marcolin bond report h1 2015 · viva optique, inc. (new jersey). ... and also between eyeglasses...
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1
MARCOLIN BOND REPORT
AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 2015
2
DISCLAIMER
The following information is confidential and does not constitute an offer to sell or a solicitation of an offer to buy any
securities of Marcolin S.p.A. or any of its subsidiaries or affiliates.
Statements on the following pages which are not historical facts are forward-looking statements. All forward-looking
statements involve risks and uncertainties which could affect Marcolin’s actual results and could cause its actual
results to differ materially from those expressed in any forward-looking statements produced by, or on behalf of,
Marcolin.
The financial information contained herein has not been subject to audit procedures, and has been derived from the
management accounts, which could differ in some instances from the statutory financial statements.
*****
This report as of and for the six months ended June 30, 2015 should be read in conjunction with the Annual Report for
the year ended December 31, 2014. This report focuses on the material changes in our results of operations and
financial position from those disclosed in the report for the year ended December 31, 2014.
3
TABLE OF CONTENTS
I. OVERVIEW ....................................................................................................................................................................... 4
II. PRESENTATION OF FINANCIAL INFORMATION ............................................................................................................... 7
III. SUMMARY CONSOLIDATED INFORMATION .................................................................................................................. 8
IV. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 12
APPENDIX – OTHER CONSOLIDATED FINANCIAL INFORMATION .................................................................................... 25
1. Summary Pro-Forma Consolidated Financial Information for the Twelve Months Ended June 30, 2015 ................. 25
2. Other Financial and Non-Financial Data ................................................................................................................... 26
Marcolin Bond Report as of and for the six months ended June 30, 2015
Presentation of Financial Information
4
I. OVERVIEW
Marcolin is a leading global designer, manufacturer and distributor of branded sunglasses and prescription frames. We
believe we are the world’s third largest eyewear wholesale player by revenue, with a broad portfolio of 22 licensed
brands that appeal to key demographics across five continents. We manage primarily a licensed brand business, and
we design, manufacture (or contract to manufacture) and distribute eyewear primarily bearing the brand names we
have obtained pursuant to long-term, exclusive license agreements. We focus on high-performing brands with
eyewear lines that enjoy international awareness.
The Marcolin portfolio includes iconic labels such as Tom Ford, Roberto Cavalli, Tod’s, Montblanc, Zegna, Pucci,
Swarovski, Guess, Diesel, Timberland, Gant and Harley-Davidson. The long tenure of licenses provides Marcolin with
strong revenue visibility. The Group is now present in all leading countries throughout the world through its affiliates,
partners and exclusive distributors.
In December 2013, Marcolin bought the Viva International group (hereafter also “Viva”) by acquiring a 100% stake in
Viva Optique, Inc. (New Jersey).
Viva is a leading eyewear wholesale designer and distributor of premium eyewear. Viva’s net sales are concentrated
mainly in the mainstream (“diffusion”) category, with a strong position in prescription frames.
Consistent with the growth strategy being pursued by Marcolin, the Viva acquisition has developed the Group into a
true global player by expanding its scale, geographical presence, brand portfolio and product range.
The Viva Group has added to the diffusion portfolio the brands Guess, Guess by Marciano, Gant, Harley Davidson, and
other brands targeted specifically to the U.S. market.
The diversity of the brands managed, the completion of the diffusion product range and the balance achieved
between men's and women's products, and also between eyeglasses and sunglasses, are among the strategic factors
behind this important acquisition.
Moreover, Viva’s strong presence in the overseas market has enabled Marcolin, which had been concentrated in
Europe, to become stronger in the United States by covering one third of the independent opticians, while continuing
to focus on the Far East and Europe.
The Marcolin Group has a strong brand portfolio, with a good balance between luxury brands (high-end products
distinguished by their exclusivity and distinctiveness and often characterized by a higher retail price) and mainstream
("diffusion") products (products influenced by fashion and market trends positioned in the mid and upper-mid price
segments targeting a wider customer base), men's and women's products, and prescription frames and sunglasses.
The luxury segment includes glamorous fashion brands such as Tom Ford, Tod’s, Balenciaga, Roberto Cavalli,
Montblanc and from 2015 Zegna and Pucci, while the diffusion segment includes brands such as Diesel, Swarovski,
DSquared2, Just Cavalli, Timberland, Cover Girl, Kenneth Cole New York and Kenneth Cole Reaction.
The house brands are the traditional "Marcolin" brand as well as National and Web.
Today Marcolin markets its products in over 100 countries with a wide distribution network across five continents.
The complementary distinctive characteristics and specific expertise of the Marcolin Group and the Viva Group have
given rise to a globally competitive eyewear company, to which Marcolin brings its know-how and background,
enabling it to offer significant added value to the market in terms of both product range and global distribution.
The merger of Viva’s and Marcolin’s operations generates significant cost synergies in terms of organization, sourcing,
production and distribution, as well as cross-selling opportunities arising from the integration of the sales and
distribution networks.
Pursuant to the Viva integration, important cost synergies of approximately €10.0 million will be attained, exceeding
the initially planned €8.5m. We adopted a prudent approach in order to not underestimate the lack of synergies on
the increased volumes of the post-integration business in certain areas (i.e. Italy).
Marcolin Bond Report as of and for the six months ended June 30, 2015
Presentation of Financial Information
5
The main differences between the current estimate and the initial estimate for run-rate synergies are:
U.S.:
• Higher savings related to the New Jersey and Arizona personnel reorganization (executives and sales force)
• Higher savings due to joint participation in fairs and exhibitions
U.K.:
• Higher savings related to the sales force reorganization
• Higher savings achieved on the closure of the Harrogate location
• Higher savings related to the personnel reorganization
All synergies are calculated assuming 2013 as the reference year; the run rate considers the 12-month effect of the
savings. Part of the €10.0 million run-rate synergies was realized in 2014 for €3.6 million, and part in the first-half of
2015 for € 3,2 million, totaling €6.8 million.
Synergies already realized and full-year run-rate synergies are shown below by country (€ thousands):
Realized
At June 30, 2015
Full-year
2015
US
5,038
6,571
UK 968 2,032
France 435 865
Brazil
192
383
Hong Kong
193
191
Total
6,826
10,043
In order to obtain the extra synergies, Marcolin incurred extra one-offs costs, including capital expenditures, related
to:
• Higher severance costs for personnel reorganization (partially due to the higher number of redundancies vs.
what was originally planned);
• Higher consultancy fees (SAP roll-out, integration support, tax and legal assistance, etc.);
• Higher costs/capex for setting up the new facilities to improve performance and optimize the supply chain.
The non-recurring costs (one-off costs) related to Viva integration project impacted the 2015 P&L by €5.6 million.
Those costs consist of:
• France: severance costs paid for dismissed employees, in addition to costs due for the change in status of the
Sales Reps from “VRP” to “Attaché Commercial”. The negotiations eliminated a potential future liability because by
law “VRP” Reps are entitled to sizeable indemnities in the event of contract termination;
• U.S.: consulting fees and other costs related to the closure of the Arizona plant and the moving of the logistic
activities to New Jersey, in addition to severance costs paid to the discontinued employees.
In order to minimize disruptions that could affect the U.S. business, and consistently with management’s policy of
prudence, the Arizona plant continued operating until April.
Consequently, the plan to streamline the logistics structures in North America, reducing the number of operating
plants, was implemented between end of March and beginning of April.
The plan to aggregate the two plants had envisioned a concentration of the integration activities until the end of April
in order to resume operations as soon as possible, in order to have a minimal impact of such activities on the business.
Due to the scale and complexity of the process, few disruptions occurred in product distribution that caused delivery
certain delays in April and May.
At the end of June, activities were underway to fully integrate the two plants, and the objective of restoring all
operations and logistic performance levels according to the targets and schedule set in the plan has been reached.
The performance levels are now in line with the pre-integration levels, and activities are in progress to eliminate the
backlog originating during the integration period.
In order to better understand the business performance and provide future comparability, the costs of the
discontinued Arizona operation, mainly referring to ordinary personnel costs and other operating expenses, have been
restated (in the document "pro-forma" EBITDA shall mean excluding the ordinary costs of the discontinued Arizona
operations). The costs of the discontinued operations incurred in the 1st Half were €2.1 million.
