ECCO AnnualReport 2004 UK

7/17/2019 ECCO AnnualReport 2004 UK

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ECCOAnnualReport2004

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 sole owner of the Company and Chairperson of the

Supervisory Board. Her husband, Dieter Kasprzak, is Chief Executive Officer (CEO),

and Mikael Thinghuus is Chief Operating Officer (COO).


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people create resultsMikael Thinghuus

Dieter Kasprzak

At ECCO we are passionate shoemakers. We constantly

aim to defy conventions. We strive to surprise, and we

want to develop innovative designs and products

without having to compromise on the quality and comfort

concept that is the heart of every ECCO product

and indeed of our Company.

ECCO develops shoes for people who lead active lives

and require unique comfort, fit and functionality. This

philosophy has characterised ECCO right from the begin-

ning more than 40 years ago, and it epitomises thequalities necessary to meet the targets for the future.

We do not aim to be the biggest we just want to be the

best. We aim to generate profitable growth and maintain

the greatest possible degree of financial independence

and the financial strength to pursue our long-term targets

on our own terms.

2004 was an important step in the right direction.

ECCO generated new growth and increased earnings,

not least as a result of the far-sighted plans and invest-ments we have made in recent years.

ECCO is represented in all segments of the footwear

market Ladies, Mens and Kids shoes as well as in

those sports shoe categories where we can play a leading

role. Today, these categories include Golf, Outdoor,

Walking and Running. We generated growth in each of

these market segments in 2004, and selling more than 12

million pairs of shoes we increased our total sales volume

by some 7%. This was the highest volume growth rate in

five years, and it translated into substantially improved

results and earning capacity as our profit before tax rose

by more than 70%.

In a highly competitive market, we generate results

through the proactive and conscious choices we make.

Whereas many competitors are phasing out and subcon-

tracting their production to third parties, it is essential

to ECCO that our business is based on manufacturing our

products in-house.

ECCO masters the production technology better than

anyone, and the integrated partnership between design,

product development, brand development, tanneries,

production and distribution is one of the keys tounderstand ECCOs business philosophy and results.

Another factor is ECCOs decentralised organisational

structure: Decisions should be made where things hap-

pen, and the changes to our organisation with increased

decision-making powers in our production and sales units

have proven to be right already from year one.

ECCOs results are created by people who believe and are

confident that they will shape the future by doing things

differently. This approach was an important part of KarlToosbuys business philosophy and outlook on life, and it

has characterised ECCO since our Companys inception.

To build on the best of our past will help secure our future.

Dieter Kasprzak Mikael Thinghuus

Chief Executive Officer Chief Operating Officer


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highlights of 2004

Result

The ECCO Groups performance in 2004 was in the

circumstances satisfactory.

Profit before tax increased by DKK 86.2 million or 71.7%

to DKK 206.4 million from DKK 120.2 million in 2003. This

good performance increased the return on assets to 7.0%

from 4.3% in 2003.

A major reason for the higher profit was a 7.3% increase

in sales to 12,045,000 pairs of shoes, a record-high

number, and the highest growth rate for the past five

years. To this should be added sales by ECCOs licensee

in Japan totalling more than 1 million pairs of shoes.Growth was recorded in all product groups: Ladies,

Mens, Kids, Golf and Sports shoes.

Consolidated net revenues increased by DKK 225 million

or 7.1% to DKK 3,394 million up from DKK 3,169 million

in 2003. Net revenues comprise both sales of shoes and

accessories, and of leather and rawhides.

Net revenues from shoes and accessories increased by

9%, partly driven by the general growth in pairs of shoes

sold and partly by strong growth in sales of accessories,

which contribute to a growing, albeit still moderate part of

total revenues. Moreover, sales revenue reductions and

discounts on sales of obsolete products showed a signifi-cant decline. On the other hand, net revenues from leather

and rawhides were down 11% to DKK 196.6 million.

Net revenues were negatively impacted by exchange

rates,especially the USD/DKK exchange rate. Net

revenues would have increased by 9.8% had exchange

rates remained at the year-end 2003 level.

