Safilo’s 2018 Financial Results approved
(Padua/Italy) – The Board of Directors of Safilo Group S.p.A. has approved on March 13 the Company’s consolidated financial statements for the year ended 31 December 20181 and examined the separate financial statements for the year ended 31 December 2018 (1), which will be submitted for approval by the shareholders at the Annual General Meeting to be held in a single call on April 30, 2019.
“The Board of Directors has decided not to propose the payment of a dividend to the next Annual General Meeting. As anticipated on January 30, 2019, net sales for 2018 equaled Euro 962.9 million, down 4.0% at constant exchange rates and 7.0% at current exchange rates compared to Euro 1,035.3 million in 20172.
In 2018, the wholesale business (3) declined by 4.9% at constant exchange rates, with the key drivers being:
- the exit of the Céline license, just partially counterbalanced by the launch of the new Moschino, Love Moschino and rag & bone licenses;
- the overall positive results of the Group’s own core brands, driven in particular by a strong season of Polaroid in Spain and the good progress of the brand Safilo in the optical business;
- the broadly positive performance of the licensed brands in the contemporary and premium segment;
- the weak performance of sunglasses in the fashion luxury segment.
In the fourth quarter of 2018, Safilo’s net sales equaled Euro 249.1 million, up 1.3% at constant exchange rates and 1.8% at current exchange rates compared to the same period of 2017 (2). The performance of the wholesale business (3) was negative by 3.3% at constant exchange rates.
In 2018, Safilo’s economic results improved thanks to the Group’s progress on its cost saving initiatives. 2018 adjusted (4) EBITDA stood at Euro 47.5 million, up 15.5% compared to Euro 41.1 million in 2017, with the margin increasing by 90 basis points from 4.0% to 4.9% of net sales.
In the fourth quarter of 2018, the adjusted (4) EBITDA equaled a profit of Euro 10.3 million compared to the loss of Euro 2.1 million recorded in the same quarter of 2017.
Safilo closed the year with an adjusted (4) Group net loss of Euro 26.7 million compared to an adjusted (4) net loss of Euro 47.1 million in 2017.“
Angelo Trocchia, Safilo Group Chief Executive Officer, commented:
“The year closed substantially in line with our expectations, with a mid-single digit decline in net sales and first signs of improvement at the operating and net result level.
The second half of 2018 was a key moment for Safilo as we started to implement the new 2020 plan and we secured our financial structure through a capital increase and a new debt financing.
This was also a period in which we intently focused on shaping a new commercial organization in all our key markets, bringing back capabilities and leadership from the industry, with the aim of improving our go to market execution and putting customer service at the heart of what we do.
An intense year in which we renewed our partnership with important brands like Banana Republic, Fossil, havaianas and Tommy Hilfiger, and we signed new agreements first with Missoni and with Levi’s® at the very beginning of 2019.
In 2019, we envisage the opportunity to recover top line growth and above all a sustainable level of profitability, reflecting the progress of our cost saving projects.”
Economic and Financial highlights of the Year
“In 2018, Safilo’s net sales equaled Euro 962.9 million, down 4.0% at constant exchange rates and 7.0% at current exchange rates. The wholesale business (3) declined by 4.9% at constant exchange rates, driven by the exit of the Céline license and the weakness experienced by sunglasses in the fashion luxury segment.
2018 was a year of growth for Polaroid and the brand Safilo, which together with the key licensed brands in the contemporary and premium segment, namely Tommy Hilfiger, Hugo Boss and Kate Spade, drove the Group’s positive performance in the prescription frames business.
Safilo’s operating results improved in 2018, reflecting
- a substantial stability at the gross margin level, driven by higher plant efficiencies offset by a negative impact from foreign exchange and some obsolescence costs,
- a total of approximately Euro 26 million of overhead cost savings and
- higher D&A.
2018 Gross profit equaled Euro 481.5 million, down 7.3% compared to Euro 519.6 million in 2017, with the gross margin at 50.0% of sales from 50.2%. At constant exchange rates, the margin was up 20 basis points.
2018 adjusted4 EBITDA was Euro 47.5 million, up 15.5% compared to the adjusted (4) EBITDA of Euro 41.1 million recorded in 2017. The adjusted (4) EBITDA margin equaled 4.9% of sales from 4.0%. At constant exchange rates, the adjusted4 EBITDA margin improved by 130 basis points compared to 2017.
2018 adjusted (4) EBIT was at breakeven compared to the adjusted (4) EBIT equal to a loss of Euro 0.8 million in 2017. At constant exchange rates, the adjusted (4) EBIT margin was 0.5% of sales from -0.1% in 2017.
Below the operating line, in 2018 total net financial charges equaled Euro 17.3 million compared to Euro 14.0 million in 2017, reflecting an increase of net interest expenses, due to the utilization of the Revolving Credit Facility during the year. On the other hand, income taxes declined from Euro 29.4 million to Euro 9.2 million.
2018 Group adjusted (4) net result equaled a loss of Euro 26.7 million compared to the adjusted (4) net loss of Euro 47.1 million recorded in 2017.
Economic highlights of the Fourth Quarter
In the fourth quarter of 2018, Safilo’s net sales equaled Euro 249.1 million, up 1.3% at constant exchange rates and 1.8% at current exchange rates. The wholesale business (3), which declined by 3.3% at constant exchange rates, experienced a positive sales recovery in Europe, that was in the period counterbalanced by the weak performance of Asia and the Rest of the World as well as ongoing softness in North America.
