Q1 2019 Trading Update
Q1 2019 TRADING UPDATE
- Net sales from Continuing Operations grew by 3.4% (+0.6% at constant exchange rates)
- Adjusted EBITDA2 from Continuing Operations (pre-IFRS 16) reached Euro 16.5 million and a margin of 6.7%, marking a significant operational improvement thanks to cost savings progress
Padua, May 09, 2019 – The Board of Directors of Safilo Group S.p.A. has today reviewed and approved Q1 2019 economic and financial key performance indicators.
Following the Group’s decision announced last April 2, to proceed with the plan to sell the Solstice retail business to a third party, in 2019 management’s comments focus to the Group’s Continuing Operations, excluding Solstice.
Safilo closed the first quarter of 2019 with the net sales from Continuing Operations at Euro 247.3 million, up 3.4% at current exchange rates and 0.6% at constant exchange rates (+0.8% on the wholesale business1).
In Q1 2019, Safilo’s adjusted EBITDA2 from Continuing Operations (pre-IFRS 16) reached Euro 16.5 million and a margin of 6.7%, marking a significant operational improvement compared to the adjusted EBITDA2 of Euro 16.1 million recorded in Q1 2018, which included the income of Euro 9.8 million for the early termination of the Gucci license.
Sales performance was supported by the gradual improvement of business trends in Europe, up 1.3% at constant exchange rates (+1.8% on the wholesale business1) and North America recovering a certain stability (-0.6% at constant exchange rates), after the decrease recorded in the last two years. Performance in emerging markets3 was marked on the one hand by the good results of the Asia-Pacific region, up overall by 17.4% at constant exchange rates, and on the other by a weak business in the IMEA3 markets.
NET SALES BY GEOGRAPHIC AREA OF THE CONTINUING OPERATIONS
In the first quarter of 2019, Safilo recorded the overall positive performance of its own core brands, driven by Smith and Polaroid in their core markets and product categories. Positive developments were also evident for a number of licensed brands playing in the fashion luxury and contemporary segments.
FIRST ADOPTION OF IFRS 16
The Group elected to implement IFRS 16, applying the modified retrospective approach, whereby the cumulative effect of adopting the standard has been recognized at its relevant effective date on January 1st 2019, without the restatement of 2018 comparative information. IFRS 16 has a significant impact on the Group’s consolidated balance sheet side due to the right of use assets and lease liabilities that are now recognized for contracts in which the Group is a lessee. In the consolidated statement of income, the majority of the current operating rental costs is now presented as depreciation of right to use assets and interest expenses on the lease liabilities, with a material positive impact in terms of EBITDA and a minor effect on EBIT and net income.
In 2019, key financial indicators are commented on a pre IFRS 16 basis in order to support the transition and to allow proper comparison with the previous period.
ECONOMIC AND FINANCIAL HIGHLIGHTS OF THE CONTINUING OPERATIONS
In Q1 2019, reported adjusted3 EBITDA of the Continuing Operations reached Euro 20.0 million.
On a pre-IFRS 16 basis, excluding the positive accounting effect, equal to Euro 3.4 million, of the first application of the new standard to Q1 2019, the Group’s Continuing Operations posted an adjusted2 EBITDA of Euro 16.5 million, with the margin on sales standing at 6.7%. For Safilo, this result marked a significant operational improvement compared to the adjusted2 EBITDA of Euro 16.1 million reported in Q1 2018, which included the income of Euro 9.8 million for the early termination of the Gucci license.
In Q1 2019, the Group’s economic performance grew in fact 200 basis points at the Gross margin level, from 50.7% to 52.7% of net sales mainly thanks to higher plant efficiencies and lower obsolescence costs, and recovered additional 200 basis points at the operating expenses level following the ongoing progress in the overheads saving program.
At the end of March 2019, total Group Net Debt on a pre IFRS 16 basis stood at Euro 26.4 million compared to Euro 166.0 million in Q1 2018 and Euro 32.9 million at the end of December 2018. Q1 2019 Net Debt benefitted of the remaining proceeds, received on January 2, 2019 and equal to Euro 17.7 million, from the share capital increase. Following the first application of the new IFRS 16 standard to Q1 2019, Group Net Debt stood at Euro 105.7 million.
1 The wholesale business excludes the business of the production agreement with Kering, reported within the geographical area of Europe.
2 In Q1 2019, the adjusted EBITDA excludes non-recurring costs for Euro 1.1 million, due to restructuring expenses related to the ongoing cost saving program.
In Q1 2018, the adjusted EBITDA excluded non-recurring costs for Euro 1.7 million, mainly related to the CEO succession plan, and it included an income of Euro 9.8 million, as pro-rata portion of the accounting compensation for the early termination of the Gucci license, equal to Euro 39 million for the full year 2018.
3 Emerging markets comprise the regions of India, Middle East & Africa (IMEA) and Latin America (reported within Rest of the World), Central Eastern Europe (reported within Europe), Greater China and APAC (reported within Asia Pacific).
ECONOMIC HIGHLIGHTS OF DISCONTINUED OPERATIONS (SOLSTICE RETAIL BUSINESS)
The positive accounting effect of IFRS 16 to Q1 2019 Discontinued Operations EBITDA was Euro 2.9 million.
ECONOMIC HIGHLIGHTS OF TOTAL CONTINUING AND DISCONTINUED OPERATIONS
The positive accounting effect of IFRS 16 to Q1 2019 Continuing and Discontinued Operations EBITDA totaled Euro 6.4 million.
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 adding to the Operating profit, depreciation and amortization;
- The net debt is the sum of bank borrowings and short, medium and long-term loans, net of cash in hand and at bank.
Today, at 7.15 pm CET (6.15pm BST; 1:15pm EST) a conference call will be held with the financial community during which first quarter 2019 trading update will be discussed.
It is possible to follow the conference call by calling +39 06 87500896, +44 844 4933857, +33 1 70732727 or +1 917 7200178 (for journalists +39 06 87502026) and entering the access code: Safilo.
A recording of the conference call will be available from May 9 until May 11, 2019 on +39 06 99721048, +44 844 5718951 or +1 917 6777532 (access code: 3982147).
The conference call is also available via webcast: https://edge.media-server.com/m6/go/Q1_2019_trading_update