Ponzano, August 5, 2009 – The Benetton Group Board of Directors examined and approved the consolidated results for H1/09 and reviewed the first goals achieved by the reorganization plan implemented in previous months.
Consolidated income statement
Group net revenues for the first half of 2009
were €882 million (-11.4% against the comparable half year,
corresponding to €114 million), impacted by a major change in
the timing of shipments for the Fall/Winter collections, which saw
a rescheduling of over €88 million of deliveries to the third
quarter, to better match seasonality, provide improved service to
clients and improve management of transport and logistics. The
overall variation was also impacted by the deterioration in
exchange rates (Korean won, Turkish lira, Indian rupee and the
rouble among others) against the euro (-0.6%), and a worsening of
mix, caused by the rescheduling of deliveries.
Textile segment sales increased by €3 million to
€51 million, while apparel sales were €831
million, €117 million lower than H1/08. Of the latter,
€132 million was attributable to the wholesale channel, in
which the entire delivery rescheduling was concentrated, offset by
growth of €15 million in direct sales, mostly resulting from
the new openings.
Established markets, net of the effect of the
rescheduling, which impacted the most on them, largely maintained
their position; Italy, in particular, the Group’s main
market, demonstrated receptiveness to the new commercial
proposals.
Emerging markets grew by 5.8% at constant exchange rates.
The following individual markests are noteworthy: India, which
recorded very good growth, driven by 95 new openings, and China,
which reflected the first effects of the refocusing process with
positive growth (on a like-for-like basis) in the second quarter of
the year. Mexico benefited from the opening of 120 corners and 18
new stores in the first year of operations, with a positive result
in spite of the disruptions caused by swine flu. Turkey confirmed
the strength of its business, with repositioning and enlargement of
some stores in prime commercial locations; the opening of a
flagship store in Istanbul is expected in October. In Russia,
finally, the start-up of the commercial trading activity has
facilitated the introduction of new product segments and new
network support services. There have been 9 openings in the country
in the last twelve months. Total net openings in priority markets
constitute around half of the over 350 additional stores opened
worldwide in the last twelve months, the majority managed by third
parties.
Gross operating profit, amounting to €401 million (45.5% of net revenues) was down in both absolute value (-€61 million) and percentage terms (-0.9%), largely due to the effect of the previously mentioned rescheduling of deliveries (-€38 million) and, to a lesser extent, due to the exchange impact (-€19 million), largely caused by the revaluation of the US Dollar against the Euro. Further negative effects were due to mix, while there was a positive impact of €24 million from both actions already planned and those included in the reorganization plan relating to sourcing and production efficiencies.
The contribution margin was €336 million (38.2% of revenues), down compared with €390 million in the corresponding period of 2008 (-€54 million and 39.1%), mainly due to lower commissions paid in respect of the reduction in revenues.
The incisive actions implemented at the beginning of 2009 to reduce general and administrative expenses have started to generate savings during H1/09, most evidently in the areas of cost of: temporary work, third party and consultancy services, advertising due to lower rates, notwithstanding the expected increase in depreciation and amortization, resulting from investments completed in the last financial year.
In addition, non-recurring items worsened by a total of €19 million (from a recorded one-time income of around €8 million, to a total expense of €11 million), including around €10 million of reorganization costs.
As a result, operating profit (EBIT) was €43 million (it would have been €74 million without the rescheduling of deliveries), down from €116 million in the corresponding period of 2008. Overall, the following significant items impacted on this result: on the positive side €12 million was generated by the reorganization plan already taken; on the negative side €31 million was due to the temporary delay in shipments, another €11 million resulted from the exchange rate trends (with a corresponding income from foreign currency hedging which will be commented on later), and finally €19 million due to higher non-recurring expenses.
Financial management highlights were: a significant reversal in the trend for foreign currency hedging, which produced €4 million of profit, partially compensating the negative impact of previously mentioned currencies on revenues and margin, compared with a loss of over €7 million in the corresponding period of 2008; and also a significant improvement in net financial expenses due to the effect of lower interest rates, more than offsetting an increase in the average position in the half year.
