Since it was founded in 1963 in the town of Bredebro in southwestern , ECCO has been owned and managed by the Toosbuy family. Today, Hanni Toosbuy Kasprzak – the daughter of Birte and Karl Toosbuy – is the principal stockholder and Chairperson of the Supervisory Board. Her husband, Dieter Kasprzak, is Chief Executive Officer (CEO), and Mikael Thinghuus is Chief Operating Officer (COO).

ECCO’s Annual report 2006  ECCO – passion and results

The ECCO Sales and Marketing building in Tønder, Denmark with ECCO's Landmark "The Foot".

ECCO had an outstanding year in 2006 with significant By having such large-scale production of our own, we can progress on all fronts. ECCO's new collections were also ensure that ECCO's Code of Conduct is adhered to. enthusiastically received by customers in all markets. Control of the entire value chain has a further advantage. This led to a growth in revenues of 17% and a doubling By being present in retail, where our sales staff meet our of the annual profit before tax to DKK 709 million. customers and listen to their reactions, we gain significant knowledge of what our customers are looking for. This 2006 was thus the third year in a row with healthy and knowledge is used in the development of our collections. solid growth. In this way the circle is complete.

In 2006, ECCO achieved a solvency ratio of 47%, which ECCO's employees around the world have made an ensures our financial independence, one of the objectives enormous contribution in 2006. In ECCO's tanneries, shoe that the company's owner has set for ECCO. Another factories, group functions, distribution centres, wholesale objective that was also met in 2006 is the achievement and retail organisations, expertise is continuously built. It is of a profit before tax of over 15% of revenues. The 2006 only by helping the employees to constantly extend their profit was equivalent to 15.9% of revenues. knowledge and experience that ECCO's future can be secured. ECCO's primary goal continues to be to produce modern casual shoes that push the boundaries of comfort This also gives ECCO the opportunity to make things and quality, technical functionality and design. ECCO better. We constantly look for ways to make improvements continuously seeks to be the best, not the biggest. in every single product group, in every single type of leather and sole design, in every single one of our shops We, therefore, maintain the almost unique position within and in every single one of our processes and working the shoe industry of controlling the entire value chain from procedures. This is a continuous effort, which will ensure cow to consumer. ECCO's competitive ability and success.

Our control over the processes and quality ensures that An area of focus is our supply chain which is under we always have the maximum freedom to find the best pressure due to unexpectedly high sales, particularly in solution. It also gives us flexibility so that we can adjust Eastern Europe and North America. The EU's punitive production and reallocate resources according to the tariffs and the fire in our warehouse in increased changing requirements of the markets. In 2006, this ability the pressure, and for a period resulted in delays of our allowed us to deal reasonably efficiently with unexpected deliveries. This is not satisfactory. problems such as the fire at our factory warehouse in Thailand and the EU's protectionist tariffs on shoes This also emphasises the need to constantly adjust all manufactured in . business processes.

 ECCO’s Annual report 2006 ECCO’s Managing Board, from left: Mikael Thinghuus, COO, Dieter Kasprzak, CEO, and Jens Christian Meier, EVP Production.

Over the next two years, ECCO will carry out a major ECCO will continue to make long-term investments in our simplification and upgrade of the company's central SAP business systems, our value chain and particularly in our system. ECCO will also introduce an IT platform in dedicated employees. hundreds of sales outlets that will allow for a rapid, daily insight into which shoes are selling best. This will improve First and foremost, the excellent financial results give us our ability to plan and control production and logistics. the freedom to focus on the core of ECCO – the constant development of new products, of shoes that push the Improved systems will also allow us to accelerate the Lean boundaries of design and quality. Shoes that are truly the approach, which has already begun to show results in the most comfortable in the world. form of the simplification of existing production processes.

Dieter Kasprzak Mikael Thinghuus Jens Christian Meier Chief Executive Officer Chief Operating Officer Executive Vice President, Production

ECCO’s Annual report 2006  Consolidated financial highlights and key ratios

FINANCIAL HIGHLIGHTS 2006 2005 2004 2003 2002 DKK ‘000

Net revenue 4,470,40 ,830,546 3,393,693 ,168,930 ,359,838 Profit before amortisation and depreciation 937,822 628,879 447,972 370,295 342,776 Amortisation and depreciation (178,360) (205,039) (180,937) (188,657) (187,215) Profit before financials 759,462 423,840 267,035 181,638 155,561 Net financials (49,979) (74,294) (60,594) (61,394) (73,465) Profit before tax 709,48 9,546* 06, 0,244 82,096 Income taxes (209,423) (124,512) (42,883) (49,264) (21,743) Group profit 500,060 225,034 163,558 70,980 60,353 Minority interests (10,588) 697 (12,897) (9,192) (9,275)

Profit for the year 489,47 5,7 50,661 61,788 51,078

Fixed assets 1,121,303 1,075,306 1,112,597 1,073,447 1,024,182 Current assets 2,529,377 2,210,052 1,832,582 1,714,309 1,884,018 Assets 3,650,680 3,285,358 2,945,179 2,787,756 2,908,200

Equity 1,729,513 1,285,750 1,034,026 951,016 958,160 Other liabilities 57,079 87,358 56,877 31,257 37,413 Debt 1,864,088 1,912,250 1,854,276 1,805,483 1,912,627 Liabilities 3,650,680 3,285,358 2,945,179 2,787,756 2,908,200

Cash-flow from operating activities 427,374 515,078 272,973 336,378 594,382 Cash-flow from investing activities (234,809) (201,678) (212,811) (228,551) (230,346) Cash-flow from financing activities (188,958) (2,385) (392) (73,808) (263,633)

Pairs of shoes sold (thousands) 14,776 12,906 12,045 11,225 10,564 Number of employees (as of 31 December) 12,670 10,534 9,657 9,388 8,839

*) Profit for the year 2005 is negatively influenced by a provision for non-recurring costs of DKK 48 million related to the restructuring of operations in .

Profit for the year before tax and provisions for non-recurring costs amounted to DKK 398 million.

KEY RATIOS Operating margin 17.0% 11.1% 7.9% 5.7% 4.6% ROAIC 21.9% 13.6% 9.3% 6.4% 5.2% Return on assets 20.5% 11.2% 7.2% 4.2% 2.7% Investment ratio 1.3 1,0 1.2 1.2 1.2 Return on equity 32.5% 19.5% 15.2% 6.5% 5.3% Solvency ratio 47.4% 39.1% 35.1% 34.1% 33.0% Liquidity ratio 3.0 2.9 2.0 1.9 2.0

DEFINITIONS OF KEY RATIOS Operating margin: Profit before financials x 100 Investment ratio: Investments for the year Liquidity ratio: Current assets Net revenue Amortisation and depreciation Short-term debt ROAIC: Profit before financials x 100 Return on equity: Profit for the year x 100 Average assets Average equity Return on assets: Profit before tax x 100 Solvency ratio: Equity x 100 Average assets Assets

 ECCO’s Annual report 2006 Highlights of 2006

Income statement average price per pair. The exchange rate effect on net In 2006, the ECCO Group achieved a highly satis- revenue was insignificant. Net revenue for accessories factory result. increased by 33% and thus continued the positive development from 2005. The Group's third business The ECCO Group's profit before tax was DKK 709.5 area - sales of leather and wetblue – decreased by million, compared with DKK 349.5 million in 2005. 11%, which is partially related to ECCO's rising need This represents an increase of 103%. for leather for its own shoe production.

One of the reasons for the strongly improved profit Net sales of the ECCO Group level is a significant increase in the number of pairs (in %)

of shoes sold, where sales rose by 14.5% to almost 4.1% 1.9% 1.2% 14.8 million pairs of shoes. Sales from ECCO's license manufacturer in Japan, whose sales totalled just under one million pairs of shoes, is to be added to this figure. Growth was recorded in all product groups – Men’s, Ladies’, Kids’, Golf and Performance, but Performance and Kids’ in particular have developed very strongly. 92.8%

Pairs of shoes sold (thousands) Shoes Accessories

15,000 Leather and wetblue Others

12,000 Profit before financials increased by 79% to DKK 759.5 9,000 million, and the operating margin increased from 11.1% 6,000 to 17.0%. This constitutes a significant improvement

Number of pairs (thousands) to the earnings of the Group, due to higher volumes 3,000 and higher average prices as well as developments in 0 production costs, which were positively influenced by 2002 2003 2004 2005 2006 high capacity utilisation in our own factories. In 2006, ECCO attained net revenues of DKK 4,470 million, which represents an increase of 16.7% com- Total costs increased by DKK 219 million, equivalent to pared with 2005. 93% of net revenues were made up 13.5%. This increase was primarily due to the fact that of shoe sales, the remaining 7% of sales of accessories ECCO is now itself responsible for distribution in China, as well as leather and wetblue. increased investment in marketing as well as continued development in retail operations. Furthermore, a num- ber of strategic projects has been implemented, which

Net revenue / Operating margin will help create the foundation for future earnings. Net revenue (DKK million) Operating margin Net financials totalled DKK -50.0 million compared with 4,500 DKK -74.3 million in 2005. This positive development 4,000 20.0% is primarily due to exchange-rate adjustments related 3,500 to debt denominated in foreign currency, which were 3,000 16.0% 2,500 positive in 2006 at DKK 12.0 million compared with 12.0% DKK million 2,000 a loss of DKK 5.8 million in 2005. Furthermore, net 1,500 8.0% interest-bearing liabilities in the Group were reduced 1,000 by approximately DKK 150 million. 4.0% 500 0 0,0% 2002 2003 2004 2005 2006 Income tax amounted to DKK 209.4 million. The effective tax rate was therefore 29.5% compared with 35.6% in 2005. The effective tax rate in 2005 was Net shoe sales increased by 18.9%, which is partly negatively influenced by changes in deferred tax due to due to the considerable growth in the number of pairs restructuring as well as reorganisation of the corporate of shoes sold, and partly due to a 4% increase in the structure.

ECCO’s Annual report 2006  Profit for the year after tax and minority interests was The cash flow from investing activities was DKK 235 DKK 489.5 million compared with DKK 225.7 million million net compared with DKK 202 million in 2005; in 2005, which represents an increase of 117%. an increase of DKK 33 million or 16%. Investments were primarily focused on the expansion of production The profit achieved should be viewed in light of the capacity in order to meet demand, including the facts that in 2006, ECCO was hit by a fire at the factory continued development of the newly-established in Thailand, which has some effect on profits, and that factory in China. Furthermore, as in previous years, the final introduction of punitive tariffs on the import investments were made in development and the of certain types of leather shoes from China had roll-out of ECCO's concept sales. a negative impact on profits. In both cases, it is difficult to state the exact financial effect, as a large proportion Cash Flow from operating activities (DKK million) of this was due to complex production changes and delayed deliveries to our customers. 600 500 Balance sheet 400 At the end of 2006, the Group's total assets stood at 300 DKK million DKK 3,651 million; an increase of DKK 365 million or 200 to 11.1%. 100 0 Non-current assets totalled DKK 1,121 million, of which 2002 2003 2004 2005 2006 DKK 1,007 million was property, plant and equipment.

The Group's inventories of finished products increased DKK 150 million has been repaid on non-current liabili- by 19% at the end of the year, which is due to the ties without corresponding increase of current liabilities pending invoicing of spring and summer goods, which during the financial year. Paid out dividends amounted in sales terms is expected to experience a significant to DKK 35 million. increase compared to the same period of the previous year.

Equity at the end of 2006 was DKK 1,730 million compared with DKK 1,286 million at the end of 2005, an increase of 35%. Profit for the year contributed DKK 489 million. Currency translation of the equity of foreign subsidiaries amounted to DKK -21 million and currency translation of derivatives etc. amounted to DKK 11 million. In addition, dividends were paid totalling DKK 35 million.

The solvency ratio rose from 39.1% to 47.4%, which supports ECCO's overall goal of retaining the highest possible level of financial independence.

Cash flow statement The consolidated cash flow from operating, investing and financing activities was DKK 4 million compared with DKK 311 million in 2005.

The consolidated cash flow from operating activities was DKK 427 million compared with DKK 515 million in 2005; a decrease of DKK 88 million equivalent to 17%. This decrease was primarily due to capital tied up in inventories as well as receivables from sales.

 ECCO’s Annual report 2006 Organisation – delegation, clear responsibility and sensible decisions

ECCO's organisation reflects the basic concept that importance of being an attractive place to work for decisions should be made as close to the market as all employees. We, therefore, focus on ensuring possible and by those who are best qualified to make that our employees benefit from life-long education, them. Our 11 business units, supported by a strong constant challenges and new opportunities. head office, therefore have broad freedom of action to make the necessary decisions where things happen, Our HR activities were therefore strengthened and and when market developments demand. professionalised in 2006 to ensure the long-term development of both the organisation and the individual Group functions employees. In addition, a good and stimulating work The ECCO Group's head office is responsible for environment is an important part of ECCO's image developing the brand, design and products and and contributes to the recruitment of attractive concepts as well as other Group functions such as IT, employees. A model has been created as the basis Finance, HR, logistics and legal affairs. In addition, the for both identification and support of local and global head office functions as a support and supervisory unit employee potential. for ECCO's individual business units. All business units have therefore introduced a systematic development strategy for different groups of specialists in the individual business areas. Talent Composition of employees by geography programmes have been implemented for both new (End of year) employees and experienced staff. Management 13,000 development programmes on all levels have been 12,000 implemented accordingly. All development programmes 11,000 10,000 are based on a method that combines theory and 9,000 practice as well as business and product knowledge 8,000 in a goal-oriented manner. 7,000 6,000 of employees . .

No 5,000 4,000 3,000 2,000 1,000 0 2002 2003 2004 2005 2006

Central Europe Western Europe Eastern Europe

Americas Asia / Pacific

Business units ECCO's business units, with their strong leadership as well as their own budgets and annual accounts, have the opportunity to make rapid and focused decisions. The business units thus have direct responsibility for their own daily business and all related processes. ECCO's 11 business units are the Leather Group, the five shoe factories and the five sales regions, i.e. Central Europe, Western Europe, Eastern Europe and Middle East, the Americas and Asia/Pacific. (See page 8).

