Head N.V. saw global net revenues decrease 11.4% to 109.2 million ($158.2 mm) for the fourth quarter leading to a decrease of 78.8% for net income to 0.7 million ($1.0 mm). The company saw a 19.3% decline in Winter Sports sales offset mid-singles gains in both Racquet and Diving for the quarter. For the full fiscal year, the company saw net sales slump 12.5% to 321.0 million ($440.0 mm) as it posted a net loss of 11.2 million (-$15.4 mm) compared to a net profit of 4.4 million ($5.5 mm) in 2006.
Johan Eliasch, chairman and CEO, commented, “As anticipated, the fourth quarter results have been negatively impacted by the performance of the Winter Sports Division. The poor snow in the 06/07 skiing season has resulted in lower sales and utilisation of our facilities. The sales in this division for the three months were down by 19.3% and profit margins were also lower compared with the prior year.
“Whilst the financial performance of the Winter Sports Division has been heavily impacted by the market conditions, the race team has demonstrated the excellent performance of the products with 11 world cup victories and 36 top three placements so far this season dominating the speed disciplines.
“In the Racquet Sports Division sales were up 4.2% in the last quarter due to new product introductions partly offset by strengthening of the Euro against the U.S. dollar. Gross Profit of the division has improved due to the impact of the MicroGel series and cost reduction initiatives.
“The Diving Division continues to perform well and we believe has gained market share during 2007; revenues are up 4.6% in the three month period compared with prior year.
“Overall, as anticipated and communicated to the market in May, the full year resulted in a small operating loss which amounted to 0.7m after restructuring costs. Our continual investment in new athletes, technological product development, and cost reduction will be of key importance during 2008 in order to return the company to profitability.”
Winter Sports
Winter Sports revenues for the three months ended December 31, 2007, decreased 19.3% to 70.9 million ($102.7 mm) from 87.9 million ($113.4 mm) in the comparable 2006 period. This decrease was due to significantly lower orders placed for winter sport products.
For the year ended Dec. 31, 2007, Winter Sports revenues decreased 25.3% to 140.5 million ($192.6 mm) from 188.1 million ($236.6 mm) in 2006. This decrease was due to lower sales volumes of all of our winter sports products as a consequence of bad snow conditions globally in the winter season 2006/2007.
Racquet Sports
Racquet Sports revenues for the three months ended Dec. 31, 2007, increased 4.2% to 27.5 million ($39.8 mm) from 26.4 million ($34.0 mm) in the comparable 2006 period. This increase was due to higher sales volumes in tennis racquets as a consequence of new product introductions, which were partially offset in euro value terms by the strengthening of the euro against the U.S. dollar.
For the year ended Dec. 31, 2007, Racquet Sports revenues decreased 2.1% to 129.8 million ($177.9 mm) from 132.7 million ($166.7 mm) in 2006. Despite significant increased sales volumes of our tennis racquets in the fourth quarter the strengthening of the euro against the U.S. dollar in the reporting period diminished the euro value of U.S. sales.
Diving
Diving revenues for the three months ended Dec. 31, 2007, increased 4.6% to 11.1 million ($16.1 mm) from 10.6 million ($13.7 mm) in the comparable 2006 period despite a negative impact of the strengthening of the euro against the U.S. dollar in the reporting period.
For the year ended December 31, 2007, Diving revenues increased 6.6% to 51.8 million ($71.0 mm) from 48.6 million ($61.1 mm) in 2006. This increase was mainly driven by improved availability throughout the distribution chain on our broad variety of diving products and was negatively affected by the strengthening of the euro against the U.S. dollar in the reporting period.
Licensing
Licensing revenues for the three months ended Dec. 31, 2007 remained flat comparable to the three months ended Dec. 31, 2006.
For the year ended Dec. 31, 2007, Licensing revenues decreased 9.9% to 7.3 million ($10.0 mm) from 8.1 million ($10.2 mm) in 2006, principally due to lower revenues recorded for the first quarter of 2007.
Profitability
Sales deductions for the three months ended Dec. 31, 2007, decreased 34.5% to 2.5 million ($3.6 mm) from 3.8 million ($4.9 mm) in the comparable 2006 period.
For the year ended, sales deductions decreased 20.7% to 8.5 million ($11.7 mm) from 10.7 million ($13.4 mm) in 2006 due to decreased sales.
Gross margin decreased slightly to 37.2% in 2007 from 37.3% in the comparable 2006.
For the year ended, Gross margin decreased to 38.7% in 2007 from 39.3% in the comparable 2006 period. This decrease was due to lower sales and lower utilization of production capacity for winter sports products.
For the quarter, selling and marketing expense increased 2.9% to 26.2 million ($38.0 mm) from 25.5 million ($32.9 mm) in the comparable 2006 period.
For the year, selling and marketing expense increased 1.5% to 94.3 million ($129.3 mm) from 92.9 million ($116.7 mm) in 2006. This increase was mainly due to higher advertising costs for our sponsored professional ski racers, which were partly offset by lower commissions, shipment costs and selling expense as a consequence of decreased sales and the strengthening of the euro against the U.S. dollar.
For the quarter, general and administrative expense decreased 2.1%,to 8.1 million ($11.7 mm) from 8.2 million ($10.6 mm) in the comparable 2006 period.
For the year ended Dec. 31, 2007, general and administrative expense decreased by 0.9% to 30.1 million ($41.3 mm) from 30.3 million ($38.1 mm) in 2006.
For the year, Head recorded 2.0 million ($2.7 mm) of restructuring expenses related to the reorganization of ski production and outsourcing some of the production capacities in Italy.
As a result of the foregoing factors, operating profit for the fourth quarter decreased 55.7% to 4.7 million ($6.8 mm) from 10.6 million ($13.7 mm) in the comparable 2006 period.
For the year ended December 31, 2007, an operating loss of 0.7 million (-$1.0 mm) was recorded compared to a profit of 20.0 million ($25.1 mm) in 2006.
For the quarter a foreign exchange gain of 0.6 million ($0.9 mm) was recorded compared to a loss of 0.4 million ($4.3 mm) in the comparable 2006 period.
For the twelve months ended Dec. 31, 2007, a foreign exchange gain of 0.3m ($0.4 mm) was recorded compared to a loss of 0.3m ($0.4 mm) in the year to Dec. 31, 2006.
As a result of the foregoing factors, for the fourth quarter, the company recorded a profit of 0.7 million ($1.0 mm), compared to 3.3 million ($4.3 mm) in the comparable 2006 period. For the year ended Dec. 31, 2007, Head recorded a loss of 11.2 million (-$15.4 mm) compared to a profit of 4.4 million ($5.5 mm) in the comparable 2006 period.
