Fila Holding S.p.A. reported a fourth quarter net loss of $16.6 million compared with a net loss of $46.7 million in the fourth quarter of 2001; for the full year, net loss was $76.4 million compared with $125.2 million in 2001.
On a per ADS/per ordinary share basis, net loss was U.S.$ 0.38 per ADS/share in the fourth quarter of 2002 compared with U.S.$ 1.52 per ADS/share in the same period of 2001, and the full year net loss was U.S.$ 2.26 per ADS/share in 2002 versus U.S.$ 6.00 per ADS/share in 2001. In each case, the number of shares outstanding reflects the 2 for 1 reverse stock split, effective September 23, 2002, and the issuance of additional shares, following the share capital increase in the fourth quarter of 2002.
2002 results were impacted by some factors such as the discontinuation of the Australian and Brazilian subsidiaries in favor of a licensing strategy in those countries, the strong appreciation of the Euro against the US Dollar during the second half of the year, the restructuring process in the UK with considerable write-down of assets and the impact of exchange rate changes for Argentina and Brazil. Without these factors, the result before taxes for the full year would have been close to break even.
The Euro appreciated by 12% against the U.S. dollar on a quarterly average basis; the average exchange rate was EUR 1= U.S.$ 1.000 in the fourth quarter of 2002 and EUR 1= U.S.$ 0.896 in the corresponding quarter of 2001. For the full year, the Euro appreciated by 5% against the U.S. dollar; the average exchange rate was EUR 1= U.S.$ 0.945 in 2002 compared to EUR 1= U.S.$ 0.896 in 2001.
Worldwide revenues for the fourth quarter were EUR 180.6 million, down 19% from EUR 223.6 million in the corresponding period of 2001; for the year, revenues decreased by 7% to EUR 909.5 million and were flat when expressed in terms of constant exchange rate and continuing operations (i.e, excluding those subsidiaries discontinued at the end of 2001).
Total backlog of customer orders(b) as of December 31, 2002, scheduled for delivery from January through June 2003, was down by 23% (in Euro) compared to the corresponding period in 2001, with apparel down by 24% and footwear down by 22%. Backlog is also adversely affected by the depreciation of the US dollar against the Euro, and on a constant exchange rate basis, total backlog would have decreased by 15%.
U.S. backlog increased by 7% in U.S. dollars (with apparel down by 2% and footwear up by 17%), with the Enyce brand and the Fila brand up by 4% and 9% respectively.
Outside the U.S. and excluding the markets where Fila sells its products on a delivery basis (including Korea), backlog decreased by 32% (in Euro).
Net direct sales in the fourth quarter of 2002 totaled EUR 171.7 million, down 20% compared to EUR 215.6 million in the corresponding period of 2001. Apparel sales were EUR 113.8 million and footwear sales were EUR 57.9 million, down by 12% and 33% respectively compared with the fourth quarter of 2001. Sales in the U.S. were EUR 61.4 million in the quarter, decreasing by 17% from EUR 74.4 million in the fourth quarter of 2001, despite an increase in Enyce Brand sales (up 3%); in Europe sales decreased by 19% to EUR 55.4 million. Sales in the Rest of the World were strongly impacted by exchange rate effects, with sales decreasing by 25% mainly due to a 72% sales drop in Latin America (down 27% on a constant exchange basis) and the Far Eastern countries. Korea, one of our strongest markets, experienced a 5% sales decline in Euro but was flat in local currency.
For the full year, net direct sales were EUR 874.7 million compared with EUR 945.0 million in 2001, decreasing by 7% (or 6% in terms of continuing operations). The U.S. increased by 10% whereas Europe and the Rest of the World decreased by 19% and 10% respectively.
Royalty Income in the quarter was EUR 6.7 million compared with EUR 5.7 million in the fourth quarter of 2001.
Gross profit for the quarter was EUR 76.1 million, representing 42.1% of total net revenues, compared to EUR 70.7 million (31.6% of total net revenues) in the fourth quarter of 2001. The significant increase in profitability reflects the combined effect of many actions taken by the Company during the year to improve efficiency in the logistic process and of strong inventory control (with inventory turnover on cost of goods sold increasing from 2.69 to 3.48); this is in line with stock reduction policies that led to improved results in all the Group subsidiaries.
SG&A expenses for the quarter totaled EUR 71.3 million (representing 39.5% of total net revenues), down by 26% versus EUR 96.2 million (or 43.0% of total net revenues) in the same quarter of the previous year.
SG&A expenses for the year were EUR 330.1 million (36.3% of total net revenues), versus EUR 394.9 million (40.4% of total net revenues). The improvement in this area is due to the optimization of our cost structure and to streamlining in all areas of the company.
As a consequence of the above mentioned factors, income from operations in the quarter was EUR 4.7 million compared with an operating loss of EUR 25.5 million in the fourth quarter of 2001. Also for the full year Fila is back to operating profitability with an income of EUR 20.0 million compared to an operating loss of EUR 49.9 million in 2001.
Other expenses for the quarter were EUR 17.9 million compared with EUR 17.3 million for the corresponding quarter of last year. Interest expenses were lower in the fourth quarter of 2002 due to the improvement in the net financial position of the Group. For the full year, other expenses were EUR 82.0 million compared with EUR 62.9 million in 2001. The 2002 charges arose mostly from the restructuring of the UK subsidiary and from adjustments to the market value of some fixed assets, mainly in the U.S.
Loss before income taxes in the fourth quarter of 2002 was EUR 13.2 million compared with EUR 42.8 million in the same quarter of 2001.
Income taxes were EUR 3.4 million in the fourth quarter of 2002 compared with EUR 9.3 million in the corresponding quarter of 2001.
Net loss for the quarter was EUR 16.6 million compared with EUR 52.1 million in the fourth quarter of 2001. For the full year, net loss was EUR 80.9 million compared with EUR 139.7 million in 2001.
Marco Isaia, Chief Executive Officer of Fila, said:
” Our full-year 2002 results reflect the effects of the efforts
were making since a long time within the Company and the commitment
of the entire Fila group worldwide and were achieved in a competitive
market at a time of complex and uncertain economic conditions. Our
operating result is back to profitability. This was achieved through
both a significant reduction in fixed costs and an improvement in
gross profit, testifying to our efforts to improve every item in our
statement of operations. Im very glad about both the positive results
in Korea and our success in the U.S. market, where the success of the
Fila brand’s re-launch was confirmed by increases in revenues and
margins. As a result, Fila USA had slightly positive operating income.
The road to complete recovery is not easy, and it will be very
challenging to achieve good financial results in 2003. Nevertheless, I
believe that our success in streamlining our business model, together
with better management and control of all of our operating activities
and our new product development and brand repositioning projects, will
provide the fundamental basis to re-launch Fila, especially in
Europe”.
Net working capital as of December 31st, 2002 was EUR 191.6 million compared with EUR 301.7 million as of December 31st, 2001 (a 36% decrease). Inventory as of December 31st, 2002 was EUR 160.7 million, compared with EUR 176.3 million as of September 30th, 2002 and with EUR 235.0 million as of December 31st, 2001. Trade receivables as of December 31st, 2002 were EUR 145.7 million compared with EUR 202.6 million in the prior year and a significant improvement from EUR 204.0 million as of September 30th, 2002.
Net financial indebtedness as of December 31st, 2002, after the share capital increase of EUR 105.5 million, was EUR 189.9 million compared with EUR 359.8 million as of December 31st, 2001 and EUR 326.9 million as of September 30th 2002.
Marco Isaia added: ” Id also like to highlight the improvement in our net financial position and the excellent achievements in our management of working capital from direct intervention in every area; we had an inventory turnover of 3.48 times in the full year 2002 compared to 2.69 in 2001, and 77 days sales outstanding improving by 7% versus the prior year”.
