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THE BOARD OF DIRECTORS OF SAFILO GROUP S.P.A. APPROVES
THE FINANCIAL RESULTS OF THE FIRST HALF OF 2017

Positive Q2 Going Forward Brand Net Sales and Group EBITDA
driven by Padua Distribution Centre backorders recovery and restoration of operations

Continued good progress on cost savings and overheads productivity plan

Padua, August 2, 2017 - The Board of Directors of Safilo Group S.p.A. has today reviewed and approved the results of the first half of 2017.

Q2 2017 total net sales equal Euro 315.3 million, down 9.8% compared to last year at current exchange rates and 10.6% at constant exchange rates, taking H1 2017 total net sales to Euro 552.6 million, down 15.1% at current exchange rates and 16.2% at constant exchange rates.

Q2 Going Forward Brand Portfolio net sales grew 1.2% at constant exchange rate (+2.0% excl. retail), over last year’s strong second quarter comparison base, when the business grew 9.0% at constant exchange rate (+11.2% excl. retail). H1 Going Forward Brand Portfolio net sales declined 6.3% at constant exchange rates (-5.7% excl. retail).

At the operating level, in Q2 2017 the adjusted1 EBITDA reached Euro 34.0 million, increasing 2.9% compared to the same quarter of 2016. H1 2017 adjusted1 EBITDA equalled Euro 27.8 million, down 52.3% compared to the same period of 2016, heavily driven by the weak performance recorded in the first quarter of the year driven by the challenges around the implementation of the new Order-To-Cash IT system in the Padova DC.

The adjusted1 EBITDA margin increased to 10.8% of sales from 9.5% in Q2 2016, thanks to effective operating cost saving initiatives, resulting in a significant improvement of the operating expense leverage. For total H1, the adjusted1 EBITDA margin declined to 5.0% of sales from 8.9% in H1 2016.

In H1 2017, the Group’s adjusted1net result equalled a loss of Euro 6.6 million compared to a profit of Euro 22.9 million in H1 2016.

At the end of June 2017, the Group Net Debt stood at Euro 112.7 million, from Euro 111.3 million at the end of March 2017 and Euro 102.8 million at the end of June 2016.

Safilo’s H1 results reflect the previously highlighted challenges relating to the implementation in January 2017 of a new Order-To-Cash IT system in the Padua Distribution Center, which negatively impacted a large part of the Group’s worldwide sales order fulfillment in the first quarter. By the end of June the resulting backorders had been successfully recovered and full operations re-established. Also as previously announced, the Group’s sales and economic results reflect the exit of the Gucci license at the end of 2016.

Luisa Delgado, CEO, commented: “We delivered on our commitment to recover during Q2 our back orders at the Padova global DC. In the process, we also started to establish new standards for better customer service going forward. We thank our customers for their trust and patience, and all Safilo employees for their hard work and dedication.

This difficult start slowed down Western Europe Q2 order intake. In Emerging Markets, CEE and IMEA, going forward portfolio net sales grew in H1 while in China they were in line.

North America Wholesale sales slowed in Q2, affected by a combination of the weaker market dynamics in the department stores channel, and the impact of the renewed strategic direction we are driving in the market for solid commercial partnerships with independent opticians.

Our Own Core Brands made a positive contribution to the Going Forward Portfolio performance in the second quarter, resulting in a first half substantially in line with previous year, thanks to the strong results of Smith, the new Polaroid Product Collections and campaigns, and progress in the Carrera turnaround.

At the operating level, we continued to make good progress with the implementation of our cost savings program and overheads productivity plans. We shall continue to progress this throughout the remainder of the year, while increasing our efforts on order generation based on our Fall-Winter product collection and go-to-market campaigns”.

 

Economic and financial highlights

H1 2017

H1 2017 Group total net sales of Euro 552.6 million decreased 15.1% at current exchange rates and 16.2% at constant exchange rates compared to Euro 651.1 million in H1 2016.
In the first half, wholesale revenues were Euro 519.0 million, down 15.3% at current exchange rates and 16.3% at constant exchange rates compared to Euro 612.4 million in H1 2016.
The net sales of the Going Forward Brands declined 6.3% at constant exchange rates (-5.7% excl. retail).

H1 2017 Gross profit of Euro 287.2 million declined 27.2% compared to Euro 394.6 million in the first half of 2016, while the gross profit margin equaled 52.0% of sales compared to 60.6% in H1 2016.

H1 2017 adjusted1 EBITDA of Euro 27.8 million declined 52.3% compared to the adjusted1 EBITDA of Euro 58.3 million recorded in H1 2016. The adjusted1 EBITDA margin equaled 5.0% of sales compared to 8.9% in H1 2016.
In the first half, the adjusted1 EBITDA of the wholesale business equaled Euro 32.8 million, down 44.4% compared to the adjusted1 EBITDA of Euro 59.0 million recorded in H1 2016, while the adjusted1 wholesale margin was 6.3% of sales compared to 9.6% in H1 2016.

