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THE BOARD OF DIRECTORS OF SAFILO GROUP S.P.A. APPROVES
THE FINANCIAL RESULTS OF THE FIRST HALF OF 2019
ECONOMIC HIGHLIGHTS OF THE Continuing Operations (pre-IFRS 16):
Q2 2019 net sales growth accelerating to +9.7% and adjusted1 EBITDA up 25.0%
H1 2019 on track with 2020 plan to recover top line growth and a sustainable economic profile:
Net sales: Euro 495.9 million, +6.5% (+3.9% at constant exchange rates)
Adjusted1 EBITDA: Euro 34.2 million, +12.9%
Adjusted1 net result: profit of Euro 8.7 million compared to a net loss of 4.3 million in H1 2018
Non-recurring items of Euro 255.4 million mainly related to the non-cash impairment of the entire goodwill
FINANCIAL HIGHLIGHTS OF THE total Operations (pre-IFRS 16):
Positive free cash flow generation and record low Group net debt:
Free cash flow of Euro 10.4 million
Group net debt of Euro 3.9 million and financial leverage of 0.1x
Padua, August 2, 2019 – The Board of Directors of Safilo Group S.p.A. has today reviewed and approved the results of the first half of 2019.
Angelo Trocchia, Safilo Chief Executive Officer, commented:
"The results we achieved in the first six months of 2019 showed a positive sales progression, with our Continuing Operations growing by 6.5% at current exchange rates and by 3.9% at constant exchange rates.
The performance of the second quarter was solid, with the top line up 9.7% at current exchange rates and 7.4% at constant exchange rates, also thanks to the double-digit growth of our own core brands driven by Carrera and supported by the continuing positive momentum of Polaroid and Smith.
The growth of the period materialized in both our two main geographical areas. Europe, in which our key markets and channels continued on the growth path started in the first quarter, and North America where in the second quarter we recovered positive momentum, taking the performance of the first six months in growth territory.
In the quarter, we saw good growth also in emerging markets, where the significant progress in Asia-Pacific was accompanied by the recovery of Latin America.
At the profit level, we are pleased with the evolution of our gross and operating margins, which continued to benefit from savings in costs of goods sold and our actions to reduce overhead costs. The adjusted EBITDA margin of our Continuing Operations reached 7.1% in the second quarter and 6.9% in the six months to June.
This operational improvement contributed to the positive free cash flow of Euro 10.4 million we achieved in the period, leading to a record low net debt position at the end of June of Euro 3.9 million.
A first half of the year that confirms our expectations for a positive 2019, reflecting a careful execution of our top and bottom line plans and where the sale of the Solstice store chain, completed at the beginning of July, further enables us to free up focus and resources to pursue existing and new strategic projects."
Sale of Solstice retail operations
On July 1, 2019 Safilo communicated the closing of the transaction to sell Solstice retail business for a cash consideration of USD 9.0 million. Such discontinued operations generated a total loss of Euro 26.2 million, of which Euro 17.0 related to the assets disposal and Euro 9.2 million to the net result of the chain in the period.
2019 results and comments focus on the Group's Continuing Operations, excluding the retail discontinued operations.
H1 2019 NET SALES BY GEOGRAPHIC AREA OF THE CONTINUING OPERATIONS
Safilo closed the first half of 2019 with the net sales of the Continuing Operations at Euro 495.9 million, up 6.5% at current exchange rates and 3.9% at constant exchange rates compared to the same period of 2018 (+4.1% the wholesale business3).
Sales trends reflected the positive progression recorded by the Group's brands in the main European and North American markets, where the portfolio grew by respectively 3.0% and 1.0% at constant exchange rates. The recovery was strong in Asia-Pacific, up 27.9% at constant exchange rates, driven in particular by the travel retail channel and China, while sales in the Rest of the World turned slightly positive (+0.8% at constant exchange rates) after recovering in the second quarter.
H1 2019 performance was particularly positive for the Group's own core brands, with Polaroid, Smith and Carrera which recorded overall growth of around 8% at constant exchange rates.
On the licensed brands portfolio, Dior, Hugo Boss, Tommy Hilfiger and Max Mara continued to stand out as key positive drivers.
