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THE BOARD OF DIRECTORS OF SAFILO GROUP S.P.A. APPROVES
Padua, March 13, 2018 - The Board of Directors of Safilo Group S.p.A. has today approved the Company’s consolidated financial statements for the year ended 31 December 20171 and examined the separate financial statements for the year ended 31 December 20171, which will be submitted for approval by the shareholders at the Annual General Meeting to be held in a single call on 24 April 2018. The Board of Directors has decided not to propose the payment of a dividend to the next Annual General Meeting.
As communicated on January 30, 2018, Safilo’s total net sales reached Euro 1,047.0 million in 2017, contracting by Euro 194 million at constant currency compared to 2016. The reduction of sales was mainly driven by the change of the Gucci license into a supply agreement, representing a net decline of Euro 155 million (-12%), and by the implementation of the new Order-to-Cash IT system in the Padua DC early in the year. That event negatively affected deliveries and, while operationally recovered from mid-year, impacted order taking and thus reduced sales and profit up to and including the fourth quarter.
At the operating level, 2017 adjusted3 EBITDA stood at Euro 41.1 million, with the margin at 3.9% of sales (Euro 88.8 million and 7.1% of sales in 2016). This result mainly reflected the contraction recorded by the Group at the gross profit level, following the dilutive effect of the change of the Gucci license into a supply agreement and the sales decline of the Going Forward Brand Portfolio. The latter event affected capacity absorption of the Group’s Italian plants and the operational leverage of the year. In 2017, in line with the announced overheads productivity program, the Group achieved cost savings of Euro 13 million, partially counterbalanced by approximately Euro 4 million of exceptional costs incurred in relation to the abovementioned Padua DC issues.
Safilo closed 2017 with an adjusted3 Group net loss of Euro 47.1 million compared to the adjusted3 net profit of Euro 15.4 million recorded in 2016.
Eugenio Razelli, Safilo Group Executive Chairman, commented:
“2017 was a complex year for Safilo, in which we faced the transformation of the Gucci license into a supply agreement and a difficult implementation of a new Order-to-Cash IT system in the Padua distribution center, this impacting our service levels and order intaking opportunities. These events significantly affected the Group economic and financial results.
On the positive side, emerging markets showed positive trends and our own core brands performed better.
Economic and financial highlights
Safilo’s full year 2017 total net sales of Euro 1,047.0 million decreased 16.4% at current exchange rates and 15.5% at constant exchange rates compared to Euro 1,252.9 million in the full year 2016.
The reduction of sales was mainly driven by the change of the Gucci license into a supply agreement, representing a net decline of Euro 155 million (-12%), and by the implementation of the new Order-to-Cash IT system in the Padua DC early in the year. That event negatively affected deliveries and, while operationally recovered from mid-year, impacted order taking and thus reduced sales and profit up to and including the fourth quarter.
In 2017, in line with its overheads productivity program, the Group achieved cost savings of Euro 13 million, partially counterbalanced by approximately Euro 4 million of exceptional costs incurred in relation to the abovementioned Padua DC issues.
2017 Gross profit equaled Euro 519.6 million, down 27.4% compared to Euro 715.6 million in 2016, with the gross margin moving to 49.6% of sales from 57.1%.
2017 adjusted3 EBITDA was Euro 41.1 million, down 53.7% compared to the adjusted3 EBITDA of Euro 88.8 million recorded in 2016. The adjusted3 EBITDA margin equaled 3.9% of net sales in 2017, compared to 7.1% in 2016.
2017 adjusted3 EBIT equaled a loss of Euro 0.8 million compared to the adjusted3 EBIT of Euro 43.5 million for 2016.
2017 total net financial charges increased to Euro 14.0 million from Euro 6.4 million in 2016 mainly due to the negative impact of net exchange rates differences, while net interest charges remained substantially stable.
2017 adjusted3 Group net result equaled a loss of Euro 47.1 million compared to the adjusted3 net profit of Euro 15.4 million recorded in 2016.
