Head N.V. second quarter net revenues were down 5.3% to 63.8 million ($78.0 mm). Operating result before restructuring costs and gain on sale of property, decreased by 3.2 million ($3.9 mm) to a loss of 2.9 million ($3.5 mm). The loss for the period was 4.1 million ($5.0 mm) compared to a profit of 3.2 million ($4.2 mm) in 2005.
For the six months ended 30 June 2006 compared to the six months ended 30 June 2005 net revenues were up 1.1% to 131.5 million. Operating result, before restructuring costs and gain on sale of property, decreased by 0.3 million to a loss of 7.1 million. The loss for the period was 9.7 million compared to 3.8 million loss for HY 2005.
Johan Eliasch, Chairman and CEO, commented said, “The half-year results have met our expectations, with revenues & gross margins in line with prior year.
“The Winter Sports division, in particular, has performed strongly, with encouraging revenue growth, and solid margin improvement. Conditions for the Racquet Sports division have been challenging in Q2 06; the equivalent 05 period saw the launch of the Flexpoint technology, and 2006 margins have been impacted by raw material price increases for balls.
“Based on our half-year results, we remain positive in our outlook & continue to anticipate an improvement on last year’s results.”
Winter Sports revenues for the three months ended June 30, 2006 decreased by 0.6 million, or 6.0%, to 9.6 million from 10.2 million in the comparable 2005 period due to slower sales in the 2nd Quarter 2006. For the six months ended June 30, 2006, Winter Sports revenues increased by 3.7 million, or 14.0%, to 29.8 million from 26.1 million in the comparable 2005 period. This increase was due to higher sales volumes of skis, bindings, ski boots and snowboard equipment as a consequence of good snow conditions in the winter season 2005/2006 and relatively low inventory at retail level.
Racquet Sports revenues for the three months ended June 30, 2006 decreased by 0.8 million, or 2.1%, to 36.6 million from 37.4 million in the comparable 2005 period. This was mainly due to lower sales prices for tennis racquets due to the introduction of our Flexpoint racquets in the 2nd. quarter of 2005. For the six months ended June 30, 2006, Racquet Sports revenues increased by 3.5 million, or 5.1%, to 72.9 million from 69.3 million in the comparable 2005 period. This increase was mainly due to higher sales volumes in tennis racquets and balls partly offset by decreased sales volumes of our bags. In addition, the weakening of the euro against the U.S. dollar in the reporting period contributed to the positive development.
Diving revenues for the three months ended June 30, 2006 decreased by 0.9 million, or 5.1%, to 16.8 million from 17.7 million in the comparable 2005 period. For the six months ended June 30, 2006, Diving revenues decreased by 4.3 million, or 13.3%, to 27.9 million from 32.1 million in the comparable 2005 period. This decrease was mainly due to a special product launch in the first quarter of 2005 (Limited Edition) which was not repeated in 2006.
Licensing revenues for the three months ended June 30, 2006 decreased by 1.1 million, or 32.7%, to 2.2 million from 3.3 million in the comparable 2005 period. For the six months ended June 30, 2006, licensing revenues decreased by 0.9 million, or 15.7%, to 4.7 million from 5.6 million in the comparable 2005 period due to termination of a footwear license agreement which will be replaced by our own distribution and a termination of an apparel licence agreement in the UK which will be replaced next year.
Sales deductions for the three months ended June 30, 2006 increased by 0.2 million, or 11.4%, to 1.5 million from 1.3 million in the comparable 2005 period. For the six months ended June 30, 2006, sales deductions increased by 0.5 million, or 18.3%, to 3.7 million from 3.1 million in the comparable 2005 period due to increased sales in winter sports and racquet sports.
Gross Profit for the three months ended June 30, 2006 decreased by 3.8 million to 26.1 million from 29.9 million in the comparable 2005 period. Gross margin decreased to 40.9% in 2006 from 44.4% in the comparable 2005 period. This was mainly due to decreased gross profit in tennis balls due to increased material prices, tennis racquets caused by unfavorable country mix and the launch of Flexpoint racquets in 2nd quarter 2005 and lower gross profit in license due to lower revenues. For the six months ended June 30, 2006 gross profit decreased by 0.2 million to 52.7 million from 52.9 million in the comparable 2005 period. Gross margin decreased to 40.1% in 2006 from 40.7% in the comparable 2005 period. Positive development in all of our winter sports product lines were offset by reduced gross profit in diving and licensing due to lower revenues.
Selling and Marketing Expense for the three months ended June 30, 2006, increased by 0.2 million, or 1.1%, to 21.6 million from 21.4 million in the comparable 2005 period. For the six months ended June 30, 2006, selling and marketing expenses increased by 0.2 million, or 0.5%, to 44.6 million from 44.4 million in the comparable 2005 period. This increase was mainly due to the weakening of the euro against the U.S. dollar and higher advertising and departmental selling expenditures.
General and Administrative Expenses for the three months ended June 30, 2006, remained stable compared to the comparable 2005 period at 7.7 million. For the six months ended June 30, 2006, general and administrative expenses increased by 0.5 million, or 3.3%, to 15.5 million from 15.0 million in the comparable 2005 period. This increase was due to higher non-cash compensation expenses of 0.6 million, resulting from the new Head Executive Stock Option Plan 2005 implemented in the third quarter 2005 as well as due to the weakening of the euro against the U.S. dollar.
As a result of the foregoing factors, for the three months ended June 30, 2006, the Company reported an operating loss of 2.9 million compared to an operation profit of 3.7 million in the comparable 2005 period. For the six months ended June 30, 2006 the operating loss increased by 3.7 million to 7.1 million from 3.4 million in the comparable 2005 period. Operating loss for the six months ended June 30, 2006 before the sale of property and restructuring costs increased by 0.3 million compared to the comparable 2005 period.
For the three months ended June 30, 2006, interest expense decreased by 0.1 million, or 4.0%, to 3.1 million from 3.2 million in the comparable 2005 period. For the six months ended June 30, 2006, interest expense decreased by 0.4 million, or 6.2%, to 6.1 million from 6.6 million in the comparable 2005 period. This decrease was due to the repurchase of a portion of our 8.5% senior notes in 2005.
For the three months ended June 30, 2006, interest income decreased by 0.8 million, or 62.5%, to 0.5 million from 1.3 million in the comparable 2005 period. For the six months ended June 30, 2006, interest income decreased by 0.7 million, or 43.9%, to 0.9 million from 1.5 million in the comparable 2005 period. This decrease was due to the gain of 0.9 million on the repurchase of our 8.5% senior notes realized in 2005.
For the three months ended June 30, 2006, the Company had other non-operating expense, net of 0.1 million compared to other non-operating income, net of 0.8 million in the comparable 2005 period. For the six months ended June 30, 2006 other non-operating result decreased by 1.5 million mainly due to foreign currency fluctuations which resulted in a gain in the comparable 2005 period.
For the three months ended June 30, 2006, income tax benefit was 1.5 million, an increase of 0.8 million compared to income tax benefit of 0.7 million in the comparable 2005 period. For the six months ended June 30, 2006, income tax benefit was 2.8 million, a decrease of 0.4 million compared to income tax benefit of 3.1 million in the comparable 2005 period due to the decrease in pre-tax loss for which the realization through future taxable profits is probable.
As a result of the foregoing factors, for the three months ended June 30, 2006, the Company had a loss of 4.1 million, compared to an income of 3.2 million in the comparable 2005 period. For the six months ended June 30, 2006, the Company had a loss of 9.7 million, compared to a loss of 3.8 million in the comparable 2005 period.
