Safilo booked a 10-fold increase in its net profit to a more normal level of €37.5 million in 2006. It can be considered as an exceptional year for the Italian eyewear company, which underwent a thorough overhaul.
Group revenues rose by 9.4 percent to €1,122 million during the year, largely boosted by sales in Italy and the USA, as well as by higher sales of sunglasses. However, operating profits grew at a slower pace, impaired by higher costs including those deriving from the termination of the Polo Ralph Lauren licence, which passed to its rival Luxottica on Jan 1, 2007.
Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 6.1 percent to €162.4 million and operating income before interest (EBIT) rose 6.5 percent to €125.6 million from €117.9 million.
Nevertheless, net profit achieved a drastic rise thanks to a fall in financial costs following the restructuring of the debt after the initial public offering launched in December 2005, enabling the company to issue now a dividend of €0.02 per share.
Safilo started 2006 with a restructured balanced sheet thanks to an injection of €315 million raised from the capital increase related to the IPO, which marked the group's return to the stock market after having gone private about four year earlier. The proceeds helped the company to cut its debt, which amounted to about €760 million at the time of the IPO.
Net debt rose again to €532 million at the end of December 2006 from €479 million at the end of 2005 due to the acquisition of the Spanish retailer Loop Vision and the development of Safilo's U.S. retail chain, Solstice.
Safilo opened 31 Solstice stores in 2006, including 12 in the last quarter, and intends to open 35-40 more doors this year. Meanwhile, it launched at the beginning of 2007 the re-branding of Loop Vision stores, in line with Safilo's strategy to create and distribute upmarket eyewear collections.
Safilo also experienced an increase in its working capital to €362.3 million in 2006 from €324.1 million a year earlier, mostly due to an increase in inventories of finished products and raw materials. The absorption of working capital is expected to peak in the first quarter of this year due to payments made to suppliers who delivered at the end of 2006.
Safilo is forecasting a 7 percent increase in sales this year, but the EBITDA should increase by 17 percent and reach a level of about €190 million, thanks to the benefits of the group's reorganization and the recently launched brands.
In the 4th quarter of 2006, the group launched the first Hugo Boss, A/X Armani Exchange and Marc by Marc Jacobs collections, which contributed an overall €8.0 million to full-year sales. This year, Hugo Boss is expected to generate at least €30 million in sales, while A/X and Marc by Marc Jacobs will contribute at least €12 million each.
The launch of the first eyewear collection of Banana Republic, with which a license was signed in November, is expected to be accomplished by the end of 2007. However, the collection is only expected to have a significant impact from 2008 onward. The revenues expected from the new licenses will offset almost entirely the loss of Polo Ralph Lauren, which generated €65 million in sales last year.
Safilo sees a stronger sales contribution and higher margins from the opening last January of a fully owned subsidiary in South Korea. The unit is due to sell 100,000 pairs of sunglasses and optical spectacles at 300 points of sale in 2007. Korean sales are expected to double in 2008 and to register double-digit growth in the following years.
Safilo may carry out further small acquisitions of retailers to boost its global retail network. During the road show for its flotation, the company committed itself to boosting efficiency as well as expanding its brand portfolio and its distribution network.