People create results Having the right employees for the right jobs is crucial for ECCO, because our employees play a vital role in the success of the business. We emphasise the

ECCO’s Annual report 2006  Group structure as of 31 December 2006

ECCO Sko A/S

Subsidiaries, Sales

ECCO Europe ECCO Europe ECCO Europe East ECCO ECCO Central West and Middle East Americas Asia /Pacific

SWEDEN THE POLAND USA HONG KONG ECCO Sverige AB ECCO Europe West B.V. ECCO Europe East and ECCO USA, Inc. ECCO Asia Pacific Limited Middle East Sp. z o.o. DENMARK UK - USA - HONG KONG Salgsselskabet ECCO Shoes UK Limited - POLAND ECCO Retail LLC ECCO Shoes Hong Kong ECCO Danmark A/S ECCO Shoes Poland Limited BELGIUM Sp. z o.o. CANADA - DENMARK ECCO Belgium N.V. ECCO Shoes Canada, Inc. - SINGAPORE ECCO Retail A/S - THE CZECH REP. ECCO Singapore FRANCE ECCO Boty Ceská Pte. Ltd. NORWAY ECCO France Diffusion republika s.r.o. ECCO Norge A/S S.a.r.l. - AUSTRALIA -  ECCO Shoes Pacific FINLAND PORTUGAL ECCO Shoes Slovakia, Pty. Ltd. Oy ECCO-Suomi Ab ECCO (Portugal) Sales s.r.o – Comercialização de - NEW ZEALAND GERMANY Sapatos, Lda. ECCO Shoes ECCO Schuhe GmbH (NZ) Limited SPAIN AUSTRIA ECCO Shoes Iberica, S.L. -  ECCO Trading GmbH ECCO India Trading ITALY Private Limited SWITZERLAND ECCO Scarpe Italia S.r.l. ECCO Schuhe Schweiz - SINGAPORE GmbH ECCO China Wholesale Holding (Singapore) Pte. Ltd. Accessories: SWITZERLAND - CHINA ECCO Shoes International ECCO (Shanghai) Ltd Co. Ltd.

Subsidiaries, Production

ECCO ECCO Shoe Factories Leather

PORTUGAL THE NETHERLANDS Ecco’let (Portugal) ECCO Leather B.V. – Fábrica de Sapatos, Lda - THE NETHERLANDS SLOVAKIA ECCO Tannery ECCO Slovakia, a.s. (Holland) B.V.

INDONESIA -  P.T. ECCO Indonesia PT. ECCO Tannery Indonesia THAILAND ECCO (Thailand) Co., Ltd. THAILAND ECCO Tannery (Thailand) SINGAPORE Co., Ltd. ECCO China Holding (Singapore) Pte. Ltd.

- CHINA ECCO (Xiamen) Co. Ltd.

Dormant companies have been left out

 ECCO’s Annual report 2006 ECCO Sales regions

Central Europe Western Europe Eastern Europe and Middle East

Americas Asia / Pacific

ECCO’s Annual report 2006  Our collections

With the ambition of being able to offer the world's But how is a successful shoe collection created? most comfortable shoes, ECCO invests more than 40 years of experience in two main collections each Every year the collection work involves a long process year – spring/summer and autumn/winter. Our design of laboratory testing, practical testing and local market and product development departments refuse to integration each year. And all of this is on top of the compromise in terms of the ongoing development of daily design and product development work carried out our collections, and they continually focus on creating by people with a passion for shoes. products of the highest quality, best comfort and the

most innovative design. Composition of shoe sales in 2006 (in %) One of ECCO's decisive competitive advantages is 15% our leading market position in the use of direct injected soles. This special technology, where the soles are injected into a special mould and attached to the upper 40% 15% of the shoe under high pressure, is vital to ECCO's famous comfort, lightness and quality. A significant part of the collection work is our constant focus on

developing our technological knowledge, so that 30% we can create new, innovative and market-oriented Ladies’ Men’s Kids’ designs. The Futura Design Center at ECCO's head office demonstrates our long-term investment in Performance / Golf innovation and design. Testing in the shoe laboratory The collections are the backbone of our success, ECCO does not just collaborate with leading profes- and in 2006 they achieved a major breakthrough. A sors and scientists of anatomy, we own and operate mix of innovative design, top quality and ECCO's our own shoe laboratory. It is our goal that every single comfort created a solid foundation for our 2006 result. shoe is tested to the maximum by professionals who The design and previously unseen detailing of the know the background of ECCO’s products. In our shoe direct injection soles of our two 2006 collections laboratory, all aspects of the shoes’ performance are enabled us to increase the already substantial gap to thoroughly tested: grip is tested on wet or slippery our competitors and to bring ECCO’s direct injection surfaces, the durability and flexibility of the soles are products to the next level. Our customers clearly tested with advanced testing equipment, and the rewarded our efforts. The direct injection products top- resistance of the shoes to cold weather and the ability ped the list of the best-selling products in all segments. to stay warm are tested in climate chambers, just to

10 ECCO’s Annual report 2006 At the big conferences at ECCO’s Conference Centre hard work creates the local collections

mention some of the many tests that we carry out in Slovakia or Nepal by carefully selected people who our laboratory. understand the importance of properly-made footwear. The Danish mountaineer Mogens Jensen, who aims Practical tests to be the first asthmatic to reach the summit of Mount But at ECCO we are not satisfied with merely Everest without using supplementary oxygen, tests subjecting our shoes to extreme tests in our test ECCO's outdoor products in the Himalayas. laboratory. We also evaluate the shoes in the conditions in which they are to be used: in the real world and on We test a large number of shoe types. When ECCO real feet. develops shoes with a new type of sole, we send our shoes to refuse collectors, postmen and others, who Our own employees are a central part of these practical walk many kilometres every day. This way we test the tests. Comfort is a quality which is difficult to measure soles under maximum wear conditions. – comfortable shoes should be tested by real people. Therefore, ECCO has organised a team of enthusiastic Adaptation to local markets testers who carry out long-term fit and wear tests. Another important element in the collection work is In their own words, they describe their experiences adaptation to local markets. ECCO is an international with the coming season's products. ECCO's own business with global scope. It is therefore our goal that employees are trained never to compromise on quality. both the spring/summer and autumn/winter collections Due to our internal fit and wear testing it is not unusual are matched with the newest trends and requirements to see a businessman in jacket and tie wearing a pair of in our local markets. This is a big challenge, but a task white ECCO Supercross sneakers in ECCO's offices. that has to be taken seriously.

But the office carpeting or the factory concrete floors With regards to adapting the global collections to local are not suitable for the testing of all our shoes. Our golf market requirements, ECCO's headquarters arrange and running shoes are thoroughly tested by world-class at least two major conferences each year attended athletes, who test the shoes in the environments they by around 200 sales representatives, marketing were produced for. Some of the world's best golfers, people and other representatives from ECCO's various such as Colin Montgomerie and Thomas Bjørn, test markets, so that local markets can take part in the ECCO's golf shoes on golf courses throughout the collection work. Their sales forecasts create the basis world. Torbjørn Sindballe, who reclaimed the world for the selection of local market collections from the championships in long distance triathlon in 2006, is a global and regional collections. Based on our global dedicated participant in the entire development process success, we are convinced that this time-consuming and an unrivalled tester of ECCO's running shoes. Our work pays off. walking boots are tested in the mountains of Sweden,

ECCO’s Annual report 2006 11 Men's collection

ECCO Austin - Men's City shoe

The Men's collection had an outstanding year in 2006. pricing, it also stands apart by being in a higher price Sales from both the spring and autumn collections range than the rest of the casual group. exceeded 2 million pairs and ended a little over 4 million pairs for the year as a whole. Compared to Another new development is ECCO Austin, which is a 2005, the Men's collection therefore experienced a classic, handmade city shoe. Even in the launch season growth of 11%. of autumn/winter 2006, ECCO Austin was very popular, and we can see that its popularity is growing in 2007. As ECCO's City collection has been the driving force of the major growth of recent years, the modernisation of the casual series was central to the Men's collection in 2006. Products that suit a more relaxed lifestyle are increasingly in demand by customers all over the world.

Our City series remains very strong. One of the most popular products is ECCO New York, which sells more than 200,000 pairs each season.

It is a very important challenge to develop the collection from more traditional to modern products, so that we are even more competitive in the future. Therefore, ECCO will continue the search for new technical solutions, ideas and materials in the coming seasons, so that we can make new products that can only be produced thanks to the combination of ECCO's know-how.

Greatest successes ECCO's response to the more relaxed lifestyle is ECCO Supercross. ECCO Supercross follows in the footsteps of the Ladies’ collection success story of ECCO Shark, ECCO Vibration and ECCO Spark and represents a totally new product type for men in ECCO's casual pro- duct range. ECCO Supercross is a sneaker-style shoe of outstanding construction and design. In terms of

12 ECCO’s Annual report 2006 Ladies’ collection

ECCO Spark - Ladies' sandal

In 2006, the Ladies’ collection successfully continued Spark sandals were sold, which made ECCO Spark the modernisation of the range, so that the appeal to the best-selling new product group in the 2006 spring/ both loyal and completely new customer groups is summer collection. increased. The collection will also further strengthen ECCO's position as an innovative brand of high quality. ECCO Winter Breeze was definitely one of the With a growth rate of 5% compared to the previous highlights of the 2006 autumn/winter collection. year, the Ladies’ collection stays on the right track. Despite the fact that they go for an above-average price, the smart appearance, fit and comfort made As part of the significant collection development, we them a bestseller. 115,000 pairs were sold in the have focused on developing modern alternatives to first season. some of ECCO's more classic products. Even though we are aiming to attract new customers, we still intend to service our existing, loyal customers.

The process of modernisation will not affect the famous ECCO comfort. On the contrary, the new products are at least as comfortable as all our previous shoes, since ECCO's technology makes it possible to challenge the convention that a choice has to be made between style and comfort. ECCO's customers can have both smart appearance and extraordinary comfort.

Greatest successes The ECCO Spark sandal is one of the best examples of the new generation of ECCO shoes in the 2006 spring/summer collection. ECCO Spark has a far more sporty look than all other sandals we have made, and, in addition, it is manufactured using ECCO's direct injection technology to guarantee utmost comfort and the highest level of quality.

ECCO Spark’s unique appearance and features proved to have both strong PR value and strong customer appeal. In the first season, 169,000 pairs of ECCO

ECCO’s Annual report 2006 13 Kids’ collection

ECCO Heatwave - Kids' sandal

The Kids’ collection also experienced great success previous sandal successes. This is the inspiration for in 2006 with a growth in sales of 31%. This increase ECCO Heatwave. Both quickly became bestsellers in is not due to success in one or two markets, but due the summer of 2006. to increased penetration in all of our markets. This has strengthened our position in the segment of children's One of the best-selling products in the autumn/winter footwear all over the world. collection 2006 was ECCO Ice Breaker. This direct injected product is also provided with a technically With regards to product development, the collection advanced GORE-TEX® membrane that keeps feet made another great leap forward on the road to warm and dry whilst allowing them to breathe. More distinguishing ECCO's kids shoes from other brands. than half of the kids footwear sold the autumn and This was achieved through innovative design and the winter seasons are GORE-TEX® products. best selection of materials - including an increase in the number of direct injection products, which no one else in the market can produce. Direct injection products are very relevant in all segments, but the advantages of this unique technology – lightness, comfort and flexibility – seldom face up to such great challenges as with our youngest customers, when they climb trees and explore playgrounds all day long.

But comfort and high quality are not the only factors that matter to children today. Footwear also has to look good. The development of unique and exciting designs was therefore another key area for the Kids’ collection in 2006.

Greatest successes In keeping with the strategy of strengthening the collection with more direct injection products, ECCO launched the first sandal for kids with direct injection soles in 2006: ECCO Heatwave.

This new sandal was developed on ECCO's experience with Performance sandals for adults as a follow up to

14 ECCO’s Annual report 2006 Performance collection

ECCO Ultra Terrain Arctic

2006 was another outstanding year for the Perfor- wearing his special RXP 6000 running shoes from mance collection with phenomenal growth. All three ECCO. segments – outdoor, walking and running – contributed to the increase. The total growth in the number of pairs Greatest successes sold was 83% compared to the previous year. It was not a big surprise that the ECCO Offroad sandal was a bestseller in spring/summer 2006. This The fact that our efforts during recent years have been new sandal has everything that an adventurer could rewarded by consumers encouraged us to expand our wish for thanks to ECCO's direct injection soles. It is by Performance series. In 2006, we managed to activate far the lightest and most comfortable sandal in its class unused potential by developing and marketing and with a durable rubber sole. more products for outdoor, walking and running than in previous seasons. The ability to develop new One of the best-selling products in the autumn/winter technologies, improve existing products and create collection was ECCO Ultra Terrain Arctic. This shoe was functional and attractive designs is vital for success in specially developed to cope with switching from water the long run and is key in order to increase our future to land all day long, but the smart looks and the super- market shares. flexible outsole make it as suitable for uneven terrain as it is for urban environments. Our primary focus in 2006 was the outdoor segment. In this segment, ECCO offers something for both true outdoor enthusiasts, who are looking for a functionally superior product for active holidays, and for holidaymakers looking for a comfortable and reliable shoe for travel use. In both categories, ECCO's outdoor series offers a large selection of individual, technical and comfortable options.

In the walking segment, we succeeded in combining all our shoemaking know-how and our top level quality with a younger and more functional design.

In 2006, ECCO's running shoes were at the top of the podium, when the Danish triathlete Torbjørn Sindballe took first place in the long distance triathlon world championships for the second time in his career

ECCO’s Annual report 2006 15 Golf collection

ECCO Women's New Classic - Golf shoe

Only a few years ago, ECCO entered the world of to strengthening ECCO's market position within golf golf and revolutionised the industry by launching shoes. top-quality, fashionable golf shoes, which were also actually comfortable to wear – a combination that has A major factor in this success is ECCO's focused been ECCO's trademark in golf ever since. In 2006, marketing efforts combined with our focus on staying the rate of growth remained high for the Golf collection. innovative, developing unique designs and challenging technology every time we make a new golf shoe. ECCO surprised the golf industry once more in 2006 with new products. This time it was the launch of brightly-coloured sneaker-style shoes for a sport that traditionally has used white, black and brown shades.

