head nv: december 2005 -...

HEAD NV: DECEMBER 2005

HEAD NV

Vicki BoothCorporate Development

SAFE HARBOR STATEMENT

This presentation contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking statements involve risks and uncertainties. Although Head believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this presentation will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included and quoted herein, the inclusion of such information should not be regarded as a representation by Head or any other person that the objectives and plans of Head will be achieved.

SUMMARY

World class brand portfolio

Leading market positions in skiing, tennis and diving

Truly global company

Innovation leadership

CURRENT TRADING

• 2005 is proving to be a mixed year for the group– Wintersport bookings stable compared with prior year; waiting for re-orders– Tough market conditions for both tennis racquets & balls, despite launch of new

Flexpoint racquet technology.– Diving: top line deterioration due to product rationalisation; margins not impacted.

• Our results for the first nine months of 2005 show:– Revenues down slightly by 0.5% compared to prior year– Operating profit (before restructuring charges & gain on sale) is at $6m– Net income $2.9 million, compared with $37 million loss in prior year (impact of senior

note issuance & one-time Austrian tax rate change)• Restructuring program continues:

– Cost base and flexibility have been positively impacted• But – outlook remains stable:

– Despite tough market conditions, full year operating profit anticipated to be in-line with the prior year.

– 2006 – results will be impacted by increased raw material prices

OUR BRANDS

First established in 1950’s when Howard Head invented metal ski. Now extended to cover tennis, squash & racquetball racquets, alpine skis & boots and snowboards, bindings & boots.

Acquired by Head in 1999, Penn is currently the official ball of the Tennis Masters Series and the number one selling tennis ball in America. Penn racquetball balls are the number one selling ball worldwide.

Tyrolia is the world’s largest alpine ski binding manufacturer. Tyrolia is highly innovative and introduced the first step-in alpine binding in 1962 and the first carving binding in 1996.

Mares was founded in 1949 and today is one of the leading dive brands worldwide. Dacor founded in 1953 and based in the USA, specialises in scuba equipment.

47%

35%

16% 2%

WinterRacquetsDivingLicensing

GLOBAL BRANDED SPORTS COMPANY

2004 revenue by division:

2004 revenue: $479.1 million

GLOBAL BRANDED SPORTS COMPANY

N America26%

Europe62%

R o W12%

2004 revenue by geography:

2004 revenue: $479.1 million

INNOVATION LEADERSHIP

Head Carving Skis & Cyber Line

Tyrolia Power Select Bindings

Mares Dacor HUB Diving System

Head Titanium Racquets

Tyrolia Super-Light Bindings

Head IntelligenceRacquets

1996

1997

1998

1999

2000

2001

2002

Head IntelligenceSkis

2003

Head IntelligenceSnowboards

Head Liquidmetalracquets

2004

Head FlexpointTechnology

2005

WINTER SPORTS DIVISION

BUSINESS AND MARKET DYNAMICS I

• Units sold *:

16%39%14%

Market share

#3Boots#1Bindings#3Skis

Market position

• Winter Sports wholesale market size estimated to be $1.54 billion

• Head’s worldwide market shares and positions in 2004 were as follows:

5671,637584

2004

196925249

9M 2004

5241,383557

2003

269Boots850Bindings232Skis

9M 2005In thousands

* Excludes accessories

Includes Bindings CM business

BUSINESS AND MARKET DYNAMICS II

• Market trends:– At constant currency, we believe market showed some decline in the 04/05

season compared to the 03/04 season; partially due to poor weather conditions.

– Integrated packages of skis and bindings continue to be popular– Snowboard market continued to decline – in part due to weather, but in part

due to the continuing trend away from snowboards – no evidence yet that the floor has been reached

– Further consolidation amongst manufacturers – Slow consolidation of retail groups

• Outlook for 2005 and beyond:– Continued concentration of competitors to those who offer all products

(skis/boots/bindings)– Overall expect the market to remain flat . Growth is anticipated in Eastern

Europe, and probably China & the Far East. – Market remains cautious, but we expect revenues to be in line with prior year.

NEW PRODUCTS

• 04/05 new product launches well received (Full Custom System ski boots and Super Railflex II system)

• 05/06 will see continued use of award winning Liquid Metal, Intelligence & Superframe technology.

Full Custom System

Intelligence skis

Railflex bindings

RESULTS

32.9%

31.3

95.19M 2004

35.6%

36.5+7.9%

102.79M 2005

35.7%

65.3

182.72003

216.2Revenue+18.3%% change

36.4%

78.8

2004

Gross Profit% margin

$ millions

2004 revenue by product:

N America15%

Europe71%

R o W14%


37%

32%

22%

9%

SkisBindingsBootsSB

• 2005:– Volumes of skis produced in Budweis, Czech Republic

increased by 140,000 pairs of skis in 2005 – planned savings realised.

– Bindings assembly plant closed by end of 2005

• 2006:– Anticipated movement of a further 40,000 pairs in 2006, bringing

Budweis plant to capacity & increasing savings.– Move of 60,000 ski boots from Italy to Litovel in 2006– Snowboards showing improved contribution

KEY STRATEGIC INITIATIVES

MARKETING

RACQUET SPORTS DIVISION


30%25%

Market share

#1Balls#2Racquets

Market position

• Racquet Sports wholesale market size estimated to be $595 million

• Head’s worldwide market shares and positions in 2004 were as follows:

• Units sold*:

6,4011,7862004

5,2221,447

9M 2004

5,0986,382Tennis balls (doz)

1,4671,774Tennis racquets9M 20052003In thousands

* Excludes accessories

BUSINESS AND MARKET DYNAMICS II• Market trends:

- competitive environment during 2005; 4 companies launched new key technologies, including Head’s launch of Flexpoint

- new product also stimulated demand, and sell in data for H1 in the US was up 13% - but sell out remained lower at 6%.

- Europe did not benefit from the new technologies – with markets down around 3% due to poor weather.

- Growth seen in emerging markets: Eastern Europe, South America & China.- Globally we believe the market for tennis racquets is up slightly, yet down in

tennis balls

• Outlook for 2006 and beyond:– The market will continue to be tough.– Any recovery in Europe will be dependent upon the weather and economic

conditions

NEW PRODUCTS

• Launch of Flexpointtechnology highly successful, augmented byAgassi’s performance at US Open.

RESULTS

39.4%

52.2

132.4

9M 2004

41.2%

53.5-1.9%

129.9

9M 2005

37.0%

60.3

163.0


37.9%

62.2

2004


$ millions


N America46%

Europe43%

R o W11%


50%35%

15%

RacquetsBallsOther


• Tennis racquet manufacturing moved to China. – In 2005 450k of the 500k remaining racquets

manufactured in Europe were moved to China.– Anticipated annualised savings of $3.5m per annum -

$1m achieved in 2005. – Costs of $6m – of which $3m will be cash costs

announced. The cash costs maybe reduced by as much as $1m.

MARKETING

DIVING DIVISION


17%

Market share

#1Total Mares + Dacor + Sporasub

Market position

• Diving wholesale market size estimated to be $515 million

• Mares/Dacor’s worldwide market share and position in 2004 was as follows:

BUSINESS AND MARKET DYNAMICS II

• Market trends: – diving market remains weak due to numerous natural disasters

and terrorism– Emerging markets starting to grow; Russia, Poland, S.Africa,

Thailand

• 2005 and beyond:– Long term we believe that the market has the potential to grow

by 5%

NEW PRODUCTS

• Prime focus on increasing reliability of existing, high end products in the computer segment:– Nemo: Swiss made case and mechanical

components.– Airlab: diving’s most completely integrated

computer – includes illuminated alarms and air consumption calculator

– M1: easy to use dive computer for the recreational diver

• Product development focused on mid-range computer products, filling current gap in existing product range

RESULTS

35.9%

20.8

57.8

9M 2004

36.1%

18.2-12.9%

50.3

9M 2005

31.6%

20.7

65.5

200374.1Revenue

+13.1%% change

30.4%

22.5

2004


$ millions


N America18%

Europe67%

R o W15%


84%

10% 6%

MaresDacorSpora


• Commercial:– As a reaction to poor market conditions, we will aim

to penetrate the higher volume, mid-range product market, in addition to the innovative high end market

– Development of products to fill gaps in the mid-range

• Manufacturing:- No major projects – all those planned have now

been completed. Further review during 2006.

MARKETING

LICENSING

96.9%

7.6

7.89M 2004

98.8%

9.4+21.7%

9.59M 2005

94.3%

9.1

9.72003


79.0%

8.7

2004


$ millions

• Good development from licensing division, positively impacts profitability of group.

