22 February 2007
Revenue grew by 9% in H1. Operating profit for the period was DKK 233 million.
The guidance on revenue for the full year is retained at DKK 3,400 million,
whereas the guidance on operating profit for the full year is reduced to DKK 330
- 350 million (previously DKK 375 - 400 million).
At its meeting on 21 February 2007, the Board of Directors of IC Companys A/S
considered and adopted the interim financial statements for the six months ended
31 December 2006.
Revenue rose 9% to reach DKK 1,803 million (DKK 1,648 million). Revenue derived
from own continuing brands was up by 13%.
Gross profit was DKK 1,046 million (DKK 959 million), which translates into a
gross margin of 58.0% (58.2%). The marginally lower gross margin was due to
higher sourcing currency exchange rates than last year.
Costs rose by 13% to DKK 813 million (DKK 718 million). This increase was due
both to a higher level of activity and the Group's growth initiatives.
Operating profit was DKK 233 million (DKK 241 million), equivalent to an EBIT
margin of 12.9% (14.6%).
The Group expects revenue of DKK 3,400 million for the full year 2006/07.
The decline in Jackpot is bigger than previously estimated. Adding the
extraordinarily warm winter weather, which in particular has affected the Groups
largest brand Peak Performance in the form of less sales growth and higher
inventory writedowns in Q2 than planned, has led to a downgrade in the forecast
of operating profit to DKK 330 - 350 million (EBIT margin 9.7% - 10.3%) from
previously DKK 375 - 400 million (EBIT margin 11.0% - 11.8%).
Operating investments in the region of DKK 130 - 140 million are still scheduled
for 2006/07. In addition capital investments of DKK 50 million are expected.
The projection of the free cash flow is reduced to DKK 170 - 200 million from
DKK 230 - 250 million.
The previously forecast DKK 200 million share buyback remains unchanged.
The order intake for the fall 2007 collections is progressing as planned with
expected double-digit growth. The order intake will be finally closed by
mid-March 2007.
The current three-year financial goal is retained of generating revenues in the
region of DKK 3,800 million, an EBIT margin of 13-15% and a free cash flow of
more than DKK 400 million, and for these targets to be reached in the 2007/08
financial year.
Introduction
The development in Q2 has been unsatisfactory. Revenue for continuing brands has
only increased by 9% and operating profit has decreased by DKK 30 million to DKK
13 million.
The decline in Jackpot in Q2 and for the remaining part of 2006/07 will be
bigger than previously estimated. Despite of a growth of 13% in Q2, Peak
Performance has realized less sales than expected due to the extraordinarily
warm winter weather.
In addition the Group has been bulking fall and winter goods based on higher
growth expectations than realized, resulting in higher inventory writedowns in
Q2 than previously estimated.
As disclosed in the announcement of the Q1 results the order intake for the
remaining part of the financial year 2006/07 is lower than expected. This has
resulted in a number of cost reduction initiatives for the remaining part of the
financial year.
The combination of these developments has led to a downgrade in the forecast of
operating profit to DKK 330 - 350 million (EBIT margin 9.7% - 10.3%) from
previously DKK 375 - 400 million (EBIT margin 11.0% - 11.8%).
Sales Development
Revenue in H1 rose 9% to reach DKK 1,803 million (DKK 1,648 million). Revenue
growth was favourably affected by net store openings which increased revenue by
DKK 17 million, whilst currency translation reduced revenue by DKK 3 million.
Sales performance for own brands:
Growth was generated in the Group's continuing brands in H1 2006/07 at a
combined rate of 13%. Peak Performance, InWear, Tiger of Sweden, Cottonfield,
Matinique, By Malene Birger, Soaked in Luxury and Designers Remix Collection all
showed double-digit growth rates.
The planned closure of PTM (the Part Two men's line) and Error, plus the
divestment of Sir of Sweden resulted in a combined revenue loss of DKK 40
million in H1 2006/07. Including the revenue loss for these brands, the combined
growth rate was 10%.