Marcolin Bond Report as of and for the six months ended June 30, 2015
Presentation of Financial Information
6
The Viva integration process was complete at June 30, 2015, as summarized below:
Synergies from Shared Services:
Efficiencies were generated through the elimination of overlaps between foreign subsidiaries, savings in property
executive management and back-office personnel, consolidation of corporate functions, and shared usage of
operational, office, and distribution networks:
• sales force integration fully executed for U.S., U.K., France, Brazil and Hong Kong in 2014;
• restructuring of corporate and back-office functions completed between 2014 and beginning of 2015, fully in line
with the integration plan with respect to the reorganization of the foreign operations in the U.K, France, Brazil,
Hong Kong and U.S.;
• the focus in 2015 has been on the remaining U.S. integration (the AZ warehouse services and utilities were closed
down in April). The plan to streamline the logistics structures in North America by reducing the number of plants
currently operating there has been implemented. Since the Scottsdale, Arizona location was closed down, the U.S.
market has been served by the establishment in Somerville, New Jersey.
Operational Synergies:
Efficiencies through the consolidation of warehouse facilities, IT systems and procurement department savings:
• warehouse and logistics consolidation: in 2014 the UK and HK Distribution Centers have been fully integrated into
Marcolin’s system;
• the France warehouse is no longer operational (the final closing activities are underway) and sales have been
conducted directly from Italy since the end of 2014;
• the Brazil logistics operation was integrated into the Alphaville warehouse at the beginning of 2015;
• in 2015 the two US facilities were consolidated into one in NJ by shutting down the warehouse in AZ, as explained
above. Within the scope of the reorganization process, in early 2015 the business division dealing with the
distribution of Marcolin products in South America (excluding Brazil) was temporarily transferred from the former
Marcolin USA, Inc. (now Marcolin USA Eyewear, Corp.) to Marcolin S.p.A.;
• IT: SAP rollout successfully achieved: all the countries are fully integrated into the Marcolin IT Platform, and VIVA
US went live on October 1, 2014; the US IT services merged in NJ on April 2, 2015; an updated sales force mobile
App was released to support the sales in all countries affected by the integration.
Synergies from eliminated redundancies at a Corporate and Executive level:
The integration process has been achieved fully in line with the defined plans. The main efforts of 2014 were spent on
the U.S., Europe (especially the U.K.) and Hong Kong, whereas France, Brazil and the AZ merger for US integration are
the focus of 2015.
The analysis of redundancies and implementation in U.S., U.K., France, Brazil and Hong Kong was completed between
second half of 2014 and early 2015.
• Within the scope of the Viva U.K. integration, the International Distribution business unit was transferred to the
parent company Marcolin Spa, and the Domestic Distribution business unit was transferred to Marcolin U.K.
These operations were successfully completed during September 2014.
• In July 2014 a new branch was set up in Hong Kong to serve the entire client base of VIVA and Marcolin in the
Asia-Pacific region (APAC), for Marcolin and for Viva products, and to manage the sourcing operations out of
China.
• On January 1, 2015 the corporate restructuring process was in effect by way of the dissolution and absorption of
American companies Marcolin USA, Inc., Viva Europa, Inc., Viva International, Inc. and Viva IP, Corp. into Viva
Optique, Inc. Viva Optique's name was changed to Marcolin USA Eyewear, Corp.
• The integration of Viva Canada is in process of set-up and will take place in second half of 2015, to complete the
organizational and corporate rationalization process.
• Concerning the French market, on October 31, 2014 Marcolin France Sas acquired Viva France Sas (formerly
owned by Viva Eyewear UK Ltd), the distributor of Viva products in France. This transaction, a step toward the
subsequent merger of Viva into Marcolin France (by way of the “dissolution sans liquidation” of Viva France and
Marcolin Bond Report as of and for the six months ended June 30, 2015
Presentation of Financial Information
7
“trasmission universelle du patrimoine de Viva France à Marcolin France”, effective on January 1, 2015), had the
stated objective of reducing and streamlining the structures and related costs by integrating the two businesses
into one organization with a sole management, in order to manage, including prospectively, the related market
more efficiently and effectively. Through the merger, the operations, assets and liabilities of the absorbed
company continue to survive in the acquirer.
• A similar transaction took place in Brazil, where two identical sales organizations existed, one for the distribution
of Marcolin products (Marcolin do Brasil Ltda) and the other for the distribution of Viva products (Viva Brasil
Comercio Produtos Opticos Ltda). In this case as well, after Marcolin do Brasil acquired all Viva Brasil shares (at
the end of December), it initiated a merger to absorb such company (which took place on January 1, 2015).
Similarly to the French market, in Brazil the business management was assigned to a newly appointed manager
with extensive experience in the eyewear industry, in order to fully exploit cost and top-line synergies that only
full integration of the two structures would allow.
At the conclusion of the Viva integration project, the transfer completed the redistribution of international markets in
accordance with the Group's plans for the geographical hubs and a new sales organization.
*****
II. PRESENTATION OF FINANCIAL INFORMATION
Marcolin was acquired by Cristallo on December 5th, 2012, and in October 2013 Cristallo underwent a reverse merger
with and into Marcolin, within the scope of a corporate reorganization of the Group’s holding structure. In December
2013, Marcolin acquired Viva Optique, Inc.
This document focuses on the consolidated results for the Marcolin Group and presents the following financial
information:
1) Summary financial information as of and for the six months ended June 30, 2015;
2) Management’s discussion and analysis of the financial condition and results of operations as of and for the six
months ended June 30, 2015;
3) Pro Forma – Other Financial Information as of and for the twelve months ended June 30, 2015.
The consolidated income statement, consolidated statement of financial position, consolidated cash flow statement
and other financial information of the Group as of and for the six months ended June 30, 2015 are derived from the
unaudited interim condensed consolidated financial statements of the Marcolin Group as of and for the six months
ended June 30, 2015.
Non-IFRS and Non-U.S. GAAP Measures
The summary financial information set forth below contains certain non-IFRS and non-U.S. GAAP financial measures
including “Pro-Forma Combined Adjusted Run-Rate EBITDA,” “EBITDA,” “EBITDA margin,” “Adjusted EBITDA,” “Pro-
forma EBITDA”, “Adjusted EBITDA margin,” “Total debt”, “Net debt,” “Capital expenditures” and “Movements in
working capital.”
The non-IFRS and non-U.S. GAAP financial measures are not measurements of performance or liquidity under IFRS or
U.S. GAAP.
*****
Marcolin Bond Report as of and for the six months ended June 30, 2015
Summary Financial Information
8
III. SUMMARY CONSOLIDATED INFORMATION
1. Summary Financial Information
For the six months ended June 30,
2014
2015
(As reported)
(As reported)
EBITDA 21,241
19,124
Adjusted EBITDA 24,126
26,849
Adjusted EBITDA margin(a)
12.4%
12.0%
Capital expenditures(b)
9,831
10,960
Net indebtedness(c)
175,466
230,493
Movements in working capital(d)
(2,223)
(31,627)
(a) We define the adjusted EBITDA margin as adjusted EBITDA divided by revenue. (b) Capital expenditure consists of investments for the period in property, plant and equipment and intangible assets, as presented in the cash
flow statement (see “13. Cash Flow Statement”). The table shown in “5. Other Financial Information” sets forth a breakdown of capital
expenditure for the periods indicated. (c) We define net debt as the total consolidated debt net of cash and cash equivalents. The table above sets forth the calculation of net debt for
the periods indicated. (d) We define movements in working capital as the movements in trade and other receivables, inventories, trade payables, other liabilities, tax
liabilities and use of provisions.
2. Summary Consolidated Income Statement Information
For the six months ended June 30,
2014
2015
(As reported)
(As reported)
Revenue
194,338
222,869
Cost of sales
(76,692)
(90,744)
Gross profit
117,646
132,124
Selling and marketing costs
(88,253)
(103,071)
General and administrative expenses
(14,853)
(17,465)
Other operating income and expenses
1,596
1,868
Effects of accounting for associates 194 249
Operating profit
16,330
13,705
Net finance costs
(9,640)
(8,137)
Profit before taxes
6,690
5,568
Income tax expense
(4,337)
(4,308)
Net profit for the period
2,353
1,261
Within the same consolidation perimeter, net sales are up by 14.7% from 2014. The increase in the revenues at
previous year exchange rates is 4.5%.
Reported operating profit was affected by a number of extraordinary items both for the six-month period ended June
30, 2014 and for the six-month period ended June 30, 2015.
Excluding the effects of the transactions described above, the 2015 normalized ("adjusted") Ebitda is euro 26.8 million
(12.0% of sales), against the 2014 adjusted EBITDA amount of euro 24.1 million (12.4% of sales).
The normalized (adjusted) key performance indicator, filtered of the effects of the non-recurring costs, are described
in the following (please see “Adjusted EBITDA” in paragraph 5 for further details on such items).
