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The Board of Directors of SAFILO GROUP S.p.A. approves the results of the first half of 2010


02/08/2010
Key highlights of the first half of 2010:

• Net Sales at Euro 580.3 million
• EBITDA at Euro 64.8 million, 11.2% margin
• Net financial position at Euro 269.4 million

Padua, August 2, 2010 – The Board of Directors of SAFILO GROUP S.p.A. today reviewed and approved the results of the second quarter and first half of 2010.

Sales in the second quarter of 2010 increased by 7.3% at current exchange rates. At constant perimeter and exchange rates, the Group’s revenues would have increased by 5.3% over the same period of 2009.

In a business environment characterized by a still moderate and uncertain recovery of consumer spending, in the first half of 2010 Safilo achieved sales growth of 3.2% over the same period of 2009, excluding the optical retail chains in Australia and Spain, which, in the first half of 2009, recorded sales of Euro 18.5 million.
At constant perimeter and exchange rates, the Group’s revenues would have increased by 4.6% over the first half of 2009.

From a geographical standpoint, the Asian markets experienced further improving trends, led by China’s strong growth, as well as the American areas, driven by the solid performance of the sunglasses business. Both regions progressed in terms of sales volumes as well as in average selling prices.
Europe, at constant perimeter and exchange rates, remained flat over the same period of last year, confirming the still challenging business environment, especially in the business segments where the Group’s activity is more concentrated.

During the periods in consideration, Safilo’s profitability improved, mainly as a result of effective fixed costs absorption, SG&A expenses lower incidence on revenues, and the sale of the non profitable retail chains.

Roberto Vedovotto, Chief Executive Officer of the Safilo Group, commented:

We closed the first half of the year with some positive results: mid single digits top line growth , better profitability and working capital management, improved financial leverage. However, we maintain a cautious stance for the remainder of the year, mainly as a result of the still challenging conditions in our core European markets and the uncertainties on the resilience of consumer spending growth in the US. We continue to strengthen the Group’s fundamentals through targeted business initiatives, focused investments in our core business, and a more lean and efficient organizational structure, led by a strong and experienced management team, which has been recently augmented in the appointment of Vincenzo Giannelli as Safilo Group CFO”.

Net sales of Safilo Group totalled Euro 580.3 million in the first half of 2010, growing by 3.2% compared to Euro 562.1 million reported in the first half of 2009 (+4.6% at constant perimeter and exchange rates). In the second quarter of 2010, Safilo generated revenues of Euro 294.3 million, with an increase of 7.3% over the same period of 2009 (+5.3% at constant perimeter and exchange rates).
The change in net sales was the result of:

•  the performance of the wholesale channel, with sales of
   Euro 536.4 million in the first half of 2010, growing by
   5.7% at current exchange rates (+3.6% at constant
   exchange rates) compared with Euro 507.7 million in the 
   first half of 2009. The improvement of the channel was
   more evident in the second quarter of the year, with
   revenues growing by 9.7% at current exchange rates (+
   4.2% at constant exchange rates), to Euro 268.9 million
   compared with Euro 245.2 million in the second quarter of
   2009;
•  the performance of the retail channel, which contracted by 
   19.3% to Euro 43.9 million in the first half of 2010 due to 
   the disposal of the Australian and Spanish stores which
   occurred in December 2009. The decline of the channel
   was instead of 12.4% in the second quarter of 2010. 
   At constant perimeter and exchange rates, the retail 
   channel would have been up by 19.1% and 20.1%
   respectively in the first half and the second quarter 2010,
   in particular thanks to the good performance of Solstice
   stores open for at least one year, growing by 19.4%
   compared with the first half of 2009.

In the first half of 2010, sales of sunglasses grew by 5.9% (+8.5% at constant perimeter), performing better than prescription frames (slightly declining by 0.6%; +2.5% at constant perimeter), due to the higher reactivity of this category to the product and commercial activities developed by the Group during the year.

Sales of sunglasses saw a marked upturn in the second quarter of 2010, growing by 14.5% (+17.1% at constant perimeter), thanks to good sales volumes and a more positive price/mix effect.
The performance of prescription frames was instead weaker in the second quarter of 2010, declining by 4.4% over the same period of 2009 (-0.9% at constant perimeter). The lower rates of replacement of these products, in particular at the independent opticians channel in the US market, affected the recovery of this category.

From a geographical point of view, in the first half of 2010, sales in Americas, 40.4% of the Group’s total business, registered in the first half of 2010 an increase of 8.4% over the same period of 2009 (+5.5% at constant exchange rates). In the second quarter of 2010, the US market continued to register higher sales of sunglasses at the main department stores and at Solstice directly operated shops. This, coupled with a solid expansion of the sport business and positive trends in Latin America, allowed the Group to achieve further growth in the quarter, with sales increasing by 15.3% at current exchange rates (+ 6.1% at constant exchange rates), in spite of a slow prescription frames business.

