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THE BOARD OF DIRECTORS OF SAFILO GROUP S.P.A. APPROVES
Financial performance and Net Debt improved thanks to progress
Padua, March 13, 2019 – 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 20181 and examined the separate financial statements for the year ended 31 December 20181, which will be submitted for approval by the shareholders at the Annual General Meeting to be held in a single call on April 30, 2019.
As anticipated on January 30, 2019, net sales for 2018 equaled Euro 962.9 million, down 4.0% at constant exchange rates and 7.0% at current exchange rates compared to Euro 1,035.3 million in 20172.
In the fourth quarter of 2018, Safilo's net sales equaled Euro 249.1 million, up 1.3% at constant exchange rates and 1.8% at current exchange rates compared to the same period of 20172. The performance of the wholesale business3 was negative by 3.3% at constant exchange rates.
In 2018, Safilo's economic results improved thanks to the Group's progress on its cost saving initiatives.
Safilo closed the year with an adjusted4 Group net loss of Euro 26.7 million compared to an adjusted4 net loss of Euro 47.1 million in 2017.
Angelo Trocchia, Safilo Group Chief Executive Officer, commented:
"The year closed substantially in line with our expectations, with a mid-single digit decline in net sales and first signs of improvement at the operating and net result level.
The second half of 2018 was a key moment for Safilo as we started to implement the new 2020 plan and we secured our financial structure through a capital increase and a new debt financing.
This was also a period in which weintently focused on shaping a new commercial organization in all our key markets, bringing back capabilities and leadership from the industry, with the aim of improving our go to market execution and putting customer service at the heart of what we do.
An intense year in which we renewed our partnership with important brands like Banana Republic, Fossil, havaianas and Tommy Hilfiger, and we signed new agreements first with Missoni and with Levi's® at the very beginning of 2019.
In 2019, we envisage the opportunity to recover top line growth and above all a sustainable level of profitability, reflecting the progress of our cost saving projects."
Economic and Financial highlights of the Year
In 2018, Safilo's net sales equaled Euro 962.9 million, down 4.0% at constant exchange rates and 7.0% at current exchange rates. The wholesale business3 declined by 4.9% at constant exchange rates, driven by the exit of the Céline license and the weakness experienced by sunglasses in the fashion luxury segment.
2018 was a year of growth for Polaroid and the brand Safilo, which together with the key licensed brands in the contemporary and premium segment, namely Tommy Hilfiger, Hugo Boss and Kate Spade, drove the Group's positive performance in the prescription frames business.
Safilo's operating results improved in 2018, reflecting i) a substantial stability at the gross margin level, driven by higher plant efficiencies offset by a negative impact from foreign exchange and some obsolescence costs, ii) a total of approximately Euro 26 million of overhead cost savings and iii) higher D&A.
2018 Gross profit equaled Euro 481.5 million, down 7.3% compared to Euro 519.6 million in 2017, with the gross margin at 50.0% of sales from 50.2%. At constant exchange rates, the margin was up 20 basis points.
2018 adjusted4 EBITDA was Euro 47.5 million, up 15.5% compared to the adjusted4 EBITDA of Euro 41.1 million recorded in 2017. The adjusted4 EBITDA margin equaled 4.9% of sales from 4.0%. At constant exchange rates, the adjusted4 EBITDA margin improved by 130 basis points compared to 2017.
2018 adjusted4 EBIT was at breakeven compared to the adjusted4 EBIT equal to a loss of Euro 0.8 million in 2017.
Below the operating line, in 2018 total net financial charges equaled Euro 17.3 million compared to Euro 14.0 million in 2017, reflecting an increase of net interest expenses, due to the utilization of the Revolving Credit Facility during the year. On the other hand, income taxes declined from Euro 29.4 million to Euro 9.2 million.
2018Group adjusted4 net result equaled a loss of Euro 26.7 million compared to the adjusted4net loss of Euro 47.1 million recorded in 2017.
Economic highlights of the Fourth Quarter
In the fourth quarter of 2018, Safilo's net sales equaled Euro 249.1 million, up 1.3% at constant exchange rates and 1.8% at current exchange rates. The wholesale business3, which declined by 3.3% at constant exchange rates, experienced a positive sales recovery in Europe, that was in the period counterbalanced by the weak performance of Asia and the Rest of the World as well as ongoing softness in North America.
In Q4 2018, the Group's operating performance improved behind a slight upturn of gross margin and a more significant improvement of the operating leverage thanks to efficiencies in SG&A costs.
Q4 2018 Gross profit equaled Euro 115.0 million, up 2.7% compared to Euro 112.0 million in Q4 2017. Gross margin equaled 46.2% of sales compared to 45.7% in Q4 2017.
Q4 2018 adjusted4 EBITDA equaled Euro 10.3 million compared to the loss of Euro 2.1 million recorded in the same quarter of 2017. The adjusted4 EBITDA margin moved to 4.1% of sales from -0.8% in Q4 2017.