Marcolin Bond Report as of and for the six months ended June 30, 2015
Summary Financial Information
9
3. Summary Consolidated Balance Sheet
As of December 31,
As of June 30,
2014
2015
(As reported)
(As reported)
(In € thousands)
Property, plant and equipment 24,657
28,232
Intangible assets 37,213
39,596
Goodwill (a)
278,010
285,706
Inventories 100,075
110,668
Trade receivables 80,576
101,217
Cash and cash equivalents 36,933
22,948
Other current and non-current assets 62,854
59,547
Total assets 620,318
647,913
Long-term borrowings 199,152
200,954
Short-term borrowings 41,353
59,059
Trade payables 102,322
99,902
Other long-term and short-term liabilities 54,678
55,671
Total liabilities 397,505
415,586
Total equity 222,813
232,328
Total liabilities and equity 620,318
647,913
(a) Goodwill is affected by translation differences regarding the U.S. dollar (goodwill related to Viva acquisition).
4. Summary Consolidated Cash Flow Statement Information
For the six months ended June 30,
2014
2015
(As reported)
(As reported)
(In € thousands)
Net cash from operating activities 10,404
(11,579)
Net cash (used in) investing activities (9,767)
(10,866)
Net cash from/(used in) financing activities(a)
(8,339)
8,925
Effect of foreign exchange rates and other non-cash items (222)
(466)
Net increase/(decrease) of cash and cash equivalents (7,925)
(13,985)
(a) The interest paid was reclassified to “financing activities” for both periods.
5. Other Financial Information
We define EBITDA as profit for the period plus income tax expense, net finance costs, amortization and depreciation
and bad debt provision. EBITDA is a Non-GAAP Financial Measure. The following table sets forth the calculation of
EBITDA for the periods indicated.
For the six months ended June 30,
2014
2015
(As reported)
(As reported)
(In € thousands)
Net profit for the period 2,353
1,261
Income tax expense 4,337
4,308
Net finance costs 9,640
8,137
Amortization and depreciation 4,612 5,015
Bad debt provision 299 404
EBITDA 21,241 19,124
Marcolin Bond Report as of and for the six months ended June 30, 2015
Summary Financial Information
10
The following table sets forth the calculation of Pro-Forma EBITDA and Adjusted EBITDA for the periods indicated.
“Pro-Forma EBITDA” is the normalized (restated) EBITDA excluding the ordinary costs of the discontinued operation
regarding Arizona plant closed down, as explained in I. Overview Section.
“Adjusted EBITDA” is EBITDA adjusted for the effect of non-recurring transactions which consist primarily of one-off
charges, non-recurring costs in relation to changes in management, and other extraordinary items related to Viva
integration project.
For the six months ended June 30,
2014
2015
(As reported)
(As reported)
(In € thousands)
EBITDA 21,241 19,124
Ordinary costs of discontinued Arizona operations(a)
- 2,073
Pro-Forma EBITDA 21,241 21,197
Costs related to VIVA integration(b)
2,183
5,652
Senior management changes(c)
701
-
Adjusted EBITDA 24,126 26,849
(b) The Ordinary costs of the discontinued Arizona operation refer mainly to ordinary personnel costs and other operating expenses of the
discontinued Arizona plant closed down at the end of the first quarter, as explained in I. Overview Section. (c) Costs related to Viva integration project were incurred for the integration process of Viva as described in I. Overview. In particular they refer to
France (severance costs paid for dismissed employees, in addition to costs due for the change in status of the Sales Reps from “VRP” to
“Attaché Commercial”) and U.S. (costs related to the closure of the Arizona plant and the moving of the logistic activities to New Jersey, in
addition to severance costs paid to the discontinued Arizona employees). (d) Senior management changes relate to non-recurring employment termination expenses incurred in connection with the change in top
management.
Capital expenditure
For the six months ended June 30,
2014
2015
(As reported)
(As reported)
(In € thousands)
Property, plant and equipment (a)
1,221 5,360
Intangible assets(b)
8,611 5,600
Total capital expenditure 9,831 10,960
(e) Investment of €5.4 million in Property, plant and equipment mainly related to new asset purchase, specifically €1.9 million in lands and
buildings to purchase the manufacturing plant in Fortogna; €2.6 million in commercial and industrial equipment; €0.7 million in hardware and
office fixture and €0.2 million in other tangible assets. (f) Investment of €5.6 million in intangible assets mainly related to the lump sum agreed by the Parent Company for some licensors in order to
extend licensing agreement periods and improve terms and conditions. In addition, intangible assets under formation include the U.S.
Subsidiary and Parent Company’s software and business application implementation totaling €1.8 million.
Net Indebtedness
As of December 31, 2014
As of June 30, 2015
(As reported)
(As reported)
(In € thousands)
Cash and cash equivalents (36,933)
(22,948)
Financial receivables (7,497)
(6,572)
Long-term borrowings 199,152 200,954
Short-term borrowings 41,353 59,059
Net indebtedness 196,074 230,493
Marcolin Bond Report as of and for the six months ended June 30, 2015
Summary Financial Information
11
Movements in working capital
For the six months ended June 30,
2014
2015
(As reported)
(As reported)
(In € thousands)
(Increase)/decrease in trade receivables (16,941) (22,057)
(Increase)/decrease in other receivables (2) (1,978)
(Increase)/decrease in inventories 471 (7,293)
Increase/(decrease) in trade payables 13,711 (1,078)
Increase/(decrease) in other liabilities 892 2,975
Increase/(decrease) in current tax liabilities 969 365
(Use) of provision (1,323) (2,562)
Movements in working capital (2,223) (31,627)
*****
Marcolin Bond Report as of and for the six months ended June 30, 2015
MD&A
12
IV. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a discussion and analysis of our financial condition and results of operations in the periods set forth
below.
The following discussion should also be read in conjunction with “Presentation of Financial Information and Other
Data” and “Selected Consolidated Financial Information.” The discussion in this section may contain forward looking
statements that reflect our plans, estimates and beliefs and involve risks and uncertainties.
Unless the context indicates otherwise, in this “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” references to “we,” “us,” “our,” or the “Marcolin Group” refer to Marcolin, including Viva and
the consolidated group.
Key Factors Affecting Our Financial Condition and Results of Operations
1. General economic conditions and consumer discretionary spending
Our performance is affected by the economic conditions of the markets in which we operate and trends in consumer
discretionary spending.
Based on the latest forecasts from leading economic institutes, 2015 seems to be a watershed year, when the long,
deep recession that began in 2008 should end accompanied by a growth in GDP and employment figures.
This crucial transition will be the result of three factors:
- a favorable combination of external elements: the sharp drop in oil prices, the falling Euro, and lower long-term
interest rates;
- pro-growth policies that could have a positive impact on employment and investments;
- some economic indicators which are pointing to a situation of stable domestic demand and production, offering a
potential new starting point.
Italian eyewear continues to dominate the international market, demonstrating the sector's extreme dynamism and
competitive strength, which make it one of the most successful sectors of the Italian economy.
The most recent available data still confirms the favorable trend for exports, which grew 14.2% in the first quarter of
2015 (January-March data). Frame exports increased by 15.1% and those of sunglasses by 14% (source: ANFAO).
The 2015 outlook is being confirmed, with stronger growth in the USA, some European countries and emerging
countries.
The changing global scenario imposes new competitive rules for all businesses. In this fast-paced economy the product
itself is of central importance, with innovation, quality, originality and added value making all the difference.
The key to recovery is an emphasis on such characteristics, particularly specialization, penetration of high added-value
niche markets, certified quality, and Italian manufacturing, which is increasingly appreciated throughout the world.
In this respect, there are consistent signs of “reshoring” in the eyewear sector, i.e. manufacturing activities are being
brought back to Italy.
In keeping with the above-described scenario, the first half results of 2015 indicate a positive trend for the Marcolin
Group, which continues to pursue its growth targets; in particular the revenue for the six months ended June 30, 2015
has grown by about 14.7% compared to that of the same period of 2014.
As of July business was accelerating, with the Marcolin Group’s YTD total net sales up by about 18% compared to the
same period of last year.