First adoption of IFRS 16
The Group elected to implement IFRS 16, applying the modified retrospective approach, whereby the cumulative effect of adopting the standard has been recognized at its relevant effective date on January 1st 2019, without the restatement of 2018 comparative information. IFRS 16 has a significant impact on the Group's consolidated balance sheet side due to the right of use assets and lease liabilities that are now recognized for contracts in which the Group is a lessee.
In the consolidated statement of income, the majority of the current operating rental costs is now presented as depreciation of right of use assets and interest expenses on the lease liabilities, with a material positive impact in terms of EBITDA and a minor effect on EBIT and net income.
2019 Group's results are commented on a pre-IFRS 16 basis in order to support the transition and to allow proper comparison with the previous period.
Non-cash goodwill impairment and write-down of deferred tax assets
Taking into account the most recent market, portfolio and competitive context for the Company, the Group has performed an impairment test for the purpose of its semester financial statements, which resulted in a non-cash impairment of the entire goodwill on the Balance Sheet, equal to a charge of Euro 227.1 million, and in a non-cash write down of deferred tax assets of Euro 23.3 million.
H1 2019 ECONOMIC HIGHLIGHTS OF THE CONTINUING OPERATIONS
H1 2019 gross profit of the Continuing Operations grew by 11.0% to Euro 266.2 million compared to Euro 239.8 million in H1 2018, with the margin on sales up by 220 basis points, from 51.5% to 53.7%. The improvement reflected in particular higher plant efficiencies and a favorable sales mix effect.
In the first semester of 2019, Safilo recovered also at the operating expenses level mainly thanks to the overheads cost savings totaling in the period Euro 9 million.
Positive sales dynamics together with the industrial and operational improvements achieved in the first six months of 2019 overbalanced the income of Euro 19.5 million booked in the first half of 2018 for the early termination of the Gucci license.
On a pre-IFRS 16 basis, H1 2019 adjusted1 EBITDA of the Continuing Operations grew by 12.9% to Euro 34.2 million compared to the Euro 30.3 million recorded in H1 2018, with the margin on sales at 6.9%.
On a pre-IFRS 16 basis, H1 2019 adjusted1 Operating result of the Continuing Operations increased by 42.7% to Euro 12.9 million compared to Euro 9.1 million recorded in H1 2018, with the margin on sales to 2.6%.
On a pre-IFRS 16 basis, H1 2019 net financial charges of the Continuing Operations totaled Euro 2.2 million compared to Euro 8.1 million in H1 2018.
On a pre-IFRS 16 basis, H1 2019 adjusted1 net result of the Continuing Operations equaled a profit of Euro 8.7 million compared to a loss of Euro 4.3 million recorded in H1 2018.
On a pre-IFRS 16 basis, H1 2019 total adjusted1,2 net result, including the result of the retail discontinued operations, equaled a profit of Euro 1.1 million compared to a total adjusted loss of Euro 10.4 million recorded in H1 2018.
Q2 2019 NET SALES BY GEOGRAPHIC AREA OF THE CONTINUING OPERATIONS
In the second quarter of 2019, Safilo net sales of the Continuing Operations equaled Euro 248.6 million, growing by 9.7% at current exchange rates and 7.4% at constant exchange rates compared to Euro 226.6 million in Q2 2018 (+7.5% the wholesale business3).
In the quarter, the recovery in sales was higher in the European markets more influenced by the contraction in sunglass sales experienced in the second quarter of 2018, while business performance in North America improved at the independent opticians' channel and in chains. At constant exchange rates, sales in Europe and North America increased respectively by 4.8% and 2.7%.
Sales in Asia-Pacific grew by 36.2% at constant exchange rates, in particular thanks to strong business trends continuing in the travel retail channel and the positive performance of China.
In Q2 2019, net sales turned to growth also in Rest of the World, up 14.0% at constant exchange rates, mainly driven by the positive business trends recorded in the Latin American markets of Brazil and Mexico.
Q2 2019 ECONOMIC HIGHLIGHTS OF THE CONTINUING OPERATIONS
On a pre-IFRS 16 basis, Q2 2019 adjusted1 EBITDA of the Continuing Operations equaled Euro 17.7 million, with the margin on sales standing at 7.1%. As in the first quarter of the year, the result achieved in the second quarter marked a significant operational improvement, up 25.0% compared to Euro 14.1 million recorded in Q2 2018, which included the income of Euro 9.8 million for the early termination of the Gucci license.
