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THE BOARD OF DIRECTORS OF SAFILO GROUP S.P.A. APPROVES
THE FINANCIAL RESULTS OF THE FIRST QUARTER OF 2015

Increased Q1 Revenues while business transformation  continues as per 2020 Strategic Plan  
  Reduced Debt and positive Free Cash Flow

 

Padua, April 27,  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 reviewed and approved the results of the first quarter of 2015.

Safilo’s operating performance in the quarter was broadly in line with  management expectations, and progress made was in line with the 2020 Strategic  Plan.

Net sales grew by 10.6%, benefiting from the currency tailwind recorded in the period, while the increase at constant  exchange rates was +0.8%. The Group saw continued strength in North America, further  acceleration of growth in Latin America and a continuation of the positive trends  in Europe, while Asia declined in the context of the commercial leadership and  capability re-set initiated mid last year, and soft trading in China and Hong  Kong.

Gross profit improved by 6.8% to Euro 196.6  million. Gross margin contracted in comparison to a strong base of Q1 last  year, driven by cost inflation ahead of COGS savings initiative expected to  ramp up during the balance of the year, certain phasing effects of spending,  and by the impact of a higher inventory obsolescence provision mainly for the  to-be discontinued brands, without which gross margin was substantially stable  vs. the full year 2014.

Adjusted1  EBITDA declined by -8.2% to Euro 32.6 million and adjusted1 EBITDA  margin reduced compared to the same quarter of last year, impacted primarily by  the lower gross margin previously explained, while the Group continued to  invest into building key capabilities particularly in commercial and product.

The Group’s net result also reflected net negative  exchange rate differences and the effects of the fair value valuation of the  equity-linked bonds due to the increase in Safilo’s share price in the quarter.        

At the end of March 2015, the Group net debt declined to Euro 128.3  million, with the adjusted1 financial leverage at 1.1x.  

Luisa Delgado, CEO, commented:
 
  “This has been another quarter of investment,  on track with our plans for the year. As we progress further with the  commercial reinvention to enable worldwide quality sales growth, and the supply  network reinvention to enhance gross margins and reducing the level of cash  tied up in inventory, we plan to see increasing benefit as we move through  2015.”  

 

 

Economic and financial highlights

 

Key economic and financial  performance

In the first quarter  of 2015, Group total revenues were  Euro 324.3 million, up 10.6% compared to Euro 293.2 million recorded in the  same quarter of 2014, benefitting from the Dollar strength. At constant exchange  rates, turnover increased by 0.8%.

Q1 2015 Gross profit was Euro 196.6 million,  up 6.8% compared to Euro 184.0 million in the same quarter of 2014 with gross  margin moving from 62.8% to 60.6%. Gross margin reflected obsolescence provisions  in relation to still elevated inventory levels and, as expected, a more subdued  start of the year as the Group expects COGS savings and inventory interventions  to be more skewed to the second half of the year.  

Q1 2015 adjusted1 EBITDA was Euro 32.6 million compared to Euro 35.4 million recorded  in the same period of 2014. Adjusted1 EBITDA margin was 10.0% of  revenues in Q1 2015, compared to 12.1% in Q1 2014.  

Q1 2015 adjusted1 EBIT was Euro 23.3 million compared to Euro 26.8 million  registered in Q1 2014. Adjusted1 EBIT  margin was 7.2% of revenues in Q1 2015, compared to 9.1% in Q1 2014.

Total financial  charges increased to Euro 18.8 million from Euro 2.3 million in Q1 2014 due to  the negative impact of exchange rates differences of Euro 10.6 million (positive  impact of Euro 1 million in Q1 2014) and the effects of the fair value  valuation of the option component embedded in the equity-linked bonds for Euro  4.2 million, driven by an higher average share price in the quarter. In Q1  2015, net financial interests increased to Euro 2.3 million from Euro 1.8  million in Q1 2014.

Q1 2015Group adjusted1net result equaled  a profit of Euro 2.3 million compared to thenet result of Euro 16.5 million recorded in Q1 2014.

