Rotterdam – 13 August 2001 – Head N.V. (NYSE: HED; VSX: HEAD), a leading global manufacturer and marketer of sports equipment, announced today that it expects full year revenues measured in local currency to be slightly higher than 2000 and operating income, excluding transition costs from its footwear business and restructuring expenses to be in line with 2000’s operating income. For the six months ended June 30, 2001, Head had revenues of $152.9 million, a loss from continued operations before tax of $2.3 million and a net loss of $4.2 million, compared with revenues of $160.9 million, a loss before tax from continued operations of $7.1 million and a net loss of $9.0 million for the six months ended June 30, 2000. Earnings per share for the period were ($0.11) compared to ($0.37) for the same period in 2000.
Johan Eliasch, Chairman & CEO stated, “For the first six months of this year we continued to operate in a mixed retail environment. Revenues were off marginally due to the retail environment and the continued weakness of the euro. At comparable exchange rates to this time last year, revenues were only fractionally lower than last year. Our balance sheet is strong, interest expense has declined substantially and our cash flow is good.
In the first six months, we made several key moves to strengthen our business for the balance of the year and beyond. As previously reported, we have entered into an agreement to license Head Performance Footwear to Romika GmbH which will impact our sales and profits in 2001. However, next year and beyond the agreement will provide us with additional licensing income and lower our working capital requirements.
We made significant investments in product launches and marketing for our well received Head Snowboard line of products and breakthrough Head Intelligence line of racquets. Also, we are continuing to invest in technology for new products and have been implementing projects to lower manufacturing and distribution cost. We are rolling out our new online dealer ordering system. In fact we signed up over 100 dealers and retailers at the recent Munich sports show. We should see the benefits of these and other investments in the second half of the year and well into 2002.
We are delighted to welcome the Honorable William Cohen who joined our Supervisory Board in May this year.
For the balance of the year, we have mostly positive revenue momentum in local currency, however our bookings in Winter Sports are down 5% compared with that of 2000, which was a record year. The order book in tennis racquets is quite strong up 15% over last year and despite the weakness in the tennis ball market, Racquets Sports, in total, is up 6%. Our Diving business is going to perform slightly better than last year.
Measured in local currency, we expect revenues for the full year to be up slightly over last year, but due to the continued weak retail environment and the weakness of the Euro against the US Dollar reported revenues will be flat to 2000.
Excluding the footwear business and restructuring expenses, we expect our operating income be roughly in line with last year’s of $38.6 million.
With the transition costs of footwear and restructuring charges relating to our distribution activities flowing through in the second half of the year, we expect reported full year 2001 operating income to be $28 million to $33 million.
Our brands are some of the best in the world and our athlete endorsement program has been phenomenal. This gives us tremendous brand visibility and media exposure. Andre Agassi has been in great form winning four ATP tour events including his second consecutive Australian Open. Three time French open winner Gustavo Kuerten has become a sports icon in Brazil, and who can forget Goran Ivanisevic’s thrilling Wimbledon victory? Our racquets are the “choice of the pros” – the number one racquet used on the ATP Tour. In skiing, we sponsor some of the top athletes including 2001 Downhill World Champion Hannes Trinkl. Our divers continue to set new records.”
We generate revenues in our principal markets by selling goods directly to retailers and to a lesser extent, by selling to distributors. We also receive licensing and royalty income. As many of our goods, especially Winter Sports goods, are shipped during a specific part of the year, we experience highly seasonal revenue streams. Following industry practice, we begin to receive orders from our customers in the Winter Sports division from March until June, during which time we book approximately three quarters of our orders for the year. We will typically begin shipment of skis, boots and bindings in July and August with the peak shipping period occurring in October and November. At this time, we will begin to receive re-orders from customers, which constitute the remaining quarter of our yearly orders. Re-orders are typically shipped in December and January. Racquet Sports and Diving product revenues also experience seasonality, but to a lesser extent than Winter Sports revenues. During the first six months of any calendar year, we typically generate approximately 50% of our Racquet Sports and Diving product revenues, but only 10% of our Winter Sports revenue. Thus, we typically generate only 35% of our total year gross profit in the first six months of the year, but we incur 50% of our fixed general and administration and sales and marketing expenses in this period.
For the six months ended June 30, 2001, total revenues decreased by $8.0 million, or 5.0%, to $152.9 million from $160.9 million in 2000. At comparable exchange rates, total revenues for the six months ended June 30, 2001 decreased by 1.5%.
