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THE  BOARD OF DIRECTORS OF SAFILO GROUP S.P.A. APPROVES
  THE FINANCIAL RESULTS AS AT 30 SEPTEMBER  2015

Continued strong Free Cash Flow drives further reduction of Net Debt and
  financial leverage below 1x

Positive sales  momentum in Europe, North America and key new markets,
  continued  headwinds in Asia

Improving  operating leverage in Q3 as the Group executes its 2020 Plan,
  not yet  offsetting H1 performance

 

Padua, November 5,  2015, h. 5.55pm – The Board of Directors  of Safilo Group S.p.A. – the fully integrated Italian eyewear creator, listed  on the Italian stock exchange – has today approved the results of the third  quarter and first nine months of 2015.

For the first nine months, Safilo’s net sales grew by 10.6% against the  corresponding period last year at current exchange rates and by 1.0% at  constant exchange rates. Q3 performance by region closely resembled the sales  trends recorded over the second quarter; net sales grew by 9.0% against Q3 2014  at current exchange rates and by 0.9% at constant exchange rates, continuing to  reflect robust business in Europe, North America and in the new Middle East  region, and weaker performances in the more challenging market environments of Asia  and Brazil.

In the first nine months gross profit increased by 6.8% and gross margin  reached 60.2% of sales. In the third quarter, gross profit grew by 6.6%, while  gross margin decreased to 58.8% of sales, negatively impacted by foreign  exchange. In the third quarter, the planned industrial efficiencies and cost  savings initiatives more markedly offset the cost inflation increases and  obsolescence costs that have impacted the industrial performance in the year to  date.

At the operating level, adjusted1 EBITDA was down 10.3% in  the first nine months, but the Group reported for the first time in the year an  increase for the third quarter, up 1.2% against last year. The adjusted1  EBITDA margin stood at 8.1% and 5.2% of sales respectively in the first nine months  and in the third quarter of the year. The latter period showed some improvement  in operating leverage compared to the first part of the year as the pace of  growth of investments in new advertising and product campaigns started to  soften and the benefits of cost efficiency projects became more evident.
  Excluding the negative impacts of exchange rates and discontinued  licenses in the third quarter, both Gross margin and EBITDA margin improved  versus the same period last year.

For the nine months to end September, the Group generated Free Cash Flow  of Euro 66.8 million, taking Group Net Debt at the period end below the  threshold of Euro 100 million for the first time, at Euro 97.1 million. This  reflected the ongoing improvement in net working capital, the proceeds from the  sale of shares held in an associate company and, as previously highlighted, the  first of the three compensation payments of Euro 30 million from Kering,  received in January.

 

Luisa Delgado, CEO, commented:

“In the third quarter  we further continued our comprehensive business reinvention, delivering  continued growth in revenues, improving our operating leverage, and generating  healthy cash flow through our strong focus on working capital management.  

Third quarter constant  currency sales growth in our going-forward portfolio was high-single digits,  reflecting the continuing and effective rebalancing of our licensed brand  portfolio and development of our proprietary brands, with Polaroid and Smith  showing good growth and Carrera registering brand health improvements  and changing over to the new collection.

Our core markets in  Europe and North America and our newly opened markets in the Middle East and  Mexico are showing encouraging growth. Our strategic reorientation in Asia, while  in a challenging local market environment, is progressing to plan. We are  pleased with our customers’ reactions to our new commercial strategy and our  Smile category management programme expansion.  
 
  We are satisfied with  the progress in brand building, commercial and supply network, confirming the  opportunities identified in the 2020 Strategic Plan.  Our new Product Supply leadership team has  assumed global control of logistics, planning, manufacturing and sourcing, and  commenced implementation of the first simplifications of the global  Distribution Centre footprint and new production flows in the Italian Plants,  to make progress in insourcing and deliver early benefits of our cost saving  programmes.

Our eyewear  collections were also this season among the most loved and editorially featured  eyewear worldwide, and included the season’s best selling iconic designs.  

We remain committed to  the key strategies underpinning our 2020 plan. In this respect, I am pleased  with the underlying progress we are making and it is gratifying to see Safilo  people across the world embracing the comprehensive need for change and  demonstrating their passionate commitment to taking the Group successfully  forward.”

 

Economic and financial  highlights

9M 2015

In the  first nine months of 2015, Group net sales totalled Euro 959.7 million, up  10.6% compared to Euro 867.5 million recorded in the same period of 2014. At  constant exchange rates, revenues increased by 1.0%.

