FOR 2014
Laying the foundation for Safilo’s long-term sustainable growth
- Group Revenues at Euro 1,178.7 million for the full year, up +5.1% vs. 2013, and revenue growth in the fourth quarter of 2014 accelerating to 11.2% vs. the fourth quarter of 2013
- Adjusted2 EBITDA at Euro 118.4 million, down 2.8% vs. 2013, reaching 10% of net sales
- Adjusted2 Group net profit at Euro 44.5 million, up +14.1% vs. 2013
- Group Net Debt at Euro 163.3 million, down 10.5% vs. 2013 (Euro 182.5 million as at 31st December 2013), with adjusted2 financial leverage at 1.4x.
Padua, March 5, 2015, h. 5:45pm - The Board of Directors of Safilo Group S.p.A. – the fully integrated Italian eyewear creator and worldwide distributor of quality and trust, listed on the Milan Stock Exchange – has today approved the Company’s consolidated financial statements for the year ended 31 December 20141 and examined the separate financial statements for the year ended 31 December 20141, which will be submitted for approval by the shareholders at the Annual General Meeting to be held in a single call on 27 April 2015.
Safilo net sales in 2014 grew by 5.1% (+5.9% at constant exchange rates), continuing a sustained path of improvement compared to the previous year. The key enabler for sales and market share growth has been the step-change in Safilo’s global commercial strategy and operations, with clear focus on quality of sales and sustainable distribution.
Consistent with previous quarters, Q4 showed a continuation of improved top line momentum, up 11.2% with foreign exchanges leveraging a tailwind (+7.2% at constant exchange rates) with broad based growth across all key geographies, including healthy sales and market share growth in Western Europe.
2014 operating performance, with an adjusted2 EBITDA margin at 10% and an overall flat gross margin vs. last year, reflects investments in future core capabilities of the Group which serve as foundations for competitive advantage. These include, on the capability side, the creation of a global brand building and corporate marketing function, a focused product creation department, and investments in our product design capabilities. On the brand side, we invested in the launch of our new brands Fendi and Bobbi Brown, and prepared the re-stage of Carrera.
At the end of December Group net debt totaled Euro 163.3 million, with the adjusted2 financial leverage at 1.4x.
“2014 has been an important year for Safilo, as we invested significantly in the Company’s leadership and operational strategies, towards long term sustainable growth”, commented CEO Luisa Delgado. “We started to register the first tangible results - namely in topline growth acceleration in Germany, North Europe, UK, and Latin America through new strategic commercial focus and capabilities
We invested in building new marketing capabilities, to leverage our proprietary brands’ potential, with Polaroid and Smith recording excellent sales growth performance while we prepared the re-stage of Carrera.
Our licensed brand portfolio registered strong broad-based growth. We enhanced our product capabilities, strengthening design through an emerging global network of design studios, a new product creation organization for product development, research & innovation, and a new global product supply organization to lead the simplification and modernization of our supply network, with a renewed organization and IT enabled work standardization starting to build targeted competitive advantage.”
Economic and financial highlights
Full year 2014 revenues reached Euro 1,178.7 million, delivering a 5.1% growth compared to Euro 1,121.5 million total sales recorded in 2013 (+5.9% at constant currency).
Gross profit for the year grew by 5.1%, to Euro 718.6 million from Euro 683.7 million in 2013, with the margin stabilizing at 61% of revenues, driven mainly by positive product mix and improved quality of distribution.
2014 adjusted2EBITDA reached Euro 118.4 million, a 2.8% drop compared to the adjusted2 result of Euro 121.8 million recorded in 2013. The adjusted2EBITDA margin for the year moved to 10.0% of sales from 10.9% in 2013 as strategic investments were carried out in order to build solid foundations in product creation and new business capabilities, in particular in the core marketing, product and commercial functions to support future growth.
Adjusted2EBIT for the full year amounted to Euro 83.0 million, down 2.1% compared to Euro 84.8 million in 2013, resulting in an adjusted2 operating margin of 7.0%, from 7.6% the year before.
Total financial charges more than halved in 2014, to Euro 8.6 million from Euro 22.6 million in 2013, thanks to the effects of the fair value valuation of the option component embedded in the equity-linked bonds placed in May 2014, and to the decline of net interest expenses due to the more favorable mix of financing sources.
Safilo closed 2014 with an adjusted2Group net profit of Euro 44.5 million, marking a growth of 14.1% compared to Euro 39.0 million recorded in 2013.
In the fourth quarter of 2014, Group total revenues stood at Euro 311.2 million, up 11.2% compared to Euro 279.7 million recorded in the same quarter of 2013, benefitting from the progressive weakening of the Euro against the USD. At constant exchange rates, turnover in the quarter increased by 7.2%, in line with the pace of the previous two quarters of the year.
