The ESCADA Group at a Glance
The ESCADA Group, an international company for women's luxury fashion,
operates in more than 60 countries and is divided into the ESCADA brand and PRIMERA Group.
The ESCADA brand has three segments: Fashion (ESCADA Collection and
ESCADA Sport), Accessories (handbags, shoes and small leather goods), and Licenses (fragrances, eyewear, ties, scarves, kids wear and jewelry). ESCADA stands for top-quality materials, exclusivity, fine crafting and best fit – as well as color and femininity.
The PRIMERA Group comprises the apriori, cavita and Laurèl brands, as well as the BiBA retail chain.
Highlights of the first nine months of 2004-05:
– Business performance fully on track in first nine months of 2004-05
– Group revenues up 2.6 percent
– EBITDA up significantly more, by 35.3 percent
– After-tax profit EUR 9.6 million
– Revenue and earnings projections reconfirmed for 2004-05 as a whole,
– Vigorous new orders for Spring/Summer 2006 collections
Management's report for the ESCADA Group
In the first nine months of fiscal 2004-05 (year end: October 31), the ESCADA Group generated revenues of EUR 462.6 million. Business performed as planned. The increase against the figure of EUR 450.9 million for the same period last year is 2.6 percent, and was earned despite a still-slack market environment for women's luxury fashions.
Growth was driven by the ESCADA core brand, where revenues were up 4.6
percent, from EUR 298.9 million to EUR 312.7 million. PRIMERA Group
revenues reached EUR 149.5 million for the first three quarters, climbing 1.4
percent from the equivalent period's figure of EUR 147.4 million. The strength of the euro against the U.S. dollar continues to push down the growth in figures from local markets. But after adjustment for foreign-exchange differences – i.e., based on constant exchange rates from the prior year – Group revenues were up 3.7 percent, and ESCADA brand revenues were up 6.3 percent.
The "Others" item for the period from November to July includes revenues of
EUR 0.4 million; the prior year's 4.6 million still reflected revenues from the Group's stake in Badgley Mischka (B.E.M.) in the United States, which was sold at the end of last fiscal year.
Regionally, growth for the first nine months was generated in Europe (+4.7 percent). But foreign-exchange effects caused revenues in North America and Asia to decline.
Group revenues for the third quarter were up 3.5 percent, from the equivalent
figure of EUR 144.9 million last year to EUR 150.0 million. ESCADA brand
revenues were up 5.0 percent, to EUR 104.6 million (vs. EUR 99.6 million), while the PRIMERA Group grew 4,4 percent to EUR 45.4 million (vs. EUR 43.5 million).
ESCADA improved its earnings substantially at all levels during the first nine months of the year. Group earnings before interest, taxes, depreciation and amortization (EBITDA) were up 35.3 percent to EUR 45.6 million (vs. EUR 33.7 million).
Thus operating earnings rose significantly faster than revenues. Several factors were responsible for the upswing in operating earnings:
– The Group's gross profit margin climbed 1.2 percentage points, from 61.8
percent to 63.0 percent. This improvement reflects a higher sell-through of
merchandise at full price in the Company's own retail shops, and a better
sourcing and production mix. It's also a good indicator of the strength and
broad acceptance of the ESCADA brand. Both ESCADA (+1.6 percentage
points to 67.3 percent) and PRIMERA (+1.5 percentage points to 56.1
percent) contributed to this improvement in margin.
– Additionally, the cost ratio – total personnel expenses and other operating
expenses as a percentage of revenues – was down again, to 56.5 percent (vs. 57.9 percent). Here the ESCADA Group profited from the leaner Group
platform it established last year for profitable growth. The goal is to lower
the cost ratio for the current year to about 55 percent (vs. 57.1 percent for
all of 2003-04 and 64.8 percent for all of 2002-03).
Depreciation and amortization, at EUR 14.3 million, was below the equivalent figure from a year earlier (EUR 17.8 million), a consequence of lower capital expenditures.
Earnings before interest and taxes (EBIT) were EUR 31.3 million, compared to the EUR 10.1 million figure for the same period last year, which still reflected restructuring costs and one-time charges of EUR 5.8 million.
The increase in the net financial result, from EUR -8.8 million for the first three
quarters of 2003-04 to EUR -11.3 million, reflects increased finance charges for the refinancing of the EUR 100 million bond issue that was repaid on schedule in August 2004. Another effect came from the financing for increasing the Group's stake in Grupo ESCADA España S.A. to 100 percent at the end of fiscal 2003-04.
Profit before taxes for the first nine months was EUR 20.0 million, a significant
improvement over the EUR 1.3 million of a year earlier. The profit after taxes and minority interests was EUR 9.6 million, compared to zero for the first three quarters of 2003-04. Earnings per share on a diluted basis came to EUR 0.57 for the first nine months (vs. EUR 0.0).
Group EBITDA for the third quarter was up 37.9 percent, from EUR 8.7 million to EUR 12.0 million. The gross profit margin, at 64.9 percent, was slightly above the third-quarter figure for 2003-04 (64.3 percent). EBIT improved from EUR -0.8 million to EUR 7.7 million. Most of the decrease in the net financial expense for the quarter, from EUR 4.1 to EUR 2.2 million, was the result of a dividend collected during the period.
Third-quarter profits after taxes and minority interests were up from EUR -2.6 million to EUR 2.8 million. On a diluted basis, this represents earnings per share of EUR 0.17 (vs. EUR -0.15).
Net worth and cash flow The ESCADA Group's total assets as of July 31. 2005, were EUR 446.6 million, down 1.2 percent from the figure as of October 31, 2004 (EUR 452.0 million). On the assets side, long-term assets decreased EUR 4.1 million to EUR 199.3 million, because capital expenditures (EUR 10.1 million) were less than depreciation and amortization (EUR 14.3 million). Among short-term assets, inventories were up EUR 16.8 million to EUR 141.6 million. But this change is for purely seasonal reasons.
