The Board of Directors of Safilo Group S.p.A. approves the results at 30th September 2008
RESULTS OF THE FIRST NINE MONTHS OF 2008:
- Net sales at 865.7 million Euro (903.9 in the first nine months of 2007)
- EBITDA at 101.8 million Euro (130.2 in the first nine months of 2007)
- Operating profit at 71.7 million Euro (101.6 in the first nine months of 2007)
- Net profit at 14.5 million Euro (38.7 in the first nine months of 2007)
- Net financial position at 566.8 million Euro (514.6 at the end of 2007 and 522.9 in the first nine months of 2007)
Padova, 14th November 2008, h. 4.45pm – The Board of Directors of Safilo Group S.p.A., chaired by Mr Vittorio Tabacchi, today reviewed and approved the results for the first nine months of 2008.
The performance of the first nine months of the year has suffered from the continued evident weakness of the US dollar and the difficult conditions of the international markets which, in the course of the third quarter, have been negatively influenced by the further slowdown in consumer spending.
The Group’s net sales in the first nine months of the year registered a growth, at constant exchange rates, of 1.4% (-4.2% at current exchange rates) whilst the third quarter saw an improvement of 1.6% (- 3.1% at current exchange rates). All of the Group’s main markets have been influenced by consumers’ overall caution and their tendency, especially with regards to the sunglass collections, to limit purchases and favour products belonging to a more competitive price range. This has resulted in a contraction of the high-end sunglass market and consequently a limitation of the orders for new products placed by the Group’s main direct clients - optician’s stores, department stores and purchase chains.
The sales of prescription frames have been satisfactory and, furthermore, strong growth was seen in the house brand Carrera eyewear collections.
Massimiliano Tabacchi, Executive Vice Chairman of Safilo Group stated: “The first nine months of the year have been influenced by an international economic and financial situation characterised by strong uncertainty in the markets and a clear volatility in consumer spending. The stagnation of the European market has been partially offset by the satisfactory sales performance in America and emerging markets such as China and South Korea.
Furthermore, this period has seen the continued development of the Group’s long-term projects, initiated by Safilo over the last twelve months and which aim at achieving a more efficient production structure, strengthening the wholesale distribution network and establishing a more wide reaching presence in all international markets.
The recent extension of the license agreements for the prescription frame and sunglass collections of the brands Gucci, Bottega Veneta and Alexander McQueen underlines the company’s commitment in this direction.”
Consolidated Income Statement
Net sales of Safilo Group reached, in the first nine months of the year, 865.7 million Euro, a decrease of 4.2% compared to the 903.9 million Euro registered in the same period of the previous year.
At constant exchange rates net sales registered an increase of 1.4%.
In the third quarter, Safilo achieved revenues for 228.7 million Euro, a decline of 3.1% compared to the same period of 2007. At constant exchange rates growth in the third quarter was equal to 1.6%.
In the geographical breakdown, America achieved, in the first nine months of the year, an increase at constant exchange rates of 11.6% (+0.2% at current exchange rates), thanks to the contribution of the Mexican stores Sunglass Island, acquired at the beginning of 2008, to the new Solstice stores opened during the period, and to the good performance in the United States achieved by the prescription frame collections sold through the independent opticians channel.
In the European market, where sales fell by 4.4% in the first nine months of the year, performance was particularly weak in Spain and the U.K., while Italy continued to benefit from the strong growth of the Carrera sunglass collections, testament of the growing appeal of this brand in the market.
Asia, which grew by 8.5% at constant exchange rates (+0.3% at current exchange rates), saw a good sales performance in China, South Korea and all the emerging countries of the area. In the course of the third quarter the slowdown in the Japanese market and in duty-free sales in the region was instead more marked.
Performance by distribution channel highlights the growth of the retail business which, at the end of September, counted 307 directly operated stores (171 stores in September 2007).
In the first nine months of 2008 growth in the retail sector was 57.5% at constant exchange rates (+45.5% at current exchange rates), thanks above all to the two acquisitions concluded at the beginning of the year in Australia, Just Spectacles, and in Mexico, Sunglass Island (for a total of 77 stores).
In the United States, the sunglass chain Solstice registered an improvement in sales at current exchange rates of around 19%, thanks to the contribution deriving from new stores.
In Spain, the Loop Vision chain suffered from the market slow down, and registered a decrease in sales of around 3%, but with an improved performance in the course of the third quarter thanks to the Group’s marketing activities and the repositioning of the stores.
The wholesale business registered, in the first nine months of 2008, a contraction of 2.2% at constant exchange rates (-7.4% at current exchange rates), resulting above all from the more marked weakness of the European and Japanese markets and the general consumer tendency to purchase sunglass collections belonging to a more competitive price range.