2017 adjusted3 net result does not include a non-cash impairment loss of Euro 192.0 million on the goodwill allocated to the Group cash generating units and non-recurring costs of Euro 12.5 million (Euro 15.2 million on EBITDA).
Q4 2017 Safilo’s total net sales equaled Euro 249.2 million, down 20.6% at current exchange rates and 16.9% at constant exchange rates compared to 2016.
Q4 2017 economic performance was mainly affected by the decline in sales of the Going Forward Brands, the consequent lower absorption of fixed costs and a negative sales mix.
Q4 2017 Gross profit totaled Euro 112.0 million, down 26.2% compared to Euro 151.7 million in the same quarter of 2016. In the fourth quarter, gross margin decreased to 44.9% of net sales from 48.3% in Q4 2016.
Q4 2017 adjusted3 EBITDA equaled a loss of Euro 2.1 million compared to the positive adjusted3 EBITDA of Euro 11.4 million recorded in the same period of 2016.
Key Cash Flow data
In 2017, Free Cash Flow was negative for Euro 70.1 million compared to a positive Free Cash Flow of Euro 44.7 million in 2016, which included the second of three early termination compensation payments of Euro 30 million received in December 2016 from Kering.
The Cash Flow from operating activities, negative for Euro 31.1 million, reflected the negative economic performance of the year and a cash absorption from Working capital of Euro 36 million, which reflects in particular the decrease of other payables due to the accounting of the Kering compensation in the year. On the other hand, net working capital generated Euro 5.5 million.
In the year, Safilo invested Euro 39.0 million to continue modernizing its product supply and logistics network and to roll out EyeWay, its IT systems overhaul.
At the end of December 2017, Safilo’s net debt stood at Euro 131.6 million compared to Euro 48.4 million at the end of December 2016. The financial leverage, the calculation of which was based on the reported 2017 EBITDA adjusted4 for the non-recurring costs incurred in the year and for the extraordinary items ascribed to the implementation of the new Order-to-Cash IT system in the Padua DC, stood at 2.0x.
Sales of the 102 Solstice stores in the United States (116 stores at the end of December 2016) equaled Euro 15.4 million in Q4 and Euro 65.3 million in full year 2017, declining respectively 3.6% and 11.3% at constant exchange rates compared to the same periods of 2016. In Q4, the same store sales performance of Solstice showed a significant improvement, up 2.7% at constant exchange rates.
Rest of the World
Non-cash goodwill impairment
For the purpose of its financial statements and impairment test to be performed annually, the Company determined the recoverable value of each identified Cash Generating Unit.
In 2018, the Group expects normal operating conditions to be progressively restored in Safilo’s developed markets, while emerging markets should continue to grow ahead of Company average, supporting the overall brand portfolio development during the year. First quarter to date sales trends are confirming this expectation.
In 2018, the Group plans to increase its adjusted EBITDA margin through the improvement of its gross margin, driven by better price/mix dynamics and further sourcing and logistics efficiencies, and the completion of the announced overhead productivity plan by the end of 2018.
In 2018, Safilo expects a solid level of capital expenditure, focusing investments into its core product supply chain and IT projects, while leveraging the assets created by the investments in the past 3 years and thus further decelerate the level of expenditure compared to those years.
Other resolutions by the Board of Directors
Approval of the first Sustainability Report
Together with the 2017 Annual Report, the Board of Directors of Safilo Group S.p.A. approved its first Sustainability Report (concerning 2017), in line with the application of the non-financial reporting obligation for listed companies under
Amendments to the 2017-2020 Stock Option Plan
The Board of Directors, on the basis of the proposal of the Remuneration and Nomination Committee, has also resolved to propose to the next Shareholders’ Meeting certain amendments to the 2017-2020 Stock Option Plan approved by the Shareholders’ Meeting on April 26, 2017, and in particular the inclusion of a minimum exercise price of the Options and amendments to the conditions regarding the vesting of the Options granted under the Second Tranche.