2. Licensing agreements
Licenses – key facts for the six months ended June 30, 2015
In the six months ended June 30, 2015, the Marcolin Group continued with its efforts to rationalize and optimize the
brands and collections offered to its clients, a process that was launched in 2013, developed in 2014 and is being
Marcolin Bond Report as of and for the six months ended June 30, 2015
MD&A
13
stepped up by the Group in 2015. This process has included in 2014 the following activities:
• Balenciaga was re-launched, after the fashion house's designer change, with a sophisticated and elegant
collection having great complexity, which was presented at the end of 2013 to a distinctive group of selected
retailers; during 2014, the group of distributors was extended, while continuing to focus on just a few
prestigious names;
• an important strategic alliance was created with the stipulation of licenses for the prestigious eyewear
brands Ermenegildo Zegna and Agnona. The licensing agreement has a ten-year duration and involves the
exclusive design, manufacture and global distribution of sunglasses and prescription frames. The Ermenegildo
Zegna and Zegna Couture collections have been launched in January 2015;
• at the end of April 2014 Marcolin exercised its option to renew the Tom Ford license, extending the license
period; in addition, other two existing licenses have been renegotiated and extended, resulting in improved
terms and conditions for the Group;
• on May 6, 2014, Viva renewed its licensing agreement with Skechers USA, Inc., an award-winning global
leader in the lifestyle and performance footwear industry;
• on June 9, 2014, Marcolin Group and Emilio Pucci announced the stipulation of a worldwide exclusive license
agreement for the design, production and distribution of sunglasses and eyeglasses for the Emilio Pucci
brand. The five-year, renewable license will become effective in January 2015;
• on July 2, 2014, the Group and M.lle Catherine Deneuve announced the renewal of their licensing agreement,
initially launched through a licensing partnership with Viva International in 1989, for the design, production
and worldwide distribution of Catherine Deneuve optical frames and sunglasses;
• on October 8, 2014, the license agreement with one of our licensor was renegotiated, resulting in strongly
improved terms and conditions for the Group. The negotiation recently finalized can be summarized as lower
minimum royalties and advertising royalties over the course of the life of the License in exchange of one-off
cash disbursement;
• on December 23, 2014, Marcolin Group and Harley-Davidson announced that they extended their licensing
agreement for the design, production and distribution of eyewear collections of sunglasses and optical
frames to December 2018.
Licensing events occurring during and after the 1H 2015 closing are:
• on January 19, 2015, Marcolin Group presented a new exciting project with Marcelo Burlon County of Milan,
one of the most versatile and influential designers at this time, from which an exclusive eyewear collection
will emerge combining tradition, trends, know-how and innovational design;
• on February 18, 2015, Marcolin Group and Timberland announced the early renewal of their licensing
agreement ending December 2018 for the design, production and distribution of eyewear collections of
sunglasses and optical frames.
• on April 30, 2015, Marcolin U.S.A. Eyewear Corp. and Iconix executed amendments to renew the Candie’s
license for five years through 2020 and the Bongo and Rampage license for two years through 2017. Key
business terms were re-negotiated to significantly reduce minimum guaranteed royalties for Candie’s and to
eliminate all minimum guaranteed royalties for Bongo and Rampage.
• on June 11, 2015, Marcolin has signed an agreement with Tom Ford International regarding the extension of
the licensing contract for the design, production and worldwide distribution of Tom Ford Eyewear sunglasses
and optical frames until 2029, extending the license period of further seven years.
3. Commercial and Distribution
Important investments have been carried out in 2014 and 2015 aimed to strengthen relationships with the
distribution network, with the objective of greater penetration into the markets sustaining the Group's growth.
In addition, within the scope of the Viva integration plan, the distribution networks and international sales
organizations have been rationalized.
The new company structure set up in Hong Kong in July 2014, with the objective of combining the distribution of
Marcolin and Viva products through a new organization operating directly in the Far East, became fully operational in
2015. After absorbing the business division relating to Viva products in 2014, in 2015 the Hong Kong branch's mission
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will include the distribution of Marcolin products in the same areas of the Far East, with clear advantages in terms of
economies of scale and cost and top-line synergies.
The Hong Kong branch sources directly from Chinese suppliers thanks to the size and scale achieved, thereby
saturating overheads by distributing into outlying markets autonomously and fully exploiting the cost benefits arising
on operational gearing to improve sales.
The transactions made it possible to create the Group's third sales hub, due to the critical mass represented by the
sales of Marcolin and Viva brands, enabling to invest in structures and means to better penetrate markets cost-
effectively as a result of the streamlining and synergies realizable from the new size.
Currently the Group's business operations are organized into three geographical hubs:
• the U.S. hub, directed by Marcolin USA Eyewear, Corp. (sole legal entity, which will focus on distribution in the
North and Central American markets);
• the European hub, directed by Marcolin S.p.A., which will address the European rim and its complementary and
neighboring countries (in terms of both geography and business, such as the Middle East), including through
direct affiliates and all joint ventures;
• the Asian hub, where companies have been set up to manage the Far East markets, distant and difficult to
penetrate. Indeed, only by operating there directly may such markets be developed (in fact, the business divisions
dealing with the distribution of Viva products in the Far East, and then the division dealing with Marcolin product
distribution division in Asia Pacific were transferred to the Marcolin UK Ltd Hong Kong branch).
The reorganization entailed overhauling the logistical flows on an international scale through the establishment of the
three main hubs (for distribution management) in order to render the integrated logistics more agile and efficient,
thereby reducing costs, shortening the distance to the end customer, and consequently improving the effectiveness of
response to the market.
Joint ventures
China
In order to manage distribution directly in mainland China, at the end of 2014 a joint venture was set up with the Gin
Hong Yu International Co. Ltd group (Ginko Group), a well-known and respected business operating in the Chinese
eyewear market.
Distribution operations are managed by Ginlin Optical Shanghai Ltd Co., based in Shanghai, a subsidiary controlled
indirectly (through Ging Hong Lin International Co. Ltd), by way of joint ownership by Marcolin S.p.A. and the Ginko
group.
The joint venture has led to more than double the revenues from the “Rest-of-World” segment in the first half of 2015
compared to those of the corresponding prior period, confirming the successfulness of this strategic decision.
Russia
Still regarding the Group's international development, a joint venture was set up with Sover-M, a well-established,
prestigious company operating in the eyewear business in Russia, for the distribution of all Marcolin and Viva
products.
The Italian Parent Company controls 51% of Sover-M. Sover-M's shares were acquired in December 2014. Although
geopolitical tensions continue to hamper this developing market, the joint venture began operating as planned and
according to expectations.
Nordic
In Europe, an affiliate was started up in Frösundaviks (Stockholm), Sweden. Marcolin Nordic began operating at the
end of February 2015, and its mission is to manage the Nordic market (Denmark, Finland, Norway, Iceland and
Sweden) closely and effectively in order to distribute there all brands in the Marcolin/Viva portfolio.
UAE
Marcolin is examining the opportunity of setting up a new joint venture in UAE with a well-known, prestigious local
player.
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5. Production
After the purchase of the Fortogna building in January 2015, Marcolin is preparing to double its Italian manufacturing
operation with a new 3,500 square meter factory in Longarone (Fortogna locality), in the heart of the eyewear district,
close to its historic headquarters, also benefitting employment levels by dedicating important resources to
production.
The production layout of the Longarone plant (currently housing the acetate production, which will be transferred to
Fortogna) has been changed by overhauling the Metal, Product Development and Prototype divisions, with an
investment of €4.5 million (partly for the purchase of the Fortogna factory, and the rest to transfer and outfit the new
acetate division in Fortogna, renew the floor space that will be made available in Longarone, and purchase plant and
machinery to expand production capacity).
Reasons for which the consolidation and development of its production capacity in Italy are important to Marcolin
include:
• reduced dependence on external suppliers, which will enable to shorten the manufacturing lead time, and thus
increase the ability to seize market opportunities (and improve the time to market);
• made in/made out realignment according to the eyewear industry standards (and those of the main competitors);
• expansion of the capacity to produce more Italian-made products, which are increasingly perceived as having
added value by the Italian and international clientele;
• as an essential condition for managing the inflation risk in the Chinese sourcing market, production insourcing will
allow greater control of production factors, and not only in terms of cost-effectiveness.
With respect to the stated forecasts and at a record time, Marcolin’s new acetate division in Fortogna started
production on May 20, 2015 ensuring the production expansion necessary to meet the demands arising from both the
new brands added to the brand portfolio and the structural expansion of some markets.
Consistently with the Company's medium/long-term growth plans, the operation aims to create value by maximizing
the opportunities offered by the development of the high-end collections that have always represented Marcolin's
design concept.
This will enable to immediately undertake the business plan necessary to promote the Group's growth, and to obtain
savings from the insourcing of production beginning in the second half of 2015.
Group Comparison of six months ended June 30, 2014 against six months ended June 30, 2015
1. Presentation of Financial Information
The consolidated income statement, consolidated statement of financial position, consolidated cash flow statement
and other financial information of the Group as of and for the six months ended June 30, 2015 are derived from the
unaudited interim condensed consolidated financial statements of the Marcolin Group as of and for the six months
ended June 30, 2015.
