The Board of Directors of Safilo Group S.p.A. has today reviewed and approved the results
of the first half of 2018 and a five-year Business Plan which includes an update of the previous 2020 Plan.
H1 2018 performance reflected the decline of the European sunglass sales in Q2 and the continuing weakness of the business in North America. Growth in emerging markets and in the prescription eyewear business were positive highlights. Progress on cost savings in line with plans and partially offsetting negative operational leverage.
- Net sales of Euro 492.2 million, down 4.3% at constant exchange rates compared to H1 2017
- Adjusted2 EBITDA margin at 5.1% of sales, in line with the margin recorded in H1 2017
- Adjusted2 Group net loss of Euro 10.4 million compared to a net loss of Euro 6.6 million in H1 2017
- Group net debt of Euro 171.1 million vs. Euro 166 million in Q1 2018 and Euro 112.7 million in H1 2017
Business trends are expected to improve in H2, while business seasonality prevents full recovery. 2018 outlook now expects a decline in net sales of approximately 3% at constant exchange rates compared to 20171, and an adjusted2 EBITDA margin of 4%- 5% of net sales compared to 4.0% in 2017.
Update of the 2020 Plan: moderate sales growth compared to 2018 and strong recovery of profitability, mainly through adjusting the Group cost structure:
- Net sales expected to grow by approximately 2% in 2019 and 2020 (ca +4% excluding the Gucci business), while EBITDA margin should increase more significantly, reaching 8%-10% of sales in 2020
- Free Cash Flow expected to turn positive from 2019
Angelo Trocchia, Safilo Chief Executive Officer since April 2018, commented:
“Our objective is to improve the performance of our Company, focusing on few, very clear, priorities. First and foremost, we need to return to grow our top line, exploiting more and better the core strengths of the Group: our product creation and development capabilities, our 140 years of eyewear manufacturing experience, and our deep worldwide distribution network. We need to focus on our go to market execution, combining commercial capabilities, brand execution and customer service and leveraging our strong portfolio of brands, with regards to which I am glad to announce the renewal of the Fossil license (until 2023) and the extension of the Kate Spade license (until 2020).
We have revised our overall expectations for 2018 and in the second half of the year we will work on making the required adjustments and changes to reignite the engines of growth while executing our cost-saving initiatives. In the last couple of months, our action plan included the appointment of a new leader in North America, with deep industry
knowledge to drive and develop our business in this strategic region.
We are in the process of creating a leaner organization and therefore an agile, performance-based and customer-centric culture, able to respond more effectively to key opportunities and risks, and as a consequence significantly align our cost structure to the scale of the Group, to restore an adequate and sustainable level of profitability.”
In H1 2018, Safilo’s total net sales equaled Euro 492.2 million, contracting by Euro 23.7 million or 4.3% at constant exchange compared to the same period of 2017 (-10.0% at current exchange rates). Sales performance was mainly affected by the negative underlying business trends recorded in the South European countries, where a subdued start to the sun season in March continued also into the second quarter. Excluding the impact from forex, trends in North America remained soft behind a still weak trading in department stores and the ongoing reorganization of the regional sales force. On the positive side, emerging markets and the optical business of prescription frames reported positive trends. Total revenues, excluding the Gucci business, declined 3.7% at constant exchange rates.
H1 2018 economic performance reflected, on one side, some softness at the gross margin level mainly due to a negative impact of foreign exchanges and sales mix, not fully counterbalanced by the higher plant efficiencies achieved. On the other hand, the operating performance benefitted from the overall positive impact of the savings achieved in
overhead costs, totaling approximately Euro13 million at the end of June.
H1 2018 Gross profit equaled Euro 254.1 million, down 11.5% compared to Euro 287.2 million in the first half of 2017, with the gross margin at 51.6% of sales from 52.5% in H1 2017. The margin dilution equaled 40 basis points at constant currency.
H1 2018 adjusted2 EBITDA was Euro 25.1 million, down 9.5% compared to the adjusted2 EBITDA of Euro 27.8 million recorded in H1 2017. The adjusted2 EBITDA margin equaled 5.1% of sales, in line with the margin achieved in H1 2017. At constant exchange rates, the adjusted2 EBITDA grew slightly, with the margin up 30 basis points compared to last year.
H1 2018 adjusted2 EBIT equaled Euro 3.1 million, decreasing by 54.9% compared to the adjusted2 EBIT of Euro 7.0 million recorded in H1 2017. The adjusted2 EBIT margin equaled 0.6% of sales from 1.3% in H1 2017. The margin was substantially in line with last year at constant exchange rates.
H1 2018 total net financial charges equaled Euro 9.7 million compared to Euro 7.3 million in H1 2017, reflecting an increase of net interest charges, due to the higher net debt, as well as a higher negative impact of net exchange rates differences.
H1 2018 Group adjusted2 net result equaled a loss of Euro 10.4 million compared to the adjusted2 net loss of Euro 6.6 million recorded in H1 2017.
In 2018, following the soft Q2 performance impacted by the weak start and development of the sun season, Safilo has revised its expectations for the full year, with total net sales now forecasted to decline by around 3% at constant exchange rates (around 6% at current exchange rates) compared to Euro 1,035.4 million in full year 2017. The continuation of cost saving initiatives should allow Safilo to achieve an adjusted2 EBITDA margin in a range of 4% to 5% of net sales. The Group expects 2018 Net Debt slightly above the level recorded at the end of June 2018.
The Board of Directors of Safilo Group S.p.A. has today also reviewed and approved a five-year Business Plan which includes an update of the previous 2020 Plan.
In light of the results achieved in the period 2015-2017 and the evolving industry context, the Group has revised the economic and financial targets communicated on March 16th, 2015, which envisaged in 2020 net sales of Euro 1,600-1,700 million, an EBITDA margin of approximately 14% and a Net cash/EBITDA leverage of approximately1x.
In the 2-year period 2019-2020, the Group foresees its total net sales to return to grow at a pace of approximately 2% per annum (approximately +4%, excluding the Gucci business), reaching total net sales of Euro 1,000-1,020 million in 2020. Net of the accounting compensation for the early termination of the Gucci license and of any non-recurring costs, the EBITDA margin is expected to steadily improve between 2019 and 2020, mainly behind significant cost saving programs, reaching 8% to10% of total net sales in 2020.
Safilo stock closed a 4.32 Euro, up .0050 or .12% on the Milan Stock Exchange earlier.
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