Jackpot has been declining for some time, and revenue was down by 10% year on
year. The brand has gone through a necessary repositioning process and is now an
updated brand. This has resulted in an adjustment of the distribution platform,
and in this process more retailers and end customers have been lost than the
number of new ones obtained. Going forward, the main challenge for Jackpot will
be a rapid expansion of the brand's wholesale distribution and a sharp
improvement in the exploitation of the brand's existing international store
portfolio. A new brand director who has been appointed to manage the future
efforts and turnaround will take up the position in the near future.
Retail sales of Peak Performance in Q2 showed lower growth than projected. This
was among other things due to a less positive development in same-store-sales
and in-season sales than projected due to the extraordinarily warm winter
weather.
The decline in Tiger of Sweden sales in Q2 was due to the fact that Tiger of
Sweden, as planned, delivered part of the winter collection in Q1. Tiger of
Sweden recorded satisfactory growth at the rate of 16% for the full six-month
period.
The decline in Saint Tropez was due to a number of temporary organisational
issues, and Saint Tropez is expected to show growth for the full 2006/07
financial year.
As planned, sales of non-Group brands in our own retail stores was reduced by
46% from DKK 21 million to DKK 11 million.
Sales performance for own brands by market:
Sales by country showed satisfactory growth. Double-digit growth rates were
achieved in Denmark, Norway, Belgium, Switzerland, Spain, Russia and France in
H1 2006/07. Only the UK and Poland saw minor declines in H1.
After several years of decline, 10% growth was generated in Belgium in H1.
Matinique, Cottonfield, Part Two, Designers Remix Collection and Soaked in
Luxury all grew by more than 20% in Belgium. However, Jackpot fell by 15% in the
Belgian market in H1.
In the Netherlands, Matinique, Cottonfield, Designers Remix Collection and
Soaked in Luxury all reported double-digit growth rates in H1. Jackpot and Part
Two fell by 14% and 44% respectively. The fall in Part Two sales was solely
caused by the brand's decision to pull out of a large retailer chain.
Poland was down by 3% in H1. This was primarily due to developments in Jackpot
sales. However, it was satisfactory that Poland showed moderate growth of 3% in
Q2, primarily driven by growth in Cottonfield and Peak Performance.
As a result of the continuing decline in the UK and Ireland, it has been decided
to change the management, and the search for a new country manager has begun.
The sales structure under a new country manager will focus more on brands and
the sales representatives will be brand-dedicated and organised under a sales
manager per brand for both markets.
The category ‘Other' includes among other countries Italy, China, Japan,
Iceland, Croatia and Greece, all of which showed double-digit growth rates.
Gross profit increased
The gross profit for H1 was DKK 1,046 million (DKK 959 million), and the gross
margin was 58.0% (58.2%). The year-on-year fall by 0.2 percentage points was
composed of several factors with opposite effects.
First, in H1 2006/07, the Group's sourcing currencies were hedged at a higher
exchange rate than in the year-earlier period. Seen in isolation, this reduced
the Group's gross margin by approximately 2.2 percentage points in H1. Secondly,
the Group's inventories of the fall and winter collections are larger than
projected, due to lower sales than planned, resulting in larger writedowns in
H1.
Operating improvements largely offset the negative developments in the Group's
sourcing currencies and the higher inventory writedowns. In the wholesale
operation discounts and returns as a percentage of gross revenue fell, and the
overall utilization of the wholesale order mass thus improved marginally.
Moreover, the Group's gross margin on the retail operation rose by 1.1
percentage point year- on-year. If this improvement is adjusted for the adverse
fluctuations in the Group's sourcing currencies, the underlying retail operating
improvement was significant.
Increasing operating costs
Costs totalled DKK 813 million (DKK 718 million), and the cost ratio rose by 1.5
percentage points to reach 45.1%. The increase was caused both by a higher level
of activity and the long-term growth initiatives announced in connection with
the 2005/06 annual report.
