Head NV reported that overall sales for the first nine months of the year were flat as sales inched up 1.9 percent at its Winter Sports division, slipped 3.1 percent at its Racquet Sports division and were flat at the Diving division.
Head’s Racquet Sports sales fell 3.1%, or €3.1 million ($4 mm), below their 2010 level, due primarily to the weakening of the US dollar against the Euro and lower sales of tennis balls. The volume of racquets sold increased compared to 2010 and this allowed the division to reverse the trend of the first two quarters and report a growth of 0.8% in the third quarter.
While the diving market has been severely impacted by both political turbulence in key dive destinations in North Africa and natural disasters in Australia and Japan, Head’s Dive division achieved slight growth in sales on a currency neutral basis for the first nine months of 2011 compared to 2010. The unfavorable development of exchange rates has led to an overall decline of 0.3% or €0.1 million over the same period.
The company’s newly introduced Sportswear Division generated sales of €3.8 million ($5 mm) for the first nine months of 2011.
Overall, sales for the group for the first nine months of the year declined by just 0.1% or €300,000.
The adjusted operating profit for the nine month period declined by €2.7 million ($4 mm) compared to prior year. This was mainly due to a negative €1.5 million impact of lower gross margins (41.4% in 2011 compared to 42.1% in 2010) as a result of higher raw material prices and higher selling and marketing expenses of €1.5 million offset by general and administration expenses being lower by €0.3m.
The reported operating profit for the nine month period declined by €6.0 million ($8 mm) compared to the prior year. The further decline of €3.2 million ($4 mm) compared to the adjusted operating profit came from the accounting for our stock option plans. In 2010 we recorded a non-cash income of €3.3 million for the plans, compared to an income of €0.1 million in 2011.
In both the three month period and the nine month period, interest and other financial costs increased significantly. This was due to the acceleration of the amortization of the non-cash disagio costs as a result of the buy back and redemption of the Senior Secured Notes during 2011. Excluding this non-cash disagio cost, interest and other financial expenses would have decreased from €2.4 million to €2.3 million for the three month period to September 2011 compared to 2010, and increased just slightly from €7.0 million to €7.1 million for the nine month period.
Overall the net loss for the nine months increased by €9.2 million ($13 mm) in the nine months to September 2011 compared to the nine months to September 2010.
Operating cash flow for the nine months to September 2011 compared to 2010 declined by €15.5 million ($21 mm) due predominantly to movements in working capital of €12.9 million and the lower operating result.
The company noted that it has redeemed its senior secured notes and replaced them with lower interest more flexible working capital lines in Austria and the US. “The macro economic factors, however, have not improved and raw material prices have been increasing at the same time as consumers are spending more cautiously,” the company said ina release. “We continue to forecast a lower operating profit in 2011 than we achieved in 2010.”