 

 

Key Cash Flow data

In Q1 2015, Free Cash Flow improved  to Euro 32.1 million compared to a negative flow of Euro 24.6 million in Q1  2014 and an outflow of Euro 12.4 million at the end of 2014. This result included  the first of three compensation payments of Euro 30 million received in  January from Kering, net of which Free Cash Flow remained positive. Seasonal  absorption from net working capital further improved in the period, down to  Euro 17.5 million from Euro 48.9 million in the same quarter of last year. The inventory flow remained broadly  in line with the dynamic recorded in the same period of last year, while  excluding the impact of currencies the inventory days on hand continued to  gradually decrease. As far as trade receivables are concerned, the ratio  of days of sales outstanding continued its improving trend, recording a DSO  below the first quarter of last year and driving a substantially lower cash  absorption. Cash Flow for investing activities was Euro 5.0 million compared to  Euro 7.6 million in Q1 2014, driven by product supply upgrades and IT  investments.

At the end of March  2015, Group net debt stood at Euro 128.3  million, an improvement of 38.2% compared to Euro 207.5 million at the end of  March 2014 and 21.4% compared to Euro 163.3 million at the end of December  2014.

 

Markets

North America
  Q1 2015 sales in North  America rose 26.9% at current exchange rates and 5.3% at constant exchange  rates, reaching Euro 132.9 million compared to Euro 104.7 million in Q1 2014.
  Core channels and  brands were very solid in the period thanks to a broadly positive marketplace and  Safilo’s progressive higher commercial differentiation by channel and customer,  which helped increase door productivity, particularly in the main department  stores, which were top performers in the quarter.  

Latin America
  Q1 2015 sales in  Latin America rose 30.1% at current exchange rates and 23.4% at constant  exchange rates, standing at Euro 12.5 million compared to Euro 9.6 million in Q1  2014.
  Business in Mexico  was particularly positive within key accounts, while sales in Brazil also  increased strongly, as did the balance of Latin American markets served through  distributors.

Europe
  In Q1 2015, turnover  in Europe was Euro 132.9 million, up 2.6% (+2.8% at constant exchange rates)  compared to Euro 129.6 million in Q1 2014. Sales trends across the region were  very resilient, with the Iberian countries, Germany and the Nordic markets continuing  to move fast. Italy saw a positive start of the year, while Russia remained weak,  reflecting domestic economic conditions.

 

 

Asia-Pacific
  In Asia-Pacific, Q1  2015 revenues were Euro 39.2 million compared to Euro 43.5 million in the same  period of last year (-9.8% at current exchange rates, -22.9% at constant  exchange rates).
  While Australia led  with excellent growth, and Japan started to show an early  positive impact of a more brand driven commercial approach, the Group continued  with the planned requalification of regional distributors that impacted sales  negatively in the short term as expected. Korea saw the change from a local  distributor-owned department store model to our own in house organization and  consequent sales more evenly spread over the year compared to last year’s peak  in Q1. Hong Kong saw some general market softness, also felt in China where additionally,  order phasing and internal commercial strategy and capability gaps that are  being addressed are impacting business delivery. As the Group proceeds with the  interventions to create sustainable business models in every subsidiary in Asia  including commercial leadership capability, and works these interventions in  close partnership with key regional customers and licensors with the objective  of getting the region capable to lead with over proportional growth given  Safilo’s significant under representation in the region, the Group anticipates  to start seeing visible positive impact on its sales towards the last quarter  of this year.

 

Notes:

1 Q1 2015 adjusted economic  results do not include non-recurring items related to commercial restructuring  costs in the EMEA region for Euro 1.2 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.

Disclaimer

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.

Conference Call

Today, at 6.15 pm  CEST (5.15pm BST; 12.15pm EDT) a conference call will be held with the  financial community during which the results of Q1 2015 will be discussed.
  It is possible  to follow the conference call by calling +39 06 45217063, +44 203 4271915 o +1 646 2543362 (for  journalists +39 06  87500874)  and entering the access code 8697585.
  A recording of  the conference call will be available until April 29, 2015 on 39 02 30413127, +44 203  4270598 o +1 347 3669565  (access  code: 8697585).
  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.

Intermediate quarterly report at 31st March 2015
 
  Please note  that the intermediate quarterly report at 31stMarch 2015 will  be made available to the public as soon as it is available and in accordance  with the law, at the company’s registered offices, at the central storage of  regulated information and on the company’s internet website at the address: http://investors-en.safilogroup.com.


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