Safilo’s Q1 2020 trading update

Safilo’s Q1 2020 economic and financial results were penalized by the intensifying economic and financial crisis resulting from the outbreak and spread of Covid-19 and the subsequent restrictive measures implemented by the public authorities to contain the pandemic as restrictions to people’s mobility and shutdown of manufacturing and commercial activities were imposed in succession in China first, then Italy, followed by countries elsewhere around the world.

In the first two months of 2020, the Group recorded a mid-single digit increase in net sales driven by the double-digit growths recorded by all its own core brands, Carrera, Polaroid and Smith, as well as by the core licensed brands in the portfolio. In March, Safilo’s business was heavily hit by the escalation of Covid-19 in Italy and, from the second half of the month, also in the other European countries and the United States.

Angelo Trocchia, Safilo Chief Executive Officer, commented: “This first quarter of 2020 was characterized by a solid and very promising start, particularly positive for our own core brands portfolio, which we enriched at the beginning of February with the acquisition of Privé Revaux.

The sudden and severe halt of demand in March hit our top line and more meaningfully our profitability as the drop in sales was coupled with temporary production interruptions and supply chain inefficiencies in China, with negative effects on our industrial margin and operating leverage.

Our cash needs remained under strict control in the first quarter of the year and our Net Financial Position, excluding the acquisition of Prive Revaux, remained substantially in line with December 2019. Today we are actively utilizing our credit facilities in order to maximize cash management flexibility and responsiveness, actively assessing current and future financing opportunities, including the possibility for our Group to access the financing provided for by the so- called Italian ‘Liquidity Decree’.

The situation we are experiencing, although one of the most complex we have ever seen, is however offering us an additional, significant opportunity to accelerate the digital transformation we outlined in our 2020-2024 Business Plan in December last year, by fine tuning a series of actions and tools which will allow us to effectively address this new context, working better and more effectively with our clients and consumers throughout the world.

Also in these days, we continue working on several fronts to achieve these goals, in particular on the new Business-to- Business platform for clients and on new programs and initiatives to drive traffic in stores when they will reopen, on digital communication campaigns which will restart with gradual investments when the markets will be ready. And clearly an ever greater focus on e-commerce – particularly for Smith and the newly acquired brands. Last but not least the design and development of our collections to ensure an excellent product offer to inspire our clients and consumers”.

Data in detail for the first quarter of 2020

In the first quarter of 2020, Safilo posted net sales of Euro 221.1 million, down 10.6% at current exchange rates and 11.5% at constant exchange rates (-10.8% the wholesale business1) compared to Euro 247.3 million posted in the first quarter of 2019.

In Q1 2020, Safilo’s adjusted EBITDA (post-IFRS 16) equaled Euro 5.8 million and a margin on sales of 2.6%, declining by 70.8% compared to the adjusted2 EBITDA of Euro 20.0 million recorded in Q1 2019 (8.1% on sales).

Business update in relation to the Covid-19 pandemic

In the month of April, business activity showed a further significant deceleration compared to March, reflecting the almost complete shutdown of the various distribution channels in which the Group sells its products, with the online business been the exception.
In China, where the virus emergency seems to be normalizing, Safilo recorded in April more positive sales trends, recording a meaningful improvement compared to the exit speed of the month of March.

Despite the possibility to see such positive dynamics soon across the Group’s key markets following a potential lifting and easing of lockdowns and restrictions envisaged by different governments, Safilo expects such a re-start to be very gradual and patchy between May and June, with the Group’s second-quarter net sales now forecasted to decline more heavily than in the first quarter of the year and the operating result to be negative.

Given the high level of uncertainty still surrounding the Covid-19 pandemic and the future recovery of the global economy, Safilo is still unable to provide a new outlook for the full year 2020, remaining committed to continue to promptly update the market and all its stakeholders on the developments that the health emergency will have on the Group’s economic and financial results.

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