The Board of Directors of Safilo Group S.p.A. approves the financial results at 30th September 2009
THE BOARD OF DIRECTORS OF SAFILO GROUP S.P.A.
APPROVES THE FINANCIAL RESULTS AT 30TH SEPTEMBER 2009
Key highlights of the first 9 months of 2009:
- Net Sales at Euro 774.7 million
- EBITDA from ordinary activities at Euro 55.0 million, 7.1% margin
- Net financial debt at Euro 586.3 million
- Only 1.03% extra of the Safilo Notes have been tendered at Early Bird date
- HAL pays 60 cts per Note up to November 18
- If Tender Offer on Notes fails, the company will be in a hugely leveraged situation
Padova, 11th November 2009 – The Board of Directors of Safilo Group S.p.A. today approved the results for the first 9 months of 2009.
During the third quarter net sales have decreased by 7.0% at current exchange rates (-7.7% at constant exchange rate).
During the third quarter Europe registered a slight improvement, whilst the US market has remained stable in comparison with the other quarters of the year. Asia remains the region where we suffer the most, Japan not showing any signs of recovery yet.
During the third quarter the wholesale channel (90% of sales) has decreased by 9.5% at current exchange rates (-10.4% at constant exchange rate) whilst sales of the retail operations grew slightly due to new openings (comp growth was negative by 15.5%)
The first 9 months results have been impacted by non-cash, non-recurring items amounting to Euro 128.1 million, related to the industrial reorganization and the write-off of the goodwill associated with certain Cash Generating Units. In addition, the completion of the proposed transaction with HAL (and specifically the disposal to HAL of the non-strategic retail network) would result in additional non-cash, non-recurring losses amounting to approximately Euro 28 million.
On October 19th the Board of Directors approved the recapitalization plan in co-operation with HAL Holding to strengthen Safilo’s capital structure and we expect to have a cash inflow for a total amount of Euro 283 million, which will provide the necessary financial flexibility in the long term.
Condition precedent to the overall recapitalization plan is, amongst others, the successful completion, by November 18th, 2009, of the cash tender offer launched by HAL for the outstanding Safilo Notes 2013. The company has been informed by HAL that only 1.03% has been tendered at the Early Bird date (in addition to the 38.76% committed prior to the Tender Offer by existing Note-holders). The company has also been informed that currently HAL does not own any of the Safilo Notes itself. As a result, the chance that the tender will not be successful cannot be neglected.
In such event, the overall recapitalization plan might not take place and the company would again be in a highly leveraged situation and will, in all likelihood, default under its banking facilities by year-end.
The Board of Directors has resolved to re-call the shareholders’ meeting, already called for 23rd, 24th and 30th November 2009 (in first, second and third call), for 14th, 15th and 16th December 2009 (in first, second and third call) to deliberate the same items already in the agenda, given that antitrust clearance in connection with the possible acquisition of the control of the company by HAL is only expected to be received just before these dates.
The retraction of the previous call and the notice of the new call will be published tomorrow, 12th November 2009, in a national newspaper and will be made available on the Company’s internet website at www.safilo.com/en/investors.html.
Net Sales of Safilo Group, in the first nine months of 2009, reached 774.7 million Euro, down by 10.5% compared to the 865.7 million Euro registered in the first nine months of 2008.
At constant exchange rates, net sales registered a decrease of 13.3%.
In the third quarter, Safilo recorded revenues for 212.6 million Euro, a decrease of 7.0% compared to the same period of 2008. At constant exchange rates, the slowdown in the third quarter was equal to 7.7%.
In the geographical breakdown, the American market experienced, in the first nine months of 2009, a contraction at current exchange rates of 3.6% (-10.6% at constant exchange rates). In the third quarter of 2009 sales in the area registered a slight improvement compared to the previous quarters of the year, declining by 7.9% at current exchange rates (-8.8% at constant exchange rates). Sales performance of the independent opticians (normally used by the American consumers for the purchase of prescription frames) remained satisfactory. In the USA, sales performance of prescription frames was affected by the strong growth of these products during the third quarter 2008. On the other hand, in the third quarter 2009, the offer of more accessible price ranges for sunglasses became stronger.
Sales in department stores and in the large retail chains continued to be very weak.
The European market closed the first nine months of 2009 with a fall of 17.8%, recording a decrease of 11.7% (-9.4% at constant exchange rates) in the course of the third quarter. Within these results, the good performance of the house brand Carrera is included, which recorded a growth over 30% in the first nine months of 2009. After representing a mass phenomenon during 2008, Carrera is progressively expanding its market reach, in particular in Spain and France.
The performance in Asia, which decreased by 12.1% at current exchange rates in the first nine months of 2009 (-19.0% at constant exchange rates), registered a slowdown of 16.9% at current exchange rates during the course of the third quarter of 2009 (-17.6% at constant exchange rates). The Japanese market, more oriented towards the highest price point products, did not indicate any recovery. During the third quarter 2009, other important countries, such as China and Hong Kong, remained weak.