Profit before financials increased by 47% to DKK 267.0

million, and the operating margin increased from 5.7% to

7.9%. The improvement in earnings was the result of hig-her revenues and an improved gross margin achieved

through lower manufacturing costs and the efficiency

improvements and cost-saving initiatives implemented in

the Group. ECCOs visibility and branding are important

focusareas, and marketing costs consequently rose by

22% in 2004.

Net financial expenses amounted to DKK 60.6 million,

compared to DKK 61.4 million in 2003. In 2004, net finan-

cial expenses included a positive exchange rate adjust-

ment of DKK 4.4 million, mainly relating to debt denomina-

ted in foreign currencies. The corresponding exchange

rate adjustment in 2003 was DKK 5.0 million. The interest

related items thus reflect a minor improvement as a result

of the Groups positive cash flow performance.

Profit for the year after tax and minority interests was DKK

150.7 million compared to DKK 61.8 million in 2003. This

profit should be seen in light of the fact that ECCO conti-

nues to invest in the development of new markets in Asia

and Eastern Europe and in an expansion of the network of

dedicated ECCO shops.

Balance sheet

The consolidated balance sheet totalled DKK 2,945 million

as of 31 December 2004, representing an increase of

5.6%.The increase was partly attributable to a DKK 68

million increase in cash, and partly to a DKK 101 million

increase in receivables. Inventories were further reduced in

2004 by DKK 42 million.

In recent years, ECCO has focused on reducing workingcapital. From year-end 2001 to year-end 2004, the value

of ECCOs inventories was reduced from DKK 1,345

million to DKK 890 million, and trade receivables were

Pairs of shoes sold (thousands)

Net revenue/Return on assetsNet revenue (DKK million)

Return on assets

Number

ofpairs(thousands)

DKK

million

2000 2001 2002 2003 2004

2,000

0

4,000

6,000

8,000

10,000

12,000

14,000

2000 2001 2002 2003 2004

2,500

2,600

2,700

2,800

2,900

3,000

3,100

3,200

3,300

3,400

3,500

0.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%


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Cash flow from operating activities (DKK 000)

DKK

000

100,000

0

200,000

-100,000

300,000

400,000

500,000

600,000

700,000

2000 2001 2002 2003 2004

reduced from DKK 459 million to DKK 417 million, whilst

net revenues increased by 5.5% during the same period.

Fixed assets totalled DKK 1,113 million, of which property,

plant and equipment constituted DKK 948 million.

Net investments totalled DKK 213 million compared to

DKK 229 million in 2003. The production units accounted

for DKK 98 million of this, mainly in the form of an increase

in production capacity and an upgrading of existing plant

and equipment. On the sales side, investments primarily

relate to ECCO-owned and partner-owned shops, and in

the acquisition of an administration building and distribu-

tion centre in the United States.

The solvency ratio rose from 34.1% to 35.1%, which is

in line with ECCOs overall goal of achieving the greatest

possible financial independence.

Equity stood at DKK 1,034 million compared to DKK 951

million at year-end 2003. The proposed dividend

in respect of the financial year is DKK 30 million.

Cash flow statement

The cash flow statement for 2004 showed a cash inflow

from operating activities of DKK 273 million compared

to DKK 336 million in 2003, where a substantial reduction

of receivables and inventories was achieved. ECCO did

not plan any major inventory reductions in 2004, and

the cash flow from operating activities is consequently

considered satisfactory.

The net cash outflow for investing activities was DKK 213

million compared to DKK 229 million in 2003. The cash

outflow for investments in intangible assets totalled DKK12 million compared to DKK 15 million in 2003, while

the cash outflow for investments in property, plant and

equipment was DKK 200 million in 2004 compared to

DKK 213 million in 2003.

Long-term debt increased by DKK 58 million, whilst short-

term debt was reduced by DKK 44 million. Dividend paid

during the financial year amounted to DKK 23 million.