For the six months ended June 30,
2014 (As Reported)
% of revenue
2015 (As Reported)
% of revenue
(In € thousands, except percentages)
Revenue 194,338 100.0% 222,869 100.0%
Cost of sales (76,692) -39.5% (90,744) -40.7%
Gross profit 117,646 60.5% 132,124 59.3%
Selling and marketing costs (88,253) -45.4% (103,071) -46.2%
General and administrative expenses (14,853) -7.6% (17,465) -7.8%
Other operating income and expenses 1,596 0.8% 1,868 0.8%
Effects of accounting for associates 194 0,1% 249 0.1%
Operating profit 16,330 8.4% 13,705 6.1%
Net finance costs (9,640) -5.0% (8,137) -3.7%
Profit before taxes 6,690 3.4% 5,568 2.5%
Income tax expense (4,337) -2.2% (4,308) -1.9%
Net profit for the period 2,353 1.2% 1,261 0.6%
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2. Revenue by Brand Type and by Product Type
The following tables set forth an analysis of our revenues by product type and brand type for the periods indicated.
Due to the need to present homogeneous data for the two years, the 2014 figures have been restated in order to have
a “like-for-like” perimeter. Consequently, the 2014 figures below have been reclassified with respect to the
breakdown by country in order to have comparable data.
For the six months ended June 30,
2014 (As Reported)
% of total
2015 (As Reported)
% of total
Change
Revenue by brand type (In € thousands)
amount %
Luxury brands 81,171 41.8% 107,819 48.4% 26,648 32.8%
Diffusion brands
113,167 58.2% 115,049 51.6% 1,883 1.7%
Total 194,338 100.0% 222,869 100.0% 28,531 14.7%
For the six months ended June 30,
2014 (As Reported)
% of total
2015 (As Reported)
% of total
Change
Revenue by product type (In € thousands)
amount %
Sunglasses 99,034
51.0%
118,347
53.1%
19,313 19.5%
Prescription frames 95,304
49.0%
104,522
46.9%
9,218 9.7%
Total 194,338
100.0%
222,869
100.0%
28,531 14.7%
Revenue amounted to €222.9 million for the six months ended June 30, 2015, an increase of €28.5 million, or 14.7%,
from the €194.3 million for first-half 2014.
At previous period exchange rates, the revenue for the half-year ended June 30, 2015 was €203.1 million, up by €8.8
million, or 4.5%, from the same period of the previous year.
An approximately 10.0% difference is due to the depreciation of the Euro against the US$. We calculate the 2015 net
sales at constant exchange rates by applying the prior-year monthly average exchange rates (of the US$ and the other
currencies relevant for the Group against the €) to the current financial data expressed in the original currency, in
order to eliminate the impact of currency fluctuations.
Overall, about 7.4 million frames were sold in the first six months, down 8.1% compared to the first six months of
2014.
Luxury sunglasses frames had the largest increase both in terms of value (+32.8%) and quantity (+25.8%), confirming
the success of the strategy that focuses on this particular product.
Due to the sales mix favoring luxury frames, the average unit price of prescription frames is in general rising.
Brand Type
Diffusion brand revenue increased by 1.7% in the first half compared to the same period of the previous year, while
the luxury brand revenue grew 32.8%. At constant exchange rates, diffusion brand sales are 9.8% lower than those of
the same period of 2014, while the luxury brand sales increased by a significant 24.7%. Therefore, the revenue
increase derived mainly from luxury brands, specifically the most important brands: Tom Ford, Montblanc, Balenciaga
and the newly acquired Zegna.
Regarding diffusion brand revenue, Timberland, Swarovski and Web were among the best performers, compensating
for a decrease in revenue from other diffusion brands.
From a pricing standpoint, the unit prices of diffusion brands rose over the two periods, more than for the luxury
brands (which however increased). This trend is mainly due to the exchange rate effect (of the USD in particular).
Product Type
The revenue increase for sunglasses was 19.5% and that of prescription frames was 9.7%, both increases being driven
by luxury brands.
At constant exchange rates, revenues from prescription frames are slightly lower compared to those of the same
period of 2014, while revenues of sunglasses are up by 9.9%.
The average unit prices rose as a result of more luxury products in the sales mix.
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3. Revenues by destination market
The table below sets forth Marcolin’s revenue by destination market.
This is relevant from a commercial standpoint, showing the geographic concentration of our customers.
In order to show the same data by distribution entity, the segment reporting is presented in the final section (“2.
Other financial and non-financial data”), where the revenues are segmented by reference to the geographical area in
which the reporting entity resides.
For the six months ended June 30,
2014 (As Reported)
% of
total
2015 (As Reported)
% of
total Change
Revenue (In € thousands)
amount %
Italy 11,071 5.7% 13,900 6.2% 2,829 25.5%
Rest of Europe 52,837 27.2% 53,178 23.9% 341 0.6%
Europe 63,908 32.9% 67,078 30.1% 3,169 5.0%
USA 80,381 41.4% 94,341 42.3% 13,960 17.4%
Asia 16,385 8.4% 21,720 9.7% 5,334 32.6%
Rest of World 33,664 17.3% 39,731 17.8% 6,067 18.0%
Total 194,338 100.0% 222,869 100.0% 28,530 14.7%
Italy
Sales in the domestic (Italian) market rose 25.5% during the first six months of 2015.
Diffusion brands, led by Guess, Swarovski and our house brand Web, had a double-digit growth.
Average unit prices increased thanks to an increase in the price points of the diffusion brands, which in turn helped
the net sales performance.
Rest of Europe
Revenue from the rest-of-Europe market, totaling €53.2 million, was slightly better than that of the previous first half-
year.
Luxury brands were more prominent than in 2014. The prescription frames segment growth (+5.1%) was partially
offset by the slowdown of sales in the sunglasses segment (-3.6%).
The market was characterized by a stagnant economy and was heavily impacted by the recent Viva/ Marcolin sales
force integration in France, offset by positive sales in other countries (i.e. Spain gained market share and the new
Russian and Nordic subsidiaries performed well) and sales by large international chains.
Average unit prices rose due to the direct control of sales through the newly created subsidiaries and the direct
control of Viva product sales that had previously been conducted by distributors.
North America
In the U.S. market, revenues grew by 17.4%, showing the great impact of exchange rate fluctuations.
Net sales decreased by 3.7% at constant exchange rates: the positive performance of luxury brands, fostered by
greater consumer confidence and an improved U.S. economy, was offset by some issues faced in the new distribution
center resulting from the move from Arizona to New Jersey, as explained in the first part of this report. Those issues
have been resolved, resulting in very good performance in July, the beginning of the recovery period for meeting the
annual targets set for 2015.
The American market raised its share to 42.3% of total Group sales, and it represents the Group’s main market.
Retail department stores and independent opticians are the most important channels in the U.S. market and revenues
from both channels grew significantly from one period to the next.
Average unit prices also rose primarily thanks to exchange rate gains and to the greater share of luxury product in the
sales mix.
Asia
The Asian Far East market experienced high double-digit growth of +32.6%.
This result is attributable entirely to fashion brands, which performed extremely well especially in the Chinese market,
also thanks to the new joint venture initiative. In particular, revenue from luxury sunglasses had the best
performance, growing by 70% from the previous year.
Average unit prices rose as a result of more luxury products in the sales mix.
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Rest of World
From a geographical standpoint, “Rest of the World” includes the Middle East, Central and South America, Africa and
Oceania. The revenue produced in this market rose by 18.0%, or 13.9% at constant exchange rates, in the first half of
2015, totaling €39.7 million.
The largest increases came from the Middle East (up by 15.6% at constant exchange rates) and Central America, while
Brazil and Latam had a weak first six months (at constant exchange rates) . Revenue growth was driven in particular by
luxury brands (+50%).
4. Cost of sales
The cost of sales amounted to €90.7 million for the six months ended June 30, 2015, an increase of €14.1 million, or
18.3%, from the €76.7 million for the six months ended June 30, 2014. The cost of sales as a percentage of revenue is
40.7% for the six months ended June 30, 2015 compared to 39.5% for the six months ended June 30, 2014.
The June 2015 gross profit is €14.5 million higher than that of the previous year, growing from €117.6 million (or
60.5%) up to €132.1 million (or 59.3%) in 2015.
The gross margin is influenced by a price effect due to a management decision to selectively reduce prices for certain
product lines to accommodate specific market demands. Average prices were lower especially indirect sales and sales
to distributors, also as a result of some close-out sales.
Compared to last year, volumes decreased especially in the direct and distributor channels, influenced by the
disruptions (now completely resolved) occurring in the new U.S. distribution center resulting from the move from
Arizona to New Jersey.