The colour experiment was rewarded by ECCO's customers with impressive sales growth in 2006.

For the autumn/winter season, we increased our selection of GORE-TEX® products, which are particularly popular at that time of year. And for the first time ever, we used the newest technology from GORE-TEX®: the XCR membrane, which is even more breathable.

ECCO has sponsorship agreements with a number of the world's best golfers, including Thomas Bjørn, Colin Montgomerie, Aaron Baddeley, Iben Tinning, Juli Inkster and Thongchai Jaidee. In 2006, this impressive list was extended with two more world class golfers, as Anna Rawson and Fred Couples became new ECCO golf ambassadors.

Greatest successes The launch of two new groups, ECCO Men’s New Casual and ECCO Women’s New Classic, exceeded all expectations and hereby contributed very significantly

16 ECCO’s Annual report 2006 Sponsor agreements

Thongchai Jaidee – 37 years, Thailand. Fred Couples – 48 years, USA No 1 Asian golfer in 2005 1992 Masters Champion

Anna Rawson – 26 years, Australia Iben Tinning – 33 years, Denmark Voted “The world’s sexiest golfer” in 2005 by Golf Punk. No. 1 in Europe in 2005 with 3 wins on the European Tour that year.

Aaron Baddeley – 26 years, Australia Thomas Bjørn – 36 years, Denmark Two wins on the PGA Tour in USA. 8 wins on the European Tour.

ECCO’s Annual report 2006 17 Sales – regions and shops

The interior design and overall service are carefully planned to support the customers’ total buying experience and expectations to everything linked to ECCO’s products.

Growth in all regions Western Europe In 2006, ECCO experienced substantial growth in the ECCO's Western European region covers the Benelux sales of shoes and accessories in all five sales regions. countries, the United Kingdom and Southern Europe. In total, net revenue in DKK rose by 19%. The growth In 2006 a, revenue growth of 7% was attained, in sales volume was some 14%. along with an increase in sales volume of 3%. This substantial revenue growth in relation to the increase In 2005, the equivalent figures were 13% and 7%. It is in sales volume indicates our focus on adding more overwhelmingly clear that such growth is proof that the value for the customer to each individual shoe through on-going development of ECCO's collections fulfils the new, advanced features, which have resulted in a demands of active consumers in all parts of the world. higher price level.

Eastern Europe and Middle East Composition of sales volume by geography, Once again ECCO created strong growth in the Eastern in 2006 European region. Revenues increased by 43% whilst 5% the sales volume increased by 40%. As has been the

23% case in recent years, it continues to be the major

36% distributors that carry the big proportion of sales for this region. A part of the growth in the case of the distributors in 2006 was created through increased activity towards wholesale customers. In the Eastern 19% European markets ECCO's brand is closely associated 17% with innovation, technology and modernity, which is Central Europe Western Europe Eastern Europe part of the reason for such excellent growth rates. Americas Asia / Pacific Americas Central Europe ECCO’s American region covers the USA, Canada and ECCO's Central European region consists of the the South American markets. The increase in revenues German-speaking countries and Scandinavia. In 2006, in ECCO Americas was 21% in 2006, whilst the growth we succeeded in continuing the positive development in sales volume was 19%. A more detailed segmenta- of 2005 in this mature and competitive region. Revenue tion of customers has resulted in improved manage- growth was 8%, and the increase in the sales volume ment of sales activities. The result was further boosted was 7%. This result can primarily be attributed to a by the considerable new efforts made in the region focus on improved distribution and marketing of our including a number of new activities in department products. Furthermore, the growth was supported by a stores, where the entire organisation is involved in general expansion of the product range in the region. wide-scope sales activities.

18 ECCO’s Annual report 2006 products for ECCO's shoes are natural extensions to the main product and individual parts of the service experience in ECCO shops.

Shop concept ECCO is a global brand. Therefore, it is important that ECCO's products are marketed in surroundings that support the brand and strengthen the total experience expected by the customer.

The goal-oriented training of shop personnel is a cornerstone of ECCO's shop concept. All customers must receive high-level, professional service, and individual advice that fully lives up to the just expectations they have of everything that is linked ECCO Shop in Bulgaria to ECCO's products.

The shop strategy is a strong and independent part of ECCO's overall business strategy. Sales efforts focus on ECCO's own and partner-operated shops supplemented by carefully fitted Shop-in-Shops. This way the best possible guarantee that the customers receive the same good buying experience every single time is achieved. In connection with the opening of new shops the requirements for the choice of the right partners and the best shop locations are just as strict as the standards set for ECCO's products. Everything has to fit together to form a synthesis.

The opening of new ECCO shops is a key part of the overall growth strategy, as the search for new partners and suitable locations naturally intensifies in the regions, where the unused potential is greatest.

ECCO Shop in Denmark

Asia/Pacific In 2006, the increase in revenues was some 56%, and the growth in sales volume was 23%. In previous years sales in China have been handled by a distributor, but the 2006 sales in the Chinese market were handled by our own subsidiary. The high growth in revenues is partly to be seen in light of this change. The fact that several smaller markets in the region began to gain 2005 006 a footing in 2006 also contributed to profits, as did the fact that ECCO's own retail activities developed Shops 457 551 extremely well. - of which own shops 97 98 Accessories Sales of accessories make up some 1% of ECCO's Shop-in-Shops 769 1018 total revenues, and the area experienced an excellent growth rate of 33% in 2006. Accessories such as - of which own shops 25 39 matching bags help strengthen the complete brand experience, whereas advice about and sales of care

ECCO’s Annual report 2006 19 Own production – own choice

Assembly line at ECCO’s factory in Indonesia.

ECCO's unique choice Direct injection Development and healthy growth must be founded on – a competitive advantage involvement and genuine interest in all separate parts Our long-term production strategy is to continuously of the process. Therefore, it is ECCO's clear choice refine and develop ECCO's market-leading position to control the entire value chain from cow to consumer. within direct injected soles. Our direct injection This choice is fundamental to our philosophy and technology involves placing the upper part of the shoe business strategy. To us, the care and focus given to in a mould before injecting the sole directly onto the the entire value chain, right from the production of upper under high pressure. This is the foundation of leather in our own tanneries through the development ECCO's trademarks – quality, lightness and comfort. of shoes to marketing and sales, guarantee the highest quality possible of the end product. This expertise must be maintained and developed. We, therefore, constantly refine and further develop This business model is unique in the global shoe our technology, and thus our products. In line with industry, where the outsourcing of production has this goal, ECCO's internal mould workshops in been the dominant mantra for many years. At ECCO, Denmark and Thailand were further developed in 2006, we deliberately go the completely opposite way, so delivery times and development costs are constantly which means that the majority by far of ECCO's total reduced. production takes place in our own shoe factories. As a central part of this strategy, major investment ECCO's own shoe factories continues to be made in our own production factories ECCO has own shoe factories in Portugal, Slovakia, and production technology, which will also be vital to Thailand, Indonesia and China. the development of ECCO's high level of quality in the future. In 2006, 0.7 million pairs of shoes were produced by the factory in Portugal (2.3 million in 2005), 1.9 mil- Events in 2006 confirmed the view that our own lion pairs in Indonesia (0.8 million in 2005), 4.8 million production gives ECCO clear competitive advantages pairs in Thailand (3.9 million in 2005), 3.2 million pairs through the power of synergies that can constantly be in Slovakia (2.8 million in 2005) and 1.0 million pairs in utilised, whether the aim is technological development, China (0.5 million in 2005). better planning and logistics or an increased level of expertise. At the same time, a high level of own As a result of the EU’s decision to impose special production gives us a unique opportunity to ensure tariffs on the import of leather shoes from China, we that our products are manufactured in a working had to change our investment plan and production environment that fulfils ECCO's Code of Conduct arrangements in China. These tariffs have significant and lives up to health and safety standards for financial consequences for ECCO, and in the end it is our employees. the consumers who will have to pay, as the shoes will

20 ECCO’s Annual report 2006 The major part of ECCO’s total production is on our own shoe factories.

become more expensive. With the support of ECCO's Code of Conduct the Danish government and the forward-looking At ECCO, we see ourselves as guests in the countries members of the European shoe industry, ECCO in which we operate. ECCO wants to be a good "cor- unfortunately argued in vain against the EU's decision. porate citizen" in all areas of our global organisation. As a consequence of the tariffs, ECCO's investment Respect for other cultures is not an issue open for plans in China had to be adjusted. Furthermore, discussion; it is a principle to be followed. As far back production arrangements have been changed, so as 1999, ECCO developed a set of ethical principles that ECCO's Chinese factory now increasingly – ECCO’s Code of Conduct - which is to be used in all supplies components to other ECCO units instead of ECCO’s companies all over the world. ECCO's compre- solely focusing on the production of finished shoes. hensive own production offers a unique opportunity to make sure that the principles of the Code of Conduct ECCO Portugal – global R&D centre are adhered to. The principles have been continuously After a restructuring process, ECCO Portugal is now updated since 1999. a fully integrated part of ECCO's research and development activities, which otherwise primarily In 2006, we introduced a revised edition of ECCO's take place in Denmark. Due to the high-technology Code of Conduct to support the continuous implemen- shoe production of around 0.7 million pairs per year, tation of the code. Through partnership, openness, trai- ECCO Portugal now functions as a service unit for ning and education, these changes are to support the research and development for the other ECCO entire organisation in the application of the principles of factories. Here, new production processes for advan- ECCO's Code of Conduct to provide even better pro- ced products are developed, before the products are tection of the environment and of all ECCO employees' transferred to other units for mass-production. Other working conditions (see page 44). ECCO units visit Portugal for training in connection with the actual production and technical aspects of new products. ECCO Portugal also sends out technicians Tangible fixed asset investments (DKK million) to help organise and adapt the production lines for the 250 new products. 200 Around 60% of ECCO's new developments go through 150 ECCO Portugal, whereas less advanced products can be produced right from the start at ECCO's other

DKK million 100 factories. ECCO Portugal's own high-technology shoe production primarily includes ECCO's advanced world- 50 class products such as the ECCO President, ECCO 0 Golf World Class and the new ECCO Montreal. 2002 2003 2004 2005 2006

ECCO’s Annual report 2006 21 ECCO has own tanneries in The Netherlands, Thailand and Indonesia.

Own tanneries In 2006, ECCO Lean has specifically focused on the ECCO's most important raw material is first-class development and improvement of production activities. leather, which is the reason why we have our own In 2007, efforts will be more directed towards the tanneries in Holland, Thailand and Indonesia. When we tanneries, product development and distribution constantly develop our expertise in this area, we ensure centres. The whole of ECCO's value chain will be that this important raw material always lives up to covered by ECCO Lean in 2010. ECCO's strict quality requirements. ECCO's tanneries also sell a significant part of their production to external ECCO and the environment customers all over the world. In fact, ECCO's tanneries Environmental concerns are extremely high on ECCO's are among the leading manufacturers of quality list of priorities. We focus on the optimisation of leather for use as car and plane seats, gloves, bags production methods already in use just as we develop and shoes produced by other companies. new environmentally-friendly manufacturing processes. In 2006, ECCO has focused on gaining new knowledge ECCO Lean about the environment and working environment on a To maintain our competitiveness, ECCO must be global level as well as utilising this knowledge broadly second-to-none compared to the very best in all in the organisation through a wide distribution of know- individual parts of the value chain. ECCO's continuous how. At our audit and Group environment conferences, development plan contains a detailed focus on the prin- we develop the network that ensures the essential ciples of Lean company development. ECCO Lean was exchange of experience between all environment and therefore initiated at the factory in Slovakia in 2005. working environment coordinators in the Group's With employee involvement as the underlying ambition tanneries and shoe factories. of the project, the first ECCO Lean Academy was held in Slovakia. In 2006, the newly-trained Lean change We place great emphasis on this global forum where agents, who were individually chosen for the task, were valuable ideas and best practices are exchanged. sent out in ECCO's global organisation to implement Further information on the Group's environmental the Lean principles together with the local employees. efforts is found in the Group Environmental Statement In 2006, this process, which includes the training of in the back of this annual report. Here the Group's managers and key personnel, has focused on ECCO's Policy for Environment, Health and Safety is presented factories in Slovakia, Indonesia and Thailand. together with a number of initiatives from the tanneries and shoe factories as well as statements from The Lean academies, which include two independent ECCO's production units with key figures on the groups per year, take place in a highly international and year's environmental performance. multicultural atmosphere. At the two first academies, there were 8 different nationalities represented at both courses.

22 ECCO’s Annual report 2006 Financial matters

Financial risks Due to the international scope of ECCO’s business activities, a number of financial matters constantly evaluated by management impacts the Group’s results of operations and its equity. The approach to handling financial risks is determinated by the Supervisory Board and the Managing Board.

Foreign exchange risks Foreign exchange risks are managed centrally. Through active management of purchase and selling currencies in our commercial transactions, we aim to minimise our net positions in the main currencies, EUR and USD. All material currency positions are hedged when currency exposure takes place, which happens at the point in time used for the calculation of purchase and sale prices.

Interest rate risks The Group's interest rate risk is related to the changes in the interest rate for the Group's liabilities including refinancing and repayment. The interest rate risk is limited to the take-up of fixed interest rate loans as well as the entering into interest rate swaps. At the end of 2006, 86% of the Group's liabilities consisted of fixed interest rate loans/interest rate swaps. No interest rate hedging has been carried out for future take-up of loans.

Credit risks The Group has no material credit risk apart from what has been recognised in the financial statements.

For selected markets/customers, "letters of credit", bank guarantees or debtor insurance are used but the number, size division as well as the geographical dispersion of customers create the necessary diversification for consistent use of debtor insurance not to appear cost-effective. Larger customers, such as retail shops, purchasing associations or distributors are evaluated individually and continuously.

ECCO’s Annual report 2006 23 Material events after 31 December 2006

It is the opinion of management that there have been no events after the end of the accounting year that could significantly affect the Group's financial status.

Outlook for 2007 ECCO also expects a positive trend in 2007, with growth in net revenue of at least 10%. Around a quarter of ECCO's sales takes place in the American market. A fall in the dollar exchange rate will have a negative impact on total revenues when converted to Danish Kroner. The dollar exchange rate has been assumed to be 5.82 DKK/USD in the expectations presented here.

