Head NV reported sales were up 2.5 percent in the first quarter ended June 30, driven primarily by a rebound in its Diving business. The Dutch company reported Diving sales increased 8.1 percent, Sportswear 4.5 percent, Winter Sports 1.7 percent and Racquet sports 0.6 percent. Licensing sales declined 9.8 percent.


 

 

First half review

For the first sixth months of the year, Head’s sales increased 2.5 percent compared to the same period in 2013, driven primarily by Winter Sports and offset by exchange rate movements. At constant currency the sales for the first six months of 2014 would have increased by 4.2 percent.

 

 

Winter Sports sales for the first six months were up 6.5 percent compared to the same period in 2013. This, however, is not a key delivery period for the division and consists mainly of close out sales for the 2013/2014 season and some deliveries of bindings under contract manufacturing agreements for the 2014/2015 season.

Winter Sports pre-orders for the 2014/2015 season, which have broadly been collected now, are impacted by the weather conditions during the prior season.

 

During this season, southern parts of Europe and the USA experienced good snowfall, but the weather in the core markets of Central and Northern Europe was unseasonably warm and this will negatively influence the winter sports market in 2014. However, the company believes that whilst the market overall may decline, it may gain market share in some countries. Our bookings at this stage have improved compared to those achieved in the same period in 2013.

 

 

The small decline in the overall Racquet Sports division performance was mainly due to the negative exchange rate impact coupled with tough market conditions for racquets that resulted in lower volumes of racquets sold. The decline of tennis ball volumes in the first quarter reversed in the second quarter resulting in a broadly stable performance for tennis balls for the first six months of 2014 compared to the first six months of 2013.

 

 

Diving division sales for the first six months benefited from the inclusion of the newly acquired SSI Group. Excluding the impact of SSI, the sales of equipment have declined due to tough conditions in some markets, for example the adverse weather conditions and the continued economic crisis in Southern Europe and political turmoil in the Middle East.

 

 

Sportswear sales for the six months were broadly flat mainly due to higher revenues for Summer and Winter Sportswear, partly offset by lower sales of bags in the UK market.

 

 

Gross margins for the six months to 30th June 2014 have improved from 40.9 percent to 44.3 percent mainly due to higher licensing revenues and lower cost of sales for   bindings, tennis ball and diving business.

 

 

The adjusted operating loss for the six months to 30th June 2014 decreased from €8.8m to €8.1m as a result of the improved gross profit (€5.8m) offset by increased costs of €5.1m mainly due to the inclusion of the newly acquired SSI Group, higher Winter Sport advertising and higher departmental selling expenses.

 

 

The net interest increased by €0.6m as the average debt in the first six months of 2014 was higher than in 2013. The cost incurred in the first six months of 2013 for the share option scheme (ESOP) reverted to income in the first six months of 2014 as the share-price declined over the period.

 

 

As a result of the foregoing factors the net loss for the six months to 30th June 2014 decreased by €0.7m compared to the net loss for the six months to 30th June 2013.

 

 

Balance sheet 

Net cash provided by operating activities increased by €0.8m in the first six months to 30th June 2014 mirroring the reduction in the net loss for the period. Net debt increased by €33.4m from 30th June 2013 to 30th June 2014 due predominantly to the share buy back that took place in the second quarter of 2014 (€23.8m) and the payments for the acquisitions in the period.

 

 

Outlook 

For 2014, based on the current order book, Head is anticipating a further recovery of the Winter Sports division and along with the impact of the acquisition, sales should grow modestly for the year. However the impact of currency fluctuations and some higher marketing and investment costs mean that overall Head believes   operating results will be broadly in line with those achieved in 2013.