Net income, finally, was €29 million (3.2% of revenues), compared with €72 million (7.2%) in the corresponding period of 2008. Without the shipments rescheduling, it would have been €51 million.
Consolidated financial situation
Capital employed was down by €45 million, compared with December 31, 2008, due to the reduction in working capital (-€53 million), and an increase in fixed assets (+€9 million). Working capital, which was impacted by the delay in invoicing mentioned above, increased by €26 million compared with June 30, 2008, due to a reduction in trade receivables, offset by an increase in inventories. The latter is attributable also to new initiatives in emerging countries (Russia and India).
Net financial indebtedness at June 30, 2009 was €678 million, down by €11 million compared with December 31, 2008, showing a significant about-turn in the generation of cash in the first half year.
Summary of consolidated cash flow
Cash flow generated by operating activities improved, totalling €145 million, compared with €112 million in the comparative period; this improvement was brought about by the change in working capital in the context of a worsening in EBITDA due to the rescheduling of deliveries for the 2009 Fall/Winter collection.
In the H1/09, the Group made net investments of €80 million compared with €106 million in the corresponding period of 2008. The majority of investments were for the commercial network, amounting to €55 million. Within this category, preference was given to actions to renew and expand existing stores, substantially in line with the previous year, while the purchase of new premises continued on a selective basis. The thrust to develop production investments continued in the half year, with expenditure of over €17 million (€24 million in 2008).
Cash flow for financing activities absorbed €33 million less cash in spite of the distribution of dividends and purchase of Company shares.
Commenting on the results, Benetton Group CEO, Gerolamo Caccia Dominioni, stated: "The action programmes timely launched at the start of the year have generated initial benefits to the cost structure, and further positive results will follow in the second half of 2009. Among other things, this will allow a selective stimulus to the sales network, giving a positive impulse to activity. The decision to reschedule deliveries of the 2009 Fall/Winter collection only, was taken in this specific market situation to optimize synchronization of demand for the products with the actual presence of the new collection garments in the stores. The temporarily deferred sales will thus be recovered in the third quarter of the year, with a reduction of around 3%, compared with 2008, in the cumulative results for the nine months. The combination of the good level of orders taken for the new Fall/Winter collection and actions currently in progress on the cost front thus allow reasonable optimism for the end of 2009 in respect of sales, profit and net indebtedness."
Consolidated statement of income
| (millions of Euro) | 1st half 2009 |
% |
1st half 2008 |
% |
Change |
% |
Full year 2008 |
% |
|---|---|---|---|---|---|---|---|---|
|
Revenues |
882 |
100.0 |
996 |
100.0 |
(114) |
(11.4) |
2,128 |
100.0 |
|
Materials and subcontracted work |
408 |
46.2 |
459 |
46.1 |
(51) |
(11.1) |
997 |
46.9 |
|
Payroll and related costs |
45 |
5.1 |
45 |
4.5 |
- |
(0.9) |
88 |
4.2 |
|
Industrial depreciation and
amortization |
8 |
0.9 |
8 |
0.8 |
- |
0.7 |
16 |
0.8 |
|
Other manufacturing costs |
20 |
2.3 |
22 |
2.2 |
(2) |
(6.1) |
45 |
2.0 |
|
Cost of sales |
481 |
54.5 |
534 |
53.6 |
(53) |
(9.9) |
1,146 |
53.9 |
|
Gross operating profit |
401 |
45.5 |
462 |
46.4 |
(61) |
(13.2) |
982 |
46.1 |
|
Distribution and transport |
30 |
3.3 |
30 |
3.0 |
- |
(2.3) |
66 |
3.0 |
|
Sales commissions |
35 |
4.0 |
42 |