The operating margin, which was 17% in 2006, will probably stabilise at a slightly lower level, which should be partly seen in the light of the full effect of the import tariffs imposed for certain types of shoe from China.

ECCO will continue to make significant investments in concept sales, selected own shops, the expansion of the franchise shop network and marketing particularly in the growth regions of Eastern Europe and the Middle East, Americas and Asia/Pacific but also in our mature markets in Western and Central Europe.

Furthermore, ECCO has implemented a number of internal projects that will also have a negative effect on the 2007 cost level but will help to ensure the continued high quality of everything we do.

Management expects growth in all of ECCO's sales regions and product divisions in 2007. This is supported by the Group's sales for the spring/ summer 2007 collection and preliminary order intake for the autumn/winter 2007 collection.

24 ECCO’s Annual report 2006 Annual accounts 2006

ECCO’s Annual report 2006 25 Statement by the Management on the Annual report

The Supervisory Board and Managing Board of ECCO flows for the financial year ended 31 December 2006. Sko A/S have today considered and adopted the Annual The Supplementary Environmental Statement of ECCO report for 2006. Sko A/S gives a true and fair view within the framework of generally accepted guidelines for the area. The Annual report is presented in accordance with the Danish Financial Statements Act. We consider the We recommend that the Annual report be adopted by the accounting policies to be appropriate to the effect that shareholders at the Annual General Meeting. the Annual report gives a true and fair view of the Group’s and the Company’s assets, liabilities and financial position at 31 December 2006 and of the results of the Group’s and the Company’s operations and the consolidated cash Bredebro, 21 March 2007

Managing Board

Dieter Kasprzak Mikael Thinghuus Chief Executive Officer Chief Operating Officer

Jens Christian Meier Executive Vice President, Production

Supervisory Board

Hanni Toosbuy Kasprzak Karsten Borch Chairperson Vice Chairman

Torsten E. Rasmussen Mogens Munk-Rasmussen

Aage Andersen Bernd Scheelke Jakob Møller-Hansen Employee representative Employee representative Employee representative

26 ECCO’s Annual report 2006 Auditors’ report

Independent auditors' report An audit involves performing procedures to obtain audit evidence about the amounts and disclosures To the shareholders of ECCO Sko A/S in the annual report. The procedures selected depend We have audited the annual report of ECCO Sko A/S on the auditors' judgement, including the assessment for the financial year 1 January - 31 December of the risks of material misstatement of the annual 2006, which comprises the statement by the report, whether due to fraud or error. In making those Executive and Supervisory Boards on the annual risk assessments, the auditors consider internal report, Management's review, accounting policies, control relevant to the Company's preparation and income statement, balance sheet, and notes for the fair presentation of the annual report in order to Group as well as for the parent company and the design audit procedures that are appropriate in the consolidated cash flow statement. The annual report circumstances, but not for the purpose of expressing has been prepared in accordance with the Danish an opinion on the effectiveness of the Company's Financial Statements Act. internal control. An audit also includes evaluating the appropriateness of accounting policies used and the The Executive and Supervisory Boards' reasonableness of accounting estimates made by responsibility for the annual report the Executive and Supervisory Boards, as well as The Executive and Supervisory Boards are evaluating the overall presentation of the annual report. responsible for the preparation and fair presentation of this annual report in accordance with the Danish We believe that the audit evidence we have obtained Financial Statements Act. This responsibility includes: is sufficient and appropriate to provide a basis for our designing, implementing and maintaining internal audit opinion. control relevant to the preparation and fair presentation of an annual report that is free from Our audit did not result in any qualification. material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; Opinion and making accounting estimates that are reasonable In our opinion, the annual report gives a true and fair in the circumstances. view of the Group's and the parent company's financial position at 31 December 2006 and of the results of Auditors' responsibility and basis of opinion the Group's and the parent company's operations and Our responsibility is to express an opinion on this consolidated cash flows for the financial year 1 January annual report based on our audit. We conducted our - 31 December 2006 in accordance with the Danish audit in accordance with Danish Standards on Auditing. Financial Statements Act. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the annual report is free from material misstatement. Esbjerg, 21 March 2007

KPMG C.Jespersen Statsautoriseret Revisionsinteressentskab

John Lesbo Kenn K. Karlsen State Authorised State Authorised Public Accountant Public Accountant

ECCO’s Annual report 2006 27 Accounting policies

Basis of preparation invoiced excluding VAT and less returned products, The financial statements of the Parent Company discounts and rebates. and the Group for 2006 are presented in accordance with the provisions of the Danish Financial Statements Raw materials and consumables: Raw materials and Act applicable to class C companies. consumables include raw materials and consumables used for in-house production. Cost also includes Basis of consolidation consumption of commercial products. The consolidated financial statements comprise ECCO Sko A/S and subsidiaries in which ECCO Sko Other external costs: Other external costs comprise A/S has a controlling influence on the company’s costs relating to the Company’s primary, ordinary operations. The consolidated financial statements activity, including lasts, cutting dies, maintenance, are prepared on the basis of the audited financial rent of plant, premises, office expenses, sales statements of ECCO Sko A/S and its subsidiaries promotion expenses, fees, etc. by adding items of a similar nature. The financial statements used for consolidation are adapted to Staff costs: Staff costs comprise remuneration to the accounting policies of the Group. employees, including pension and social security costs.

On consolidation, intercompany income and Profit from subsidiaries: Profit from subsidiaries expenses, intercompany accounts and gains on comprise the proportionate share of profits before tax. intercompany sales and purchases between the The proportionate share of tax in the companies is consolidated companies are eliminated. On acquisition recognised in the line item “income taxes”. of subsidiaries, the share of the acquired company’s net asset value is determined based on the Group’s Unrealised intercompany profits: Unrealised accounting policies. If the acquisition price deviates intercompany profits comprise profits unrealised in from the net asset value, the difference is allocated, the Group on trading in products and fixed assets wherever possible, to the assets and liabilities or between consolidated companies. provisions that have a higher or lower value. Income taxes: Estimated tax on the profit for the year The income statements of foreign subsidiaries is recognised in the income statement along with the are translated at average exchange rates, and year’s change in deferred tax. No tax is set aside for the balance sheet is translated at the exchange investments in subsidiaries as it is intended to hold rates ruling on the balance sheet date. Exchange the investments for more than three years. differences arising on the translation of the opening equity of foreign subsidiaries at the exchange rates ECCO Sko A/S and the Danish subsidiaries are ruling on 31 December, and differences between the encompassed by the Danish regulations regarding net profit of subsidiaries at average exchange rates mandatory joint taxation. Subsidiaries are a part of and the exchange rates ruling at 31 December are the joint taxation from the moment, where they are recognised in equity. As in previous years, property, a part of the consolidation in the annual accounts machinery, plant and equipment in the production to the moment, where they are omitted from the subsidiaries in Portugal, Indonesia, Thailand, consolidation. Slovakia and China is measured at cost in DKK less accumulated depreciation. Currency translation ECCO HOLDING A/S is the administrative company in of receivables from foreign subsidiaries, where the the joint taxation and settles all payments of corporate receivables are part of the total investment in the tax in the Danish subsidiaries with the tax authorities. subsidiary, is recognised directly in equity. The current Danish corporate tax is allocated by Minority interests paying a joint taxation contribution between the Minority interests’ share of profits and equity of companies in the joint taxation. The contribution is subsidiary undertakings is stated separately. allocated according to the taxable income in the companies. Companies in the joint taxation with a Income statement taxable deficit receive a joint taxation contribution from Net revenue: Sales are recognised on dispatch of companies, which have been able to use this deficit to products, and net revenue consists of amounts reduce their taxable income.

28 ECCO’s Annual report 2006 The tax of this year, which consists of the current Costs of maintaining existing patents/trademarks are corporate tax, the joint taxation contribution and the recognised in the income statement when incurred. change in deferred tax – also changes which are caused by reduction of the corporate tax rate – is a Goodwill on consolidation: Goodwill on consolidation is part of the income statement with the share, which can determined at the date of acquisition as the difference be allocated to profit of the year, and is a part of the between the cost and the net asset value of the equity with the share, which can be allocated to entries acquired company applying the Group’s accounting in equity. policies. Consolidated goodwill acquired from and including 1 January 2002 is capitalised and amortised According to the Danish regulations regarding on a straight-line basis over the expected useful mandatory joint taxation, the debt of ECCO Sko A/S economic life, determined on the basis of earnings and the Danish subsidiaries towards the tax authorities projections for the individual business areas, not to is settled when the companies have paid the joint exceed 20 years. When the Parent Company acquires taxation contribution to the administrative company. shares at a price higher than the value determined applying the equity method, such excess value is Deferred tax is calculated at 28% of the difference recognised as an intangible asset and amortised over between the carrying amounts and tax values of the same period as goodwill on consolidation. current assets and fixed assets. Furthermore, the tax value of tax losses carried forward is recognised in the Property, plant, and equipment: Property, plant and amount at which they are expected to be used. equipment is recognised at cost plus any revaluation and less accumulated depreciation. Depreciation is If, on a net basis, there is a tax asset, the amount of charged on a straight-line basis over the expected use- future tax savings is recognised, provided that it is ful lives of the assets. deemed more likely than not that the deduction can be offset against future taxable profits. The expected useful lives are as follows: - Buildings 20 years Balance sheet - Plant and machinery, vehicles, Intangible assets: Intangible assets are recognised at fixtures and fittings 5 years cost less accumulated amortisation. Amortisation is - Computer software 3 years charged on a straight-line basis over 5-10 years. Depreciation is not charged on land and staff housing. Development projects: Development projects which are Assets with a cost of less than DKK 11 thousand per clearly defined and identifiable and which are deemed unit are charged to the income statement in the year of to be marketable in the form of new products in a futu- acquisition. Investment grants are offset against the re potential market are recognised as intangible assets. assets that form the basis for the grants.

Development costs are recognised at cost under If an asset type is revalued, this applies to all assets intangible assets and are amortised over the expected within that group of assets. useful life of the project, when the criteria for such treatment are met. Investments: Investments in subsidiaries are recognised applying the equity method at the proportionate share Development costs that do not meet the criteria for of the equity of the companies, determined based recognition in the balance sheet are recognised as on the Group’s accounting policies, less unrealised costs in the income statement when incurred. intercompany profits.

Recognised development costs are measured at the Dividend receivable in subsidiaries is recognised in the lower of cost less accumulated amortisation and balance sheet when adopted by the shareholders at writedowns and the recoverable amount. the annual general meeting.

Patents and trademarks: The costs of registering new Dividends to be paid by the Parent Company are patents and trademarks are recognised and amortised recognised as a liability in the financial statements at over the term of the patent/trademark or its economic the time of adoption by the shareholders at the annual life (5 years). general meeting. Dividend proposed in respect of the

ECCO’s Annual report 2006 29 financial year is stated as a separate line item in the event, the Company has a legal or constructive obliga- equity note. tion, and it is likely that the obligation will materialise.

Inventories: Raw materials are measured at cost Cash flow statement determined on the basis of the most recent purchases. The cash flow statement shows the Group’s cash Work in progress and finished products are measured flow during the year and liquidity position at the at calculated cost, consisting of the cost of raw beginning and end of the year. The cash flow statement materials and consumables and manufacturing costs is divided into three principal areas: operating, investing plus a share of production overheads. Commercial and financing activities. Cash and cash equivalents in products are valued at acquisition price. Products with the cash flow statement comprise cash and securities a net realisable value lower than the cost or acquisition carried as current assets. price are written down to the lower value. In the statements, figures in brackets represent losses Receivables: Receivables are measured at amortised or items deducted. cost less provisions for anticipated losses determined based on an individual evaluation.

Securities: Securities are measured at the most recently quoted market price.

Financial instruments: Derivative financial instruments are initially recognised in the balance sheet at cost and subsequently remeasured at their fair value. Derivative financial instruments are included in other receivables and other debt.

Changes in the fair value of derivative financial instruments that meet the criteria to be designated as fair value hedges of a recognised asset or a recognised liability are recognised in the income statement together with any changes in the fair value of the hedged asset or hedged liability.

Changes in the fair value of derivative financial instruments that meet the conditions for hedging future assets or liabilities are recognised in equity under retained earnings. Income and expenses relating to such hedge transactions are transferred from equity on realisation of the hedged item.

Treasury shares: The cost of treasury shares is recognised directly on the Company’s share capital and is consequently not stated as an asset in the balance sheet.

Currency translation: Receivables and payables denominated in foreign currencies are translated to the exchange rate ruling at year-end.

Provisions Provisions comprise anticipated costs of warranty obligations, restructuring, etc. Provisions are recognised when, as a consequence of a past

30 ECCO’s Annual report 2006 Income statement for the year ended 31 December 2006

Group Parent Company ­­ ­ 2006 2005 2006 2005 Note DKK ‘000

1 Net revenue ,470,40 ,830,546 ,065,427 ,621,123 Change in inventories of finished products and work in progress 12,328 43,083 (136) 74,321 Costs of raw materials and consumables (1,706,354) (1,625,267) (2,110,596) (1,910,383) Other external costs (918,559) (769,850) (319,631) (241,258) 2 Staff costs (919,996) (849,633) (240,004) (208,100) 5,6 Amortisation and depreciation (178,360) (205,039) (43,455) (58,053)

Profit before financials 759,46 ,840 51,605 77,650

3 Financial income 96,408 40,754 34,814 14,712 Financial expenses (146,387) (115,048) (53,718) (61,929) Profit from subsidiaries - - 364,563 193,401 Intercompany profit - - (866) (73,860)

Profit before tax 709,48 9,546 696,398 9,974

4 Income taxes (209,423) (124,512) (206,926) (124,243)

Group profit 500,060 5,0 89,47 5,731

11 Minority interests (10,588) 697 - -

Profit for the year 89,47 5,7 89,47 5,731

Proposed allocation:

Revaluation reserve for undistributed profit in subsidiaries (8,540) 5,446

Retained earnings 356,012 185,285

Proposed dividend 142,000 35,000

489,472 225,731

ECCO’s Annual report 2006 31 Balance sheet as of 31 December 2006

Group Parent Company Assets 2006 2005 2006 2005 Note DKK ‘000

FIXED ASSETS: Intangible rights 52,345 62,611 20,588 22,463

5 Total intangible assets 52,345 62,611 20,588 22,463

Land and buildings 490,375 487,922 108,671 113,531 Plant and machinery 212,046 208,396 6,465 7,224 Other fixtures and fittings, tools and equipment 230,121 206,341 63,693 52,159 Property, plant and equipment in progress 74,883 49,495 23,685 26,358

6 Total property, plant and equipment 1,007,425 952,15 02,5 99,272

7,8 Investments in subsidiaries - - 985,006 988,875 8 Receivables from subsidiaries - - 471,001 166,606 9 Deferred tax 61,533 60,541 40,183 38,858

Total long-term financial assets 61,533 60,5 ,496,190 ,194,339

TOTAL FIXED ASSETS 1,121,30 ,075,306 ,719,29 ,416,074

CURRENT ASSETS: Raw materials and consumables 266,893 188,492 - - Work in progress 45,927 42,395 - - Finished products and commercial products 879,297 737,663 425,141 425,277

Total inventories 1,192,117 968,550 5, 5,277

Trade receivables 477,089 411,714 75,926 49,770 Receivables from subsidiaries - - 328,298 364,324 Other receivables 154,756 114,338 53,571 13,436 Prepayments 42,760 56,402 15,770 34,531

Total receivables 674,605 582,45 73,565 62,061

Securities 8,526 4,852 133 125

Cash 654,129 654,196 0,159 05,970

TOTAL CURRENT ASSETS 2,529,377 ,210,05 ,208,998 993,433

TOTAL ASSETS 3,650,680 ,285,358 ,928,290 ,409,507

32 ECCO’s Annual report 2006 Balance sheet as of 31 December 2006

Group Parent Company Equity and liabilities 2006 2005 2006 2005 Note DKK ‘000

Share capital 5,500 5,500 5,500 5,500 Revaluation reserve - - 495,804 525,156 Retained earnings 1,724,013 1,280,250 1,228,209 755,094

10 Total equity ,729,5 ,285,750 ,729,5 ,285,750

11 Minority interests 43,796 38,829 - -

Provisions 13,283 48,529 - -

Credit institutions 1,012,879 1,162,789 852,094 777,056

12 Total long-term debt ,012,879 ,162,789 852,094 777,056

Short-term part of long-term debt 173,918 134,953 125,656 84,556 Credit institutions 201,658 240,205 20,344 66,314 Trade payables 181,987 176,511 39,149 49,691 Payables to subsidiaries - - 70,865 91,489 4 Income taxes 44,884 25,400 4,792 201 Other payables 178,458 128,378 15,728 13,509 Deferred income 70,304 44,014 70,149 40,941

Total short-term debt 851,209 749,46 6,68 6,701

Total debt ,864,088 ,912,250 ,198,777 ,123,757

TOTAL EQUITY AND LIABILITIES ,650,680 ,285,358 ,928,290 ,409,507

13 Contingent liabilities and collateral security 14 Fees to auditors appointed at the annual general meeting 15 Related parties

ECCO’s Annual report 2006 33 Consolidated cash flow statement for the year ended 31 December 2006

2006 2005 DKK ‘000

Cash flow from operating activities Profit before tax 709,483 349,546 Adjustment for non-cash operating items: Amortisation and depreciation 178,360 205,039 Exchange rate adjustments (420) 40,425 Tax adjustments 2,665 2,926 Working capital adjustments: (Increase)/Decrease in inventories (223,567) (78,494) (Increase)/Decrease in receivables (92,151) 12,039 Increase/(Decrease) in payables 5,476 45,409 Increase/(Decrease) in other payables 76,370 (26,142) Increase/(Decrease) in provisions (35,246) 35,990 Income taxes paid (193,596) (71,660) 427,374 515,078 Cash flow from investing activities Payments to invest in fixed assets: Intangible assets (5,446) (18,293) Property plant and equipment (229,363) (183,385) (234,809) (201,678) Cash flow from financing activities Change in minority interests (4,466) (7,109) (Repayment of)/proceeds from new long-term debt (149,910) 208,682 Increase/(Decrease) in short-term debt 418 (173,958) Dividend paid (35,000) (30,000) (188,958) (2,385)

Cash flow from operating, investing and financing activities 3,607 311,015 Cash and cash equivalents at beginning of year 659,048 348,033 Cash and cash equivalents at year-end 662,655 659,048

Breakdown of cash and cash equivalents: Securities 8,526 4,852 Cash 654,129 654,196 662,655 659,048

34 ECCO’s Annual report 2006 Notes to the Group and Parent Company financial statements

1 Segment information

Group 2006 2005 DKK ‘000

Segment information Shoes & accessories 4,200,789 3,527,334 Others 269,614 303,212

Total net revenue ,470,40 ,830,546

Net revenue shoes & accessories ECCO Europe West 666,328 622,046 ECCO Europe Central 1,338,950 1,244,280 ECCO Europe East and Middle East 699,101 490,597 ECCO Americas 1,150,579 948,970 ECCO Asia / Pacific 345,831 221,441

Total shoes & accessories ,200,789 ,527,334

Reference is made to the ECCO Group structure page 8 regarding the definition of the geographic regions.

2 Staff costs and management and staff information

Group Parent Company 2006 2005 2006 2005 DKK ‘000

Salaries 835,549 770,325 226,358 195,214 Pensions 28,757 22,433 12,143 11,455 Other social security costs 55,690 56,875 1,503 1,431

Staff costs 919,996 849,6 0,00 08,100

Average number of employees 11,520 9,981 469 483

Number of employees at year-end 12,670 10,534 468 467

Fees to Managing Board and Supervisory Board: Managing Board - - 33,150 13,774 Supervisory Board - - 417 400

ECCO’s Annual report 2006 35 Notes to the Group and Parent Company financial statements

3 Financial income

Parent Company

2006 2005 DKK ‘000

In the Parent Company, interest income from subsidiaries amounted to 22,029 12,352

4 Income taxes

Group Parent Company Cost Debt Cost Debt 2006 2006 2006 2006 DKK ‘000

Income taxes payable as at 1 January 25,400 201 Income taxes paid in 2006 (1,858) Prior-year adjustment 1,586 1,657 Estimated tax for 2006 213,080 213,080 100,672 100,672 of which paid (193,596) (95,880) Tax in subsidiaries 106,056 Year’s adjustment of deferred tax (3,657) (1,388) 209,423 44,88 06,926 4,792

5 Intangible assets

Group Parent Company DKK ‘000

Cost at 1 January 121,803 35,602 Currency translation (2,855) - Additions 8,665 1,621 Disposals (3,660) - Cost at 31 December 123,953 37,223 Accumulated amortisation at 1 January 59,192 13,139 Currency translation (1,154) - Amortisation 14,011 3,496 Amortisation on assets sold (441) -

Accumulated amortisation at 31 December 71,608 16,635

Carrying amount at 31 December 52,345 20,588

Amortised over 5-10 years 5-10 years

36 ECCO’s Annual report 2006 Notes to the Group and Parent Company financial statements

6 Property, plant and equipment

Land Plant Fixtures and Property, plant and and fittings, tools and equipment buildings machinery and equipment in progress DKK ‘000

GROUP Cost at 1 January 729,657 764,657 750,779 49,495 Currency translation (4,310) (47) (8,227) (447) Additions 44,280 73,788 120,451 63,744 Disposals (19,120) (77,788) (73,015) (37,909)

Cost at 31 December 750,507 760,610 789,988 74,883

Accumulated depreciation at 1 January 241,735 556,261 544,438 - Currency translation (94) (23) (3,171) - Depreciation 30,887 60,868 72,594 - Depreciation on disposals (12,396) (68,542) (53,994) -

Accumulated depreciation at 31 December 60,132 548,564 559,867 -

Carrying amount at 31 December 90,375 ,046 0,121 74,883

PARENT COMPANY Cost at 1 January 225,316 92,668 215,608 26,358 Additions 4,579 4,273 37,985 25,666 Disposals (6,683) (21,305) (30,852) (28,339)

Cost at 31 December ,212 75,636 ,741 23,685

Accumulated depreciation at 1 January 111,785 85,444 163,449 - Depreciation 9,042 4,861 26,056 - Depreciation on disposals (6,286) (21,134) (30,457) -

Accumulated depreciation at 31 December ,541 69,17 59,048 -

Carrying amount at 31 December 08,671 6,465 63,693 23,685

Depreciated over 20 years 5 years 3-5 years

(The officially rated cash property value at 1 October 2006 of the Parent Company’s properties was DKK 213,110 thousand).

ECCO’s Annual report 2006 37 Notes to the Group and Parent Company financial statements

7 Investments in subsidiaries

Ownership interest Share capital ECCO (Thailand) Co., Ltd. 95% 200,000 k THB ECCO Slovakia, a.s. 94.78% 230,000 k SKK Ecco'let (Portugal) Fábrica de Sapatos, Lda. 100% 2,770 k EUR P.T. ECCO Indonesia 100% 43,976,000 k IDR ECCO China Holding (Singapore) Pte. Ltd. 80% 26,000 k USD ECCO (Xiamen) Co. Ltd. 80% 10,000 k USD ECCO Shoe (Xiamen) Co. Ltd. (dormant) 80% 315 k USD

ECCO Tannery Holding (Singapore) Pte. Ltd. (dormant) 100% 1,600 k USD ECCO Tannery (Xiamen) Co. Ltd. (China) (dormant) 100% 1,500 k USD ECCO Tannery (Thailand) Co. Ltd. 100% 185,000 k THB ECCO Tannery (Netherlands) B.V. 100% 1,000 k EUR ECCO Leather B.V. (Netherlands) 100% 400 k EUR PT. ECCO Tannery (Indonesia) 100% 37,403,550 k IDR

ECCO Accessories Ltd. (UK) (dormant) 100% 200 k GBP ECCO Asia Pacific Limited (Hong Kong) 100% 21,500 k HKD ECCO Belgium N.V. 100% 360 k EUR ECCO Boty Ceska republika s.r.o. (Czech Republic) 100% 5,000 k CZK ECCO China Wholesale Holding (Singapore) Pte. Ltd. 50% 200 k USD ECCO Europe East and Middle East Sp. z o. o. (Poland) 100% 12,500 k PLN ECCO Europe West B.V. (Netherlands) 100% 23 k EUR ECCO Exportadora Ltda (Brazil) (dormant) 100% 48 k BRL ECCO France Diffusion S.a.r.l. 100% 50 k EUR ECCO India Trading Private Limited 100% 6,969 k INR ECCO Internet, INC. (USA) 100% 100 k USD ECCO Norge A/S (Norway) 100% 15,000 k NOK ECCO (Portugal) Sales-Comercialização de Sapatos, Lda. 100% 800 k EUR ECCO Retail A/S (Denmark) 100% 1,000 k DKK ECCO Retail LLC (USA) 100% 300 k USD ECCO Scarpe Italia S.r.l. 100% 100 k EUR ECCO Schuhe GmbH (Germany) 100% 1,790 k EUR ECCO Schuhe Schweiz GmbH (Switzerland) 100% 170 k CHF ECCO (Shanghai) Co. Ltd 50% 2,100 k USD ECCO Shoes (NZ) Limited (New Zealand) 100% 100 k NZD ECCO Shoes Canada, Inc. 100% 6,502 k CAD ECCO Shoes Hong Kong Ltd. 100% 3,000 k HKD ECCO Shoes International Ltd (Switzerland) 100% 2,250 k CHF ECCO Shoes Pacific Pty. Ltd. (Australia) 100% 3,250 k AUD ECCO Shoes Poland Sp. z o. o. 100% 10,000 k PLN ECCO Shoes Slovakia s.r.o 100% 5,000 k SKK ECCO Shoes UK Limited 100% 4,000 k GBP ECCO Singapore Pte. Ltd. 100% 2,510 k SGD ECCO Shoes Iberica, S.L. (Spain) 100% 4 k EUR ECCO Sverige AB (Sweden) 100% 1,000 k SEK ECCO Trading GmbH (Austria) 100% 400 k EUR ECCO USA, Inc. 100% 7,500 k USD ECCO Wholesale Limited (UK) (dormant) 100% 1,200 k GBP Eccolet Portugal ApS (Denmark) 100% 200 k DKK Oy ECCO-Suomi Ab (Finland) 100% 102 k EUR Salgsselskabet ECCO Danmark A/S 100% 1,000 k DKK

38 ECCO’s Annual report 2006 Notes to the Group and Parent Company financial statements

8 Investments in subsidiaries

Investments in Receivables from subsidiaries subsidiaries 2006 2005 2006 2005 DKK ‘000

Cost at 1 January 647,302 551,355 166,606 82,691 Additions 26,350 95,947 315,068 87,493 Disposals - - (10,673) (3,578)

Cost at 31 December 673,652 647,30 71,00 66,606

Accumulated revaluation at 1 January 525,156 470,429 - -

Currency translation of foreign subsidiaries (20,812) 49,282 - - Profit after tax of subsidiaries 258,505 127,446 - - Dividend (267,045) (122,000) - -

Net revaluation (29,352) 54,727 - -

Accumulated revaluation at 31 December 95,804 525,156 - -

Intercompany gains (184,450) (183,584) - -

Carrying amount at 31 December 985,006 988,875 71,00 66,606

9 Deferred tax

Group Parent Company 2006 2005 2006 2005 DKK ‘000

Deferred tax comprises: Inventories, unrealised intercompany gains 52,860 58,166 44,844 50,697 Tax loss 5,164 3,113 - - Other assets 3,509 (738) (4,661) (11,839)

Recognised at 31 December 61,533 60,541 40,183 38,858

Recognised at 1 January (60,541) (112,336) (38,858) (95,996)

Total adjustment 992 (51,795) 1,325 (57,138)

Of which adjusted in equity (2,665) (2,926) (63) (2,926)

ECCO’s Annual report 2006 39 Notes to the Group and Parent Company financial statements

10 Equity

Group Parent Company 2006 2005 2006 2005 DKK ‘000

The share capital consists of: 112 shares (in amounts from DKK 500 to DKK 1,658,200) Total share capital 5,500 5,500 5,500 5,500

Reserve for net revaluation according to the equity method Reserve for net revaluation at 1 January - - 525,156 470,429 Net revaluation - - (29,352) 54,727

Reserve for net revaluation at 31 December 0 0 95,804 525,156

Brought forward from prior years/revaluation reversed 1,280,250 1,028,526 755,094 558,097 Proposed dividend in respect of the financial year 142,000 35,000 142,000 35,000 Dividend paid (35,000) (30,000) (35,000) (30,000) Exchange rate adjustment to year-end exchange rates (20,812) 49,282 - - Currency translation of subordinated loan capital in subsidiaries (5,063) 5,294 (5,063) 5,294 Gain on financial swap 5,226 1,986 5,226 1,986 Retained from profit for the year 347,472 190,731 356,012 185,286 Adjustment of currency hedges of future sales 9,940 (569) 9,940 (569)

Total retained earnings ,724,0 ,280,250 ,228,209 755,094

Total equity ,729,5 ,285,750 ,729,5 ,285,750

The nominal value of treasury shares is DKK 550 thousand; they were acquired in 1989 at DKK 6,875 thousand. The treasury shares are carried at DKK 0.

