Head N.V. Full Year Net Income Falls on Prior Year One-Time Gain

In reported currency terms, fourth quarter revenues improved 11.5 percent to €125.3 million ($171 mm) from €112.4 million ($166 mm) in the prior-year quarter. As noted, Head N.V. saw significant growth from its Winter Sports segment, which improved 12.5 percent to €89.5 million ($122 mm) versus revenues of €79.6 million ($117 mm) in the prior-year period. Management pointed to “good snow” prior to the pre-Christmas period, new product development and the company’s endorsement activity as catalysts for Winter Sports growth as well as improvement across the board.

Fourth quarter revenues for the company’s Racquet Sports segment improved 3.9 percent in local currency terms to €26.7 million ($36 mm) from €25.7 million ($38 mm) a year ago.

The company’s Diving segment enjoyed double-digit growth as well, jumping 18.4 percent to €10.9 million ($15 mm) from sales of €9.2 million ($14 mm) in the prior-year period.

The Licensing segment, which accounted for about 1.3 percent of total sales, improved to €1.7 million ($2.3 mm) from €1.1 million ($1.6 mm) in the prior-year period.

For the full year, the company’s Winter Sports revenues increased by 12.9 percent to €169.7 million ($225 mm) from €150.3 million ($210 mm) in the prior year, driven by higher sales volumes in all of the company’s product categories except snowboard equipment, better product mix in all important markets and the devaluation of euro.

Management said the 2010/2011 winter season started with early snow in Europe and in most parts of the U.S. and also with earlier snow in Japan compared to prior years. Retailers in Europe and the U.S. reported a growing winter sports equipment business. Ski sales in Europe and the U.S. for the period ending December 31 were “slightly up” versus 2009 and flat in Japan and in Canada. The company said good snow conditions all over the world as of January 2011 led to positive sell-through and noted that retailers could further reduce their inventory going forward. For pre-season bookings 2011, the company is expecting similar numbers to 2010.

Full year Racquet Sports segment revenues increased 3.0 percent to €129.9 million ($173 mm) from €126.2 million ($176 mm) in 2009. This increase was due to the strengthening of the U.S. and Canadian dollar, Japanese yen, Swiss franc and British pound against the euro.

Management noted that the 2010 tennis market started out “very well” based on many product launches by various manufacturers. While this generated growth in the early part of the year in racquets, bad weather in several regions of the world during summer unfavorably impacted tennis sales. Likewise, management said a new launch timing by the whole industry led to lower sales to retailers in the second half of 2010.
Head estimates that the market for tennis racquets in 2010 was approximately 9.0 million units at a wholesale value of approximately €260 million, reflecting a 4 percent decline in units and 1 percent dip  in value. The company estimates that worldwide sales of tennis balls were approximately 23.0 million dozens, or approximately €183 million at wholesale.

Full year Diving revenues increased 5.7 percent to €48.7 million ($65 mm) from €46.1 million ($64 mm) in 2009, driven by higher sales of new products and improved product availability. Management noted that the Diving segment will face “tough headwinds” going forward.

Management said worldwide diving markets stabilized with the exception of the U.S., which further declined in 2010.

Licensing revenues decreased 1.9 percent to €5.4 million ($7 mm) from €5.5 million ($8 mm) in the prior year.

Elaborating on full year 2010 results, management note that sales to customers within Europe accounted for 59.5 percent of total revenues while sales to North America accounted for 26.0 percent of revenues. Sales to Asia, which is driven primarily by the Japan market, accounted for 9.9 percent of sales while the Other Markets (Australia, Latin America, Africa) accounted for the remaining 4.6 percent.

Operating income jumped more than 209 percent to €25.9 million ($34 mm) from €8.4 million ($12 mm) in 2009.  Net income fell nearly 59 percent to €7.3 million ($9.7 mm) for the year, due to a €38.1 million gain on the exchange of senior notes in the prior year.

Going forward, in Winter Sports the company said it sees a continued trend towards the development of specific new segments, such as freeride skis with rocker technology and freestyle– park & pipe skis. Management noted that the company is still experiencing a more pronounced negative impact on the sales of low-end equipment as well as a continued trend towards rental equipment while high-end models, such as the Supershape models or Worldcup Race skis also sold well.
For 2011, the Head N.V. will concentrate on improving product mix, especially with the new WorldcupRace and Supershape KERS models and a new line of X-Shape models, as well as with the Raptor ski boot and a completely new Edge boot with Adaptive Fit Technology.

The company has also redesigned the new Peak line with Flow Ride Technology in order to better match the demand of the North American markets. Additionally the company will offer a complete new range of Big Mountain skis called Motörhead with Rocker technology. For the rental market, the company will offer a new ski model “Link” design designed for very easy and fast learning.

In Racquet sports, Head N.V said Youtek line extensions are planned or already executed. Furthermore based on the new Sharapova endorsement during the second half of 2011, the company plans to introduce a series of Sharapova signature products. In tennis balls the company is executing a line extension of its premium tennis balls.
The Diving division launched a range of product innovations  recently with a focus on performance, fashion and comfort. The diving division’s latest product launches were a new wireless data transmission technology and a new light weight open-heel fin called X-stream. Furthermore, management said Mares continued strengthening its Spearfishing business with a number of product innovations such as a new carbon blade fin and the Sponsorship of the SF world championships last September.

Despite the worldwide economic crisis accelerating the lowering of global consumer demand in Diving, Head believes the Mares business could increase its market shares in most markets as a result of new advanced products and improved operations. Management added that Mares also strengthened its presence in the Asia Pacific region by opening a new subsidiary in Australia.