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consolidated financial highlights and key ratios

FINANCIAL HIGHLIGHTS 2004 2003 2002 2001 2000

DKK 000

Net revenue 3,393,693 3,168,930 3,359,838 3,216,314 2,835,885

Profit before amortisation and depreciation 447,972 370,295 342,776 416,046 559,688

Amortisation and depreciation (180,937) (188,657) (187,215) (166,592) (143,475)

Profit before financials 267,035 181,638 155,561 249,454 416,213

Net financials (60,594) (61,394) (73,465) (93,134) (111,700)

Profit before tax 206,441 120,244 82,096 156,320 304,513

Group profit 163,558 70,980 60,353 123,403 215,615

Profit for the year 150,661 61,788 51,078 115,121 208,205

Fixed assets 1,112,597 1,073,447 1,024,182 963,957 914,484

Current assets 1,832,582 1,714,309 1,884,018 2,115,547 1,947,449

Assets 2,945,179 2,787,756 2,908,200 3,079,504 2,861,933

Equity 1,034,026 951,016 958,160 966,430 889,456

Other liabilities 56,877 31,257 37,413 12,285 9,674

Debt 1,854,276 1,805,483 1,912,627 2,100,789 1,962,803

Liabilities 2,945,179 2,787,756 2,908,200 3,079,504 2,861,933

Cash-flow from operating activities 272,973 336,378 594,382 (38,122) 110,820

Cash-flow from investing activities (212,811) (228,551) (230,346) (256,698) (322,711)

Cash-flow from financing activities (392) (73,808) (263,633) 206,287 275,136

Pairs of shoes sold (thousands) 12,045 11,225 10,564 10,145 9,603Number of employees (as at 31 December) 9,657 9,388 8,839 9,087 8,853

KEY RATIOS

Operating margin 7.9% 5.7% 4.6% 7.8% 14.7%

Return on assets 7.0% 4.3% 2.8% 5.0% 10.6%

ROIC 9.1% 6.5% 5.3% 8.1% 14.5%

Investment ratio 1.2 1.2 1.2 1.5 2.2

Return on equity 15.2% 6.5% 5.3% 12.4% 25.7%

Solvency ratio 35.1% 34.1% 33.0% 31.4% 31.1%

Liquidity ratio 2.0 1.9 2.0 2.1 1.9

DEFINITIONS OF KEY RATIOS

Operating margin: Profit before financials x 100 Investment ratio: Investments for the year Liquidity ratio: Current assetsNet revenue Amortisation and depreciation Short-term debt

Return on assets: Profit before tax x 100 Return on equity: Profit for the year x 100Assets Average equity

ROIC: Profit before financials x 100 Solvency ratio: Equity x 100Assets Assets


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Global growth of 7%

In 2004 ECCO achieved progress in all their markets,

ECCO has chosen to operate in. Despite intensified com-

petition in nearly all markets, ECCOs continued focus on

strong branding and concept sales was instrumental

in generating the growth. Measured by the number of

shoes sold, global growth was 7% in 2004 with Asia,

North America and Eastern Europe recording the stron-

gest growth rates.

Asia

ECCO has a very large potential in Asia. The effort in

the region generated a substantial sales improvement

of 21% corresponding to an increase of 650,000 pairs of

shoes due not least to significant growth in China and

Hong Kong.

ECCO expects to continue this favourable trend in the

region in the years ahead. In the long term, Asia has the

potential to become ECCOs most important market. This

is the reason ECCO currently makes and will continue to

make significant investments in the region.

North America

ECCO continues to gain market share in North America.

Measured by the number of shoes sold, sales in the USA

and Canada increased by 12% to 2.7 million pairs of

shoes. ECCOs golf division made excellent progress in

the USA and is now established as the most prestigious

brand in the golf shoe market.

Our expectations for continued growth are based on

ECCOs strong position, including in particular ECCOs

model for partnership shops which was very successfully

implemented in 2004.

Eastern Europe

Due not least to strong growth in Russia, sales in the

Eastern European region increased by 15% overall

corresponding to 1.4 million pairs of shoes. An important

element in this favourable trend is the extremely strong

position enjoyed by the ECCO brand in Russia and

Ukraine in particular. ECCO has almost 100 shops in

Russia alone, and the potential remains great throughout

the region.

sales and market conditions growth in all ECCO markets


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Western Europe

ECCOs Western European region consists of the Benelux

countries, the UK and southern Europe.