In Q4 2018, the Group’s operating performance improved behind a slight upturn of gross margin and a more significant improvement of the operating leverage thanks to efficiencies in SG&A costs.
Q4 2018 Gross profit equaled Euro 115.0 million, up 2.7% compared to Euro 112.0 million in Q4 2017. Gross margin equaled 46.2% of sales compared to 45.7% in Q4 2017.
Q4 2018 adjusted (4) EBITDA equaled Euro 10.3 million compared to the loss of Euro 2.1 million recorded in the same quarter of 2017. The adjusted (4) EBITDA margin moved to 4.1% of sales from -0.8% in Q4 2017.
Key Cash Flow data
In 2018, Safilo’s Free Cash Flow was negative for Euro 25.6 million compared to a negative flow of Euro 70.1 million in 2017. The year included the third and last compensation payment of Euro 30 million received in September 2018 from Kering.
In 2018, Cash flow from operating activities equaled a generation of Euro 2.7 million compared to an absorption of Euro 31.1 million in 2017. Key drivers of this result were the improvement in EBITDA and a cash flow from the recovery of tax credits.
In the year, Safilo’s net investments equaled Euro 28.3 million, mainly dedicated to its product supply and logistics network and to the roll out of new IT systems.
At the end of December 2018, Safilo’s Net Debt stood at Euro 32.9 million compared to Euro 131.6 million at the end of December 2017, with a leverage ratio of 0.7x adjusted (4) EBITDA. The significant decrease in Net Debt reflected the proceeds from the share capital approved by the Extraordinary Shareholders’ meeting on 29 October 2018, and launched on 3 December 2018. It excludes the portion of Euro 17.7 million received on 2 January 2019 (5).
Safilo – Net sales by geographical area:
In Europe, full year net sales ended in line with 2017, after growing 25.1% in the fourth quarter at constant exchange rates. The performance of the wholesale business (3) in Europe was negative by 4.0% in the year, while recording a significant improvement in the fourth quarter, up 12.1% at constant exchange rates. Healthy business trends resulted in positive performance in particular in the Iberian markets, Germany and Central and Eastern European countries.
In North America, full year net sales declined by 8.1% at constant exchange rates and by 9.5% in the fourth quarter, with the wholesale business down 6.6% and 6.7% in the respective periods. Sales at the 80 Solstice stores in the United States (102 stores at the end of December 2017) declined by 16.5% in the year and by 23.9% in the fourth quarter, caused by a combination of declining traffic and store closures.
The Group had a challenging second half of the year in Asia Pacific and in the Rest of the World, two key geographies where the Group has changed the go-to-market organization and its key leadership.
Sales in Asia-Pacific closed up 2.1% at constant exchange rates in the year, while declining by 19.2% at constant exchange rates in the fourth quarter. Rest of the World turned negative by 8.6% at constant exchange in the year, down 26.1% in the fourth quarter.
2019 Outlook of Safilo
In 2019, Safilo plans to gradually revive top line growth, leveraging the implementation of new commercial organizations in the Group’s key markets and the upgrading of customer service levels.
For the current year, Safilo will continue its cost savings plan aimed at recovering a sustainable economic profile.“
(1) The auditing process of the consolidated and separate financial statements is currently under finalization.
(2) The new accounting standard IFRS 15 regarding “Revenue from contracts with customers” entered into effect starting from 1 January 2018. Following the fully retrospective approach chosen by the Group, the application of the principle to the fourth quarter and full year 2018 had an adjustment effect on the sales and cost of goods sold of the same periods of 2017 equal respectively to Euro 4.4 million and Euro 11.6 million, with a neutral effect on the gross profit. Consequently, net sales in the fourth quarter and full year 2017 were adjusted to Euro 244.8 and Euro 1,035.3 million respectively.
(3) The performance of the wholesale business excludes the business of the production agreement with Kering and sales of the Solstice retail chain in the USA. The Kering production agreement is reported within the Europe geographical area.
(4) In 2018, the adjusted economic results exclude non-recurring costs for Euro 5.8 million, mainly related to the CEO succession plan and reorganization costs in North America and Europe, and include an income of Euro 39.0 million, annual portion of the total Euro 90 million accounting compensation for the early termination of the Gucci license.
In Q4 2018, the adjusted EBITDA excludes non-recurring costs for Euro 1.3 million and includes an income of Euro 9.8 million, as pro-rata portion of the annual accounting compensation for the early termination of the Gucci license.
In 2017, the adjusted economic results excluded an impairment charge on the goodwill allocated to the Group’s cash generating units for Euro 192.0 million and non-recurring costs for Euro 15.3 million (Euro 15.2 and 12.5 million, respectively on EBITDA and Net result) related to the reorganization of the Ormoz plant in Slovenia, cost saving and restructuring initiatives, and to some legal litigations. Adjusted results included an income of Euro 43 million, as accounting compensation for the early termination of the Gucci license.
In Q4 2017, the adjusted EBITDA excluded non-recurring costs for a total of Euro 10.9 million related to cost saving and restructuring initiatives and to some legal litigations and included an income of Euro 10.8 million, pro-rata portion of the annual accounting compensation for the early termination of the Gucci license.
(5) Safilo’s share capital increase was completed on 2 January 2019, for a total consideration of Euro 149,982,892.22, following the subscription and payment by the reference shareholder Multibrands Italy B.V. of all the No. 25,193,337 ordinary shares which remained unsubscribed at the end of the rights auction ended on 28 December 2018, for a total consideration of Euro 17,736,109.25. This amount was therefore booked in January 2019.