Head claims market share increases

Head has quit informing analysts about the winter and racquet sports markets in regular conference calls, but its annual report, released a few days ago, provides some insights into the categories covered by the company.

The company estimated that the alpine ski market rose to about 3.2 million pairs of alpine skis last year from 3.1 million in 2009, while remaining less than half the size reached in the late 1980s. Head placed the value of the alpine ski market at about €320 million at wholesale prices in 2010 against some €300 million a year earlier. The market for ski bindings was estimated at some €150 million with 3.2 million pairs, compared with 3.1 million pairs worth €140 million in 2009. When it comes to alpine ski boots, the market is thought to have increased significantly last year to 3.6 million pairs and €230 million from 2.9 million pairs and €210 million. The global market for snowboard equipment was assessed at about 0.9 million units and €220 million, unchanged from 2009.

The total winter sporting goods market amounted to around €920 million at wholesale level in 2010, according to Head, up by 5.7 percent from €870 million the previous year. The Head group's own winter sports revenues were up by 12.9 percent to €169.7 million thanks to higher sales volumes for all products except snowboard equipment, a better product mix in main markets and favorable currency fluctuations. In terms of dollars, they grew by only 7.1 percent.

The company estimates there are around 50 million skiers and 8 million snowboarders active worldwide. In 2009, Europe represented 65 percent of ski sales, North America 26 percent and Japan 9 percent. North America is the largest market for snowboards, followed by Europe and Japan.

The 2010-11 winter season started with early snow in Europe, most parts of the U.S. and Japan. Head said that retailers in Europe and the U.S. reported growing sales in winter sports equipment. Ski sales in Europe and the U.S. were slightly higher at the end of 2010 and flat in Japan and Canada. Good snow conditions in January 2011 led to positive sell-though and retailers further reduced their inventories, according to Head. Still, the company predicted that pre-orders for the upcoming season would remain stable.

Separately, Head estimated that the market for tennis racquets last year reached about 9.0 million units at a wholesale value of about €260 million. Based on market research and internal estimates, Head thought that this represented a decline of 4 percent in units and a drop of 1 percent in value. Global sales of tennis balls were estimated to have reached 23.0 million dozens last year, roughly in line with the previous year, while their wholesale value rose to about €183 million from some €176 million.

Head said the tennis market started 2010 with a strong momentum, driven by new product launches by various manufacturers. But bad weather in several regions of the world affected sales in the summer. A new launch timing by the whole industry also negatively impacted sales in the second half of the year. Head's own racquet sports sales climbed by 3.0 percent to €129.9 million, aided by exchange rates.

As for diving, a market that Head covers with its Mares brand, the company estimated its global worth at about €350 million for 2010, down sharply from €400 million in 2009, largely due to a 5 percent drop in the U.S., while the European and Japan markets were flat. The business was affected by reduced travel due to the economic downturn but Head indicates that the market stabilized in the second half of the year. The group increased its own sales of diving products by 5.7 percent to €48.7 million thanks to new products and improved product availability.

As previously reported, the company's total revenues rose by 7.7 percent to €343.7 million for the year. The gross margin widened to 41.9 percent from 39.9 percent. The operating profit swelled to €25.9 million from €8.4 million but the bottom line narrowed to €7.3 million from €17.5 million in 2009, when the company benefited from a gain of €38.1 million on the exchange of senior notes.

Europe accounted for 59.5 percent of the group's sales in 2010, North America 26.0 percent, Asia 9.9 percent and other markets 4.6 percent. Head sees significant growth potential in Asia and is seeking to boost its relationship with local distributors through its subsidiary in Hong Kong and its representative office in Shanghai.

Broken down by the location of its subsidiaries, Austria remained the group's main unit, representing sales of €149.3 million in 2010, up by 8.4 percent from €137.7 million a year earlier. All subsidiaries reported higher sales, with Italy up by 2.1 percent to €31.3 million, other European markets up by 5.1 percent to €48.4 million, Asia up by 12.5 percent to €27.3 million and North America up by 8.7 percent to €87.3 million.

Capital expenditures on facilities and equipment maintenance increased to €6.5 million in 2010 from €5.6 million a year earlier. In the three-year period running from 2011 to 2013, Head plans to spend €25 million on property, plant and equipment and another €26 million on research and development. The company anticipates financing these investments through its operating cash flow. In 2010, the operating cash flow decreased to €19.5 million from €29.4 million largely due to higher working capital stemming from additional sales and inventories.