Safilo unexpectedly booked €60.5 million in non-recurrent charges for 2015, against €7.7 million in 2014, largely due to the write-down of the value of its Asian business and a €17.0 million provision for a settlement with French anti-trust authorities. The goodwill impairment loss totaled €40.5 million. The bulk of the one-off costs, €58.1 million, were accounted for in the fourth quarter.
The settlement is related to an investigation into pricing practices in the industry, which had been launched in 2009. The findings of the competition authority are expected to come out by the end of the year, but the settlement ensures that Safilo's liability is capped at €17.0 million. The company expects the outcome of the investigation to broadly confirm the figure, thus leaving little space for a positive surprise. It added that no other anti-trust investigations are pending in other markets.
Due to theses extraordinary charges, Safilo finished 2015 with a loss of €52.7 million compared with a profit of €39.1 million a year earlier and decided to omit paying a dividend. The company has not paid a dividend since May 2008, when it distributed €0.085 per share on its 2007 results.
Aside from these charges, Safilo reported a 25.6 percent decline in operating earnings before amortization (Ebitda) for its past financial year, resulting in an Ebitda margin of 6.4 percent, down from 9.4 percent in 2014. On an adjusted basis, the Ebitda margin fell to 8.0 percent from 10.0 percent and the group ended up with an 84.4 percent decline in net profit to €6.9 million.
The results were worse than expected, prompting doubts that the group could achieve its target of an Ebitda margin of around 14 percent in 2020. The other key metrics of Safilo's business plan are an annual average sales growth of 6 percent, allowing it to reach a turnover of €1.6 to €1.7 billion by 2020, and cumulative free cash flow of €350-400 million at the end of the decade.
Safilo's management confirmed its 2020 targets but acknowledged that the 2.0 percentage point decline in the adjusted Ebitda margin in 2015 is making the task more challenging. It hopes to boost profitability in the later part of the business plan, thanks to additional cost savings.
The group unveiled plans to gradually build up annual cost savings of €25-30 million by 2019, with €2-3 million of the savings achieved in 2016, €10-15 million in 2017 and €20-25 million in 2018. To help reach this goal, the group is budgeting one-off restructuring costs of €20 million, of which €8-10 million would be posted this year.
One of the efficiency programs being launched by the company is the gradual establishment of a complete production cycle for most of Safilo's products at a single factory – or the so-called end2end product flow. The scheme is expected to cover 35 percent of the output this year, against 25 percent in 2015, and reach a 75 percent ratio in 2020. The company is also aiming to reduce the duration of the production cycle for finished goods, the so-called lead time, to 40 days this year and 12 days in 2020, down from 45 days in 2015.
To improve the flexibility of its supply chain, Safilo will introduce new capabilities for the manufacture of finished products at its components manufacturing sites in Martignacco, Italy, and Suzhou, China. Plastic injection will be introduced at the Ormoz plant in Slovenia, which currently produces frames made with Optyl, a plastic used exclusively by Safilo.