SUMMARY OF ANNUAL INCOME STATEMENT

(36.9)(27.7)(9.3)(23.6)(0.6)3.2%

15.02.3

6.6%

31.037.0%

172.7467.02004

(14.7)(0.8)(13.8)(12.9)(1.1)0.1%

0.28.4

6.6%

27.937.0%

156.3422.32003

2.92.50.4

(10.1)2.3

2.8%

8.25.0

7.1%

20.840.1%

117.4292.4

9M 2005

(37.0)(21.1)(15.9)(20.1)

0.31.3%

3.91.7

4.9%

14.438.1%

112.0294.1

9M 2004

Restructuring costs

For-Ex gain/(loss)Interest expense, net

% margin

% margin

Net LossTaxationIncome/(Loss) before tax

Operating income

EBITDA *% margin

Gross ProfitNet Sales$ millions

* See end of presentation for reconciliation

SUMMARY OF BALANCE SHEET

587.5216.987.2

199.543.240.7

587.5133.185.191.9

211.466.0

Dec 2004

538.0202.270.4

187.039.139.3

538.0125.075.1

123.7158.256.0

Sept 2004

506.3202.277.4

156.836.833.1

506.3129.770.0

120.4145.041.2

Sept 2005

537.6241.771.5

144.040.939.5

537.6142.176.778.6

196.044.2

Dec 2003

Total Liabilities & SE

Long Term Debt

Accounts Payable

Other Assets

Stockholders EquityOther Liabilities

Current & ST Debt

Total Assets

P,P&E, netNet InventoryNet Accounts ReceivableCash & Cash Equivalents$ millions

SUMMARY OF CASHFLOW I

(21.0)

(5.6)

(23.2)

7.8

6.1

19.4

19.2

(36.9)

Dec 2004

(25.0)

0.4

(15.6)

(9.8)

(3.2)

16.1

14.4

(37.0)

9M 2004

8.4

4.6

(11.6)

15.4

7.7

(10.1)

14.9

2.9

9M 2005

(14.7)Net Income

19.2Depreciation & amortisation

7.6Other & non-cash

5.2Working capital movements

0.8

0.4

(16.9)

17.3

Dec 2003

Other investing activities

Net cash before financing

Capital expenditure

Net cash from operations

$ millions

SUMMARY OF CASHFLOW II

18.22.8

15.30.00.0

15.336.3(3.0)

(93.4)164.0(31.3)2004

8.2(3.1)11.30.00.0

11.336.3(3.5)

(126.6)168.3(1.9)

9M 2004

(23.2)(9.5)

(13.7)0.00.0

(13.7)(22.1)

0.9(21.1)

0.2(2.1)

9M 2005

3.74.9

(1.2)(1.1)0.0

(0.1)(0.9)(2.7)(1.2)1.71.4

2003

Dividends paid

Net cash before exchange

Net cash after financing

Change in restricted cash, net

Net increase in cashExchange rate effects on cash

Share buybacks

Net cashflow from financing

Payments on LT debtProceeds from LT debtChange in ST borrowings, net$ millions

176.7

(66.0)

39.9

31.0

171.8

2004

170.1

(56.0)

36.1

29.3

160.7

Sept 2004

152.1

(41.2)

33.8

25.8

133.7

Sept 20052003$ millions

140.7Net Debt

(44.2)Cash **

37.5Short term debt

64.4Other LT debt *

82.9Senior Notes

COMMENTARY ON 2003 FORECASTCAPITAL & RESOURCESAnalysis of Net debt:

* Includes short term portion of long term debt** Including restricted cash

BOND TRADING

Moody’s: B2, stableS&P: B -, vulnerable

Repayment of 10.75% notes due 2006Repayment of short term loansWorking capital & general corporate usesNet Proceeds

8.5%

€135 million senior notes, due 2014

RATINGS:

€70m€19m€41m€130m

USE OF NET PROCEEDS:

COUPON:ISSUE:

• Successful bond offering completed January 2004

2005 OUTLOOK

• Full year operating profit expected to be in-line with prior year.

• Whilst market conditions have not improved significantly, our performance is improving. The operating profit (excluding gain on sale & restructuring costs) improved again in Q3 2005; a direct result of restructuring and cost management programmes.

• The market will continue to be tough - for alpine products it is slightly declining, with sharper declines for snowboards. Globally, the tennis racquet market is up slightly, but the ball market down. The diving market was estimated to have declined 8% in Q3.

• Our restructuring & reorganizing projects are still on-going; the full benefits are beginning to be realised, with further impact expected in 2006.

• For 2006, rising oil and steel prices are still a concern.

INVESTOR RELATIONS CONTACTS

Ralf BernhartTel: +43 170 1790E-mail:[email protected]

Vicki BoothTel: +44 20 7499 7800E-mail:[email protected]

• Press releases, financial reports and presentations etc available from Investor Relations section of website: www.head.com

• For other financial or general information, contact:

RECONCILIATION NON-US GAAP DATA

(7.2)(5.7)(5.7)-Deduct: Gain on sale

14.31.7

14.43.9

9M 2004

27.98.4

19.20.2

2003

31.02.3

19.315.02004

5.0Add: Restructuring charges

14.9Add: Depreciation & amortisation per cashflow

20.9EBITDA

8.2Operating profit9M 2005US $m

head nv: december 2005 -...

Documents