40 ECCO’s Annual report 2006 Notes to the Group and Parent Company financial statements

11 Minority interests

Group 2006 2005 DKK ‘000

Minority interests at 1 January 38,829 44,338 Additions - 30,742 Disposals (4,466) (37,851) Share of profit for the year 10,588 (697) Currency translation (1,155) 2,297

Minority interests at 31 December 43,796 38,829

Breakdown of minority interests: Minority interests regarding ECCO (Thailand) Co., Ltd, 5,921 5,413 Minority interests regarding ECCO Slovakia, a.s. 4,685 5,458 Minority interests regarding ECCO China Holding (Singapore) Pte. Ltd. 23,133 27,363 Minority interests regarding ECCO China Wholesale Holding (Singapore) Pte. Ltd. 10,057 595 43,796 38,829

12 Long-term debt

Group Parent Company 2006 2005 2006 2005 DKK ‘000

Long-term debt due more than five years after the end of the financial year 202,420 178,449 202,420 178,449

ECCO’s Annual report 2006 41 Notes to the Group and Parent Company financial statements

13 Contingent liabilities and collateral security

Group Parent Company 2006 2005 2006 2005 DKK ‘000

CONTINGENT LIABILITIES

Rent and lease liabilities 429,194 492,096 35,508 39,752 Guarantees and letters of comfort for staff 429 865 429 865 Guarantees and letters to suppliers and subsidiaries 147,739 10,550 141,276 3,087 Litigation - 1,865 - 1,865 Sponsorships 12,250 11,681 12,250 11,681

COLLATERAL SECURITY

The following assets have been lodged in security of the Group’s loans from credit institutions and other long-term debt: Bearer mortgages on property, plant and equipment 172,333 174,500 80,000 80,000 Guarantee for import duty 20,960 31,368 - -

14 Fees to auditors appointed at the annual general meeting

Group Parent Company 2006 2005 2006 2005 DKK ‘000

Total fees to auditors appointed at the annual general meeting: KPMG 6,780 6,511 1,576 1,220 Others 915 740 75 87 7,695 7,251 1,651 1,307

Of which fees for non-audit services: KPMG 1,739 2,160 717 677 Others 257 134 75 87 1,996 2,294 792 764

42 ECCO’s Annual report 2006 Notes to the Group and Parent Company financial statements

15 Related parties

ECCO Sko A/S has the following related party with controlling influence:

ECCO HOLDING A/S Industrivej 5, Bredebro, Denmark

There have been no material transactions with the Parent Company other than the distribution of dividend.

ECCO Sko A/S' related parties with controlling influence comprise the Company’s shareholders, Supervisory Board, the Managing Board as well as relatives of these persons. Related parties also comprise companies in which the individuals mentioned above have material interests.

ECCO Sko A/S trades on normal market conditions with companies in which the same individuals have controlling influence.

The Company’s list pursuant to section 28b of the Danish Companies Act of shareholders with more than 5% of the votes or more than 5% of the nominal value of the share capital includes:

- ECCO HOLDING A/S, Bredebro, Denmark (Parent Company) - Kasprzak Holding ApS, Bredebro, Denmark

ECCO’s Annual report 2006 43 ECCO’s Code of Conduct

Objectives: ECCO’s 10 Commitments: ECCO designs, manufactures and markets footwear and related accessories to consumers around the 1. ECCO is a guest in each of the countries in which world. Over the last more than 40 years, ECCO has it operates and will as such respect the culture of developed from a local Danish company into an the individual country. international company with production units and sales subsidiaries all over the world. 2. ECCO supports, respects and has a proactive approach to the protection of internationally Today, ECCO is one of the world’s leading manufactu- defined human rights. rers and marketers of high-quality footwear. ECCO has attained this position through constant innovation and 3. ECCO respects equal opportunities and supports sound business principles. However, it is just as crucial abolishment of discrimination in the workplace. to ECCO’s success that the company leads the way when it comes to good corporate citizenship. 4. ECCO respects a person’s right to freedom of religion. No matter where in the world ECCO operates, this is done according to a set of principles which stipulate 5. ECCO respects the right to freedom of that we will behave in a correct and decent manner. association. This is our heritage as a Danish company. The princip- les apply to employee relations, to environmental 6. ECCO wishes employees to have access to a considerations and to relations with business partners. workplace free of harassment or abuse and condemns any forms of compulsory labour. As expressed by K. Toosbuy, the founder of ECCO, ‘ECCO is a guest in each of the countries in which 7. ECCO supports the UN Convention on the it operates and shall as such respect the culture of Rights of the Child. the country’. 8. ECCO provides training, education and further The respect for other people and cultures is deeply roo- development of human resources on all levels. ted in the company. As a large employer, ECCO under- stands its responsibility and accepts it. 9. ECCO aims to be a leading company in the area of environment, health and safety and aims to promote ECCO will only achieve long-term business success sustainable development. by demonstrating good corporate citizenship, which in turn can only be secured if the business 10. ECCO wishes to ensure that the conduct of its is based on constant achievement of good results. business as an absolute minimum always complies with all relevant laws and regulations. This is the very heart of ECCO's Code of Conduct as regards sustainable development, issues related to religion, employee relations, health and safety, Read more about ECCO's Code of Conduct environmental protection and community relations. at: http://corporate.ecco.com/coc.pdf

It is essential to ECCO that ECCO's Code of Conduct is an integral part of the entire value chain. We there- fore expect not only the companies within the ECCO Group, but also our external suppliers, wholesale and retail customers to acknowledge and respect ECCO's Code of Conduct. We regularly control that ECCO's Code of Conduct is being complied with.

44 ECCO’s Annual report 2006 Group environmental statement 2006

ECCO’s Annual report 2006 45 ECCO and the environment

View of the marshland in Southern Jutland neighbouring ECCO’s corporate head office: for a global company Danish roots are an obligation – also in terms of the environment…

National differences in a global community an environmental, health and safety committee with both Like all other important activities in the ECCO Group management and employee members. The committees our policy for environment, health and safety and our are pivotal in the day-to-day environmental activities of related activities are developed across borders. Since the production units. In addition, training in environmen- the beginning of the seventies ECCO has manufac- tal, health and safety issues forms an integral part of the tured shoes at the global market and our environment, in-house training programme “From cow to shoe” for all health and safety activities are increasingly internationally new employees. organised – with a sharp view on the global perspective.

Focus and challenges are continuously increasing. ENVIRONMENTAL IMPACT AND THE It is an important area which will fill up more and more ECCO GROUP in the everyday life at ECCO in the future - in headquar- ters, in sales subsidiaries as well as in our production Environmental impact is defined by ECCO to units. It includes both ECCO’s own factories and our be the effect on human beings and the external suppliers. It is a never-ending process. environment which results from the production, use and disposal of ECCO products. There are also legislative and cultural differences across borders when it comes to environment, health and Internal environmental impact means: safety. This challenges the organisation’s procedures and The effects on the employees manufacturing the strategic development. Many people all over the ECCO products, i.e. health and safety issues such as Group are involved in preparing, implementing and physical, chemical, biological and ergonomic anchoring our global programme about environment, factors, employee conditions and rights, as well health and safety on a daily basis. Everybody has the as social factors. same objective, namely to ensure that ECCO takes the environment into consideration at all times, when leather External environmental impact means: and shoes are manufactured. It is done in a global The effect on the near and distant environments, community – across the national differences that i.e. soil, water and air, for example in the form of naturally exist. waste, wastewater and emissions.

Employee involvement Employee involvement in ECCO’s global environmental Environment, health and safety in constant programme is an absolute necessity in order to be development successful. Without local effort, an ambitious global The ECCO Group’s Policy for Environment, Health and policy about environment, health and safety does not Safety represents the overall framework for the Group’s amount to much. All tanneries and shoe factories have global environment, health and safety activities.

46 ECCO’s Annual report 2006 The ECCO Group’s Policy for Environment, accidents and by minimizing health and safety Health & Safety impact for all employees. The ECCO Group is a global company with approximately 13,000 employees. The Group has To ensure an appropriate development of the the whole value chain at its disposal in terms of Group in terms of health and safety issues tanneries, shoe factories, sales subsidiaries and every ECCO tannery and shoe factory shall shops. In this way the Group controls the whole continuously: process from rawhides to finished shoes. We seek to achieve an environmentally suitable - Reduce health and safety impact for the indi- development and production of our products. vidual employee to a minimum - Strengthen, prevent and improve health and The ECCO Group uses a minimum of harmful safety impact to prevent any kind of work acci- chemical substances and absolutely no forbidden dent and prevent repetition substances. All raw materials and components - Ensure the employees’ job satisfaction and must fulfil the international recognized SG list health at the workplace for leather products published by German test - Use the employees’ resources in the most institutes. The ECCO Group has chosen to appropriate way for all parties extend the list so as to include harmful chemical - Establish one or more organisations to handle substances, which we find critical. health and safety issues and hereby ensure a high level of employee involvement Environmental Issues - Train and educate employees to ensure an It is the ECCO Group’s objective actively to optimum working environment minimize the environmental impact on near and distant surroundings. This is done by optimum The ECCO Group will engage the employees in utilization of raw materials and energy sources environmental, health and safety issues through and by reducing and re-using waste from tannery information, training and education. It rests on the processes and shoe production wherever employee to take responsibility and do an active possible. effort aiming at continuous improvements of environmental, health and safety issues. To ensure an appropriate development of the Group in terms of environmental issues The ECCO Group will openly co-operate with every ECCO tannery and shoe factory shall authorities and at all times meet the legislation continuously: related to environmental, health and safety issues. The ECCO Group will on a yearly basis re-assess - Promote the four R’s: Reduce, Re-use, Repair, the ECCO Group’s Policy for Environment, Health Recycle & Safety at the yearly environmental conference - Ensure the lowest possible consumption of held for all tanneries and shoe factories resources and amount of waste - Minimize the use of harmful substances - Train and educate employees to minimize the D. Kasprzak environmental impact CEO

Health & Safety Issues M. Thinghuus The ECCO Group’s most important resource is COO the employees. The ECCO Group wishes to pro- mote and strengthen a physical, psychological J.C. Meier and social healthy working environment for all EVP Production employees. This is among other things done by actively involving employees in preventing work

ECCO’s Annual report 2006 47 The efforts on environment, health and safety take place ECCO has chosen to extend the list to include across borders in a daily co-operation between ECCO’s harmful substances which we consider to be critical. Group Environmental Department and decentralised These appear in the appendix “ECCO Supplement to environmental entities within and outside ECCO. the SG-list”. The Group Environmental Department updates these requirements for harmful substances

ECCO Group on an ongoing basis to ensure that they are always in Environmental compliance with the international criteria. Department

Feed back Feed back • Group Policy for Environment, Health & Safety Resource consumption from cow to shoe • Strategy for Development of Environment, Health & Safety The production of ECCO shoes requires a number of • Guidelines for tanneries & shoe factories • Reporting & Monitoring, Auditing, different resources, including energy, water, raw Subsidary Benchmarking Affiliate materials and components. For several years, we have environmental • Education & Training Programmes environmental function • Exchange of ’Best Practices’, Group function made dedicated efforts to reduce the consumption of Conference • ECCO Environmental Management resources in our production of shoes, among other System things by ensuring that the best possible production technologies are used, and that the production equipment used at all ECCO tanneries and factories Supplier environmental is well-functioning and up to date. function

Our tanneries produce process wastewater, At the annual audits and Group environment, health whereas our shoe factories mainly produce domestic and safety conferences, a network is developed which wastewater. All tanneries have sophisticated ensures the gathering of knowledge and exchange of wastewater treatment plants for the treatment of experiences among all the environment, health and tannery wastewater. This way, ECCO ensures that safety coordinators at the Group’s tanneries and shoe wastewater is treated to such a degree that we not factories. ECCO attaches a great deal of importance to only meet local discharge requirements but also comply this global forum for the exchange of valuable ideas and with the Best Available Technology (BAT) for tanneries. best practice. The main environmental impact from our shoe factories We especially focus on audits. During 2006 a lot of work derives from energy consumption and waste production. has been put into thorough audits in ECCO. In the com- The global environmental activities in ECCO foster many ing years we will increase these efforts further to ensure initiatives, which all have the aim to reduce this waste. that ECCO's Code of Conduct is observed at our own factories and at our suppliers at all times (ECCO’s Code As it shows on the following pages, it is the project of Conduct is further described in page 44). “Flesh to Fuel” which has lately contributed positively to improve the environment and minimize the impact Harmful chemical substances from our tanneries - an exciting and innovative project In the global environmental activities, the ECCO Group which focuses on converting waste to energy. On the aims to meet the criteria for harmful chemical substanc- following pages you can also read about ECCO’s Code es based, among other things, on the internationally of Conduct on a practical level and ECCO's Code of recognized SG list for shoes. SG is an abbreviation of Conduct Audits. the German term Schadstoffgeprüft (tested for harmful substances). The SG list contains threshold values for At the end of this Group Environmental Statement, there harmful substances in textiles and leather products. are statements containing information and key figures in relation to environmental, health and safety aspects for This list is based on the latest knowledge about the all ECCO tanneries and shoe factories for the past five effect of certain chemicals on human beings and animals years. The key figures for the individual production units and it is published by the recognised German testing are not materially different from those of the preceding institute TÜV Produkt und Umwelt GmbH, Rheinland years; the trend seen in recent years continues. in collaboration with the Institut Fresius GmbH and Prüf- und Forschungsinstitut Pirmasens. These institutes For additional information please go to: constantly assess the effects of different substances www.ecco.com/environment used in the industry.