4.3 |
(7) |
(16.4) |
89 |
4.2 |
|
Contribution margin |
336 |
38.2 |
390 |
39.1 |
(54) |
(13.7) |
827 |
38.9 |
|
Payroll and related costs |
87 |
9.9 |
84 |
8.4 |
3 |
4.2 |
168 |
7.9 |
|
Advertising and promotion |
28 |
3.1 |
33 |
3.3 |
(5) |
(15.0) |
61 |
2.9 |
|
Depreciation and amortization |
43 |
4.9 |
40 |
4.0 |
3 |
8.1 |
84 |
3.9 |
|
Other expenses and income - of which non-recurring expenses/(income) |
135 11 |
15.4 1.2 |
117 (8) |
11.7 (0.8) |
18 19 |
15.1 n.s. |
260 (1) |
12.3 n.s. |
|
General and operating expenses - of which non-recurring expenses/(income) |
293 11 |
33.3 1.2 |
274 (8) |
27.4 (0.8) |
19 19 |
7.2 n.s. |
573 (1) |
27.0 n.s. |
|
Operating profit(*) |
43 |
4.9 |
116 |
11.7 |
(73) |
(62.8) |
254 |
11.9 |
|
Share of income/(losses) of associated
companies |
2 |
0.2 |
- |
- |
2 |
n.s. |
- |
- |
|
Financial (expenses)/income |
(12) |
(1.4) |
(17) |
(1.7) |
5 |
(27.3) |
(41) |
(1.9) |
|
Net foreign currency hedging (losses)/gains and
exchange differences |
4 |
0.5 |
(7) |
(0.8) |
11 |
n.s. |
(1) |
n.s. |
|
Income before taxes |
37 |
4.2 |
92 |
9.2 |
(55) |
(59.5) |
212 |
10.0 |
|
Income taxes |
11 |
1.2 |
21 |
2.1 |
(10) |
(49.3) |
56 |
2.7 |
|
Net income from continuing
operations |
26 |
3.0 |
71 |
7.1 |
(45) |
(62.6) |
156 |
7.3 |
|
Net income from discontinued
operations |
- |
- |
1 |
0.1 |
(1) |
n.s. |
1 |
0.1 |
|
Net income for the period attributable to: - shareholders of the Parent Company - minority interests |
26 29 (3) |
3.0 3.2 (0.2) |
72 72 - |
7.2 7.2 - |
(46) (43) (3) |
(63.1) (60.2) n.s. |
157 155 2 |
7.4 7.3 0.1 |
(*) Trading profit was 54 million, representing 6.1% of revenues (108 million in first half 2008, representing 10.9% of revenues, and 254 million in full year 2008 representing 11.9% of revenues).
Balance sheet and financial position highlights
Management has decided to present working capital in the strict sense of the term, meaning that direct taxes and receivables and payables not relating to working capital have now been excluded, also in keeping with requests from the financial community. As a result, the following items have been reclassified from "Other receivables/(payables)" to "Other assets/(liabilities)" for the periods before December 31, 2008: deferred tax assets and liabilities, receivables due from the tax authorities for direct taxes, receivables/payables due from/to holding companies in relation to the group tax election and payables representing the valuation of put options held by minority shareholders.
| (millions of Euro) | 06.30.2009 | 12.31.2008 | Change | 06.30.2008 |
|---|---|---|---|---|
| Working capital | 662 | 715 | (53) | 636 |
| - trade receivables | 673 | 787 | (114) | 724 |
| - inventories | 426 | 359 | 67 | 377 |
| - trade payables | (434) | (414) | (20) | (443) |
| - other receivables/(payables) (A) | (3) | (17) | 14 | (22) |
| Assets held for sale | 6 | 1 | 5 | 16 |
| Property, plant and equipment and intangible assets (B) | 1,325 | 1,309 | 16 | 1,239 |
| Non-current financial assets (C) | 25 | 32 | (7) | 26 |
| Other assets/(liabilities) (D) | 18 | 24 | (6) | 26 |
| Net capital employed | 2,036 | 2,081 | (45) | 1,943 |
| Net financial indebtedness (E) | 678 | 689 | (11) | 555 |
| Total shareholders’ equity | 1,358 | 1,392 | (34) | 1,388 |
(A) Other receivables/(payables)
include VAT receivables and payables, sundry receivables and
payables, trade receivables and payables from/to Group companies,
accruals and deferrals, payables to social security institutions
and employees, receivables and payables for fixed asset purchases
etc.
(B) Property, plant and equipment and intangible assets
include all categories of assets net of the related accumulated
depreciation, amortization, and impairment losses.
(C) Non-current financial assets include unconsolidated
investments and guarantee deposits paid and received.