9M 2015  gross profit was Euro 577.4 million, up 6.8% compared to Euro 540.6 million in  the first nine months of 2014, while the gross margin moved to 60.2% from  62.3%.

9M 2015  adjusted1 EBITDA was Euro 77.4 million, down 10.3% compared to the  adjusted1 EBITDA of Euro 86.3 million recorded in the same period of  2014. Adjusted1 EBITDA margin was 8.1% of net sales in 9M 2015,  compared to 9.9% in 9M 2014.  

9M 2015  adjusted1 EBIT was Euro 47.6 million, down 20.9% compared to the  adjusted1 EBIT of Euro 60.2 million for 9M 2014. Adjusted1  EBIT margin was 5.0% of net sales in 9M 2015, compared to 6.9% in 9M 2014.

Total net  financial charges increased to Euro 24.9 million from Euro 6.3 million in 9M  2014 due mainly to the negative impact of exchange rates differences of Euro  13.3 million in the first nine months (negative impact of Euro 1.7 million in  9M 2014), while net interest charges decreased to Euro 6.1 million from Euro  7.3 million in 9M 2014. In the period, the fair value measurement of the option  component embedded in the equity-linked bonds had no significant impact  (positive for Euro 8.7 million in the first nine months of 2014).

9M 2015  Group adjusted1 net result was a profit of Euro 12.4 million, down  63.5% compared to the adjusted1 net result of Euro 33.9 million  recorded in 9M 2014.

 

Q3 2015

In Q3  2015, Safilo reported total net sales of Euro 284.8 million, up 9.0% compared  to Euro 261.2 million recorded in the same quarter of 2014, supported by a  weaker Euro. At constant exchange rates, net sales increased by 0.9%.

Q3 2015  gross profit was Euro 167.5 million, up 6.6% compared to Euro 157.1 million in  the same quarter of 2014. Gross margin moved to 58.8% of net sales from 60.1%.

Q3 2015  EBITDA was Euro 14.7 million, up 1.2% compared to the EBITDA of Euro 14.6  million recorded in the same period of 2014. EBITDA margin was 5.2% of net  sales in Q3 2015, compared to 5.6% in Q3 2014.  

Q3 2015  EBIT was Euro 4.5 million, down 20.3% compared to the EBIT of Euro 5.7 million  registered in Q3 2014. EBIT margin was 1.6% of net sales in Q3 2015, compared  to 2.2% in Q3 2014.

Total net  financial charges moved to Euro 2.2 million from Euro 1.8 million in Q3 2014.  Net interest charges declined by 43.6% to Euro 1.9 million compared to Euro 3.3  million in the third quarter of 2014, while net exchange rates differences were  negative Euro 3.4 million in the quarter compared to Euro 5.1 million in Q3 2014.  The period was positively affected by the fair value valuation of the option  component embedded in the equity-linked bonds of Euro 4.8 million (positive  impact of Euro 8.7 million in Q3 2014).
  Below the  operating line, the quarter benefited from the gain deriving from the sale of  the equity shareholding in an associate company.

Q3 2015  Group net result equalled a profit of Euro 2.4 million, substantially in line  with the Group net result recorded in Q3 2014.

 

Key  Cash Flow data

In 9M 2015, Free Cash Flow improved to Euro  66.8 million compared to a negative flow of Euro 10.3 million in 9M 2014 and an  outflow of Euro 12.4 million for the full year 2014. This result included  the first of three compensation payments of Euro 30 million received in  January from Kering.

In the third quarter, Free Cash Flow was Euro  15.1 million, compared to a negative flow of Euro 3.9 million in the same  period of last year. Net working capital continued to improve in the period,  freeing Euro 12.3 million (Euro 3.7 million in Q3 2014) thanks to tight control  of the seasonal increase in inventories as well as continuing improvement in  the collection of trade receivables.

In the third quarter, Cash Flow for investing  activities equalled Euro 4.4 million (Euro 9.7 million in Q3 2014), reflecting  an increase in investments to Euro 13 million (Euro 10 million in Q3 2014),  counterbalanced by the Euro 8.6 million proceeds from the sale of shares held  in an associate company. In the period, the increase in capex is mainly explained  by the progressive implementation of Eye-Way, Safilo’s project to modernize,  simplify and standardize work processes through the latest and most advanced IT  systems.  