48 ECCO’s Annual report 2006 Checking is good – education is better

As one of the world's leading shoe manufacturers with accidents as well as respect for culture, freedom of activities in over 60 countries, ECCO puts great empha- religion, discrimination, union relations etc. sis on environmental, health and safety conditions. In 2006, we changed our environmental audits to Code of Communication and control Conduct audits to ensure that we protect people and the Communication is a decisive element in auditing environment in the best way possible. In these audits a work. This is about building up trust in each other and large number of areas, including the environment, health ensuring through dialogue that all rules and laws are and safety, is audited. followed down to the last detail.

We are constantly working to create a positive atmos- phere around audits and to continuously learn from each other's experiences: good examples in the form of 'best practices' are important to emphasise. As part of the audit all areas of the applicable production location are reviewed. This means discussions with both managerial and ordinary staff and paperwork that e.g. covers overtime payments etc. is reviewed and checked.

At the audits a lot of time is used in the entire production area

The basis for our audits is ECCO's Code of Conduct - a piece of paper with detailed descriptions of how we want to act throughout the world. ECCO's Code of Conduct Audit is the practical guarantee that the words on paper are adhered to in daily operation.

The key words in ECCO’s audit programme are partnership, openness, education and training. Status and suggestions for improvements are presented to management and We believe that through teamwork and cooperation environmental officers at the concluding meeting. we can reach much higher and achieve better results, When the review is complete, concluding meetings are than we could through checking. In the short-term, held with management and the environmental managers. checks maybe reveal things that can be improved. An action plan and timetable are prepared for aspects But an audit is much more than just checking. It is that need improving and a complete status report through education and coaching that we really guarantee is compiled. In this way everyone is involved in the that things are as they should be. In all corners of process. This creates understanding and a commitment the business – in our own factories as well as at to following the agreements in daily life. our suppliers. This is achieved through audits from headquarters, and ECCO employees are stationed If the rules are not followed at the most significant suppliers. Everything has a consequence. And if a production site does not comply with the applicable laws and rules, or A comprehensive programme demonstrates a lack of understanding in this area, ECCO ECCO's Code of Conduct Audit also ensures a will carefully consider sanctions. We have full access uniform standard for ECCO’s environmental, health to change procedures in our own factories. At our sup- and safety-related conditions at the tanneries and shoe pliers, future collaboration will be carefully considered, factories. This also ensures that all involved parties gain if ECCO's Code of Conduct is not adhered to. the necessary insight and knowledge on the area, and therefore proper understanding to create motivation to uphold all rules. The key words for ECCO's Code of Conduct Audit are partnership, openness, education and cooperation. Hereby the foundation for a good environment, health The audit programme reflects the 10 commitments in and safety work conditions can be created. ECCO's Code of Conduct, such as for example waste handling, resource utilization, workplace Further information on the 10 commitments of ECCO's assessment, safety conditions, prevention of industrial Code of Conduct can be found on page 44.

ECCO’s Annual report 2006 49 ECCO Code of Conduct – more than just words

ECCO is a guest in many countries of the world. We religion. At ECCO it is also to be practically possible want to act tactfully and with respect for culture, religion, to practise one's religion. We believe that with some laws and rules – locally and globally. ECCO's Code of consideration this can be possible without disrupting Conduct is a way of thinking, expressed in 10 commit- our production flow. ments, with the aim to ensure that no ECCO employee is in any doubt as to how we, as a Danish company, intend A good example is our factory in Indonesia. The factory to act. This applies both in Denmark and beyond the operates in the world's largest Muslim country, and of country's borders. These commitments cover topics that over 4,000 employees who work at ECCO's factory, affect employee relations, environmental aspects and around 95% are practising Muslims. This means that reli- relationships with collaboration partners. Adherence to gion and prayer are a part of everyday life at the factory. and the implementation of these are vital, and because the ECCO Group itself owns the major part of its pro- According to Islam, believers must pray five times a day duction facilities, we have very good opportunities to if possible. As a guest in the country ECCO wishes to enter into close dialogue with all employees about the respect this, and the factory has therefore furnished six Code of Conduct and thereby ensure that our Code is prayer rooms which the employees can use. In the same kept. The Group's environmental department carries way, special washroom facilities have been installed to out audits each year, and here the primary focus is to allow the employees the opportunity to cleanse their evaluate, how we can comply with the requirements we bodies before prayer – in the way prescribed by Islam. set in real life. Normally, the employees pray 1 – 2 times during a work- ing day – the remaining prayers take place early in the When prayer is an everyday event morning and in the evening after the end of the working A concrete example of how ECCO's Code of Conduct day. The approximately 2,000 employees working at the is practised in reality: Commitment no.1: ECCO is a same time pray on shifts, so that production does not guest in each of the countries in which it operates and come to a complete standstill, while everybody prays. will as such respect the culture of the individual country. Beyond the special prayer times everyone can of course Commitment no.4: ECCO respects a person’s right to use regular breaks for praying. On Fridays, on which, freedom of religion. according to the Koran, Muslim men have to pray in a mosque at noon, the employees have an extra long Commitments 1 and 4 of ECCO's Code of Conduct break to do so. During Ramadan – Muslims' period of concern the fact that ECCO as a Danish company in all fasting – Muslims are not allowed to consume food and our decisions and actions will remember that we are a drink from sunrise to sunset. During these periods ECCO guest in the country where we are represented and has reduced daily working hours by half an hour per shift therefore will always do our best to respect different and the employees are allowed to sleep at the factory cultures. For example the individual's right to follow his during breaks. It is ECCO Indonesia's policy that emplo- or her chosen belief is to be respected. But there is yees still receive their salaries during periods when they more to that principle than a simple desire to respect pray or take the day off for other religious reasons.

50 ECCO’s Annual report 2006 The future brings obligations – luckily

As a global brand ECCO has a clear obligation to live sustainability globally – and with more than just nice up to the standards that consumers rightly demand words on paper. Through collaboration in the council, of our shoes. We view the daily challenge of ensuring we can ensure that concrete initiatives are more rapidly sustainability to be an exciting task. implemented in the real world – quite simply because we can learn from one another, and we are united in It is ECCO's philosophy that constant challenges carrying out the task". contribute to the biggest changes and the most noticeable development. This applies both when The members of the council are the highest-level mana- designing new shoes and when new and alternative gers in the companies. This means that there is great ideas are considered in a sustainable manner. ability to act and a short distance to decision-making in the council. In 2007, the primary areas of focus include: Our ambition is to influence the entire sustainable development in a direction that ensures the safety of · The companies' responsibility in the supplier chain future generations. This means proper focus on the (including principles of value chain management and environment, society and economy. credible auditing and cooperation) · The council's influence in connection with the Danish government's preparation of a new sustainability strategy.

ECCO is particularly able to contribute with its vast knowledge and experience in the first area of focus. This is due to the fact that ECCO is characterized by the global division of work in contrast to many of the other participants in the Council. Global division of work When we work together means that all of ECCO's production technology as well Sustainability is not just a national matter. The as most of our suppliers are located outside of Denmark. production chain is world-wide – as are environmental This requires management of the global value chain. concerns. It is therefore a considerable task to ensure global sustainability - a task that no company can perform alone. The Council for Sustainable Business Development is founded by the following ECCO has therefore joined forces with 18 other Danish companies: companies, all of whom are globally-oriented. This is a broad circle of progressive Danish commercial compa- Arla Foods amba nies that have founded the "Council for Sustainable Bang & Olufsen A/S Business Development". In this unique forum many Brdr. Hartmann A/S useful experiences are exchanged between companies Coop Danmark A/S that operate in many of the same countries as ECCO. Danfoss A/S Danisco A/S ECCO's Chief Operating Officer, Mikael Thinghuus, says Datagraf about the collaboration: ECCO Sko A/S Grundfos Management A/S "For ECCO it has been a matter of course since we Hilton Scandic started in 1963 that we have an obligation towards the ISS Management A/S community around us. When we started up in the small Jysk A/S Southern Jutland town of Bredebro sustainability was Key2Green principally concerned with ensuring good employee Louis Poulsen El-teknik A/S conditions and terms for the local workers, who made MATAS A/S great efforts to help ECCO get started. NORDEA Bank Danmark A/S Novozymes A/S Today the task has grown with the company – and we Post Danmark have grown with the task. As one of the world's leading Tanaco Danmark A/S shoe manufacturers we do everything we can to ensure Tryg Vesta A/S

ECCO’s Annual report 2006 51 From Flesh to Fuel

This fleshy tissue – which represents approximately 20% of the weight of the raw hide – actually has a coveted energy potential in terms of bio fuel. This is utilized in the tannery’s boilers when heating water. This way, diesel is replaced by bio fuel as energy source.

When the hide is removed from the animal carcass, opportunity is to compost - the outcome could be a a certain amount of fleshy tissue comes with it. This useful fertilizer. Either way a further significant reduction represents approximately 20% by weight of the raw in land fill would be possible. hide. This is not needed for the leather making process and as such represents a waste material with all the ECCO’s tannery in Indonesia is a member of a regional costs of disposal. Like many process industries one of network of waste water treatment. This network the biggest challenges facing the global leather industry considers environmental problems and solutions. is the large amounts of energy and water needed for ECCO will share and cooperate with local tanneries the tanning process. who wish to conduct trials on the Flesh to Fuel plant.

Against this background, the Research & Development Idea, word – and action Centre of ECCO’s tannery division has taken part in Flesh-to-fuel is a good example of how to cooperate developing a special technology to reduce the impact in a closed loop system inhouse at a tannery. A of this disposal. The new technology consists of a concrete way of conducting the ECCO Group Policy “Flesh to fuel “ plant which is installed at ECCO’s of Environment, Health and Safety in reality – by tannery in Indonesia. The plant enables the extraction focusing on the four R’s: Reduce, Re-use, Repair of tallow (animal fat) from the animal protein and waste and Re-cycle. water associated with it. The tallow is pure enough to be used as a bio fuel in a specially modified boiler which provides hot water for the tannery processes. In this way, we significantly reduce the use of diesel

and the high CO2 pollution associated with burning it, contributing positively to the current climate debate about reducing the use of fossil fuels. Another important environmental plus from this process is that it reduces land filling by 50%.

A further potential Bio fuel (tallow) represents 15% of the fleshy material removed from the hides, 55% is water the remaining 30% is protein. We are still working on an environ- mentally sound method of reusing the protein. One possibility is transforming them into bio plastic. ECCO is working on setting up a joint project with a leading German University specializing in this field. Another

52 ECCO’s Annual report 2006 4 employees at the machine where the fleshy tissue is cut from the raw hides. The plant at ECCO’s tannery in Indonesia.

Diagram: From rawhide to tallow. Tallow is the coveted Bio fuel.

Green fleshings (after soaking)

Collection tank Heat exchanger Tri-canter Tallow

Solids

Mincer Waste Water

Facts in figures: - In the last three month of 2006, 8,000 liters per - ECCO has invested EUR 450,000. Further, month of diesel was replaced by bio fuel. subsidies of EUR 450,000 are achieved from

- This means that CO2 emissions are reduced by the Dutch Agency for International Business 22 tons per month. and Coorperation (EVD) which is part of the - The total investment is EUR 900,000 in develo- Dutch Ministry of Economic Affairs. Its mission ping the flesh-to-fuel plant. is to promote and encourage international business and international coorperation.

ECCO’s Annual report 2006 53 Sludge reduction

There are constantly new projects in progress to reduce the environmental impact at the Research and Development Centre of ECCO’s tannery division in the Netherlands. A project deals with the possibility to reduce the amount of so called sludge.

Sludge is a waste product which is generated as a consequence of cleaning solids from tannery waste water.

The aim of the current project is to: - Reduce the total amount of sludge produced - Obtain better dewatering of the sludge so that less water will be transported to landfill.

Untreated sludge A number of techniques have been evaluated, but the most interesting to date involves the disintegration of the sludge with ultrasonic sound. The expression ultrasonic is used about velocities higher than the velocity of sound.

The sludge especially contains microorganisms, which are built up of cells. These cells contain a lot of water, which is difficult to remove. The cell water contains a lot of “food” useful in the tannery’s own waste water treatment plant. With ultrasonic sound it appears to be possible to break down the cells and make the “food” available.

Because of the broken cell structure and the availability of the extra “food”, digestion of the sludge is enhanced. As a consequence of this process biogas is produced. Treated sludge The two photographs below show the sludge before and after the treatment with ultrasonic sound.

This initiative will be investigated and developed further in 2007.

54 ECCO’s Annual report 2006 ECCO Walkathon helps children change the world

ECCO Walkathon 2006 in the Danish capital Copenhagen.

ECCO Walkathon is a charity walking event that took its first steps in Copenhagen in 1999. It was ECCO's founder Karl Toosbuy, who had the idea of giving walkers their own Walkathon – in the same way that runners have their marathon. A day where the participants give money with their feet and gain new impressions with their eyes.

But ECCO Walkathon is more than just an enjoyable day spent with family and friends. It is in essence the realization of ECCO’s mission to offer a "smooth and delicate walk", while supporting a good cause. And since its beginning in 1999 the event has developed into an international event. In 2006 over 40,000 people gave 2.8 million Danish Kroner to charitable causes in Copenhagen, Berlin, Stockholm, Amsterdam and 1370 children in school Warsaw. UNICEF's school project for child workers in Bangladesh was one of the many projects that was supported by the ECCO Walkathon 2006. The project focused on setting up pavement schools for the poorest children – particularly girls– who were forced to work for the survival of their families.

Schooling is a distant and unachievable dream for many poor children in Bangladesh, where 1.5 mil- lion girls do not attend school. Collaboration between UNICEF and ECCO Walkathon has made it possible to help around 1,370 of these children to attend school.

At the pavement school the children learn the most basic skills they need to create a better future for themselves. The schools give the children more self-respect and make them aware of their own rights, so that they can help change and develop the community they live in. ECCO Walkathon 2006 supported pavement schools for the poorest children in Bangladesh.