The region generated overall growth of 1% in terms of

pairs of shoes sold. ECCO strengthened the UK sales

organisation and introduced a new retail concept. Growth

in the Italian market was highly satisfactory, primarily

because ECCO established its own company. ECCO also

performed excellently in the Netherlands, in particular

within Kids shoes, and expect to sustain this level

of performance in the years ahead.

Central EuropeECCOs Central European region consists of the

German-speaking countries and Scandinavia.

Recording overall growth of 6% in terms of pairs of shoes

sold, ECCO performed remarkably well in these highly

competitive markets. The increase recorded in Germany

was highly satisfactory despite a very difficult retail

environment. Both Sweden and Norway recorded

handsome growth rates from the newly established

regional service centre based in Varberg, and ECCO

successfully retained its position as the market leader in

Scandinavia.

Accessories

ECCOs accessories sales, which make up 1% of Group

revenue, increased by 84%. Activities were streamlinedin 2004 and consolidated in Switzerland.

Continued growth

The positive developments underline that the markets in

North America, Eastern Europe and Asia and selected

Western European markets still have excellent growth

potential. Our continued organic growth will be based on

the newly established regional organisations, thereby pla-

cing operational responsibility as close to the customers

and the market as possible.

12%

23%20%

40%

5%

Composition of sales volume by geography, 2004

Western Europe

Asia

Central Europe

North America

Eastern Europe


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ECCO Arena concept


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It is ECCOs aim to increase the awareness of ECCO

amongst consumers and to create reliable sales access

through concept sales. This aim will be achieved throughfurther expansion of ECCOs network of partnership

shops.

A key element in developing ECCOs position is to

enhance the visibility of the ECCO brand in the retail

segment. ECCO therefore focuses on improving concept

sales primarily by expanding the franchise network. As

part of this strategy, ECCO systematically works to up-

grade and expand partnerships with a view to turning

retail outlets and shop-in-shops into dedicated ECCO

shops.

At year-end 2004, ECCO operated 446 concept shops

worldwide (+13% compared to 2003), 828 shop-in-shops

(+9%) and 2,067 points or retail outlets (+3%). In addition,

ECCO operates 41 factory outlets. Growth in the number

of retail outlets was primarily attributable to the growth

markets in Eastern Europe, Asia and North America, but

Germany, Sweden and Great Britain also expanded consi-

derably.

11


shop concept

Partnerships Own Total

Shops 394 52 446

Shop-in-shops 821 7 828

Points 2,067 - 2,067

Factory outlets 7 34 41

ECCO Shop in Kuwait

ECCO Shop in Austria

ECCO Shop in Poland

ECCO Shop in Hong Kong

ECCO Shop in Denmark


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Unique development ability

The core of ECCOs product strategy is and will continue

to be products based on direct injected technology. Thistechnology is ECCOs unique mark, and together with

innovative strength and functionality it represents the

philosophy behind ECCO. The year 2004 proved that the

combination of these competencies is very popular with

our customers. New, exciting products increase attention

and sales and contribute to extending the limits of the

technical capabilities of our factories.

ECCO has chosen to operate in all segments of the

footwear market (Ladies, Mens and Kids shoes) as well

as in selected segments of the sports shoe market inwhich ECCOs products can play a leading role, for

example Golf, Outdoor, Walking and Running.

2004 was characterised by ECCOs ambition to strengt-

hen its core business area, to establish a global collection

concept and to win market share based on exciting and

innovative products.

Ladies shoes

The successful introduction in 2003 of the ECCO Shark

product concept was followed up by the launch of the

ECCO Shark sandal in 2004. This range has laid the foun-

dation for a whole new generation of ECCO products.

ECCOs interpretation of modern casual shoes, such as

the ECCO FYM sandal, ECCO Globetrotter, ECCO Shade

and ECCO Twilight, was instrumental in generating strong

global growth.

