Safilo's Business Plan Aims for Growth Via Customer-Centric Model, Digital Transformation, Launches and Italy Work Force Cuts

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PADOVA, Italy—The board of directors of Safilo Group S.p.A. (SFLG.MI) approved the company's new group business plan for 2020-2024, which incorporates recent business developments and looks ahead to delivering sales growth and margin expansion through a modern customer-centric and consumer-oriented business model, powered by a new digital transformation strategy, in a statement released yesterday. Safilo said the business plan "responds to the requirement to realign the Group’s current industrial capacity to the future production needs and to achieve further costs of goods sold and overheads efficiencies, guaranteeing the Group’s economic and financial solidity and the pursuit, during the Plan’s timeline, of a recovery of the levels of profitability to which Safilo aspires." It includes a revision of fiscal guidance for the coming year.

The company also noted that "the exit of the LVMH luxury licenses makes it necessary for Safilo to initiate an industrial reorganization and restructuring plan, promptly responding to the new production scenario that the company will be facing, by realigning its manufacturing footprint. The plan, which is drawn up to safeguard the Group's competitiveness in favor of the workers who will remain in force, identified a total of approximately 700 redundancies in 2020 in Italy. Safilo has opened a negotiation table with the trade unions and the workers' representatives in order to identify all the available social security tools to manage the impact on the people involved in the best possible way."

Safilo expects to close the 2019 fiscal year with the net sales of the continuing operations substantially stable compared to 2018, while the wholesale business is estimated to grow by approximately 3 percent at constant exchange rates, reflecting the positive performance achieved by the Group’s own core brands, Carrera, Polaroid and Smith, in their key markets. 2019 adjusted EBITDA margin of the continuing operations is expected to be around 5.5 percent of sales, confirming the significant progress made throughout the year, on an organic basis, thanks to the improvements recorded at the gross margin level and the strong recovery of overhead costs, the announcement said.

For 2020, the Group now forecasts net revenues of €960,000 to €1,000 million, versus the €1,000 to €1,020 million target provided on Aug. 2, 2018, and an adjusted EBITDA margin (before the impact of IFRS 16) at around 6 percent of sales compared to the previous objective of 8 percent to 10 percent. It should be noted that this variance follows the confirmed exit of the Dior license after 2020, as communicated by the company on July 1, 2019, and the new plan thus reflects the expected decline of the Dior business in its last year of license in Safilo, a period of phase-out which will negatively impact the brand’s overall profitability. Safilo confirmed the exit of the Dior license last July, as VMAIL reported.

Group net sales are expected to be around €1 billion in 2024, with a 5-year CAGR of around 1 percent to 2 percent. More specifically, Safilo expects: a wholesale revenues CAGR, including all the new licenses signed during 2019, of around 4 percent, able to offset a significant part of the business decline, mainly expected in 2021 for around €200 million, due to the exit of the LVMH luxury licenses. The Group expects to achieve this goal through a mid-single digit growth in North America and low single-digit upside in its main European markets. A higher contribution is then expected from the main emerging markets, in which some of the new brands in the license portfolio will play a significant role. Safilo foresees its core own brands, Carrera, Polaroid and Smith, to grow faster than Group average, further building on the positive achievements of the most recent execution plans in terms of product, distribution and communication strategies. The development of optical frames is confirmed as a strategic lever to support the growth plans of the Group's main brands, including all its core licenses for which Safilo also expects to foster product development projects which place an increasing focus on sustainability.

Safilo also forecasts an additional top line growth to be achieved through the acquisition of the brand Blenders Eyewear, reported earlier this week for which Safilo targets a double-digit sales CAGR over the Plan period. This acquisition, together with the development of Smith, Carrera and Polaroid’s D2C platforms, is expected to boost the share of the Group’s business made through the direct-to-consumer e-commerce channel, to represent around 15 percent of total net sales by 2024, and the share of own brands to reach approximately 50 percent of the Group’s wholesale business. The plan does not include any impact of additional acquisitions or new licenses not yet signed.

Adjusted EBITDA margin is expected to reach 9 percent to 11 percent of net sales in 2024. Safilo expects significant progress to be made by its wholesale business, leveraging positive top line growth dynamics coupled with the implementation of a further cost productivity plan to allow additional savings for around €45 million. The company also anticipates an additional positive contribution to be achieved through Blenders Eyewear as well as a positive net cash position by the end of the Plan period.

Safilo said that its new Business Plan incorporates the effects of the Group’s most recent business developments, all reported previously, including
• the sale of the Solstice retail business, which took place on July 1, 2019;
• the extension of the brand Marc Jacobs until December 31, 2026;
• the exit of the brand Dior from January 1, 2021;
• the exit of the brand Fendi from July 1, 2021;
• the renewal of the Tommy Hilfiger, Hugo Boss and Kate Spade licenses;
• the renewal of the supply agreement with Kering Eyewear;
• the launch of the new licenses signed during 2019, namely Missoni and M Missoni, Levi’s, David Beckham, and Under Armour, an iconic sports brand just recently signed;
• the acquisition of Blenders Eyewear, a fast-growing California digitally-native brand, which will enrich the Group’s proprietary brand portfolio and direct-to-consumer business.

Safilo's strategic objectives and levers of the Group’s new Business Plan are: to develop a modern and successful customer-centric and consumer-oriented business model, powered by a new 360° digital transformation strategy; to deliver sales growth, by placing customers and consumers at the heart of the strategy, and accelerating initiatives to digitally transform the company’s business model. The Group will continue developing a multi-segment and multi-channel portfolio strategy. Safilo is pursuing this strategic choice through a more decisive digital shift of its mix of capabilities and investments, from digital and social marketing to direct-to-consumer distribution, a channel in significant growth in which Safilo wants to accelerate both through strategic commercial partnerships and through the acquisition of new important capabilities, as the acquisition of Blenders Eyewear illustrates, with its advanced direct-to-consumer e-commerce platform with unique digital and social media skills, successfully engaging and selling to Millennials and Generation Z consumers.

Safilo Group CEO Angelo Trocchia, who will be presenting this 2020-2024 Business Plan to the financial markets today, commented, “We are today updating and extending our Group Business Plan, confirming the strategic objective to deliver business growth, leveraging the significant progress achieved in the last 18 months thanks to a tight action plan to recover top line growth and operating margins. There are clear challenges and opportunities posed by the evolutions of the market context, from the internalization of luxury eyewear by the two key industry players, to the ongoing industry consolidation and digitalization."

He continued, "Today, at Safilo, we are facing them all, with a pragmatic approach, updating and upgrading our business model with clear, new and necessary choices. We will continue preserving and enhancing our undisputed leadership in design, product development and innovation, our global commercial footprint and our strong know-how in brand management to continue pursuing a high-potential multi-segment brand portfolio strategy. At the same time, we are now upgrading our business model through a more decisive shift toward a digital transformation strategy, which will support and enable significant improvements of our customer-centric activities through the adoption of innovative, state of the art digital contents and services, as well as allow a more significant growth of our direct-to-consumer e-commerce activities through an increasing mix of internal and external capabilities and investments.

"We also need to reorganize our manufacturing footprint by realigning its current capacity to our future production needs, thus safeguarding the Group’s competitiveness and financial solidity for the long term. Despite the call for the emergence of alternative solutions, the new industrial plan ultimately impacts a significant number of people, for whom we will activate all the best possible and most responsible solutions, working closely with trade unions and workers’ representatives. With our economic and financial targets, we aim for Safilo to become a modern leader of the eyewear industry, a more balanced and profitable player across its markets, brands and product segments.”