H1 2017 adjusted1 EBIT of Euro 7.0 million decreased 81.4% compared to the adjusted1 EBIT of Euro 37.5 million registered in H1 2016. The adjusted1 EBIT margin equaled 1.3% of sales from 5.8% in H1 2016.

H1 2017 total net financial charges equaled Euro 7.3 million compared to a positive impact of Euro 0.8 million in H1 2016. The period reflected the negative impact of net exchange rates differences of Euro 2.0 million (positive impact of Euro 3.8 million in H1 2016), while together net interest charges and other net financial charges decreased 8.0%.
In the first half, the impact of the fair value valuation of the option component embedded in the equity-linked bonds was positive for Euro 0.4 million compared to Euro 3.3 million in the first half of 2016.

H1 2017Group adjusted1net result equaled a loss of Euro 6.6 million compared to the adjusted1net positive result of Euro 22.9 million recorded in H1 2016.

 

Q2 2017

Q2 2017 Group total net sales of Euro 315.3 million decreased 9.8% at current exchange rates and 10.6% at constant exchange rates compared to Euro 349.5 million in Q2 2016.
In the quarter, wholesale revenues were Euro 295.2 million, down 9.9% at current exchange rates and 10.6% at constant exchange rates compared to Euro 327.6 million in Q2 2016.
The sales of the Going Forward Brands Portfolio increased 1.2% at constant exchange rates (+2.0% excl. retail), reflecting on one side the recovery of backorders, on the other a challenging comparison base with Q2 2016, when the business increased 9.0% at constant exchange rates (+11.2% excl. retail).

In Q2 2017, the economic performance reflected, at the gross margin level, the negative price/mix effect mainly driven by the exit of the Gucci license and its replacement with the Strategic Product Partnership Agreement with Kering, while the adjusted1 EBITDA margin benefitted from effective costs saving initiatives and progress on the overhead productivity plan.

Q2 2017 Gross profit totaled Euro 170.4 million, down 19.0% compared to Euro 210.4 million in Q2 2016. Gross profit margin equaled 54.0% of net sales compared to 60.2% in Q2 2016.
Q2 2017 adjusted1 EBITDA reached Euro 34.0 million, up 2.9% compared to Euro 33.1 million in Q2 2016.
The adjusted1 EBITDA margin equaled 10.8% of net sales compared to 9.5% in Q2 2016.
In the second quarter, the adjusted1 EBITDA of the wholesale business equaled Euro 35.0 million, up 10.1% compared to Euro 31.8 million recorded in Q2 2016, while the adjusted1 wholesale margin was 11.9% of sales compared to 9.7% in Q2 2016.

 

Key Cash Flow data

In H1 2017, Free Cash Flow was negative for Euro 57.2 million compared to a negative flow of Euro 9.3 million in H1 2016.

Cash flow from operating activities reflected the negative economic performance of the period and the cash absorption at the Working Capital level mainly due to the decrease of trade payables.
In H1 2017, Cash Flow for investing activities was Euro 20.8 million, driven by investments in the supply network and in IT.

At the end of June 2017, Group Net Debt stood at Euro 112.7 million, compared to Euro 111.3 million at the end of March 2017 and to Euro 102.8 million at the end of June 2016.

Markets

Europe
H1 2017 net sales in Europe equaled Euro 267.2 million compared to Euro 291.4 million in H1 2016, down 8.3% at current exchange rates and 7.8% at constant exchange rates. In the first half, the sales of the Going Forward Brand Portfolio declined by 6.7% at constant exchange rates, due to the significant shortfall in sales order fulfillment recorded in the first quarter of the year.
Q2 2017 net sales in Europe reached Euro 166.0 million compared to Euro 161.4 million in Q2 2016, up 2.9% at current exchange rates and 3.3% at constant exchange rates.
In the quarter, the sales of the Going Forward Brand Portfolio grew by 6.9% at constant exchange rates, a significant recovery performed by the region in most of its important markets on a very challenging comparison base (Europe +18.6% in Q2 2016).

North America
H1 2017 net sales in North America equaled Euro 221.8 million, down 14.6% at current exchange rates and 17.1% at constant exchange rates compared to Euro 259.8 million in H1 2016.
Q2 2017 net sales were Euro 107.4 million, down 19.1% at current exchange rates and 20.8% at constant exchange rates compared to Euro 132.7 million in Q2 2016.
In the first half, the Wholesale revenues of the Going Forward Brand Portfolio declined by 2.3% at constant exchange rates, due to the negative performance recorded by the Portfolio in the second quarter (-7.3% at constant exchange rates). The quarter reflected the continuing weakness of the market environment in department stores and the impact of the renewed strategic direction the Group is driving in the market for solid and transparent commercial partnerships, in particular with independent opticians.