ECCO’s Annual report 2006 55 Statements from ECCO units - Denmark

Production Development Denmark

Location: Bredebro, Denmark Activity: Development and preparation of new articles and prototype testing Year of incorporation: 1963 No. of employees: 95 Special environmental information: An important part of ECCO’s shoe production is the moulding of soles, which is subject to approval according to item D107. On 14 March 2002, the production was granted environmental approval by Sønderjyllands Amt (regional authority) covering shoe production as the main activity and production of polymer materials (soles) as the secondary activity. It should be noted that there has been no violation of conditions during the financial year and that no claims have been received related to this.

2006 2005 2004 2003 2002

Production output Uppers produced [pairs] 1,458 1,868 3,805 3,720 4,482 Shoes produced [pairs] 28,472 7,645 20,577 38,000 211,413

Energy and water consumption Electricity [MWh] 2,379 2,353 2,560 2,734 2,896 Gas [m3] 165,221 130,463 132,873 139,970 118,335 Water [m3] 1,921 2,145 2,407 3,013 3,738

Consumption of sole material Polyol and isocyanate [kg] 27,160 23,680 23,660 21,280 174,400 TPU [kg]] 7,000 7,400 5,600 8,700 17,200 Hardener [kg] 965 - - 2,800 12,810 Colour paste [kg] 893 522 30 75 3,050 Release agent [kg] 392 292 292 930 3,648 Finishing products [kg] - 30 - 440 2,343

Waste Recyclable waste [tons] 3071 3021 3441 4591 2661 Waste otherwise disposed of [tons] 144 115 198 150 164 Waste to Kommunekemi [tons] 28 24 32 36 38

Industrial accidents Accidents causing less than 1 day’s absence 6 10 12 7 16 Accidents reported to the Danish National Working Environment Authority 1 2 2 3 4

1) The amount of recyclable waste stated includes cardboard which is disposed of for recycling purposes from ECCO’s distribution warehouse, DC-Tønder, At DC-Tønder, shoes are repacked in shoe boxes from the factories according to customer specifications, which results in the production of a certain amount of packaging material waste which is disposed of to a recycling company.

56 ECCO’s Annual report 2006 Statements from ECCO units - Portugal

Ecco’let (Portugal) Fábrica de Sapatos, Lda.

Location: Santa Maria da Feira, Portugal Activity: Research & Development Centre. Production of sale samples and prototypes. Year of incorporation: 1984 No. of employees: 290

2006 2005 2004 20032 2002

Production output Uppers produced [pairs] 4,451 18,741 20,737 79,690 241,961 Shoes produced [pairs] 722,675 2,315,342 2,649,178 2,442,395 2,590,327

Energy and water consumption Electricity [MWh] 3,667 4,923 5,894 5,474 5,547 Gas [m3] 48,579 58,976 48,178 17,702 7,607 Oil [l] - - - - - Water [m3] 730 1,583 3,013 3,551 8,661

Consumption of sole material Polyol and isocyanate [kg] 350,082 815,760 872,130 884,746 922,340 TPU [kg] 42,140 108,006 83,783 76,651 174,843 Hardener [kg] 17,066 35,326 42,323 68,040 18,290 Colour paste [kg] 7,629 19,307 19,326 18,507 20,346 Release agent [kg] 6,810 14,752 17,126 18,079 11,625 Finishing products [kg] 11,788 26,097 22,531 20,393 18,666

Waste Recyclable waste [tons] 258 247 212 330 184 Waste otherwise disposed of [tons] 88 192 352 360 394 Chemical waste [tons] 42 121 94 67 63

Industrial accidents Accidents causing less than 1 day’s absence 45 68 80 128 137 Accidents causing 1 or more day’s absence 8 10 23 17 18

2) The tannery activities were permanently discontinued with effect from Q1 2003.

ECCO’s Annual report 2006 57 Statements from ECCO units - Indonesia

P.T. ECCO Tannery Indonesia & P.T. ECCO Indonesia

Location: Surabaya, Indonesia Activity: Tannery and shoe factory. Production of wetblue, crust, leather, uppers and shoes. Year of establishment: 1991 Number of employees: Tannery: 379 Shoe factory: 3998

2006 2005 2004 2003 2002

Production output Wetblue produced [ft2] 19,459,930 18,532,447 18,249,560 15,970,001 15,338,582 Leather produced [ft2] 15,970,842 13,296,854 15,098,971 14,062,152 12,048,197 Uppers produced [pairs] 5,803,771 5,382,521 5,326,300 4,664,023 4,063,840 Shoes produced [pairs] 1,848,821 812,461 246,018 29,119 -

Energy and water consumption Electricity - tannery [MWh] 6,915 7,952 14,072 9,556 6,830 Electricity - factory [MWh] 10,653 8,228 4,300 5,375 6,772 Gas - factory [m3] 840 - - - - Oil - tannery [l] 528,185 534,000 560,000 608,000 469,000 Oil - factory [l] 630 - - - - Water - tannery [m3] 306,104 322,981 430,738 419,263 392,178 Water - factory [m3] 126,900 87,900 81,970 106,018 162,901

Consumption of sole material Polyol and isocyanat [kg] 420,657 - - - - TPU [kg] 4,423 - - - - Hardener [kg] 23,559 - - - - Colour paste [kg]] 8,107 - - - - Release agent [kg] 8,033 - - - - Finish products [kg] 34,628 - - - -

Waste Recyclable waste - tannery [tons] 3,507 4,684 9,6683 4,764 2,667 Recyclable waste - factory [tons] 452 260 24 - 229 Waste otherwise disposed of - tannery [tons] 3,597 5,334 5,585 5,012 5,398 Waste otherwise disposed of - factory [tons] 29 27 19 20 - Chemical waste - tannery [tons] 22 22 25 28 - Chemical waste - factory [tons] 24 - 4 - -

Tannery wastewater Volume [m3] 278,137 293,587 327,367 351,808 369,471 BOD [mg/l] 15-18 29-36 19-49 50-65 40-55 Chromium [mg/l] 0,02-0,24 0,09-0,18 0,05-0,17 0,03-0,13 0,03 pH 6,8-7,4 6,2-6,7 7,1-7,2 6,8-7,1 6,8-7,1

Industrial accidents Accidents causing less than 1 day’s absence - tannery 18 8 17 18 15 Accidents causing less than 1 day’s absence - factory 77 84 57 88 103 Accidents causing 1 or more day’s absence - tannery 0 5 2 9 6 Accidents causing 1 or more day’s absence - factory 19 27 8 22 33

3) The relatively high figure is due to the replacement of various machinery.

58 ECCO’s Annual report 2006 Statements from ECCO units - Thailand

ECCO Tannery (Thailand) Co. Ltd & ECCO (Thailand) Co., Ltd

Location: Ayudhthaya, Thailand Activity: Tannery and shoe factory. Production of crust and finished leather as well as uppers and finished shoes Year of establishment: 1993 Number of employees: Tannery 209 Shoe factory 2981 Special information about environmental issues: ECCO Thailand is ISO 14001 certified

2006 2005 2004 2003 2002

Production output Leather produced [ft2] 12,020,621 9,978,619 10,095,425 9,138,590 8,046,037 Uppers produced [pairs] 2,752,234 3,127,255 3,237,054 2,868,227 2,708,639 Shoes produced [pairs] 4,864,367 3,860,069 3,910,382 3,319,623 3,264,747

Energy and water consumption Electricity - tannery [MWh] 5,831 5,663 5,827 5,456 5,129

Electricity - factory [MWh] 12,284 10,880 10,671 9,038 7,460 Oil - tannery [l] 386,614 366,219 390,000 360,000 307,350 Oil - factory [l] 17,751 10,069 13,044 4,800 4,800 Water - tannery [m3] 111,020 96,766 107,704 97,484 95,424 Water - factory [m3] 54,130 53,164 45,932 51,961 66,375

Consumption of sole material Polyol and isocyanate [kg] 1,562,353 1,143,301 1,280,455 928,548 1,115,821 TPU [kg] 328,525 269,431 111,424 56,796 - Hardener [kg] 80,750 83,419 104,234 236,381 99,521 Colour paste [kg] 42,618 27,359 28,833 24,809 34,706 Release agent [kg] 21,518 18,726 29,587 8,590 10,168

Waste Recyclable waste - tannery [tons] 63 32 38 585 264 Recyclable waste - factory [tons] 115 124 144 168 404 Waste otherwise disposed of - tannery [tons] 1,367 1,668 1,600 1,253 1,124 Waste otherwise disposed of - factory [tons] 968 756 815 326 330 Chemical waste - tannery [tons] 65 47 50 158 50 Chemical waste - factory [tons] 5 2 28 408 397

Tannery wastewater Volume [m3] 97,843 84,267 83,367 88,389 87,133 BOD [mg/l] 10,0-15,0 10,0-13,0 5,7-13,0 5,3-8,0 6,0-8,0 Chromium [mg/l] 0,09-0,19 0,10 0,20-0,21 0,04-0,17 0,09-0,10 pH 7,5-7,7 7,5-7,7 7,5-7,6 7,3-7,6 7,5-7,8

Industrial accidents Accidents causing less than 1 day’s absence - tannery 6 13 21 7 16 Accidents causing less than 1 day’s absence - factory 19 31 64 46 72 Accidents causing 1 or more day’s absence - tannery 8 2 3 1 1 Accidents causing 1 or more day’s absence - factory 16 8 16 16 7

ECCO’s Annual report 2006 59 Statements from ECCO units - Slovakia

ECCO Slovakia, a.s.

Location: Martin, Slovakia Activity: Shoe factory. Production of uppers and shoes Year of incorporation: 1998 No. of employees: 1048

2006 2005 2004 2003 2002

Production output Uppers produced [pairs] - 75,786 163,297 259,136 792,473 Shoes produced [pairs] 3,227,331 2,841,235 2,771,025 2,265,312 1,974,408

Energy and water consumption Electricity [MWh] 7,440 6,204 5,722 4,730 4,337 Gas [m3] 260,231 274,611 250,204 179,301 96,457 Oil [l] - - - 2,281 1,600 Water [m3] 11,387 12,163 11,460 14,419 12,565

Consumption of sole material Polyol and isocyanate [kg] 1,210,592 1,049,100 1,134,160 724,030 539,681 TPU [kg] 221,863 144,050 158,249 150,524 140,825 Hardener [kg] 66,821 51,900 50,310 41,340 30,390 Colour paste [kg] 23,717 20,800 17,085 15,034 9,550 Release agent [kg] 12,066 13,960 12,888 8,985 6,175 Finishing products [kg] 34,492 18,210 24,958 15,662 13,309

Waste Recyclable waste [tons] 233 108 55 44 67 Waste otherwise disposed of [tons] 371 282 220 233 194 Chemical waste [tons] 119 44 45 40 21

Industrial accidents Accidents causing less than 1 day’s absence 54 77 23 17 24 Accidents causing 1 or more day’s absence 26 12 19 18 13

60 ECCO’s Annual report 2006 Statements from ECCO units - The Netherlands

ECCO Tannery (Holland) B.V.

Location: Dongen, The Netherlands Activity: Tannery. Production of wetblue. Leather development and research centre Year of incorporation: Acquired by ECCO in 2001 No. of employees: 106

2006 2005 2004 2003 2002

Production output Wetblue produced [ft2] 40,175,548 36,631,214 39,863,636 26,704,106 30,886,062

Energy and water consumption Electricity [MWh] 6,129 6,133 5,192 5,704 5,677 Gas [m3] 1,086,834 1,065,340 846,300 672,286 864,715 Water [m3] 362,286 337,996 244,593 273,784 287,676

Waste Recyclable waste [tons] 13,222 17,895 4,249 9,480 11,702 Waste otherwise disposed of [tons] 7,153 295 141 125 182 Chemical waste [tons] 1,210 570 430 552 650

Tannery wastewater Volume [m3] 360,511 365,820 267,668 302,895 306,138 BOD [mg/l] 11,0-15,0 12,5-14,0 9,0-14,0 9,0-22,0 7,0-20,0 Chromium [mg/l] 0,05-0,13 0,10-0,20 0,20-0,30 0,10-0,20 0,20-0,30 pH 7,5-8,1 7,7-8,0 7,2-7,7 7,0-8,0 6,6-7,6

Industrial accidents Accidents causing less than 1 day’s absence 5 7 2 - - Accidents causing 1 or more day’s absence 3 1 6 - -

ECCO’s Annual report 2006 61 Statements from ECCO units - China

ECCO Xiamen

Location: Xiamen, China Activity: Shoe factory. Production of uppers and shoes Year of incorporation: 2005 No. of employees: 2090

2006 2005

Production output Uppers produced [pairs] 1,725,406 428,076 Shoes produced [pairs] 867,642 475,724

Energy and water consumption Electricity [MWh] 4,412 3,435 Gas [m3] - - Oil [l] 8,415 - Water [m3] 29,882 23,096

Consumption of sole material Polyol and isocyanate [kg] 322,974 152,479 TPU [kg] 97,697 - Hardener [kg] 18,557 7,744 Colour paste [kg] 5,793 2,945 Release agent [kg] 2,635 1,133 Finishing products [kg] 4,739 2,046

Waste Recyclable waste [tons] 193 8,4 Waste otherwise disposed of [tons] 334 0,5 Chemical waste [tons] 3,7 3,6

Industrial accidents Accidents causing less than 1 day’s absence 402 24 Accidents causing 1 or more day’s absence 24 2

62 ECCO’s Annual report 2006 ECCO Shop in UK

ECCO Shop in USA

ECCO Shop in Austria ECCO Shop i Russia

ECCO Shop in Australia

ECCO Shop in Japan ECCO Men's New Casual - Golf shoe. Colin Montgomerie - Member of the Brittish empire, 43 years from Scotland and 8 times winner of the European Order of Merit. ECCO Ice Breaker - Kids' boot. ECCO Performance - Men's Offroad sandal. ECCO Supercross - Men's Casual shoe. ECCO Winter Breeze - Ladies' boot. Sporty sneakers in ECCO’s offices are not a rare thing, when comfort is tested by the employees. Comfort and fit are tested on a daily basis – even if warm winter boots do not match the outfit of the day.