Due to a growing international sales volume, Peak Performance is investing in
establishing a regionalised sales structure, in increasing its sales resources
and marketing costs, and in retail operations. Moreover, the brand is increasing
its focus on the golf segment through the efforts of a dedicated sales and
design team. Overall, these initiatives increased costs by DKK 23 million
compared with the same six-month period last year.
Other long-term growth initiatives increased total costs by DKK 21 million.
The acquisition of the Norwegian distributor of Peak Performance further
increased costs by DKK 12 million.
The remaining developments in costs combined with a lower-than-projected order
intake for 2006/07 has, as was announced in the Q1 report, resulted in steps to
reduce costs during the remaining part of the financial year.
Profit development
Operating profit fell by 3% to DKK 233 million (DKK 241 million). The profit was
lower than planned and is not satisfactory.
This performance, which results in a reduction of the Group's guidance for the
full year, was primarily caused by the decrease in Jackpot sales and generally
larger-than-planned inventory writedowns as a result of the extraordinarily warm
winter weather.
The performance compared with last year should also be seen in the perspective
of the Group's long-term growth initiatives which, as mentioned above, resulted
in a year-on-year increase in costs alone by DKK 44 million.
Net financials amounted to a net expense of DKK 8 million (DKK 8 million) in
spite of higher average drawings on the credit limit and a higher interest rate
level. The favourable trend was due to a gain of DKK 6 million on a currency
swap intended to hedge the Group's currency risk on equity in Swedish kroner.
An estimated tax charge of DKK 65 million was recognised, equivalent to 29% of
the profit before tax.
Net profit for the period was down by 3% to DKK 160 million (DKK 165 million).
Distribution channels
Wholesale operation
Wholesale revenue was DKK 1,263 million (DKK 1,144 million), equivalent to a 10%
increase. 9 out of 11 brands reported double-digit growth rates. Jackpot and
Saint Tropez reported unsatisfactory declines in wholesale revenue of 12% and 6%
respectively.
The segment profit of the wholesale operation was DKK 196 million (DKK 219
million), equivalent to a profit margin of 15.5% (19.2%). The decrease in
relative earnings was due to a lower gross margin for the wholesale channel as a
result of the higher sourcing currency exchange rates. This effect more than
offset the underlying operating improvements in the form of fewer discounts and
returns. The Group's growth initiatives also increased costs in the wholesale
channel.
In-season sales in H1 2006/07 showed a satisfactory 21% year-on-year growth.
Tiger of Sweden, Cottonfield, InWear, Matinique, Soaked in Luxury and Designers
Remix Collection in particular were driving this trend with growth rates of more
than 30%.
The order intake for the fall 2007 collection, which started in the beginning of
January, is progressing as planned with expected double-digit growth. The order
intake will be finally closed by mid-March 2007.
Retail operation
Retail revenue rose 8% to reach DKK 473 million (DKK 436 million). Net store
openings had a favourable effect on revenue of DKK 17 million. Same-store sales
rose by 7% in H1 (organic sales growth), which was lower than projected.
However, this performance should be seen in light of the extraordinarily warm
winter weather.
Same-store-sales varied for the different brands. It was satisfactory that
InWear, Matinique and Part Two recorded growth rates of more than 20% in
same-store-sales, whereas Jackpot and Saint Tropez both reported 7% drops in
same-store-sales.
The H1 segment profit of the retail operation improved by DKK 14 million to DKK
87 million (DKK 73 million), equivalent to a profit margin of 18.4% (16.6%).
The improvement is due to better sell-through, resulting in fewer discounts and
surplus products. This was achieved through better products, better sourcing and
better merchandising. To this should be added the positive effect of the closure
of a number of unprofitable stores. The earnings level of the retail operation
has now improved for ten consecutive quarters.
Eleven stores were closed during H1, and 44 new stores were opened, 29 of which
are concessions. Out of the concessions opened, 12 are part of an agreement with
a leading Dutch department store, and five concessions were attributable to a
conversion of a Companys concept store in Denmark. The acquisition of the Peak
Performance distributor in Norway has increased the retail portfolio by three
stores. A net of three stores were opened during Q2. The retail portfolio
(concessions and stand-alone stores) now totals 262 stores.
