The Safilo Group underwent a massive clean-up of its balance sheet in the second quarter. As a result, the group posted a net loss of €246.7 million for the first half of the year compared with a €7.9 million loss a year earlier. The results cover only continuing activities and do not include the impact of the new IFRS 16 accounting rule.
The charge totaled €225.4 million and consisted mainly of a €227.1 million non-cash impairment that removes the entire goodwill allocated to the group's cash-generating units. It also booked a €23.3 million non-cash write-down of deferred tax assets and €5.0 million in one-off costs linked largely to cost-saving projects.
The clean-up slashed the group's shareholders' equity to €395.4 million at the end of June from €646.3 million at the end of 2018. It nevertheless remains above the Safilo's stock market capitalization of over €240 million.
On the bright side, the company registered free cash flow of €10.4 million in the first half, ending two years of cash burn. Safilo had a negative free cash flow of €37.3 million in the first half of 2018.
Safilo benefited from a 2.2 percentage point improvement to 53.7 percent in the gross margin during the six-month period, thanks mainly to greater plant efficiency and a favorable sales mix. On an adjusted basis, Ebitda rose by 12.9 percent to €34.2 million and the net profit rose to €8.7 million compared with a 4.3 million loss a year earlier.
The group enjoyed a 6.5 percent increase in first-half revenues from continuing operations to €495.9 million. Currency-neutral sales were up by 3.9 percent, driven by an increase of about 8 percent in Safilo's core house brands – Polaroid, Smith and Carrera – as well as the performance of licensed brands like Dior, Hugo Boss, Tommy Hilfiger and Max Mara. The wholesale business grew by 4.1 percent.
The company's sales growth accelerated to 9.7 percent on a reported basis and 7.4 percent in local currencies in the second quarter as compared to the first three months, with wholesale revenues up by 7.5 percent. During the second quarter, sales of Safilo's core house brands increased by a double-digit rate, driven by Carrera.
In Europe, the group's first-half revenues totaled €246.3 million, representing 49.7 percent of the total turnover and growing by a reported 2.6 percent and by 3.0 percent at constant foreign-exchange rates. In the second quarter, European sales rose by 4.5 percent in euros and by 4.8 percent in local currencies, with Polaroid posting a “strong” performance in Spain and Italy.
In North America, the turnover grew by 7.8 percent to €169.5 million in the semester, or by 1.0 percent on a currency-neutral basis. It grew in the second quarter by 8.4 percent on a reported basis and by 2.7 percent at constant exchange rates, thanks to positive underlying trends in the U.S.
Half-yearly sales surged in Asia-Pacific by 33.7 percent to €43.5 million, or by 27.9 percent in local currencies. They rose by 2.0 percent in the rest of the world to €36.7 million, with an increase of 0.8 percent at constant currency rates. In the second quarter, sales in Asia-Pacific went up by 41.6 percent in euros and by 36.2 percent in local currencies, while in the rest of the world they increased by 16.2 percent and 14.0 percent, respectively.
Net debt was down to €3.9 million at the end of June from €32.9 million at the end of December. But after applying IFRS 16 accounting rules, the net debt reached €77.4 million, of which €38 million related to the Solstice retail business sold on July 1.