Fourth quarter gross profit equaled Euro 178.0 million, up 6.7% compared to Euro 166.8 million in the same period of 2013. The gross margin moved to 57.2% from 59.6% in the fourth quarter of 2013, impacted by our inventory situation. On the one hand, we have increased our obsolescence provision to prudently cover existing obsolescence risk. On the other hand, we have made targeted production interventions to slow down the creation of new inventory. Finally, in order to reduce the current stock of excess inventory, we began executing controlled sales of slow-moving or obsolete products.
In the fourth quarter, adjusted2 EBITDA equaled Euro 32.1 million compared to Euro 33.1 million recorded in the same quarter of 2013. The quarterly adjusted2 EBITDA margin moved to 10.3% of revenues from 11.9% in Q4 2013 driven by the factors previously described at the gross profit level.
In the same period, adjusted2 EBIT totaled Euro 22.8 million, down 2.2% compared to Euro 23.3 million registered in 4Q2013. Adjusted2 EBIT margin was equal to 7.3% compared to 8.3% in the fourth quarter of 2013.
In the fourth quarter of 2014, total financial charges dropped to Euro 2.3 million from Euro 5.9 million in the same period of 2013.
Adjusted2 Group net profit for the fourth quarter of 2014 equaled Euro 10.6 million, down 9.1% compared to the adjusted2 net result of Euro 11.7 million in 2013.
Key Cash Flow data
In 2014, Free Cash Flow was negative for Euro 12.4 million compared to a positive flow of Euro 28.4 million in 2013, as the total increase in inventories affected working capital management during the year. With regards to our priority to more efficiently manage our inventories, we are intervening both in the short-term via very prudent management and in the medium-term via significant business process interventions that are under way to tackle the underlying root causes. These are needed to systemically improve connection between sales planning, demand planning, sourcing and production planning. Along with ongoing, strictly controlled channels to sell slow-moving or obsolete stock. Encouragingly, in the fourth quarter we recorded an improvement in our inventory position vs. the peak of Q3 (-3.4% or Euro 8.7 million).
At the end of December 2014, Group net debt stood at Euro 163.3 million, down 10.5% compared to Euro 182.5 million at the end of December 2013 and more or less in line with the position reported at the end of September 2014 of Euro 158.9 million.
2014 sales performance by market stood testimony to the new global commercial organization put in place by the Group during the year with the establishment of new key regions, new global channels and accounts, all under the core commercial strategy of business re-focus on sustainable quality sales and distribution.
North-America and Latin America were the key growth drivers in the year, with the latter up more than 40% in the last quarter and more than 20% in the year, benefiting from a dedicated multifunctional regional headquarter organization located in Miami to serve all customers and market distributors in Latin America, with locally tailor-made commercial partnerships across the different consumer segments in which Safilo plays with its portfolio.
In Europe, Safilo’s brands net sales grew and gained market share in an overall weak market environment, with the turmoil in Russia being a headwind for the overall regional performance. The Iberian countries were Safilo’s best-in-class market players consistently during the year, while the Italian business showed signs of improvement and market share gains starting from the second half resulting in net sales growth for the year. Full year sales recorded strong double-digit growth in Germany and the Nordic countries, two core business areas in Europe where Safilo was last year reorganized in order to tackle its historically low competitiveness and business relevance and develop the business to its full potential. For the year in general and in the fourth quarter in particular, the UK became a strong contributor to sales growth as new, long-term commercial agreements were developed with strategic market chains.
Safilo also strengthened its presence in the Middle East markets with the opening in September 2014 of a fully owned subsidiary in Dubai.
Full year 2014 sales in the American market rose 8.0% at current exchange rates and 9.2% at constant exchange rates, reaching Euro 494.7 million compared to Euro 457.9 million in 2013.
Revenues for the fourth quarter of 2014 grew by 23.2% at current exchange rates (+15.4% at constant exchange rates), to Euro 133.6 million compared to Euro 108.4 million in the same quarter of 2013 marking excellent performance across all key channels.
In 2014, turnover in Europe equaled Euro 486.8 million, up 3.4% (+3.7% at constant exchange rates) compared to Euro 470.8 million in 2013. In the fourth quarter of 2014, European revenues remained stable at Euro 118.6 million compared to Euro 119.1 million in the fourth quarter of 2013 (-0.4% at current exchange rates, -0.1% at constant exchange rates) due solely to declining sales in Russia while the balance of Europe delivered low-single digit sales growth.
In Asia, full year revenues stood at Euro 177.1 million, in line with the previous year of Euro 177.5 million (-0.2% at current exchange rates, +0.2% at constant exchange rates). 2014 was a year of redefining our Asian go-to-market strategy and organization, improving quality of sales, establishing China as a region in its own right, and putting new leadership in place. Encouragingly, fourth quarter revenues in the region grew by 10% (+3.4% at constant exchange rates) to Euro 51.9 million compared to Euro 47.1 million in the same period of 2013.