Outlet operation
Revenue from the outlet operation fell by 1% to DKK 67 million (DKK 68 million).
The segment profit of the outlet operation rose by DKK 8 million in H1,
equivalent to an increase in the profit margin by 12.3 percentage points to
24.1% (11.8%).
The improvement of relative earnings in the outlet operation was obtained
through a better product mix and flow of products to the stores, which helped
achieve lower discounts.
The outlet operation is an integral part of the Group's business model for
profitable sale of residual post-season products. The Group operates 22 outlet
stores.
Cash flows
The cash flow from operating activities in H1 increased by DKK 19 million to DKK
167 million (DKK 148 million). This was due to less working capital. The
increase in the Group's inventories and debtors as a result of increased
activity was more than offset by an increase in current liabilities.
Gross investments in H1 totalled DKK 116 million (DKK 59 million). Of these
investments, DKK 49 million related to the refurbishment and maintenance of the
Group's retail stores and showrooms; DKK 19 million related to the refurbishment
and maintenance of the Group head office at Raffinaderivej; and DKK 27 million
related to goodwill in connection with the acquisition of the Peak Performance
distributor in Norway.
The cash flow from financing activities in H1 was an outflow of DKK 87 million
(an inflow of DKK 12 million). The Group distributed a dividend of DKK 68
million and bought back shares for DKK 53 million during the period.
The net cash flow in H1 was an outflow of DKK 36 million (an inflow of DKK 112
million).
Net interest-bearing debt
The Group's net interest-bearing debt was DKK 448 million (DKK 194 million), or
DKK 254 million higher than at 31 December 2005. Of this amount, DKK 168 million
was new long-term debt raised in connection with the acquisition of the Group's
head office and financing of improvements.
Balance sheet
Consolidated assets were up DKK 363 million from DKK 1,493 million at 31
December 2005 to reach DKK 1,856 million at 31 December 2006. The increase was
due to movements in both non-current and current assets.
Non-current assets rose by DKK 228 million year-on-year. Most of this increase
was attributable to the acquisition of the Group head office (Raffinaderivej)
and improvements made to the building. The remainder of the increase was
attributable to an increase in goodwill as a result of the acquisition of the
Peak Performance distributor in Norway and the sourcing agent in Turkey.
Investments in the renovation of existing stores and in new stores, as well as
the current renovation of the Group's head office, further increased non-current
assets.
Short-term assets rose by DKK 135 million, and inventories grew by DKK 48
million year-on-year, The increase in inventories was due to an increase in
surplus products primarily driven by lower-than-projected sales of Jackpot and
Peak Performance. Trade receivables rose by 13% as a result of increased
activity.
Movements in equity
At 31 December 2006, equity had decreased by DKK 58 million to DKK 654 million
equivalent to an equity ratio of 35.2% (47.7%).
At the company's annual general meeting held on 25 October 2006, a resolution
was passed to declare a dividend of DKK 68 million, which has subsequently been
paid out.
In the autumn of 2006, members of the Executive Board, other executives and key
employees exercised their share incentive plans, which resulted in an increase
of equity by DKK 24 million. During the period, the Group used forward exchange
contracts with a negative market value, which had been recognised in equity at
30 June 2006.
The Group completed the share buyback programme for 2005/06 of DKK 200 million
in July 2006 and has started up an equivalent programme for 2006/07. This has
reduced equity by DKK 53 million.
Reduction of the share capital
At the annual general meeting held on 25 October 2006, a resolution was adopted
to reduce the company's share capital by DKK 5,658,750 nominal value, equivalent
to the number of shares, 565,875, that had been bought back under the share
buyback programmes during the period from 1 January to 31 July 2006.
After the end of the three-month period for announcement through the Danish
Commerce and Companies Agency, the reduction of the share capital was registered
on 29 January 2007. A number of shares equivalent to the reduction of capital,
565,875 shares, has been cancelled.
