Head NV reported sales for the full year ended Dec. 31, 2012 reached €343.2 million ($441mm), up 1.2 percent compared to the prior year driven by growth in all the divisions except Winter Sports. Sales declined by 1.6 percent for the year in currency-neutral terms.
Head NV is organized into five divisions: Winter Sports, Racquet Sports, Diving, Sportswear and Licensing. Head sells products under the HEAD (alpine skis, ski bindings, ski boots, snowboard and protection products, tennis, racquetball, paddle and squash racquets, tennis balls and tennis footwear, sportswear and swimming products), Penn (tennis balls and racquetball balls), Tyrolia (ski bindings) and Mares (diving equipment) brands Sales were positively impacted by exchange rate movements in the year.
The continued investment in, and success of Heads race team along with continued strong product offering should allow the company to capitalize on this anticipated recovery in 2013.
Racquet Sports division sales increased 12.5 percent to €142.3 million ($183mm) for the year. This growth has been achieved mainly through increased volumes and improved mix in both balls and racquets in North America compounded by favorable exchange rate movements.
Whilst trading conditions were tough in Europe for Diving, the division managed to increase sales overall by 6.9 percent to €51.8 million ($67mm) due to higher sales in North America and Asia along with favorable exchange rates.
Sportswear grew 20.6 percent to €5.84 million ($8mm), but was impacted by the difficult market conditions in Winter Sports.
Although sales were marginally up overall for the year, adjusted operating profit for the group fell by nearly €4.5m in 2012 to €9.91 million ($13 mm) due to a combination of lower gross margins and higher costs. Gross margins fell by 130 basis points mainly due to higher raw material prices, lower utilization of Winter Sports factories and higher R&D as a result of investments in Sportswear which together impacted profitability by €2.9m. Selling and Marketing costs increased by €1.3 million due mainly to higher advertising costs in Winter Sports and General and Administrative costs increased by €600,000 due mainly to higher business administration and warehouse costs.
The resulting adjusted operating profit for the year was €9.91m compared to €14.4m in 2011.
Interest and Other Finance Expenses were lowered mainly as a result of the redemption of the Senior Secured Notes in 2011 which were replaced with lower interest loans. The redemption of these Senior Secured Notes also caused the high Non-Cash Disagio Costs in 2011 as the amortisation of these costs were accelerated on redemption.
In 2011 the company recorded a significant deferred tax benefit as historic operating losses in one of the companys operating countries were recognized as a result of improved profitability.
Overall, net income for the year ended 2012 improved by €2.0 million from €338,000 in 2011 to €2.38 million ($3mm) in 2012. Net cash provided by operating activities improved by €18.6 million in 2012 compared to 2011, due predominantly to the lowering of working capital needs at the yearend compared to 2011.
Whilst sales in Winter Sports division have been lower in 2012 compared to 2011, the company has managed to reduce inventory levels through the year which positively impacted cash flow. Lower Winter Sports sales have also resulted in a lower year end receivables position which again has positively impacted the cash flow.
As a result of this positive trend in operating cash flows, net debt has reduced from €72.1 million as of Dec. 31, 2011 to €53.6 million as of Dec. 31, 2012.
For 2013 Head expects continued financial pressure on consumers, but the relatively good snow in Europe, the success of Head athletes and the new product launches should allow the group to continue to be competitive in the market and desired by athletes.
For the years ended Dec 31,
2012 2011 %
Gross Sales:
