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ITALY. Italian eyewear company Safilo Group’s 2020 Strategic Plan has been approved by its Board of Directors. Its key financial targets include net sales growth of +6% year-on-year, reaching €1.6-1.7 billion in 2020. The target for EBITDA growth is 2x sales – doubling 2014 EBITDA by 2020.
Safilo Chief Executive Officer Luisa Delgado commented: “Safilo is a strong business, enjoys a great craftsmanship heritage dating back to 1878, has worldwide brands and positions in an industry offering significant growth potential and is supported by a healthy balance sheet able to fund investment in its future.
“The 2020 Strategic Plan will allow us to realise our potential. We are already growing our top line, but we can grow it faster by enhanced focus on our brand and commercial strategies. There are significant internal structural re-designs that we are undertaking to boost supply chain, technology, go-to-market and cost efficiencies to drive a positive step-change in profitability.”
She continued: “Safilo’s market offers the Group excellent opportunity for sustainable, profitable growth. The Board and the new senior management team have developed the 2020 Strategic Plan to position and drive Safilo to take advantage of this opportunity to the benefit of the Group, its customers and employees and to materially enhance profitability and shareholder value.”
Safilo is the second largest operator in the global eyewear market, with distribution in 130 countries. It manufactures around 35 million frames every year. Revenues in 2014 were just under €1.2 billion.
Since her appointment as CEO in late 2013, Delgado and the Board have committed to further develop the group’s commercial strategy, geographic footprint, license portfolio and design and manufacturing capabilities to deliver sustained growth and accelerated profitability in the mid and long term.
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“The 2020 Strategic Plan will allow us to realise our potential. We are already growing our top line, but we can grow it faster by enhanced focus on our brand and commercial strategies.“ |
Luisa Delgado Chief Executive Officer Safilo Group |
In 2014 the Group laid the foundation of its new strategic plan, which included a new go-to-market strategy based on seven regions and five global channels; a new brand building organisation; a new product creation organisation to enhance design and engineering; and a new product design organisation featuring a global network of Design Studios.
Now Safilo has identified four key corporate strategies to strengthen and enhance the company’s business model. These are:
– Balance across consumer market segments, between proprietary and licensed brands, within licensed brands and across geographies and channels to underpin sustainable growth;
– Focus on best in class brand building, creative design and commercial capabilities, to build long-term competitive advantage;
– Simplification of product creation, supply chain and logistics, and overhead structure, through IT global work processes modernisation, integration and standardisation, to save costs and improve control;
– Differentiation through a market segment-based business model, sales and customer service and talent development to boost performance.
Safilo’s 2020 Strategic Plan: the overview
Safilo’s brand strategy is centred on its new brand building organisation and will focus on developing different areas of marketing expertise, with digital at the core. A key objective is to achieve an appropriate balance between the five identified eyewear consumer market segments (Atelier, Fashion Luxury, Contemporary Fashion & Lifestyle, Mass/Cool, Sport & Outdoor), in order to develop an increasingly relevant brand portfolio. Safilo is also keen to achieve a more sustainable balance between proprietary and licensed brands, by increasing the share of the former to around 40% of total business (from 25% in 2014).
Safilo’s new Global Commercial Strategy will focus on improving the quality of the Group’s distribution and sales, implementing an integrated set of trade terms and joint business planning with customers across a variety of channels.
By region, Safilo anticipates developed countries achieving year-on-year mid-single digit sales growth, driven by new business opportunities in the group’s historically underdeveloped markets such as Germany, the UK and the Nordic countries. Better channel and customer differentiation strategies in traditional stronghold markets such as North America, Italy and Iberia will also be a factor.
Emerging markets are expected to deliver year-on-year double-digit sales growth, driven by the establishment in 2014 of new dedicated sales regions in China, Asia Pacific, Latin America and the Middle East.
Within the supply chain arena, Safilo will design and introduce what it describes as an “agile, synchronised and differentiated end-to-end supply network” that responds to the differentiated needs of all its brand segments, allowing for better procurement, capacity utilisation, delivery performance, order fulfillment and inventory management.
All these developments will be underpinned by the implementation of the latest and most advanced IT systems, Safilo maintains, under the auspices of a project is called “˜Eye-Way’.
Key economic and financial targets
Safilo Group’s overall financial objectives are to grow net sales by +6% CAGR reaching total net sales of roughly +40% versus 2014; to grow EBITDA at 2x the rate of sales growth and double 2014 EBITDA by 2020; and to generate a cumulative €350-400 million free cash flow over the six-year period.
Safilo envisages two different development phases for its 2020 Strategic Plan. The period 2015-2017 is expected to see organic top line acceleration on proprietary brands in particular, supported by investments in strategic marketing and commercial projects, as well as in the improvement of the supply chain and logistics footprint.
In 2017, the current Gucci license business will be converted into a four-year strategic product partnership agreement (SPPA), signed with Kering in January 2015. The period 2018-2020 is expected to be a phase of sustainable sales and margin growth.
As already noted, Safilo expects total revenues to grow at an average compound rate of +6%, reaching €1.6-1.7 billion in 2020, driven by the expected growth of the eyewear market, more pronounced in emerging markets, together with the opportunity for the Group to increase its market share through door expansion, higher productivity and cross-selling opportunities.
EBITDA margin is expected to increase to around +14% compared with 2014, driven by gross margin improvement, a higher share of proprietary brands and higher overhead productivity.
Lastly, Safilo predicts that 2015-2020 cumulative free cash flow should reach approximately €350-400 million, reflecting the positive cash flows from operating activity as a function of the improving financial results and the Group’s effort to continuously optimise working capital going forward.
The Group said it had a strong balance sheet and cash flows and will finance the investment required under the strategic review from its own resources.