At the  end of September 2015, Group net debt stood at Euro 97.1 million, down 11.8%  compared to Euro 110.1 million at the end of June 2015 and 38.9% compared to  Euro 158.9 million at the end of September 2014.

 

Markets

9M 2015 sales momentum was driven by Europe,  where Safilo’s business continued to perform well in the third quarter thanks  to strong results in France and Italy in particular, and continuing robust  performance of Germany and Iberian countries. In the first nine months of the  year, sales in Europe equalled Euro 378.3 million, an increase of 4.7% (+4.5%  at constant exchange rates) compared to Euro 361.3 million in the first nine  months of 2014. In the third quarter, sales reached Euro 101.7 million, up 5.6%  (+5.4% at constant exchange rates) compared to Euro 96.2 million in the same  quarter of 2014.

9M 2015 net sales in North America were Euro  403.6 million compared to Euro 327.8 million in the same period of 2014,  growing by 23.1% at current exchange rates and by 2.4% at constant exchange  rates. In the third quarter, sales grew to Euro 133.1 million compared to Euro  111.7 million in the third quarter of 2014 (+19.2% at current exchange rates  and +1.5% at constant exchange rates). The quarterly performance was  characterized by two diverging trends, with a further acceleration of the  wholesale business, up 5.8% at constant exchange rates despite the demanding  comparison base in Q3 2014, and retail sales at Solstice stores declining by  16.0% at constant exchange rates, driven mainly by the reduced tourism flows  and high store exposure to those affected locations.

9M 2015 Latin American sales were Euro 36.4  million compared to Euro 37.5 million in the same period of last year (-2.8% at  current exchange rates and +0.8% at constant exchange rates). The Latin  American business declined 21.6% over the third quarter, to Euro 10.8 million  (-8.1% at constant exchange rates compared to Euro 13.8 million in the third  quarter of 2014) due to the unfavourable business environment in Brazil, while  sales in Mexico were up double digits.  

Sales in Asia were Euro 118.2 million over the  first nine months of 2015, declining by 4.1% compared to Euro 123.2 million in  the first nine months of last year (-17.3% at constant exchange rates), with  the third quarter continuing to be impacted by Safilo’s strategic reorientation  in Asia as announced at the end of last year, whose need has been reconfirmed  by the changing market conditions that require a locally relevant and capable  business model in the region. Third quarter sales were Euro 31.4 million,  compared to Euro 33.6 million in the third quarter of 2014 (-6.5% at current  exchange rates and -15.5% at constant exchange rates).

Net sales in the rest of the world, comprising  mainly the Group’s business in the Middle East and African region, were Euro  23.2 million for the first nine months of 2015, up 31.1% compared to Euro 17.7  million in the same period of 2014 (+30.0% at constant exchange rates),  responding positively to Safilo’s investment in the development of white-space  markets. In the third quarter, the business reported growth of 32.1% in the  rest of the world, to Euro 7.8 million (+32.3% at constant exchange rates  compared to Euro 5.9 million in the third quarter of 2014).  

Notes:

1 In  the first nine months of 2015, the adjusted economic results do not  include non-recurring items related to commercial restructuring costs in the  EMEA region for Euro 1.2 million and other non-recurring costs for Euro 1.2  million mainly related to the consolidation of the Group’s North American  distribution network into its Denver facility.

In the first nine months of 2014, the adjusted economic results did not  include non-recurring expenses for Euro 3.0 million related to the voluntary  exit incentives recently signed with employees and trade unions, as the  solidarity contracts come to an end, and to some reorganization costs.

 

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 6.30 pm CET (5.30pm GMT; 12.30pm EDT) a conference call will be held with  the financial community during which the results of Q3 and 9M 2015 will be  discussed.
  It  is possible to follow the conference call by calling +39 06 87500876, +44 203 4270503 o  +1 646 2543365 (for  journalists +39 06 99749000) and entering  the access code 7472623.
  A  recording of the conference call will be available until November 7, 2015 on 39 06 45217196, +44 203  4270598 or +1 347 3669565 (access code: 7472623).
  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.

Financial statement as of September 30, 2015
 
  Please note that the  intermediate report at September 30, 2015 will be made available to the public  at the company's registered offices, at the central storage of regulated  information and will be published on the company's internet website, at the  address http://investors-en.safilogroup.com.

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Last updated: November 30, 2018

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