MILAN — Moody’s Investors Services downgraded Safilo Group SpA on Friday on concerns the slowdown in demand and exchange rate fluctuations could dent operating performance this year.
Moody’s revised down Safilo’s Corporate Family Rating to “B2” from “B1” and the senior unsecured rating on its 195 million notes, or $250.8 million, due 2013 to “Caa1” from “B3.” It also placed the ratings on review for possible further downgrades due to uncertainties surrounding Safilo’s need to renegotiate existing financial covenants in its main bank facility and the company’s ability to meet future payment obligations.
“Today’s downgrade reflects Moody’s expectation that 2009 will continue to be a difficult year for the company,” Moody’s vice president and senior analyst Paolo Leschiutta said. “Safilo was able to control operating margin erosion and inventory levels during full year 2008. However, Moody’s remains concerned about the potential negative impact on Safilo’s operating performance over the coming months due to the ongoing softness in consumer spending and the volatility of foreign exchange rates, namely the U.S. dollar and the British pound against the euro.”
Safilo, which licenses with Giorgio Armani, Dior, Gucci and Valentino, among others, last week reported unaudited net profits of 14.6 million euros, or $21.5 million, in 2008, compared to 51 million euros, or $73.9 million, in 2007. (The 2008 figure excludes an extraordinary provision for deferred taxes of between 35 million euros, or $45.2 million, and 40 million euros, or $51.6 million.) Sales for the 12 months through Dec. 31 fell 3.6 percent to 1.15 billion euros, or $1.69 billion, although at constant exchange they were flat, boosted by retail acquisitions in Mexico and Australia.
Fourth-quarter net profits fell to 100,000 euros, or $131,883, from 12.3 million, or $17.8 million, on sales that dipped 1.6 percent to 282.1 million, or $372 million. Dollar figures are converted at average exchange rates for the periods to which they refer.
Safilo chairman Vittorio Tabacchi described 2008 as “a year of profound change and a turning point for the eyewear sector” after years of growth.
“The areas of our business most hit by the slowdown in demand and which have been downsized in terms of value and frequency of purchase have, without doubt, been high-end products and sunglasses in particular,” Tabacchi said.
He added that profits had been dented by “the impossibility in the short term” to scale down significantly industrial and other fixed costs in the context of reduced production volumes.
Looking ahead, Tabacchi said: “There is much work to be done during this year but the group is firmly committed to continuing with determination all the projects already begun or under development, which will allow Safilo to overcome the difficult market situation and emerge with a company which is stronger and more competitive.”
Safilo’s majority shareholder Only 3T SpA said last month it had contacted a few potential partners — thought to include private equity funds Bain Capital, Apax Partners and CVC Capital Partners — with a view toward strengthening and developing the group. According to sources, talks have since stalled as the Tabacchi family, which owns 39.8 percent of Safilo through Only 3T, does not want to relinquish a controlling interest in the eyewear firm, even though this implied an unrealistic valuation of its stake in the current climate.
Italian media have speculated that Safilo’s management was working on a plan to delist the company from the Milan Bourse.
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