Share buy-back program
Lastly, the Board of Directors agreed to present to the Shareholders’ meeting a new proposal for the purchase and disposal of treasury shares for up to 2,500,000 shares subject to revocation of the authorization granted by the Shareholders’ meeting of April 26, 2017. The purchases shall be executed on regulated markets or on multilateral trading facilities, at a price not lower than 10% and not higher than 5% of the average of official prices of Safilo Group shares over the five trading days prior to the date of the purchase trade, and in any case not higher than 10,00 EUR per share.
1 The consolidated and separate financial statements are currently being audited, a process that has yet to be completed.
2 Emerging markets comprise the regions of India Middle East & Africa and Latin America (reported within Rest of the World), Central Eastern Europe (reported within Europe), and Greater China and APAC (reported within Asia Pacific).
3 In 2017, the adjusted economic results exclude: (i) an impairment charge on the goodwill allocated to the Group’s cash generating units for Euro 192.0 million and (ii) non-recurring costs for a total of Euro 15.3 million (Euro 15.2 and 12.5 million, respectively on EBITDA and Net result) related to the reorganization of the Ormoz plant in Slovenia, cost saving and restructuring initiatives, and to some legal litigations ; include: (i) an income of Euro43 million, annual portion of the total Euro 90 million accounting compensation for the early termination of the Gucci license.
In 2016, the adjusted economic results excluded: (i) an impairment loss on the goodwill allocated to the Far East cash generating unit for Euro 150.0 million and (ii) non-recurring restructuring costs for a total of Euro 9.8 million (Euro 7.9 and 7.5 million, respectively on EBITDA and Net result) due for Euro 8.6 million to overhead cost saving initiatives, such as the integration of Vale of Leven (Scotland) Polaroid lens production into Safilo’s China based corporate supply network and for Euro 1.2 million to commercial restructuring costs in the EMEA region; included: (i) an income of Euro 8 million related to part of the total Euro 90 million accounting compensation for the early termination of the Gucci license, and (ii) an expense of Euro 4 million related to the final acceleration to P&L of Gucci prepaid royalties.
4 For the purpose of the financial leverage calculation, 2017 adjusted EBITDA, besides the above mentioned Euro 15.2 million of non-recurring costs, excludes Euro 4 million of exceptional costs incurred in relation to the Padua DC Order-to-Cash IT system issues and includes the profit impact resulting from the lost revenues, estimated at Euro 45 million, in relation to the Padua DC Order-to-Cash IT system issues.
The accounting treatment of the Euro 90 million compensation for the early termination of the Gucci license has been decided in coherence with the underlying obligations set forth in the Strategic Product Partnership Agreement (“SPPA”) signed on January 12, 2015 with Kering Group. According to this, it was deemed appropriate by management to account for the majority of the compensation between 2017 and 2018, respectively in the measure of Euro 43 million in 2017 and Euro 39 million in 2018, following the contractual split of the volumes in the two years to which the agreed anticipated termination of the Gucci license (previously expiring at the end of December 2018) and key obligations under the SPPA agreement refer to.
As a reminder, the total Euro 90 million compensation was agreed with the contract executed on January 12, 2015 with Kering Group that confirmed the early termination of the Gucci license agreement at the end of December 2016 and a Strategic Product Partnership Agreement (SPPA) for the development and manufacture of Gucci's Made in Italy eyewear products by Safilo. The first tranche of the compensation equal to Euro 30 million was received in January 2015, the second tranche equal to further Euro 30 million was received in December 2016, while the third tranche will be received in September 2018.
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:
Today, March 13, 2018, at 6.15pm CET (5.15pm BST; 1.15pm EDT) a conference call will be held with the financial community during which the results of FY 2017 will be discussed.
Notice of the call of the Ordinary Shareholders' Meeting
About Safilo Group
Listed on the Italian Stock Exchange (ISIN code IT0004604762, Bloomberg SFL.IM, Reuters SFLG.MI), in 2017 Safilo recorded net revenues for Euro 1,047 million.
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