Compared to July 31, 2004, inventories were down EUR 4,5 million, in keeping with the Group's strategic goal of reducing its capital tie-up. Other current assets.
Economic equity (not including minority interests but including the 2003-2013 bond issue, which carries a fixed conversion ratio) as of July 31 of this year was EUR 98.6 million (equity ratio: 22.1 percent), compared to EUR 90.5 million as of October 31, 2004 (equity ratio: 20.0 percent).
The item for bonds (EUR 193.3 million) includes the EUR 200 million 2005-2012 bond issue placed in March of this year, and the still outstanding 2003-2013 convertible bonds (EUR 2.3 million), net of capitalized costs for the bond issue and the syndicated loan that was agreed at the same time.
The ESCADA Group's net debt (interest-bearing debt less cash and equivalents, not including outstanding non-interest-bearing convertible bonds) was EUR 213.9 million at the end of the third quarter. Without the costs of the 2005-2012 bond issue and the syndicated loan, the positive operating cash flow would have pushed net debt at the end of the third quarter below the figure from the end of last fiscal year (EUR 208.7 million). And this reduction would have taken place even though for seasonal reasons, higher financing for operating materials and equipment is generally needed at the end of the third quarter than at year's end.
The ESCADA Group generated a positive cash flow (before changes in working capital) of EUR 22.7 million in the first nine months of 2004-05, compared to EUR 17.7 million for the same period last year. Non-cash income, at EUR 2.6 million, derived from changes in deferred taxes against October 31 of 2004.
Allowing for changes in working capital, the cash generated by operating activities was EUR 16.7 million, after EUR 11.1 million the year before. Investing activities used cash of EUR 10.5 million, following EUR 12.9 million for the first nine months of last year. Cash used in financing activities, at EUR 12.0 million, derived from the payment of issue costs associated with the 2005-2012 bond issue. In the total cash flow, allowing for changes in foreign exchange rates, cash and equivalents were down EUR 5.5 million to EUR 20.1 million.
The ESCADA core brand focused once again in the third quarter of 2004-05 on taking steps to increase full-price sell-through, and thus to build gross profit margin.
From May through July, both ESCADA Collection and ESCADA Sport built revenues against the equivalent quarter a year before, and contributed substantially more to profits than they had a year earlier, for both the third quarter and the first nine months.
In the PRIMERA Group segment, the apriori, BiBA, cavita and Laurèl brands
improved their performance for both the third quarter and the first nine months. The BiBA retail chain bucked the market trend to grow, in terms of equivalent floor space, and profited from more vigorous expansion. The other companies also performed as planned. apriori in particular picked up market share amid an ever-tougher environment.
The ESCADA Group invested EUR 10.1 million in noncurrent assets during the first nine months of 2004-05, following EUR 12.9 million for the same period the year before. Of this figure, EUR 4.2 million was for the third quarter – the same figure as for the second quarter (Q3 2003-04: EUR 4.9 million). While capital expenditures for the ESCADA brand, at EUR 7.5 million, were below the first nine months for last year (EUR 11.9 million), the figure at the PRIMERA Group rose from EUR 1.0 million to EUR 2.6 million, especially because of the relaunch of existing BiBA shops and the opening of new ones.
As of July 31, 2005, the ESCADA Group had 3,867 employees, 79 fewer than on the same date the year before (-2.0 percent). At that time, the number of employees had already shrunk substantially because of the restructuring program, which was already complete. However, staff size remained almost constant compared to the end of the second quarter of 2004-05 (3,869 employees).
The Group employed 2,069 individuals in Germany as of July 31, 2005 (54 percent of the entire staff). The figure from a year earlier was 2,102. Staff outside Germany numbered 1,798, compared to 1,844 a year earlier.
For 2004-05 as a whole, ESCADA continues to expect Group revenues in euros to rise slightly. Management assumes that the improvement of EUR 11.9 million in EBITDA for the first nine months of the year will expand even further for the year as a whole (EBITDA for 2003-04: EUR 47.3 million) Thus the figure will outperform the previous expectation of improving EBITDA by at least EUR 10 million for the entire year. Moreover, management also expects the consolidated after-tax profit to rise more than proportionately, to more than EUR 10 million (2003-04: EUR 3.8 million).
ESCADA is currently meeting with a very positive response to its new collections and products. New orders for the 2006 Spring/Summer collections were up by more than 10 percent in value against the previous year, for both ESCADA Collection and ESCADA Sport. Demand for ESCADA is rising among wholesale customers and franchise partners especially, and in both Western and Eastern Europe. The vigorous increase in new orders implies that business will continue to develop satisfactorily in the 2005-06 year ahead.
Interim financial statements of the ESCADA Group as of July 31, 2005
Accounting and reporting principles
The consolidated interim financial statements of ESCADA AG as of July 31, 2005, like the consolidated interim financial statements as of July 31, 2004, and the consolidated annual financial statements as of October 31, 2004, were prepared in accordance with International Financial Reporting Standards (IFRS) and their interpretations in effect as of the applicable reporting date. The provisions of IAS 34 on interim reporting were particularly applied. The applied methods of reporting, valuation and consolidation are the same as were also used in the consolidated interim financial statements as of July 31, 2004, and the consolidated annual financial statements as of October 31, 2004. In compliance with IAS 1.91, we refer the reader to the Notes to the consolidated annual financial statements as of October 31, 2004, where the applied principles are explained in detail.
Scope of consolidation
In addition to the parent company, ESCADA AG, the consolidated Group
covered by the interim financial statements comprises 38 fully consolidated