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THE BOARD OF DIRECTORS OF SAFILO GROUP S.P.A. APPROVES
Positive Q2 Going Forward Brand Net Sales and Group EBITDA
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 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 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.
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.
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%.
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 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 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.
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.
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.
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.
Rest of the World
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 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.
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, 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.
Financial statement as of June 30, 2017