Marcolin approves half-year report

The Board of Directors of Marcolin SpA approved Marcolin Group's report on the first half of 2005.

Compared to the same period last year, Group billings are down by 9.2 million euros, a decrease of 9.4% (8.5% at constant exchange rates).

The downturn in billings is mainly due to the drop in sales of the 'Dolce & Gabbana Eyewear' lines (-7% in billings compared to the first six months of 2004), 'D&G Dolce & Gabbana Eyewear' (-18%) and a falloff in the Cébé line (-27%), which contrast with the positive trend of the 'Roberto Cavalli Eyewear' line (+17%) and, on the American market, of 'Kenneth Cole', whose sales increased thanks to the extension of the vision glasses distribution license to optical channels in 2005.

As to the Dolce & Gabbana lines, the downturn in sales is mainly due to market uncertainty entailed by the transfer of the license to the Luxottica Group which will take place on the main world markets on October 1, 2005 (although the contract will remain in the name of Marcolin SpA until December 31, 2005, for certain geographical areas). Already during the first half of 2005, this situation of uncertainty led to a reduction in orders from customers and also negatively affected sales force activities.

An analysis of sales by geographical area confirms the trend recorded in the previous quarter, and highlights a considerable reduction in billings in Europe (-21%) and in Italy (-9.8%), geographical areas in which the majority of Dolce & Gabbana and Cébé sales are concentrated and which contrast with good performances in the rest of the world where sales increased by 27.4%.

With reference to billings trends by product line, as far as the Cébé sports lines are concerned the drop in billings of 24% (equal to 2.2 million euros) was mainly due to low appreciation of the new product lines recorded especially in France, Cébé's reference market. In consideration of these negative results, the French subsidiary presented and approved a restructuring plan which will involve the closure of some production departments, the ensuing recourse to external suppliers, and the recording of the relevant extraordinary expenses. As far as sun and vision data is concerned, the drop in billings is mainly attributable to the 'Dolce & Gabbana Eyewear' and 'D&G Dolce & Gabbana Eyewear' lines.

Ebitda stands at 5.9 million euros (equal to 6.7% of billings), compared to the 12.9 million euros (13.2% of billings) achieved during the first half of 2004. The drop in Ebitda is mainly due to lower sales margins for the Dolce & Gabbana lines as well as to the rigorous devaluation of unsold stocks of the same lines; the costs of producing the collections also had an affect, including the cost of launching the new Tom Ford and Just Cavalli lines, which will be presented at end 2005.
Ebit was 1.2% of billings (8.7% at June 30, 2004) and corresponds to 1.1 million euros (8.5 million euros at June 30, 2004).
The period which closed at June 30, 2005, showed a positive pretax result of 0.4 million euros (6.2 million euros at June 30, 2004).

At 6.9 million euros, the net financial position improved considerably compared to December 31, 2004; this positive trend is due to seasonal phenomena. It should be noted that the net financial position at June 30, 2004, benefited from a pro-soluto transfer of commercial receivables due from third parties equal to 6.9 million euros; consequently, conditions being equal, the net financial position at June 30, 2004, would have been 41.1 million euros.

Starting from last July, after signing the transition agreement with Luxottica relating to the Dolce & Gabbana license, Marcolin received from Luxottica a series of orders for the production of Dolce & Gabbana brands which will continue to be distributed by Luxottica. To date, these production volumes have delayed recourse to the earnings equalization fund deliberated on March 4, 2005, which would have affected around 180 employees. Given that the new license agreements are gradually coming on line and that the transition agreement does not provide for the production of predefined volumes of products, it is not yet possible to state whether there will be any earnings equalization fund at the end of 2005 or during 2006.

During the second half of the year it is reasonable to expect a considerable reduction in billings and in margins on the Dolce & Gabbana lines compared to the same period 2004, due to the cessation of the relationship.

This reduction could be compensated for in part by sales from the new lines which entered the portfolio during 2005 (Tom Ford, Just Cavalli).As per costs, a series of initiatives has begun which are aimed at reducing and limiting running costs while maintaining an organizational and managerial structure that is adequate for the launch and management of the new licenses; there will also be considerable product development and marketing costs for the launch of the new collections.

With reference to Cébé, the same difficulties encountered in the first half of the year are expected to continue into the second six months both in terms of billings and margins. These will be joined by the effects of the approved restructuring plan, the costs of which were only partly shown in the results of the 2005 six-monthly report.

As to the American subsidiary, in addition to the effect of reduced billings and margins due to the Dolce & Gabbana lines, the development of the Kenneth Cole line is limited to the decision by the licensor to reposition the collections in a higher price segment.

As a consequence of the above, management believes that the financial year will close with a considerable loss as the positive effects connected to the launch of the new lines (Just Cavalli, Tom Ford and Ferrari) will begin to be felt only at the beginning of 2006.

Managing Director Antonio Bortuzzo commented: '2005 has been a year of transition for the company as the non renewal of the Dolce & Gabbana contract and the times and costs necessary to start up the production of the new lines under license will weigh heavily on the operating results until the positive effects of the new brands begin to be felt in 2006'.