Key Cash Flow data
In 2018, Safilo's Free Cash Flow was negative for Euro 25.6 million compared to a negative flow of Euro 70.1 million in 2017. The year included the third and last compensation payment of Euro 30 million received in September 2018 from Kering.
In 2018, Cash flow from operating activities equaled a generation of Euro 2.7 million compared to an absorption of Euro 31.1 million in 2017. Key drivers of this result were the improvement in EBITDA and a cash flow from the recovery of tax credits.
In the year, Safilo's net investments equaled Euro 28.3 million, mainly dedicated to its product supply and logistics network and to the roll out of new IT systems.
At the end of December 2018, Safilo's Net Debt stood at Euro 32.9 million compared to Euro 131.6 million at the end of December 2017, with a leverage ratio of 0.7x adjusted4 EBITDA. The significant decrease in Net Debt reflected the proceeds from the share capital approved by the Extraordinary Shareholders' meeting on 29 October 2018, and launched on 3 December 2018. It excludes the portion of Euro 17.7 million received on 2 January 2019.5
Net sales by geographical area:
In Europe, full year net sales ended in line with 2017, after growing 25.1% in the fourth quarter at constant exchange rates. The performance of the wholesale business3 in Europe was negative by 4.0% in the year, while recording a significant improvement in the fourth quarter, up 12.1% at constant exchange rates. Healthy business trends resulted in positive performance in particular in the Iberian markets, Germany and Central and Eastern European countries.
In North America, full year net sales declined by 8.1% at constant exchange rates and by 9.5% in the fourth quarter, with the wholesale business down 6.6% and 6.7% in the respective periods. Sales at the 80 Solstice stores in the United States (102 stores at the end of December 2017) declined by 16.5% in the year and by 23.9% in the fourth quarter, caused by a combination of declining traffic and store closures.
The Group had a challenging second half of the year in Asia Pacific and in the Rest of the World, two key geographies where the Group has changed the go-to-market organization and its key leadership.
In 2019, Safilo plans to gradually revive top line growth, leveraging the implementation of new commercial organizations in the Group's key markets and the upgrading of customer service levels.
Other resolutions by the Board of Directors
Together with the 2018 Annual Report, the Board of Directors of Safilo Group S.p.A. approved the Sustainability Report (concerning 2018), in line with the application of the non-financial reporting obligation for listed companies under Legislative Decree 254/2016.
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 amended by the Shareholders' Meeting on April 24, 2018.
Share buy-back program
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 10,000,000 shares subject to revocation of the authorization granted by the Shareholders' meeting of April 24, 2018. 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 reference price of Safilo Group shares on the Italian Stock Exchange organized and managed by Borsa Italiana S.p.A. (Mercato Telematico Azionario) of the trading day prior to the date of the purchase trade and, in any case, not higher than Euro 3,00 per share.
All information concerning the terms and procedures of the authorization will be made available through the related Illustrative Report, to be made available to shareholders within the terms set forth by applicable law.
Change to the 2019 Financial Calendar
The Shareholders' Meeting for the approval of the Financial Statements as at December 31 2018, previously scheduled for Monday, April 29, 2019 in a single call, has been postponed to Tuesday, April 30 2019.
Notes to the press release:
1 The auditing process of the consolidated and separate financial statements is currently under finalization.
2 The new accounting standard IFRS 15 regarding "Revenue from contracts with customers" entered into effect starting from 1 January 2018. Following the fully retrospective approach chosen by the Group, the application of the principle to the fourth quarter and full year 2018 had an adjustment effect on the sales and cost of goods sold of the same periods of 2017 equal respectively to Euro 4.4 million and Euro 11.6 million, with a neutral effect on the gross profit. Consequently, net sales in the fourth quarter and full year 2017 were adjusted to Euro 244.8 and Euro 1,035.3 million respectively.
3 The performance of the wholesale business excludes the business of the production agreement with Kering and sales of the Solstice retail chain in the USA. The Kering production agreement is reported within the Europe geographical area.
4 In 2018, the adjusted economic results exclude non-recurring costs for Euro 5.8 million, mainly related to the CEO succession plan and reorganization costs in North America and Europe, and include an income of Euro 39.0 million, annual portion of the total Euro 90 million accounting compensation for the early termination of the Gucci license.
In 2017, the adjusted economic results excluded an impairment charge on the goodwill allocated to the Group's cash generating units for Euro 192.0 million and non-recurring costs for 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. Adjusted results included an income of Euro 43 million, as accounting compensation for the early termination of the Gucci license.
5 Safilo's share capital increase was completed on 2 January 2019, for a total consideration of Euro 149,982,892.22, following the subscription and payment by the reference shareholder Multibrands Italy B.V. of all the No. 25,193,337 ordinary shares which remained unsubscribed at the end of the rights auction ended on 28 December 2018, for a total consideration of Euro 17,736,109.25. This amount was therefore booked in January 2019.
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:
Conference Call and Webcast
Today, at 6.30 pm CET (5.30pm GMT; 13.30pm EST) a conference call will be held with the financial community during which 2018 full year and fourth results 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 2018 Safilo recorded net revenues for Euro 962.9 million.
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