Q2 2019 economic performance reflected 1) the improvement registered at the gross profit level, which at Euro 136.0 million grew in the period by 14.7% compared to Euro 118.5 million in Q2 2018, with the margin on sales up by 240 basis points, from 52.3% to 54.7%, and 2) the additional recovery at the operating expenses level mainly reflecting further progress in the overheads saving program.
H1 2019 KEY CASH FLOW DATA OF THE TOTAL OPERATIONS
On a pre-IFRS 16 basis, H1 2019 Free Cash Flow equaled a positive generation of Euro 10.4 million compared to the negative flow of Euro 37.3 million recorded in H1 2018.
In the period, the cash flow from operating activities was positive for Euro 26.2 million thanks to the significant improvement of the operating performance and favorable trends in net working capital management.
Cash flow for investment activities totaled Euro 15.8 million in the first six months, mainly related to the ongoing investments on product supply, including the new logistic center in Denver, and the rollout of new IT systems.
On a pre-IFRS 16 basis, the total Group net debt at the end of June 2019 decreased to Euro 3.9 million compared to Euro 32.9 million at the end of December 2018, benefitting of the remaining proceeds, received on January 2, 2019 and equal to Euro 17.7 million, from the share capital increase executed in 2018, and of the free cash flow generation of the period. At the end of June, the financial leverage stood at 0.1x compared to 0.7 at the end of December 2018.
Following the first application of the new IFRS 16 standard to H1 2019, Group net debt stood at Euro 77.4 million, of which Euro 38 million related to the IFRS 16 impact on the retail discontinued operations.
PRESENTATION OF THE NEW GROUP BUSINESS PLAN
The Company will present a new Group Business Plan by the end of 2019.
1 In H1 2019, the adjusted economic results of the Continuing Operations exclude: (i) the impairment of the entire goodwill allocated to the Group's cash generating units for Euro 227.1 million, (ii) non-recurring costs for Euro 5 million (Euro 3.8 million in Q2 2019) due to restructuring expenses related to the ongoing cost saving program, and (iii) a write-down of deferred tax assets of Euro 23.3 million.
In H1 2018, the adjusted economic results excluded non-recurring costs for Euro 3.5 million (Euro 1.8 million in Q2 2018), mainly related to the CEO succession plan and reorganization costs in North America.
2 In H1 2019, the adjusted economic results of the Total Operations also exclude non-recurring items related to the retail discontinued operations: (i) Euro 17.0 million for the loss on disposal and (ii) non-recurring costs for Euro 1.3 million.
3 The wholesale business excludes the business of the production agreement with Kering, reported within the geographical area of Europe.
H1 2019 ECONOMIC HIGHLIGHTS OF THE TOTAL OPERATIONS
Q2 2019 ECONOMIC HIGHLIGHTS OF THE TOTAL OPERATIONS
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:
· 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 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 and Webcast
Today, at 6.30 pm CET (5.30pm BST; 12.30pm EST) a conference call will be held with the financial community during which H1 2019 results will be discussed.
A recording of the conference call will be available until August 4, 2019 on +39 06 99721048, +44 844 5718951 or +1 917 6777532 (access code: 1964009).
The conference call can be also followed live in webcast: https://edge.media-server.com/mmc/go/Safilo_H1_2019_results
About Safilo Group
Safilo Group is a worldwide leader in the design, manufacturing and distribution of sunglasses, optical frames, sports eyewear and related products. Thanks to strong craftsmanship expertise dating back to 1878, Safilo translates its design projects into high-quality products created according to the Italian tradition. With an extensive wholly owned network of subsidiaries in 40 countries – in North and Latin America, Europe, Middle East and Africa, and Asia Pacific and China – and more than 50 distribution partners in key markets, Safilo is committed to quality distribution of its products in nearly 100,000 selected points of sale all over the world. Safilo's portfolio encompasses: own core brands Carrera, Polaroid, Smith, Safilo, and licensed brands: Dior, Dior Homme, Fendi, Banana Republic, BOSS, Elie Saab, Fossil, Givenchy, havaianas, HUGO, Jimmy Choo, Juicy Couture, kate spade new york, Liz Claiborne, Love Moschino, Marc Jacobs, Max Mara, Max&Co., Moschino, Pierre Cardin, rag&bone, Rebecca Minkoff, Saks Fifth Avenue, Swatch, and Tommy Hilfiger.
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.
Safilo Group Investor Relations
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Safilo Group Press Office
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