Head NV said a drop in fourth-quarter winter sports sales and a resurgent euro  caused its revenues to decline 1.3 percent in the year ended Dec. 31, 2011, according to unaudited figures released by the Dutch sporting goods company.


On a constant currency basis sales would have been broadly flat.

Winter Sports sales declined by 3.0 percent for the full year due to poor snow during the critical pre-Christmas sales period. During the last quarter, sales were down 7.4 percent as re-orders by retailers in the key markets were lower than prior years due to soft consumer demand. The delayed start to the 2011/12 season is expected to have a negative impact on the pre-order sales for the 2012/2013 season.


The success of the HEAD race team did, however, boost sales and average prices of wintersport equipment.


Racquiet Sports sales dip


The Racquet Sports division reported a decline in sales of 1.7 percent for the year, but in constant currency terms, sales would have grown slightly. Racquets performed well with sales momentum improving over the year particularly in the tour racquets segment where Novak Djokovic, the number one player in the world endorses Head product. In contrast, the tennis ball business suffered from the continued increase in rubber prices, which significantly impacted margins.

As anticipated, 2011 was a tough year for the Diving Division with further natural disasters and political unrest around the world, particularly in key dive destinations. Reported sales fell 0.5 percent, but in constant currencies the division would have reported small growth.


Raw material, sourcing costs hurt margins


Adjusted operating profit fell by €8.3 million ($11mm) due to a combination of lower sales and lower margins due predominantly to higher raw material prices and sourcing costs. In 2011 the company recorded non-cash expense of €400,000 relating to the Executive Stock Option Plans (ESOP) compared to an income of €3.1 million ($4mm) in 2010 due to the increase in the share price in 2011.

Compounding the lower operating profit, net income was also adversely affected by higher non-cash amortization in the year. During 2011 the company bought back and ultimately redeemed the balance of its outstanding senior secured notes due 2012, this resulted in the acceleration of the amortization of the non-cash disagio costs which in total amounted to €8.5 million ($12mm) (2010: €3.9mm). Net income was positively impacted by deferred tax income in the year (€5.5 million) compared to an expense in 2010 of €1.1 million.


Net cash provided by operating activities fell by €14.0 million ($19 mm) in 2011 compared to 2010, due in part to lower profitability and also to increases in working capital which have mainly arisen due to higher winter sports inventory. The lower cash generated along with the planned higher capital expenditures and the share buy backs (€9.2 million) have resulted in an increase in net debt at the yearend of €20.8 million ($27mm).


Outlook


2012 will be marred by the warm weather at the beginning of the 2011/12 ski season and weak consumer demand, however, we will continue to invest in our business through athletic endorsements, a commitment to technological advancement and the growth of new segments such as sportswear in order to improve our profitability.

The 2011 Annual Report will be released on, or around, April 12th 2012 and the Head NV Annual General Meeting will be held on the 24th May 2012.