Such effects were however more than counterbalanced by an important brand mix effect, especially due to the
introduction of new luxury brands and the improved performance of some portfolio fashion brands, which provide
higher margins than diffusion brands.
Another factor contributing to gross margin growth is the positive impact of exchange rates, which raised business
profitability by increasing the share of the Group’s profits in euros.
The following table sets forth an analysis of the cost of sales for the periods indicated:
For the six months ended June 30,
2014 (As reported)
% of
revenue
2015 (As reported)
% of
revenue Change
(In € thousands, except percentages)
(amount)
%
Material and finished products 55,415 28.5% 65,915 29.6% 10,500 18.9%
Personnel expenses 9,837 5.1% 10,406 4.7% 569 5.8%
Outsourcing 4,657 2.4% 5,837 2.6% 1,180 25.3%
Other expenses 6,783 3.5% 8,586 3.9% 1,802 26.6%
Total 76,692 39.5% 90,744 40.7% 14,052 18.3%
The total cost of sales is affected by non-recurring expenses in 2014 (in 2015 these costs are not significant).
Excluding such non-recurring costs, considered in the calculation of Adjusted Ebitda, the total cost of sales would be
respectively 39.3% of revenues in 2014, and the same 40.7% in 2015.
The increase in cost of sales is attributable to the combined effect of the following changes:
• For the six months ended June 30, 2015, Materials and finished products amounted to €65.9 million, an increase
of 18.9% from the €55.4 million for the six months ended June 30, 2014. In 2015 Materials and finished products
as a percentage of revenue is 29.6%, compared to 28.5% for 2014. These costs are affected by non-recurring costs
of €0.4 million in 2014 and of €0.1 million in 2015 (included in the calculation of Adjusted Ebitda).
Due to the adjustment being so slight, excluding such non-recurring costs, the incidence of costs of materials and
finished products is the same as that presented in the table above (40.7% of revenue).
• Personnel expenses relating to production amounted to €10.4 million in 2015, an increase of 5.8% from the €9.8
million of 2014. Compared to 5.1% for 2014, in 2015 personnel expenses as a percentage of revenue is 4.7%,
indicating improved efficiency in this area, thanks to the synergies realized.
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• In 2015 Outsourcing amounted to €5.8 million, an increase of €1.2 million, or 25.3%, from the €4.7 million for
2014. In 2015 Outsourcing as a percentage of revenue is 2.6%, compared to 2.4% of 2014.
• In 2015 Other expenses amounted to €8.6 million, an increase of €1.8 million (or 26.6%) from €6.8 million of 2014.
Other expenses are 3.9% of revenue in 2015, compared to 3.5% for the six months ended June 30, 2014. In both
periods, other expenses primarily relate to transport and customs charges, direct and indirect temporary work in
the production area and, to a lesser extent, depreciation and amortization of assets associated with production
activities. The 2015 increase is partially due to higher personnel and other costs related to the Fortogna plant
(made-in production vs. made-out production), which will be completely absorbed when the plant will be
operating at full capacity.
5. Selling and marketing costs
Selling and marketing costs amounted to €103.1 million for the six months ended June 30, 2015, an increase of €14.8
million, or 16.8%, from the €88.3 million for the six months ended June 30, 2014.
In 2015 Selling and marketing costs as a percentage of revenue is 46.2%, compared to 45.4% of 2014.
The following table sets forth an analysis of selling and marketing costs for the periods indicated.
For the six months ended June 30,
2014 (As Reported)
% of
revenue
2015 (As Reported)
% of
revenue Change
(In € thousands, except percentages)
(amount)
%
Royalties 23,956 12.3% 27,797 12.5% 3,841 16.0%
Of which VRA 21,025 10.8% 24,050 10.8% 3,025 14.4%
Of which MAG 2,931 1.5% 3,747 1.7% 816 27.8%
Personnel Expenses 34,373 17.7% 39,295 17.6% 4,922 14.3%
Advertising and PR 13,845 7.1% 16,621 7.5% 2,776 20.0%
Other costs 16,079 8.3% 19,358 8.7% 3,279 20.4%
Total 88,253 45.4% 103,071 46.2% 14,818 16.8%
The €14.8 million increase in selling and marketing costs is primarily attributable to the combination of the following
changes:
• In 2015 Royalties amounted to €27.8 million, an increase of 16.0%, from the €23.9 million for the six months
ended June 30, 2014. In 2015 Royalties as a percentage of revenue is 12.5%, compared to 12.3% of 2014.
Pursuant to certain operations and agreements stipulated during the last year, regarding the revision of minimum
guaranteed royalties due over the term of the licensing agreement, 2015 improves the profitability of some
licenses, thanks to better absorption of royalties and advertising contributions which in 2014 were not fully
saturated by the sales realized. This effect has been partially offset by a negative brand mix effect, causing an
increase below the minimum royalties.
• In 2015 Personnel expenses relating to selling and marketing amounted to €39.3 million, an increase of €4.9
million (or 14.3%) from the €34.4 million of 2014. Personnel expenses as a percentage of revenue is 17.6% for the
six months ended June 30, 2015, compared to 17.7% of 2014. These costs were largely affected by the foreign
exchange rate difference for €3.9 million and excluding this effect they would be €35.4m or 16% of revenues.
In addition, the costs referring to agents, which grew in proportion to the sales growth, are affected by non-
recurring costs of €0.6m in 2014 and of €0.7m in 2015 (included in the calculation of Adjusted Ebitda). Excluding
such non-recurring costs, personnel expenses is respectively in 2014 17.4% of revenues, and in 2015 17.3% of
revenue.
• Advertising and PR in 2015 amounted to €16.6 million, an increase of €2.8 million, or 20.0%, from the €13.8
million in the same period of 2014, due to costs incurred for additional advertising and public relations activities,
in addition to greater corporate advertising investments and advertising made in the house brands. As a
percentage of revenue, Advertising and PR expenses in 2015 is 7.5%, compared to 7.1% of 2014.
• The Other costs refer principally to transportation expenses on sales, business travel, rent and services. In 2015,
Other costs amounted to €19.4 million, an increase of €3.3 million, or 20.4%, from the €16.1 million for the six
months ended June 30, 2014. As a percentage of revenue, Other costs is 8.7% , compared to 8.3% for the six
months ended June 30, 2014. These costs were largely affected by the foreign exchange rate difference for €1.5
million and excluding this effect they would be €17.9m or 8% of revenues.
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In addition, the distribution costs are affected by non-recurring costs of €0.2 million in 2014 and €1.7 million in
2015, and the commercial costs by €0.8 million in 2014 and €1.3 million in 2015 (one-offs included in the
calculation of Adjusted Ebitda). Excluding such non-recurring costs, Other costs is respectively in 2014 7.8% of
revenues, and in 2015 7.3% of revenue.
6. General and administrative expenses
General and administrative expenses amounted to €17.5 million for the six months ended June 30, 2015, with an
increase of €2.6 million (or 17.6%), from the €14.9 million for the same period of 2014.
As a percentage of revenue, in 2015 General and administrative expenses is 7.8%, compared to 7.6% for 2014. These
costs were largely affected by the foreign exchange rate difference for €1.4 million and excluding this effect they
would be €16.1m or 7% of revenues.
In addition, the costs are affected by non-recurring costs of €0.9 million in 2014 and €1.9 million in 2015, also included
in the calculation of Adjusted Ebitda. Excluding such one-offs, general and administrative expenses is respectively €
13.9 million (or 7.2% of revenues) in 2014, compared to €15.6 million in the same period (or 7.0% of revenues).
The increase in the adjusted figures is €1.7 million, from the €13.9 million in 2014 compared to €15.6 million in 2015,
and is mainly due to Arizona cost (restated on Pro-Forma Ebitda) and to an exchange rate impact on the US part of the
business. The decrease in terms of percentage on revenues in General and administrative expenses is the result of
successful actions taken by the Group to improve efficiency and contain costs, as part of the synergies realized and
will be more evident in the second part of the year after the ceasing of Arizona.
7. Other operating income and expenses
Other operating income and expenses resulted in net income of €1.9 million for the six months ended June 30, 2015,
compared to the net operating income of €1.6 million for the six months ended June 30, 2014 (in line with the same
period of the previous year as a percentage of revenue, equal to 0.8%).
In both periods other net operating income primarily relates to prior period adjustments, refunded transport costs,
insurance refunds and compensation for damages regarding product returns, and other income and expenses.
8. Net finance costs
Net finance costs amounted to €8.1 million for the six months ended June 30, 2015, compared to €9.6 million for the
six months ended June 30, 2014.