After the completion of the reduction, the company's share capital is DKK
183,934,980 nominal value, consisting of 18,393,498 shares of DKK 10 nominal
value each. The company's holding of treasury shares has been reduced by the
cancelled shares, a total of 565,875 shares, and totalled 469,552 shares at 21
February 2007, equivalent to 2,6% of the company's share capital.
Share buyback programme
As previously announced the Group expects to buy back shares of approximately
DKK 200 million in the period from 24 November 2006 to 30 June 2007.
The first programme of DKK 75 million was completed 21 February 2007. At its
meeting on 21 February 2007, the Board of Directors of IC Companys A/S decided
to initiate the next programme of DKK 75 million. This programme commences 22
February 2007 and runs until 23 May 2007.
The development in Q2 has been unsatisfactory. Revenue for continuing brands has
only increased by 9% and operating profit has decreased by DKK 30 million to DKK
13 million.
The decline in Jackpot in Q2 and for the remaining part of 2006/07 will be
bigger than previously estimated. Despite of a growth of 13% in Q2, Peak
Performance has realized less sales than expected due to the extraordinarily
warm winter weather.
In addition the Group has been bulking fall and winter goods based on higher
growth expectations than realized, resulting in higher inventory writedowns in
Q2 than previously estimated.
As disclosed in the announcement of the Q1 results the order intake for the
remaining part of the financial year 2006/07 is lower than expected. This has
resulted in a number of cost reduction initiatives for the remaining part of the
financial year.
The combination of these developments has led to a downgrade in the forecast of
operating profit to DKK 330 - 350 million (EBIT margin 9.7% - 10.3%) from
previously DKK 375 - 400 million (EBIT margin 11.0% - 11.8%). The projection of
the free cash flow is reduced to DKK 170 - 200 million from DKK 230 - 250
million.
The Group projects revenue of DKK 3,400 million for 2006/07 and operating
investments in the range of DKK 130 - 140 million are scheduled. Furthermore,
capital investments of DKK 50 million are expected for the 2006/07 financial
year.
The previously forecast DKK 200 million share buyback remains unchanged.
Objectives for the 2007/08 financial year retained
The current three-year financial goal is retained of generating revenues in the
region of DKK 3,800 million, an EBIT margin of 13-15% and a free cash flow of
more than DKK 400 million, and for these targets to be reached in the 2007/08
financial year.
This objective is to be seen in the perspective of expectations of double digit
growth in order intake for the fall collection 2007, an improvement in the gross
margin from improved sourcing currencies, continuing better retail performance,
the effect of the initiated long term growth and efficiency initiatives.
Niels Martinsen Henrik Theilbjørn
Chairman President & CEO
Henrik Theilbjørn, President & CEO
Tel +45 3266 7646
Chris Bigler, CFO
Tel +45 3266 7017
This announcement is a translation from the Danish language. In the event of any
discrepancy between
the Danish and English versions, the Danish version shall prevail.
The Board of Directors and the Executive Board today considered and approved the
interim report of IC Companys A/S for the six months ended 31 December 2006.
The interim report, which is unaudited, is presented in accordance with the
recognition and measurement provisions of the International Financial Reporting
Standards (IFRS) as adopted by the EU and additional Danish interim financial
reporting requirements for listed companies.
In our opinion, the accounting policies applied are appropriate, and the interim
report gives a true and fair view of the Group's assets, liabilities, and
financial position as at 31 December 2006 and of the results of the Group's
operations and cash flows for the six months ended 31 December 2006.
Copenhagen, 21 February 2007
Executive Board:
HENRIK THEILBJØRN MIKKEL V. OLESEN
President & CEO Chief Operating Officer
Board of Directors:
NIELS ERIK MARTINSEN HENRIK HEIDEBY OLE WENGEL
Chairman Deputy Chairman Deputy Chairman
ANDERS COLDING FRIIS NIELS HERMANSEN LEIF JUUL JØRGENSEN
