Head N.V reported that fourth quarter net revenues were down 4.2% to 123.3 million ($159 mm) from 128.7 million ($153.1 mm) in the year-ago period. Operating profit, before restructuring costs, improved 29.3% to a profit of 10.6 million ($14 mm). The net profit for the period was 3.3 million ($4.3 mm), down 5.7% compared to a profit of 3.5 million ($4.2 mm) in Q4 2005. For the twelve months ended 31 December 2006, net revenues were up 2.0% to 366.8 million ($461 mm) from 359.6 million ($448 mm), and operating profit, before restructuring costs and gain on sale of property, increased 27.4% to a profit of 20.0 million ($25 mm). The net profit for the year was 4.4 million ($5.5 mm), down 34.3% compared to 6.7 million ($8.3 mm) profit for 2005.
“2006 has been a strong year for Head,” said Chairman and CEO Johan Eliasch in a release, “The improvement in our operating result has been driven by the strong performance in the Winter division which has shown improved sales and market share gains. The Diving division has developed positively mainly through improved production efficiencies. Despite tough market conditions, the racquet sport division maintained sales at the same level as 2005.
The company for the first time reports its financial statements for the years ended December 31, 2006 and 2005 based on International Financial Reporting Standards as adopted by the European Union and changed its reporting currency from U.S. dollar to euro.
Winter Sports
Winter Sports revenues for the 2006 fourth quarter decreased 4.9% to 87.9 million ($113 mm) from 92.4 million ($110 mm) in the comparable 2005 period mainly due to poor snow conditions. For the twelve months ended December 31, 2006, Winter Sports revenues increased by 10.8 million ($xx mm), or 6.1%, to 188.1 million ($236 mm) from 177.3 million ($221 mm) in the comparable 2005 period. This increase was due to higher sales volumes in all of our categories and almost all of our markets as a consequence of good snow conditions in the winter season 2005/2006 and relatively low inventory at retail level which resulted in good bookings inflow. Reorders from October through December 2006 however have been below prior years as snow conditions have been bad in almost all parts of the world. At retail we have already experienced an increased demand, mainly for racing and junior products, as a result of the success of Bode Miller, Marco Buchel, Maria Riesch and Didier Cuche in the Worldcup events of Lake Louise, Beaver Creek, Val Gardena and Hinterstoder.
Racquet Sports
Racquet Sports revenues for the three months ended December 31, 2006 decreased 7.3% to 26.4 million ($34 mm) from 28.5 million ($34 mm) in the comparable 2005 period. For the twelve months ended December 31, 2006, Racquet Sports revenues decreased 0.2% to 132.7 million ($167 mm) from 132.9 million ($166 mm) in the comparable 2005 period. Higher sales volumes in racquets and balls were offset by negative product mix.
Diving
Diving revenues for the three months ended December 31, 2006 increased 20.7% to 10.6 million ($14 mm) from 8.8 million ($10.5 mm) in the comparable 2005 period. For the full year, diving revenues decreased 0.6% to 48.6 million ($61 mm) from 48.9 million ($61 mm) 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
Licensing revenues for the three months ended December 31, 2006 increased 1.6% to 2.2 million ($2.8 mm) from 2.1 million ($2.5 mm) in the comparable 2005 period. For the twelve months ended December 31, 2006, licensing revenues decreased 13.2% to 8.1 million ($10 mm) from 9.3 million ($12 mm) in the comparable 2005 period due to the termination of a footwear license agreement which we plan to replace by our own distribution and the termination of an apparel license agreement in the UK which we anticipate will be replaced this year.
Profitability
Gross margin increased to 37.3% in 2006 from 36.5% in the comparable 2005 period. For the full year months, gross margin increased to 39.3% in 2006 from 38.4% in the comparable 2005 period. The positive development in gross margin in the twelve-month period was due to our winter sports and diving business and reflected improved production efficiency.
Selling and Marketing Expenses for the three months ended December 31, 2006, decreased 9.1% to 25.5 million ($33 mm) from 28.1 million ($33 mm) in the comparable 2005 period. For the twelve months ended December 31, 2006, selling and marketing expenses increased 1.0% to 92.9 million ($117 mm) from 92.1 million ($115 mm) in the comparable 2005 period. This increase was mainly due to the higher advertising and departmental selling expenditures. The increased selling and marketing expenses were partly offset by a lower provision for bad debt.
General and Administrative Expenses for the three months ended December 31, 2006, increased 7.4% to 9.8 million ($13 mm) from 9.1 million ($11 mm) in the comparable 2005 period. For the twelve months ended December 31, 2006, general and administrative expenses increased 8.7% to 32.2 million ($41 mm) from 29.6 million ($37 mm) in the comparable 2005 period. This increase was due to higher compensation expenses of 2.7 million, resulting from the cash-settled stock option plans as well as the weakening of the Euro against the U.S. dollar.
In June 2005, the company sold the property in Tallinn, Estonia and realized a gain of 5.9 million. In 2005, the company recorded restructuring costs of 5.1 million in relation with the reduction of the company's tennis racquet production in Kennelbach, Austria, and Budweis, Czech Republic, and the restructuring program of the company's ski binding production. The restructuring costs reflected primarily an impairment of 1.4 million, employee severance cost of 2.7 million of which 1.3 million were accrued, and additional cost due to production inefficiency of 0.9 million. In 2006, Head paid 1.3 million and additional 0.3 million will be paid in 2007.
As a result of the foregoing factors, the company reported an operating profit of 10.6 million ($14 mm) for the fourth quarter compared to an operation profit of 8.2 million ($10 mm) in the comparable 2005 period. For the twelve months ended December 31, 2006 the operating profit increased 27.4% to 20.0 million ($25 mm) from 15.7 million ($20 mm) in the comparable 2005 period. Operating profit for the twelve months ended December 31, 2006, excluding the impact in 2005 of the sale of property and restructuring costs increased by 5.1 million ($6.4 mm) compared to the comparable 2005 period.
The company had a profit of 3.3 million ($4.3 mm), compared to the profit of 3.5 million ($4.2 mm) in the comparable 2005 period. For the twelve months ended December 31, 2006, the company reported a profit of 4.4 million ($5.5 mm), compared to a profit of 6.7 million ($8.3 mm) in the comparable 2005 period.