Fila also announced that the share capital increase approved on September 23, 2002 was concluded on February 28, 2003. Besides the previously announced subscription of ordinary shares by Fila’s principal shareholder HdP for EUR 105.5 million, ADS holders in the United States exercised 21,704 rights in the aggregate for a total subscription price of Euro 34,726.40. Further, Fila announced that its annual shareholders meeting will be held on April 11, 2003, in Milan.
FILA GROUP's NET DIRECT SALES (Euro)
FOURTH QUARTER FULL YEAR
ended December 31 ended December 31
----------------------------------------------------------------------
Euro million 2002 2001 2002 2001
------------ ----------- --------- ----------- --------
(unaudited)(unaudited) (unaudited)(audited)
UNITED STATES
Apparel 36.3 40.5 -10% 172.6 151.9 +14%
Footwear 25.1 33.9 -26% 140.3 133.5 +5%
---------- --------- ----------- --------
Total 61.4 74.4 -17% 312.9 285.4 +10%
EUROPE
Apparel 35.8 40.6 -3% 161.9 184.8 -12%
Footwear 19.6 27.5 -29% 128.5 173.5 -26%
---------- --------- ----------- --------
Total 55.4 68.1 -19% 290.4 358.3 -19%
REST OF WORLD
Apparel 41.7 47.5 -12% 184.4 179.1 +3%
Footwear 13.2 25.6 -48% 87.1 122.3 -29%
---------- --------- ----------- --------
Total 54.9 73.1 -25% 271.5 301.3 -10%
TOTAL FILA GROUP
Apparel 113.8 128.6 -12% 518.9 515.7 +1%
Footwear 57.9 86.9 -33% 355.9 429.3 -17%
---------- -------- ----------- --------
Total 171.7 215.6 -20% 874.7 945.0 -7%
FOURTH QUARTER FULL YEAR
ended December 31 ended December 31
2002 2001 2002 2001
----------- ---------- ----------- ----------
(unaudited)(unaudited)(unaudited) (audited)
Net Revenues
(U.S.$/million) 180.6 220.3 859.5 875.5
Net Income/(Loss)
(U.S.$/million) (16.6) (46.7) (76.4) (125.2)
FILA HOLDING S.p.A.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)
FOR THE THREE MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED DECEMBER 31,
2002 2001 2002 2001
----------- ---------- ----------- ---------
(unaudited) (unaudited) (unaudited) (audited)
(in thousands of Euro, except for earnings per
share)
Net revenues:
Net direct sales 171,711 215,570 874,736 944,991
Royalty income 6,702 5,673 24,534 22,664
Other revenues 2,158 2,347 10,230 9,514
----------- ---------- ----------- ---------
180,571 223,590 909,500 977,169
Cost of sales 104,519 152,927 559,363 632,078
----------- ---------- ----------- ---------
Gross profit 76,052 70,663 350,137 345,091
Selling, general and
administrative expenses 71,307 91,447 330,088 390,220
Restructuring and other
nonrecurring costs - 4,722 - 4,722
----------- ---------- ----------- ----------
71,307 96,169 330,088 394,942
Income (loss) from
operations 4,745 (25,506) 20,049 (49,851)
Other expense:
Interest expense, net (2,753) (5,681) (19,667) (27,035)
Foreign exchange losses (2,329) (3,765) (27,246) (7,255)
Bank charges (494) (1,251) (2,843) (4,688)
Other expense - net (12,355) (6,582) (32,254) (23,878)
----------- ---------- ---------- ----------
(17,931) (17,279) (82,010) (62,856)
----------- ---------- ----------- ----------
Loss before income taxes (13,186) (42,785) (61,961) (112,707)
Income taxes 3,425 9,312 18,929 27,010
----------- ---------- ----------- ----------
Net loss (16,611) (52,097) (80,890) (139,717)