In addition to the successful modernisation of our core

collection, ECCO achieved outstanding results with thenewly launched ECCO City collection. The foundation for

continued success in 2005 has been secured by a very

positive reception of the spring/summer 2005 collection.

Mens shoes

Based on its strong position in the City segment, ECCO

launched its flagship, ECCO President, which setnew standards for design and exclusivity in the ECCO

collection.

ECCOs casual collection for men underwent a revival

in 2004, as exemplified by the successful innovation of the

ECCO Transporter group. The success of ECCO Shark

inspired ECCOs mens division to design a corresponding

product for men, ECCO Gyro, which attracted new

customers. This will also be ECCOs target for the years

ahead. Sales of the 2005 spring/summer collection

already indicate good results, and the future thus seems

to hold the prospect for increasingly impressive growth

rates in the mens segment.

Kids shoes

The success of ECCO Kids continued in 2004, and the

segment performed well in all markets.

Direct injected products such as ECCO Infant and the

entire group of GORE-TEX membrane products

spearheaded the development of ECCO Kids in 2004.

The kids division is experiencing very strong growth, and

it will play an increasingly important role in ECCOs future.Following the great success of ECCO Kids in Scandi-

navia, USA and Eastern Europe, ECCO is now ready to

launch the Kids products globally.

innovation and product development


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Thomas Bjrn and Dieter Kasprzak discussing product development


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11%

30%12%

47%

Thongchai Jaidee

Thomas Bjrn

Iben Tinning

Colin Montgomerie

Composition of shoe sales, 2004

Golf shoes and other sports shoes

The year 2004 marked the definitive breakthrough for

ECCOs golf division. ECCOs golf shoes were the centreof much attention on golf courses around the world in

2004 not least because of ECCOs sponsorship agree-

ments with some of the very best players in the world.

ECCO currently supports world-famous players such as

Colin Montgomerie, Thongchai Jaidee, Aaron Baddeley as

well as Iben Tinning and Thomas Bjrn. These players

also contribute to the development of new, innovative

ECCO Golf products, thereby accentuating ECCOs

unique position in the market for golf shoes.

The separation from the rest of the sports division ensured

total focus on ECCO Golf, and 2004 became the year

when ECCOs ladies golf shoes set new standards for

comfort and design. Turning to ECCOs mens line, the

ECCO World Class range in particular set new standards

for design and technology. ECCO expects 2005 to

become yet another great year characterised by strong

growth in ECCO Golf.

As far as the remaining part of ECCOs sports shoe

segment is concerned, ECCO was able to strengthen its

already strong position in the Outdoor and Sandal

markets. In 2005, ECCO intends to continue the develop-

ment of the sales force. In terms of products, ECCO will

focus even more on the market for running shoes.

Ladies shoes

Kids shoes

Mens shoes

Sports shoes


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Bucking the trend

In 2004, ECCO once again demonstrated its commitment

to pursue its philosophy.

In a time when practically all competitors are phasing out

in-house production, ECCO has chosen to strengthen

coherence and consistency throughout ECCOs value

chain.

ECCO is confident that control and constant adjustment of

the total process from idea and design over production of

leather and shoes to marketing and sales will prove the

best way forward both in terms of innovative strength,

development and quality, and in terms of long-termfinancial performance.

This basic philosophy drives the way ECCO structures its

value chain, and in 2004 formed the basis of the initiatives

ECCO launched and completed.

Unique technology

ECCO is a pioneer within the special direct injection

technology where the upper part of the shoe is placed in a

mould before the sole is sprayed-on directly under high

pressure.

This unique technology, which guarantees unrivalled

lightness, flexibility and quality in the individual shoe, is

ECCOs hallmark. It will continue to form the basis of new

and innovative designs. ECCOs own control of the use

and further development of the technology ensures that

new materials and production processes can be imple-

mented quickly and efficiently anywhere in our production.

ECCOs factories

ECCO owns shoe factories in Slovakia, Portugal,

Indonesia and Thailand.

In order to ensure the strongest possible focus on direct

injected products, ECCO in 2004 discontinued its in-

house production of shoes which were not based on this

production method.