(D) Other assets/(liabilities) include retirement
benefit obligations, provisions for legal and tax risks, the
provision for sales agent indemnities, other provisions, current
tax receivables and liabilities, receivables and payables due
from/to holding companies in relation to the group tax election,
deferred tax assets also in relation to the company reorganization
carried out in 2003, deferred tax liabilities and payables for put
options.
(E) Net financial indebtedness includes cash and cash
equivalents and all short and medium/long-term financial assets and
liabilities.
Financial position
| (millions of Euro) | 06.30.2009 | 12.31.2008 | Change | 06.30.2008 |
|---|---|---|---|---|
| Cash and banks | 111 | 132 | (21) | 119 |
| A Liquid assets | 111 | 132 | (21) | 119 |
| B Current financial receivables | 20 | 37 | (17) | 12 |
| Financial payables, bank loans and lease financing | (412) | (462) | 50 | (289) |
| C Current financial payables | (412) | (462) | 50 | (289) |
| D = A+B+C Current financial indebtedness | (281) | (293) | 12 | (158) |
| E Non-current financial receivables | 5 | 5 | - | 5 |
| Medium/long-term loans | (402) | (400) | (2) | (400) |
| Lease financing | - | (1) | 1 | (2) |
| F Non-current financial payables | (402) | (401) | (1) | (402) |
| G = E+F Non-current financial indebtedness | (397) | (396) | (1) | (397) |
| H = D+G Net financial indebtedness | (678) | (689) | 11 | (555) |
Cash flow statement
| (millions of Euro) | 1st half 2009 | 1st half 2008 |
|---|---|---|
| Cash flow from operating activities before changes in working capital | 107 | 163 |
| Cash flow provided/(used) by changes in working capital | 56 | (18) |
| Interest (paid)/received and exchange differences | (9) | (24) |
| Payment of taxes | (9) | (9) |
| Cash flow provided by operating activities | 145 | 112 |
| Net operating investments/Capex | (71) | (92) |
| Non-current financial assets | (9) | (14) |
| Cash flow used by investing activities | (80) | (106) |
| Free cash flow | 65 | 6 |
| Cash flow provided/(used) by financing activities of which: | ||
| - payment of dividends | (50) | (75) |
| - purchase of treasury shares | (3) | (11) |
| - net change in other sources of finance | (23) | 54 |
| Cash flow used by financing activities | (76) | (32) |
| Net decrease in cash and cash equivalents | (11) | (26) |
Alternative performance indicators
In addition to the standard financial indicators required by IFRS, this press release also contains a number of alternative performance indicators for the purposes of allowing a better appreciation of the Group's financial and economic results. These indicators must not, however, be treated as replacing the standard ones required by IFRS. The following table shows how EBITDA and ordinary EBITDA are made up.
| Key operating data (millions of Euro) |
1st half 2009 | 1st half 2008 | Change | Full year 2008 |
|---|---|---|---|---|
| A Operating profit | 43 | 116 | (73) | 254 |
| B - of which non-recurring expenses/(income) | 11 | (8) | 19 | (1) |
| C Depreciation and amortization | 51 | 48 | 3 | 100 |
| D Other non-monetary costs (net impairment/(reversals)) |
2 |
(6) |
8 |
- |
| E - of which non-recurring | 2 | (6) | 8 | - |
| F = A+C+D EBITDA | 96 | 158 | (62) | 354 |
| G = F+B-E Ordinary EBITDA | 105 | 156 | (51) | 353 |
Declaration by the manager responsible for preparing the
company's financial reports
The manager responsible for preparing the company's financial
reports, Alberto Nathansohn, declares, pursuant to paragraph 2 of
Article 154-bis of the Consolidated Law on Finance, that the
accounting information contained in this press release corresponds
to the document results, books and accounting records.
Disclaimer
This document contains forward looking statements, specifically
in the section entitled “Outlook for the year”,
relating to future events and operating, economic and financial
results of the Benetton Group. By their nature, such forecasts
contain an element of risk and uncertainty, because they depend on
the occurence of future events and developments. The actual results
may differ significantly from those announced for a number of
reasons.
For further information:
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Statement released at 03.10 p.m. CET