Since it was founded in 1963 in the town of Bredebro in southwestern Denmark, 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 1 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 Thailand 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 China. business processes. 2 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 3 Consolidated financial highlights and key ratios FINANCIAL HIGHLIGHTS 2006 2005 2004 2003 2002 DKK ‘000 Net revenue 4,470,403 3,830,546 3,393,693 3,168,930 3,359,838 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 709,483 349,546* 206,441 120,244 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 489,472 225,731 150,661 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 Portugal. 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 4 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.