Performance by distribution channel. In the first nine months of 2009 the wholesale turnover reached 692.0 million Euro, compared to the 787.7 million Euro of the first nine months of 2008, highlighting a contraction in the channel of 12.1% at current exchange rates (-15.2% at constant exchange rates). In the third quarter of 2009, the wholesale turnover reached 184.3 million Euro compared to the 203.7 million Euro of the third quarter of 2008. The decrease in the channel in the quarter was equal to 9.5% at current exchange rates (-10.4% at constant exchange rates).
The retail business, which at the end of September 2009 counted 326 directly operated stores (307 stores in September 2008), recorded, in the first nine months of 2009, a growth of 6.0% at current exchange rates (+5.0% at constant exchange rates), thanks to the greater number of stores. The result of the directly operated channel was penalised by the performance of those stores open for at least a year.
In the third quarter of 2009, the retail channel grew by 13.2% at current exchange rates (+14.4% at constant exchange rates).
The Gross Profit which, in the first nine months of 2009 reached 57.6% of sales at 446.4 million Euro, compared to 58.1% registered in the first nine months of 2008 (503.2 million Euro), was substantially stable thanks to the new development and industrialization processes for the collections, and the lower costs relating to obsolete products.
In the third quarter of 2009, the Profit decreased compared to the corresponding period of 2008, reaching 54.2% of sales (56.9% in the third quarter of 2008). The result was affected by the further under-utilization of the production capacity during the quarter and the consequent lower absorption of industrial fixed costs.
With regards to selling, administrative and general costs, the greater incidence of costs in the first nine months 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.
To add to this, in the wholesale channel, is the greater incidence on sales of some fixed costs, such as the advertising and marketing expenses related for many licensed brands to the previous year’s sales, and the royalties which are guaranteed for a fix amount.
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 nine months of 2009 was equal to 55.0 million Euro compared to 101.8 million Euro registered in the first nine months of 2008. The gross operating margin reached 7.1% of sales compared to 11.8% during the same period of the previous year.
In the third quarter of 2009, EBITDA from ordinary activities was equal to 3.5 million Euro (1.6% of sales) compared to the 16.7 million Euro registered in the third quarter of 2008 (7.3% of sales). This result was also influenced by the greater allowance for doubtful accounts that the Group decided to set apart in light of the still uncertain business environment.
As already explained during the first semester 2009, in consideration of the evolution of market conditions, the Group considered it appropriate to carry out a complete impairment test on its goodwill value. The evolution of the market in which the company is operating, the increase of the risk rates and growth rates, applied to the single Cash Generating Units, suggested the Group write down the value of goodwill to 120.7 million Euro (equal to 14.9% of the total value of the goodwill).
In relation to the previously announced recapitalization plan to be operated by HAL Holding N.V. (HAL), Safilo also decided to wrote off assets for 28 million Euro in the third quarter in view of the possible impact of the sale of retail companies, which will presumably be concluded in the fourth quarter of 2009.
Operating profit (EBIT) from ordinary activities (gross of the provision for non-recurring costs and the write down of assets), in the first nine months of 2009, was equal to 21.7 million Euro compared to 71.7 million Euro of the first nine months of 2008. The operating profitability reached 2.8% of sales compared to 8.3% in the same period of the previous year.
In the third quarter of 2009, the operating profit (EBIT) from ordinary activities was equal to a loss of 7.6 million Euro (-3.6% of sales) compared to an operating profit of 6.5 million Euro registered in the third quarter of 2008 (2.9% of sales).
The Group’s net result from ordinary activities (gross of the provision for non-recurring costs and the write down of assets), in the first nine months of 2009 was negative for 30.0 million Euro compared to the net profit of 14.5 million Euro in the first nine months of 2008.
In the third quarter of 2009, the net loss from ordinary activities was equal to 22.1 million Euro compared to the net loss of 6.7 million Euro registered in the third quarter of 2008.
The net result of the period was affected by the non accrual of deferred tax assets, while the net financial costs were further reduced following the positive impact of exchange rate differences in the dollar denominated debt.
The Free Cash Flow relating to the first nine months of 2009 improved, registering a cash absorption of 12.3 million Euro, compared to a cash absorption of 25.5 million Euro in the first nine months of 2008.
This result was due to the lower absorption of resources from investing activities, amounting to 28.3 million Euro in the first nine months of 2009 compared to the 76.2 million Euro recorded in the first nine months of 2008. The investments concerned the renewal and improvement of the production sites and the completion of the new production site in China.
The cash flow from operating activities was equal to 16.0 million Euro in the first nine months of 2009 compared to the 50.7 million Euro in the first nine months of 2008, owing to the lower net result of the period and to the better management of working capital in particular in the component relating to the reduction of inventories.
The Net Financial Position reached, at the end of September 2009, 586.3 million Euro, an improvement compared to the 592.1 million Euro registered at the end of June 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 6.00 pm CET today a conference call will be held with the financial community during which the results of the first nine months and third quarter 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.
Intermediate report at 30th September 2009
Please note that before the end of the day, the intermediate report at 30th September 2009 will be made available to the public at the company’s registered offices and the offices of Borsa Italiana S.p.a.; furthermore, the report will be published on the company’s internet website at the address www.safilo.com/en/investors.htmlThe complete press release, including all tables, is available in pdf format