The factory in Indonesia, which previously only produced

uppers, has started producing shoes.

The production of shoes has been diversified with due

consideration for geographic and currency risks.

Accordingly, 2.6 million pairs of shoes were produced in

Portugal, 2.8 million pairs in Slovakia, 3.9 million pairs in

Thailand and 0.2 million pairs in Indonesia in 2004.

Local development centres have been set up at all ECCO

factories to ensure uniform and integrated product

development.

ECCO in China

In August 2004, ECCO began the construction of its most

sophisticated production unit to date in China. The factory

is located in the growth centre of Xiamen, and ECCO

expects to start up production in late Q1 2005.

Construction is progressing according to plan. The factoryis the first of five planned factories at this location. Each

factory will have the capacity to produce one million pairs

of shoes annually. In addition, ECCO plans at a later time

to establish a tannery in connection with the shoe factory.

ECCOs investments in China are expected to total

between DKK 300 million and DKK 500 million over the

course of the next five years. After careful consideration,

China was chosen as the best geographic location for this

type of strategic commitment. Today, China produces

more than 50% of the worlds shoes. There is significant

growth potential in the countrys own economy and last,

but not least, China offers a highly skilled and motivated

workforce.

The establishment of the business in China is to a large

extent based on knowledge transfer from Denmark,

Thailand and Indonesia.

ECCOs tanneries

ECCOs tanneries in the Netherlands, Indonesia and

Thailand will continue as primary suppliers of leather to

ECCOs factories all over the world. Retaining and devel-

oping ECCOs competencies in this part of the value chain

enables the company to maintain the high quality, the

unique production technology and the professional know-

how upon which ECCOs products are based.

The in-house production of leather ensures high quality

and flexibility in ECCOs own value chain. In addition,

ECCO Leather is today among the worlds leading suppli-

ers of high quality leather for manufacturers of car and air-plane seats, bags and gloves as well as for other shoe

manufacturers, and ECCO expects to further strengthen

this position in the years ahead.

production and value chain the commitment to go our own way


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2000 2001 2002 2003 2004

50,000

0

100,000

150,000

200,000

250,000

300,000

350,000

Tangible fixed asset investments (DKK 000)

DKK

000

ECCO and the environment

ECCO gives high priority to environmental considerationsin its development and production. ECCO is focused on

optimising production methods and on developing new

and more environmentally friendly methods.

In 2004, ECCOs tanneries made a dedicated effort with

respect to environmental improvements, among other

things through participation in international environment

projects. These innovative projects will not only benefit

ECCO but also the entire tannery sector, and the results

may be applied in the timber, paper and textile industries

as well.

In 2004, ECCOs shoe factories were focused on further

developing energy-saving and waste management mea-

sures.

For additional information on the Groups environmental

performance, see the environmental statement included

with this Annual Report, which includes a presentation of a

number of environmental initiatives implemented at

ECCOs tanneries and shoe factories and statements from

ECCOs individual units containing environmental perfor-

mance indicators for 2004.

Third-party suppliers

Notwithstanding ECCOs focus on controlling and

strengthening all links of its value chain, ECCO needs a

wide range of strong and reliable third-party partners and

suppliers now and in the future. ECCO puts high demands

on and has great expectations of its partners in terms of

ethical conduct, environment, product specifications andquality.

ECCO also requires their partners to carry out specific in-

house development activities for ECCO products so that

they constantly contribute to sustaining efficiency and

flexibility in ECCOs production and distribution.

Interaction in the value chain

ECCOs efforts to control the value chain from idea and

design over production to marketing and sales enables the

company to constantly optimise the relationship between

factories, tanneries and suppliers in order to minimise the

response time to changes in market requirements and to

reduce inventories and the amount of capital tied up.

ECCO aims to continue this optimisation, and specific

initiatives for 2005 include audits of ECCOs supply and

logistics systems. ECCOs aim is to effect delivery directly

from factory gate to customer and to operate three major

regional distribution centres in Europe, North America and

Asia.