Both in 2015 and in 2014 this item was affected primarily by the interest for €8.5 million on the bond notes issued by
Marcolin S.p.A., paid in May, in addition to bank interest expense of Marcolin and its subsidiaries, other finance costs
regarding actualization and translation differences and financial discounts, nearly entirely attributable to Subsidiaries.
9. Income tax expense
The estimated income tax expense amounted to €4.3 million for the six months ended June 30, 2015, in line with the
amount for the first half of the previous year.
Income tax expense as a percentage of revenue is 1.9% for the six months ended June 30, 2015, compared to 2.2% for
the six months ended June 30, 2014.
The increase in the consolidated tax rate compared to June 2014 is primarily attributable to the increase in the profit
before taxes of Marcolin S.p.A., and refers mainly to deferred taxes.
The cash inflows arising from taxes are a positive €0.3 million, due to reimbursements from U.S. tax authorities in the
first half of 2015, compared to cash outflows of €1.9 million in June 2014.
* * * * *
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10. Working Capital
The table below sets forth a summary of the movements in the Group’s Working capital, as derived from our
consolidated Cash flow statements for the periods indicated.
For the six months ended June 30,
2014
2015
(As reported)
(As reported)
(In € thousands)
(Increase)/decrease in trade receivables (16,941) (22,057)
(Increase)/decrease in other receivables (2) (1,978)
(Increase)/decrease in inventories 471 (7,293)
Increase/(decrease) in trade payables 13,711 (1,078)
Increase/(decrease) in other liabilities 892 2,975
Increase/(decrease) in current tax liabilities 969 365
(Use) of provision (1,323) (2,562)
Movements in working capital (2,223)
(31,627)
• Trade receivables at the end of June 2015 were higher than in the previous year, they were largely affected by
the foreign exchange rate difference for €7.0 million, and by the increased sales for 2015 compared to the same
period of 2014. In comparison with December 2014, the figure considers also the impact of the business
seasonality. Credit quality remained consistent with that of recent past. In 2015 the recent improvement in the
average collection period, or "days sales outstanding" (DSO), lost momentum, but the emphasis on credit
management and client selection made it possible to keep the Group’s days sales outstanding (DSO) at June 30,
2015 under control even with difficult markets and rising sales (up by 3 days vs June 2014);
• The increase in closing inventories is attributable to an increase in “current” finished product inventories, due to
the higher sales and management's decision to improve customer service by reducing delivery time and
investing in supplies of continuing products (to be “never out of stock”). In contrast, inventories of products
from former collections (obsolete and slow-moving stock) fell from those of 2014. In comparison with the
previous year, the inventory increase is also attributable to the foreign exchange rate difference for €7.1 million
and the discontinuity represented by products with new brands, Zegna and Pucci, launched in 2015, by the
additional inventory for the new joint ventures of €1.6m, and by the increase in collections offered and models
produced. In 2015 the total "days on inventory" (DOI), including raw materials, work in process and finished
goods, has been 127 days.
• Trade payables are substantially stable at the end of June, despite the higher turnover and the growth in
inventory. Some of the improvement in the Group’s days payables outstanding (DPO) shown at the end of 2014
and due to the adjustment of payment terms for suppliers shared by Marcolin and Viva to the longest time
period between the two, is decreased at June 30, 2015, mostly due to seasonality and to the concentration of
payments of supply in the first half of the year.
11. Capital Expenditures
Our capital expenditures over the period covered by this analysis primarily consisted in:
• the investment in the new Fortogna plant aimed to increase the internal manufacturing capacity of Made in Italy
products (property, plant and equipment);
• the maintenance, replacement and modernization of our production and logistics facilities (plant, machinery and
equipment);
• investments in extending/improving terms and conditions of existing licenses (intangibles).
The following table sets forth our capital expenditures for the periods indicated as derived from our cash flow
statement.
Marcolin Bond Report as of and for the six months ended June 30, 2015
MD&A
22
For the six months ended June 30,
2014
2015
(As reported)
(As reported)
(In € thousands)
Property, plant and equipment (a)
1,221 5,360
Intangible assets(b)
8,611 5,600
Total capital expenditure 9,831 10,960
(a) Investment of €5.4 million in Property, plant and equipment mainly related to new asset purchase, specifically €1.9 million in lands and
buildings for the new manufacturing plant in Fortogna; €2.6 million in commercial and industrial equipment; €0.7 million in hardware and
office fixture, and €0.2 million in other tangible assets. (b) Investment of €5.6 million in intangible assets mainly related to the lump sum agreed by the Parent Company for some licensors in order to
extend licensing agreement periods and improve term and conditions. In addition, intangible assets under formation include the U.S.
Subsidiary and Parent Company’s software and business application implementation, totaling €1.8 million.
12. Liquidity (Cash and cash equivalents)
At the end of June 30, 2015 the Cash and cash equivalents decreased from June 30, 2014 of about €7.7 million.
The changes in the Group’s cash position as compared to June 30, 2014 are presented in the Cash Flow Statement
below.
* * * * *
13. Cash Flow Statement
The following table sets forth our consolidated Cash flow statement for the periods indicated.
As of June 30, As of June 30,
2014 2015
Marcolin Group Marcolin Group
(As reported) (As reported)
(In € thousands)
Operating activities
Profit before income tax expense 6,690 5,568
Depreciation, amortization and impairment 4,515 5,015
Accruals to provisions and interests expenses 3,401 9,146
Cash flows from operating activities before changes in working capital and tax and interest paid 14,605 19,730
Movements in working capital (2,223) (31,627)
Income taxes paid (1,979) 319
Net cash flows from operating activities (13.a)
10,404 (11,579)
Investing activities
Purchase of property, plant and equipment (1,221) (5,360)
Proceeds from the sale of property, plant and equipment 64 -
(Purchase)/Proceeds of intangible assets (8,611) (5,600)
Acquisition of investments - 93
Net cash (used in) investing activities (13.b)
(9,767) (10,866)
Adjustments to other non-cash items (595) (1,608)
Financing activities
Net proceeds from/(repayments of) borrowings 543 18,279
Interest paid (8,883) (9,354)
Other cash flows from financing activities - -
Capital contribution payment - -
Net cash from/(used in) financing activities (13.c)
(8,339) 8,925
Net increase/(decrease) in cash and cash equivalents (8,298) (15,127)
Effect of foreign exchange rate changes 374 1,142
Cash and cash equivalents at beginning of period 38,536 36,933
Cash and cash equivalents at end of period 30,611 22,948
Marcolin Bond Report as of and for the six months ended June 30, 2015
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23
13.a Net cash flows from operating activities
Net Cash flows from operating activities absorbs €11.6 million for the six months ended June 30, 2015.
The higher cash absorption shown in 2015 is primarily attributable to financial needs related to the investment in
working capital, as explained in “11. Working capital”, in addition to the usual the Bond expenses paid in May.
13.b. Net cash flows used in investing activities
Net cash flows used in investing activities amounted to €10.9 million for the six months ended June 30, 2015,
compared to €9.8 million for the same period of previous year.
Investing activities for the six months ended June 30, 2015 primarily related to:
• Investment of €5.4 million in Property, plant and equipment mainly related to new asset purchase,
specifically:
- €1.9 million in lands and buildings to purchase the manufacturing plant in Fortogna;
- €2.6 million in commercial and industrial equipment;
- €0.7 million in hardware and office fixture;
- €0.2 million in other tangible assets;
• Investment of €5.6 million in intangible assets mainly related to the lump sum agreed by the Parent Company
for some licensors in order to extend licensing agreement periods and improve terms and conditions. In
addition, intangible assets under formation include the U.S. Subsidiary and the Parent Company’s software
and business application implementation totaling €1.8 million.
13.c. Net cash flows from/used in financing activities
Net cash flows from financing activities amounted to €8.9 million for the six months ended June 30, 2015,
consisting of net drawings of borrowings and the interest paid.
14. Capital Resources
As of June 30, 2015, our total gross financial debt was €260.0 million (as of December 31, 2014 it was €240.5 million).
The main component of the total financial debt is the HY Bond, which was issued in November 2013, with maturity on
November 14, 2019, a nominal value of €200 million, and 8.5% interest (paid semiannually).
The other components of total financial debt relate primarily to current financial liabilities, including bank payables
and the revolving credit facility for €25.0 million that was fully drawn at the end of June 30, 2015.
In particular, the Company was granted a medium/long-term credit amortizing line to cover medium/long-term
financial requirements associated with investments in joint-ventures in China and Russia, which have been drawn on
at the end of 2014. This credit line is for €5.0 million, 50% of which backed with an irrevocable guarantee from SACE
S.p.A., granted specifically to fund Italian companies that invest in projects aimed to make their businesses more
international, whether directly or indirectly.