In 2014, Safilo developed a new portfolio strategy based on the five identified consumer segments which compose the relevant eyewear market, together with clear portfolio roles for each of its brands to address these segments. Sales performance by brand evidenced some important progress versus portfolio roles. Dior sales were very solid throughout the year, representing a continued benchmark for Safilo's most sophisticated product, selectivity, and communication projects. In 2014, Dior iconic collections continued to outperform across all the most prestigious and high quality eyewear channels.
Strong sales trends for Boss and Tommy Hilfiger confirmed their potential to become Safilo’s future core brands. An opportunity the Group has started to work on also is Max Mara licenses, whose sales grew double digit in 2014, proving the rationale of Safilo’s renewed focus on the brand.
Céline and Jimmy Choo sales grew significantly on the back of the brands’ high appeal in eyewear, confirming their potential as high growth brands in Safilo’s portfolio.
Fendi in its launch year was off to a good start, along with Bobbi Brown.
Finally, Gucci sales were broadly flat vs. year ago.
In the fast growing ‘Mass Cool’ segment, Polaroid confirmed its strong growth trajectory, with 2014 net sales up more than 20% for the second year in a row, gaining market share in core markets like Spain, Germany, and Russia, and initiating its worldwide expansion into Latin America, North America, and Asia.
In the attractive Sports-Outdoor segment, Safilo's proprietary brand Smith continued in the fourth quarter the double digit sales growth trends recorded in the first nine months. In 2014, Safilo initiated a strategic renewal and related restructuring of the brand’s business and operational platform, to fully leverage its strengths and prepare it for success in its international expansion. Sales for Carrera declined in the year in sun, while frames were essentially flat worldwide, with the Group focused on preparing the brand’s consumer-centered restage and growth strategy for the next 5 years, while maintaining distribution channels lean and clean, ready for the brand's re-stage in 2015.
The Board of Directors granted options of the Second Tranche of the Stock Option Plan 2014-2016, identifying, on the basis of the proposal of the Remuneration and Nomination Committee, the eligible beneficiaries. For any further information on the Stock Option Plan 2014-2016 we refer to the documentation made available to the public on the Company’s website and any other documents that will be published according to the law, including the Report on the Remuneration.
During Safilo’s Market Day on March 16th, 2015 the group will present its 2020 strategic plan
Finally, the Group announced today a new licensing agreement for the Givenchy eyewear collections of sunglasses and optical frames. The licensing contract will run from January 1, 2016 to December 31, 2021, renewable upon mutual agreement.
1 The consolidated and separate financial statements are currently being audited, a process that has yet to be completed.
22014 adjusted economic results do not include the non-recurring expenses incurred in the second quarter of 2014, for Euro 3.0 million, related to the voluntary exit incentives signed with employees and trade unions, as the solidarity contracts come to an end, and to some reorganization costs. In the fourth quarter of 2014, non-recurring items related to both reorganization costs, including executive officer succession plans, and the estimated liability arising from the reorganization and relocation of the Smith Optics business for a total amount of Euro 4.7 million. Net of the fiscal effect, the total impact was equal to Euro 5.4 million for the full year and Euro 3.2 million in the fourth quarter.
Adjusted 2013 results do not include non-recurring costs recorded in the second quarter of 2013, amounting to €7.4 million, and in the fourth quarter, amounting to €16.7 million, for a total amount of €24.1 million (€23.4 million net of tax effect). Of these, €10.1 million are related to the CEO succession plan occurred in October 2013 and to some restructuring expenses in the European market while €14.0 million are related to a provision for fiscal risks related to litigations opened in Italy for years 2007-2011.
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. Gerd Graehsler, 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 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.
Today, at 6.00pm CET (5.00pm GMT; 12.00pm EST) a conference call will be held with the financial community during which the results of the full year 2014 will be discussed.
It is possible to follow the conference call by calling +39 06 87500875, +44 203 4271912 o +1 646 2543363 (for journalists +39 06 87500874) and entering the access code 5816556.
A recording of the conference call will be available until March 7, 2015 on 39 06 45217196, +44 203 4270598 o +1 347 3669565 (access code: 5816556).
The conference call may be followed via webcast at http://investors-en.safilogroup.com/. The presentation is available and may be downloaded from the Company’s website.
Notice of the call of the Ordinary Shareholders' Meeting
In the coming days, the notice of the call of the Shareholders' Meeting will be available on the website http://investors-en.safilogroup.com/ and on the central storage of regulated information, where the Reports from the Directors to the Shareholders' Meeting on the proposals regarding the items on the agenda, will also be made available.