Total sales volumes continued to experience a slight growth, confirming the competitive strength of Safilo’s products in the market.
Gross profit in the first nine months of 2008 reached 503.2 million Euro against the 532.1 million Euro of the same period of 2007, with a margin on sales of 58.1% (58.9% in the first nine months of the previous year). Factors which contributed to this result are the slowdown in production volumes and the unfavourable country mix related to the greater incidence of sales from the U.S. market, currently less profitable owing to the weakness of the US dollar.
In the third quarter of 2008 the gross margin reached 56.9% of sales, in contraction compared to the 58.7% of the same quarter of the previous year, due to the factors previously explained and to the start-up costs of the new production plant in China which were incurred during the course of the quarter.
EBITDA in the first nine months of 2008 was equal to 101.8 million Euro, compared to the 130.2 million Euro of the first nine months of 2007. The gross operating profitability moved from 14.4% to 11.8%.
The profitability of the wholesale channel was penalised in particular by the greater percentage incidence of sales and marketing costs, which have increased compared to the same period of the previous year, due to the numerous initiatives promoting the Carrera brand and the guaranteed marketing investments on licensed brands which are based on the previous year’s sales.
The Group’s EBITDA performance continues to be influenced by the directly operated store openings. The profitability of the retail channel, whilst enjoying good results in the Mexican and Australian chains acquired at the beginning of the year, continues to be affected by the difficult market conditions in the United States and Spain, where the majority of the directly operated stores is located.
In the third quarter of 2008, the EBITDA reached 7.3% of sales compared to 12.5% registered in the third quarter of 2007.
Operating profit was equal to 71.7 million Euro compared to 101.6 million Euro in the first nine months of 2007. The operating margin reached 8.3% compared to 11.2% in the same period of the previous year.
In the third quarter of 2008, the Group’s operating profit reached 2.9% of sales compared to 8.7% registered in the third quarter of 2007.
Net profit attributable to the Group was 14.5 million Euro compared to 38.7 million Euro registered in the first nine months of 2007, with a margin on revenues which shifted from 4.3% to 1.7%.
In the third quarter of 2008, the Group registered a net loss of 6.7 million Euro compared to the net profit of 5.4 million Euro in the third quarter of 2007.
This result has been influenced by the limited operating profit resulting from the factors previously mentioned, and by the greater impact of the financial costs, penalised also by the strong re-evaluation of the US dollar at the end of September which led to the subsequent increase in debt positions in dollars.
Consolidated Balance Sheet
Net working capital, equal to 376.4 million Euro in the first nine months of 2008, fell by 19.0 million Euro compared to the end of 2007, and by 10.9 million Euro in the more important comparison with the same period of the previous year, and was influenced by the following factors:
- the containment of products in stock;
- the decrease of trade receivables directly related to sales performance and the greater contribution from the retail channel;
- the decrease in trade payables.
Consolidated Cash Flow
The Free Cash Flow relating to the first nine months of 2008 was characterised by the improvement of cash flows deriving from operating activities, which increased in the period to 50.7 million Euro compared to 34.8 million Euro in the first nine months of 2007. Operating cash flow improved thanks to the cash generation at the net working capital level, due, in particular, to the inventory containment policy implemented by the Group during this period.
The final cash absorption of 25.5 million Euro is entirely due to the retail acquisitions carried out in Australia and Mexico.
Cash flow for investments in the first nine months have in fact reached 76.2 million Euro compared to 31.1 million in the first nine months of 2007. The increase is due, as well as to the investments in the retail area, to the construction of the new production plant in China.
The Net financial position, at the end of September 2008, reached 566.8 million Euro, an increase compared to the 514.6 million Euro at 31st December 2007 and due to greater investments and dividends distributed in May 2008.
Outlook for the year
On the basis of the results registered in the first nine months of the year and the recent slowdown, the Group estimates that revenues for 2008, at constant exchange rates, will experience a slight reduction of around 2% compared to 2007 (the previous forecast estimated a growth of around 4%).
In consideration of the current market situation, the EBITDA for the full year is today expected to reach 11% – 11.5% of sales (compared to the previous estimate of around 13.5% - 14%) while the net profit should reach around 1% of sales (the previous estimate was around 3% - 3.5%).
The Group is continuing with its planned projects, regarding both the location of its production and its product development processes which aim at improving future profitability.
During the month of November, and in anticipation of a possible misalignment, at 31st December 2008, of the covenants currently present in the Senior Loan Credit Facility Agreement, a new level of the financial covenants has been negotiated which is more in line with the year end forecasts.
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, 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.
At 5.00pm CET, 11.00am 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: 747#).