The growth in gross financial debt shown as of June 2015, compared to the same figure at the end of December 2014,
is mostly due to an increase in bank credit in the form of a bill discounting facility used in the ordinary course of
business and the financial facility partially drawn by U.S. Subsidiary.
Moreover, additional medium-long term amortizing financing, committed and unsecured, has been agreed upon
between the Parent Company and another important Bank and drawn in March for €3.0 million, with the purpose of
supporting the Fortogna project (building acquisition). The financing of the Fortogna project was also impacted by a
finance lease of some €1.5 million, related to the acquisition of new machinery and equipment for the refurbishment
of the new Acetato plant.
Finally, the financial liabilities include an amount of US$5.0 million due to the HVHC, Inc. Group, of which US$2.0
million is due in the short term; the remaining portion, due at the end of 2016, is recognized as non-current financial
liabilities, and discounted in accordance with the applicative accounting standards.
Marcolin Bond Report as of and for the six months ended June 30, 2015
MD&A
24
15. Other information/Quantitative and Qualitative Disclosures about Market Risk
As of June 30, 2015, there were no material changes in the risk factors disclosed in our report as of December 31,
2014.
Marcolin Bond Report as of and for the six months ended June 30, 2015
25
APPENDIX – OTHER CONSOLIDATED FINANCIAL INFORMATION
1. Summary Pro-Forma Consolidated Financial Information for the Twelve Months Ended June 30, 2015
The summary financial information presented for the twelve months ended June 30, 2015 is calculated by taking the
results of operations for the six months ended June 30, 2015, and adding to them the difference between the results of
operations for the full year ended December 31, 2014 and for the six months ended June 30, 2014.
The financial information for the twelve months ended June 30, 2015 is not necessarily indicative of the results that
may be expected for the year ended December 31, 2015, and should not be used as the basis for or prediction of an
annualized calculation.
(in € thousands except percentages)
As of and for twelve
months ended
June 30, 2015 (pro forma)
Pro-forma combined revenues …………………………………………..……………………………………………………………………………………….. 390,664
Pro-forma combined EBITDA ………………………………………………………………………………………………………………………………………. 27,267
Pro-forma combined adjusted EBITDA ……………………………….………………………………………………………………………………………. 46,553
Pro-forma combined adjusted EBITDA margin ………..…………….……………………………………………………….…………………………… 11.9%
Pro-forma combined adjusted run-rate EBITDA (1)
…………………….………………………………………………………………….……………... 49,770
Pro-forma combined adjusted run-rate EBITDA margin ……………….…………………………………………………………….………………… 12.7%
Consolidated cash and cash equivalents ……………………………….……………………………………………………………….….….………….. 22,948
Consolidated total financial debt …………….………………………………………………………………………………………………….……………..... 260,013
Consolidated net financial debt ……………………………………………………………………………………………………………….….……….……… 230,493
Pro-forma combined cash interest expense …….……………………………………………………………………………….………..……………... 17,000
(1) The following table sets forth the calculation of adjusted run-rate EBITDA for the periods indicated:
(in € thousands)
As of and for twelve
months ended
June 30, 2015
Adjusted EBITDA (a)
…………………………………………………………………….……………………………………………………………………………… 46,553
Additional synergies (b)
…………………………………………………………………………………………………...……………………………………… 3,217
Adjusted run-rate EBITDA ……………………………………………………………………………………………………………………………………. 49,770
(a) “Adjusted EBITDA” is EBITDA adjusted for the effect of non-recurring transactions which consist primarily of one-off charges, non-recurring
costs in relation to Viva integration project and, and other extraordinary items. This amount has been normalized (restated) excluding the
costs of the discontinued operation regarding Arizona plant closed down, as shown in “4. Other Financial Information - Section III. Summary
Consolidated Information”.
(b) Pursuant to the Viva integration, important cost synergies will be realized which will reach approximately €10.0 million, above the initial
planning of €8.5 million.
(c) Synergies primarily are generated by shared services, operational synergies and elimination of duplicate executive functions and include
efficiencies generated through the reduction of overlaps between foreign subsidiaries, savings in property executive management and back-
office personnel, consolidation of corporate functions, and shared usage of operational, office, and distribution networks. Operational
synergies include efficiencies generated through the consolidation of warehouse facilities in the U.S., consolidation of IT systems and
procurement department savings.
At the end of 2014 Marcolin’s Group achieved synergies of €3.6 million, and from 2015 the full amount is expected. The estimated synergies
already realized in the first half of 2015 has been about €3.2 million.
Marcolin Bond Report as of and for the six months ended June 30, 2015
26
2. Other Financial and Non-Financial Data
Revenue is segmented by reference to the geographic area in which the reporting entity resides.
The following tables set forth an analysis of our revenue by “geographic segment” for the periods indicated.
Revenue, sales volume and average price per unit by geographic segment
For the six months ended June 30,
2014 (As Reported)
% of total
2015 (As Reported)
% of
total
Revenue (In € thousands)
Italy 46,382
23.9%
60,589
27.2%
Of which Italy Domestic(1)
10,513
5.4%
13,970
6.3%
Of which Italy Export(2)
35,869
18.5%
46,619
20.9%
France 21,925
11.3%
18,731
8.4%
Rest of Europe 30,003
15.4%
28,448
12.8%
North America 85,193
43.8%
97,032
43.5%
Rest of World(3)
10,836
5.6%
18,069
8.1%
Total 194,338
100.0%
222,869
100.0%
Sales Volume(4)
(units in thousands)
Italy 1,040
13.0%
1,480
20.1%
Of which Italy Domestic(1)
173
2.2%
228
3.1%
Of which Italy Export(2)
867
10.8%
1,251
17.0%
France 482
6.0%
398
5.4%
Rest of Europe 944
11.8%
571
7.7%
North America 5,178
64.5%
4,491
60.9%
Rest of World(3)
381
4.8%
436
5.9%
Total 8,025
100.0%
7,376 100.0%
Average price per unit(5)
(€ per unit)
Italy 44.6
40.9
Of which Italy Domestic(1)
60.8
61.2
Of which Italy Export(2)
41.4
37.3
France 45.5
47.0
Rest of Europe 31.8
49.8
North America 16.5
21.6
Rest of World 28.4
41.4
24.2
30.2
(1) Italy Domestic relates to the revenue generated by Marcolin’s sales of products to the Italian market.
(2) Italy Export relates to the revenue generated by Marcolin’s sales of products to the markets in which we do not have an operating subsidiary,
mainly in the Far East and Middle East. (3)
Rest-of-World sales relates to the sales generated by Brazilian and other non-North American and non-European subsidiaries (for example
Marcolin do Brasil Ltda, Viva Brasil Ltda, Marcolin Asia Ltd.).
(4) Sales volumes correspond to sales made to wholesale customers expressed in thousands of units.
(5) Average price is calculated as revenue divided by sales volume.
Revenue, sales volume and average price per unit by brand type
For the six months ended June 30,
2014 (As Reported)
% of total
2015 (As Reported)
% of
total
Revenue (In € thousands)
Luxury brands 81,171
41.8%
107,819
48.4%
Diffusion brands 113,167
58.2%
115,049
51.6%
Total 194,338
100.0%
222,869
100.0%
Sales volume(1)
(units in thousands)
Luxury brands 1,083
13.5%
1,362
18.5%
Diffusion brands 6,942
86.5%
6,013
81.5%
Total 8,025
100.0%
7,376
100.0%
Average price per unit(2)
(€ per unit)
Luxury brands 75.0
79.1
Diffusion brands 16.3
19.1
24.2
30.2
(1) Sales volume corresponds to sales made to wholesale customers expressed in thousands of units.
(2) Average price is calculated as revenue divided by sales volume.
Marcolin Bond Report as of and for the six months ended June 30, 2015
27
Revenue, sales volume and average price per unit by product type
For the six months ended June 30,
2014 (As Reported)
% of total
2015 (As Reported)
% of
total
Revenue (In € thousands)
Sunglasses 99,034
51.0%
118,347
53.1%
Prescription frames 95,304
49.0%
104,522
46.9%
Total 194,338
100.0%
222,869
100.0%
Sales volume(1)
(units in thousands)
Sunglasses 4,614
57.5%
4,511
61.2%
Prescription frames 3,411
42.5%
2,865
38.8%
Total 8,025
100.0%
7,376 100.0%
Average price per unit(2)
(In € per unit)
Sunglasses 21.5
26.2
Prescription frames 27.9
36.5
24.2
30.2
(1) Sales volume corresponds to sales made to wholesale customers expressed in thousands of units.
(2) Average price is calculated as revenue divided by sales volume.
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