In the first half of 2010, Europe, which represented 42.9% of the Group’s revenues, remained the weakest region, with consumer spending in some cases still declining. Sales in the European markets registered a contraction of 3.2%, performing substantially in line (+0.6%) with the same period of last year at constant perimeter and exchange rates.
In the second quarter, sales in Europe declined by 3.8%, flat at constant perimeter and exchange rates. The Mediterranean countries, more penalised throughout 2009, are still showing the highest recovery rates, especially in the sunglasses business. Performance of Central European markets instead remained more challenging.

In the second quarter of 2010, sales in Asia grew by 31.4% at current exchange rates (+21.5% at constant exchange rates), further improving the growth pace registered in the previous months and closing the first half of 2010 with an increase in revenues of 20.9% at current exchange rates (+17.8% at constant exchange rates). China represented the strongest puller of the region’s performance, thanks to the deeper penetration in the country of Safilo’s products thanks to increasingly focused commercial activities. The duty free business also continued to improve its performance.

Gross profit, amounting to Euro 346.5 million in the first half of 2010, improved to 59.7% of sales compared with 58.9% reported in the same period of 2009 .
In the second quarter of 2010, the gross profit margin achieved a progression of 170 basis points to 58.8% of sales compared with 57.1% of sales registered in the second quarter of 2009 (10.5% increase in absolute terms).
During the period under consideration, gross profit was influenced by the more satisfactory absorption of production capacity in the factories in Europe and Asia, and by the improved profitability of new collections. These benefits were partially counterbalanced by the increased level of obsolescence due to the reorganization and the clean up of selected distribution channels.

In the first half of 2010, the incidence on sales of general, administrative and selling expenses decreased to 52.0% compared with 53.7% recorded in the first half of 2009, thanks to the effect of lower retail costs following the sale of non profitable retail chains and the tighter control that the Group is operating on the business’s general and administrative expenses. In the second quarter of the year, the incidence of these costs declined to 51.8% from 53.4% recorded in the second quarter of 2009.

Operating profit (EBIT), in the first half of 2010, totalled Euro 44.7 million, up by 52.6% compared with the operating profit from ordinary activities of Euro 29.3 million reached in the first half of 2009. The improvement of the industrial profitability and the lower incidence of general, administrative and selling costs have led to a good recovery in EBIT, which, in the first half of 2010, totalled 7.7% of sales, compared with the 5.2% EBIT from ordinary activities in the same period of 2009.
In the second quarter of 2010, operating profit more than doubled to Euro 20.6 million compared with the operating profit from ordinary activities of Euro 10.2 million registered in the same period of 2009. Operating profitability during the quarter improved to 7.0% of sales compared to the 3.7% margin from ordinary activities in the second quarter 2009.

EBITDA, in the first half of 2010 was equal to Euro 64.8 million, up by 25.8% compared with the EBITDA from ordinary activities of Euro 51.5 million in the first half of 2009. EBITDA represented 11.2% of sales, an improvement of 200 basis points on the 9.2% EBITDA from ordinary activities reached in the same period of 2009.
In the second quarter 2010, EBITDA equalled Euro 30.2 million, up by 41.6% compared with EBITDA from ordinary activities in the second quarter 2009 of Euro 21.3 million. EBITDA totalled 10.2% of sales compared to 7.8% in the second quarter 2009.

The Group’s net result, negative for Euro 3.3 million in the first half of 2010 (compared with the loss from ordinary activities of Euro 7.9 million in the first half of 2009), when we include a negative currency impact of Euro 9.8 million, following the strong revaluation of the USD against the Euro at June 30th 2010 versus December 31st 2009.
The latter also explained the net loss of Euro 5.0 million recorded in the second quarter of 2010 (compared with the loss from ordinary activities of Euro 9.6 million in the second quarter of 2009).
The net result of the period was then affected by a higher tax rate, as a result of the Group’s decision not to accrue deferred tax assets.

Free Cash Flow for the first half of 2010 recorded a cash generation of Euro 51.9 million compared to a cash absorption of Euro 18.6 million in the first semester 2009.
This improvement was the result of the higher profitability of the period and in particular of the positive Euro 42.4 million change in working capital registered in the first half of 2010.
In the second quarter of 2010, inventories decreased, also due to the sale of part of the retail business, and as occurred in the first quarter of 2010. Also in the period, Trade receivables remained under control thanks to the favourable revenues mix, while Trade payables temporarily increased as a result of a different seasonality in some payments to suppliers and other creditors .
Cash flow for capital expenditure almost halved in the first half of 2010, totalling Euro 10.6 million compared to Euro 19.5 million in the first half of 2009.
Capital expenditure in the second quarter, as in the first quarter, more predominantly related to renovation and improvement of production plants in Europe.

The Net Financial Position at the end of June 2010 significantly improved totalling Euro 269.4 million, compared to Euro 588.0 million recorded at the end of December 2009 and Euro 315.4 million at the end of March 2010. The net financial position, which in March 2010 had almost halved compared to the end of 2009 due to the capital injections successfully completed in February and March 2010, further improved at the end of June as a result of the positive cash generation recorded during the second quarter 2010.






Last update: 02/08/2010, 18:37


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