For the Six Months ended June 30 2000 / 2001 / Change %
in thousands $
Winter Sports / 13,936 / 13,574 / (2.6)
Racquet Sports / 99,434 / 94,634 / (4.8)
Diving / 42,996 / 40,029 / (6.9)
Licensing / 4,546 / 4,678 / 2.9
Total Revenues / $160,912 / 152,915 / (5.0)
Winter Sports revenues for the six months ended June 30, 2001 decreased by $0.4 million, or 2.6%, to $13.6 million from $13.9 million in 2000. This decrease was due to lower sales of our ski bindings, partly offset by improved sales of ski boots and snowboard equipment. At comparable exchange rates revenues increased by $0.4 million or 3.1%
Racquet Sports revenues for the six months ended June 30, 2001 decreased by $4.8 million, or 4.8%, to $94.6 million from $99.4 million in 2000. At comparable exchange rates, revenues in our Racquet Sports division decreased by $1.8 million, or 1.9%. This shortfall results mainly from lower sales of Penn products and squash racquets, partly offset by higher revenues from tennis racquets and accessories.Diving
Diving product revenues for the six months ended June 30, 2001 decreased by $3.0 million, or 6.9%, to $40.0 million from $43.0 million in 2000. At comparable exchange rates, revenues from our Diving division decreased by 3.1% due to lower sales in Italy and the US.
Licensing revenues for the six months ended June 30, 2001 increased by $0.1 million, or 2.9%, to $4.7 million from $4.6 million in 2000. Gross margin/Operating profit (Operating loss) Due to lower revenues and a decline in the gross margin percentage from 40.9% to 39.9%, gross profit decreased by $5.5 million, or 8.3%, to $60.3 million from $65.8 million in 2000.Selling and marketing expenses increased by $2.5 million due to higher advertising expenses for the introduction of our Head Snowboard lines and other new products including the Head Intelligence series. General and administrative expenses decreased by $1.3 million, compared to last year. We recorded $0.6 million of termination benefits and other related cost primarily in respect to one management employee.
Mainly as a result of lower gross profit and higher selling a
nd marketing expenses, we incurred an operating loss for the period of $5.4 million compared to an operating profit of $1.8 million for the same period in 2000.Net interest expense decreased by $3.9 million, or 44.3%, to $4.9 million from $8.8 million in 2000. The decrease was due to the substantial reduction of our debt from the proceeds of our October 2000 initial public offering.
We had a foreign currency exchange gain of $8.2 million, an increase of $4.4 million over the $3.8 million gain in first six months of 2000. The gains are due primarily to U.S. dollar/euro currency movements and their effect on the U.S. dollar denominated receivables of our European subsidiaries. We operate in a multi-currency environment and are subject to the effects of fluctuation in exchange rates.
In 2000, we recorded a charge of $3.5 million in other expense relating to a payment made to the previous owner of HTM.
Net Income (Loss) As a result of the foregoing factors, for the six months ended June 30, 2001, we had a net loss of $4.2 million, compared to a net loss of $9.0 million in 2000.Liquidity and Capital Resources:
For the six months ended June 30, 2001, cash generated from operating activities increased to $26.7 million from $3.8 million in 2000 due to lower working capital requirements and lower interest expense.
We have a rich heritage. Founded in 1950 by inventor Howard Head, today Head NV is a leading global manufacturer and marketer of branded sports equipment serving the skiing, tennis and diving markets. We have a world-class portfolio of premium brands, which includes Head (alpine skis, ski boots and snowboard products, tennis, racquetball and squash racquets, athletic and outdoor footwear and apparel); Tyrolia (ski bindings); Penn (tennis balls and racquetballs) and Mares and Dacor (diving equipment).
Our strategic focus is to target the high margin, premium segments of our markets by developing highly innovative products sold at premium prices, a policy that we call “Superior Performance through Superior Technology”. This strategic focus has driven our growth.
We are a global company diversified in terms of both products and geography and one of the top suppliers of branded sports equipment to sporting goods retailers worldwide. Head offers a broad product range through over 27,000 accounts in over 80 countries.
We hold leading market share positions in all three of our product categories: Winter Sports, Racquet Sports and Diving. We have a Licensing division to leverage value from and increase visibility of our brands outside the product categories covered by our product divisions.
Based on our fully integrated sales, marketing and distribution units in our major markets, as well as the strength of our innovative new products, we have been able to increase our market shares.
Our high performance products are used and endorsed by many of today’s top athletes.