Sales of the 103 Solstice stores in the United States (118 stores at the end of June 2016) were Euro 33.5 million in H1 2017 and Euro 20.1 million in Q2, declining respectively 15.8% and 10.7% at constant exchange rates compared to the same periods of 2016. Same store sales performance was negative by 11.0% in H1 and by 5.6% in Q2 2017.

Asia
H1 2017 net sales in Asia equaled Euro 28.9 million, down 50.8% at current exchange rates and 51.4% at constant exchange rates compared to Euro 58.8 million in H1 2016.
In Q2 2017, net sales were Euro 17.9 million, down 44.4% at current exchange rates and 44.6% at constant exchange rates compared to Euro 32.1 million in Q2 2016.
In H1, the Group’s total business in Asia-Pacific was over-proportionally impacted by the exit of the Gucci license, which historically accounted for roughly half of the portfolio regional sales, while the significant shortfall in sales order fulfillment suffered in the first quarter largely contributed to the weakness of the going forward business in its development phase.
In H1 the sales of the Going Forward Brands Portfolio declined by 17.2% at constant exchange rates, with the business performance remaining slightly negative in the second quarter (-3.8% at constant exchange rates).

Rest of the World
H1 2017 net sales in the Rest of the World equaled Euro 34.7 million, down 15.5% at current exchange rates and 20.0% at constant exchange rates compared to Euro 41.0 million in H1 2016.
In Q2 2017, net sales were Euro 24.1 million, up 3.1% at current exchange rates and down 1.6% at constant exchange rates compared to Euro 23.4 million in Q2 2016.
In the first half, the sales of the Going Forward Brands Portfolio declined by 5.3% at constant exchange rates, due to the weak performance recorded in Q1 behind the delivery issues. In the second quarter, the sales of the Going Forward Brands Portfolio saw a significant recovery, up 17.3% at constant exchange rates, thanks to the strong progress of the IMEA markets and the important catch-up recorded by the Latin America business, despite the continued weakness of the Brazilian market.

 

Other information
Todays’ Board of Directors also approved the amendments to the transactions with related parties regulations, pursuant to the provisions of Consob Regulation no. 17221/2010 and with the favourable recommendation of Transactions with Related Parties Committee. The amended regulations will be made available in the company’s internet website, at the address http://investors-en.safilogroup.com, section Corporate Governance/Governance documents.

Notes:

1 In H1 2017, the adjusted economic results exclude non-recurring costs of Euro 3.7 million, mainly related to the reorganization of the Ormoz plant in Slovenia and other overhead cost saving initiatives (Euro 3.0 on the Net result). H1 2017 adjusted economic results include income of Euro 21.5 million as a pro-rata portion of the accounting compensation for the early termination of the Gucci license, equal to Euro 43 million for the full year 2017.
In Q2 2017, the adjusted EBITDA excludes non-recurring costs of Euro 0.4 million related to overhead cost saving initiatives and includes income of Euro 10.8 million as a pro-rata portion of the accounting compensation for the early termination of the Gucci license.

In the first half of 2016, the adjusted operating results excluded non-recurring costs of Euro 7.1 million (Euro 6.1 million on EBITDA), including Euro 5.9 million related to overhead cost saving initiatives, such as the planned integration of Vale of Leven (Scotland) Polaroid lens production into Safilo’s China based corporate supply network, and Euro 1.2 million related to commercial restructuring costs in the EMEA region.

 

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, August 2, 2017, at 6.30 pm CEST (5.30pm BST; 12.30pm EDT) a conference call will be held with the financial community during which the results of H1 2017 will be discussed.
It is possible to follow the conference call by calling +39 02 36269650, +44 20 71362054 o +1 718 3541359 (for journalists +39 02 69633533) and entering the access code 7505962.
A recording of the conference call will be available until August 4, 2017 on +39 02 30413127, +44 20 34270598 o +1 347 3669565 (access code: 7505962).
The conference call may be followed via webcast at http://investors-en.safilogroup.com. The presentation is available and downloadable from the Company’s website.

Financial statement as of June 30, 2017
Please note that the half-yearly financial report as of June 30, 2017 - containing the half-year condensed financial statements, interim directors' report and the declaration pursuant to article 154-bis subsection 5 of 'T.U.F.' (Testo Unico sulla Finanza or Italy's Financial Markets Consolidation Act) – 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.
Furthermore, the Auditors' report and any eventual observations made by the Board of Statutory Auditors will be made available to the public in the same way, as soon as they are available and in accordance with the law.

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Last updated: November 30, 2018

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