17


ECCOs new factory in Xiamen, China


18/58

ECCO bases its business on mastering three basic

functions:

Brand, product and concept development

Production

Sales

In 2004, ECCO made a number of radical changes to its

organisational structure to increase the ability to take

action and become more effective and profitable by

placing responsibilities and decision-making powers as

close as possible to the day-to-day operations of our

units.

ECCOs operational activities are now managed by 11

strong business units: five sales units, five production units

and one leather unit.

The five sales units are:

ECCO Europe West (Benelux, UK and SouthernEurope) based in Rosmalen, the Netherlands

ECCO Europe Central (German-speaking countries

and Scandinavia) based in Tnder, Denmark

ECCO Europe East and Middle East based in Warsaw

ECCO Americas based in New Hampshire, USA

ECCO Asia/Pacific based in Hong Kong

The five production units are:

ECCO Portugal in Feira

ECCO Slovakia in Martin

ECCO Indonesia in Surabaya ECCO Thailand in Ayudhthaya

ECCO Xiamen in Xiamen

ECCO Sko A/S

organisation - decisions are made where things happen

Subsidiaries, Sales

Group structure as of 1 January 2005

ECCO Europe West

THE NETHERLANDS

ECCO Benelux B.V.

UK

ECCO Shoes UK Limited

BELGIUM

ECCO Belgium N.V.

FRANCEECCO France Diffusion S.a.r.l.

PORTUGAL

ECCO (Portugal) Sales Comercializao de Sapatos, Lda.

SPAIN

ECCO Shoes Iberica, S.L.

ITALY

ECCO Scarpe Italia S.r.l.

Dormant companies have been left out

ECCO Europe Central

SWEDEN

ECCO Sverige AB

DENMARK

SalgsselskabetECCO Danmark A/S

- DENMARKECCO Retail A/S

NORWAY

ECCO Norge A/S

FINLAND

Oy ECCO-Suomi Ab

GERMANY

ECCO Schuhe GmbH

AUSTRIA

ECCO Trading GmbH

SWITZERLAND

ECCO Schuhe Schweiz GmbH

Accessories:

SWITZERLAND

ECCO Shoes International AG

ECCO Europe East and Middle East

POLAND

ECCO Europe East andMiddle East Sp. z o.o.(under incorporation)

POLAND

ECCO Shoes Poland Sp. z o.o.

THE CZECH REPUBLIC

ECCO Boty Cesk republika s.r.o.


19/58

In addition, ECCOs leather activities have been consolida-

ted in the ECCO Leather Group, which is headquartered inDongen, the Netherlands.

Headquarters

As a result of the organisational change, ECCOs head-

quarters will be responsible for brand, product and con-

cept development and for central Group functions such as

logistics, IT, treasury, taxation and legal services. In addi-

tion, the headquarters will act as a support and control

unit vis--vis the individual business units.

Business unitsAs a result of the organisational change, each of ECCOs

11 business units now has its own management,

supervisory board and budget and financial statements.

The business units have thus been given a clear and moredirect responsibility for their day-to-day operations and

related processes as well as significantly more freedom

to act.

19


Subsidiaries, Production

ECCO Americas

USA

ECCO USA, Inc.

- USAECCO Retail LLC

CANADA

ECCO Shoes Canada, Inc.

ECCO Asia /Pacific

HONG KONG

ECCO Asia Limited

- HONG KONGECCO Shoes Hong Kong Limited

- SINGAPORE

ECCO Singapore Pte. Ltd.

- AUSTRALIAECCO Shoes Pacific Pty. Ltd.

- NEW ZEALANDECCO Shoes (NZ) Limited

- INDIAECCO India TradingPrivate Limited

ECCO Shoe Factories

PORTUGAL

Eccolet (Portugal) Fbrica de Sapatos, Lda

SLOVAKIA

ECCO Slovakia, a.s.

INDONESIA

P.T. ECCO Indonesia

THAILAND

ECCO (Thailand) Co., Ltd.

SINGAPORE

ECCO China Holding (Singapore) Pte.Ltd.

- CHINAECCO (Xiamen) Co. Ltd.

ECCO Leather

THE NETHERLANDS

ECCO Leather B.V.

- THE NETHERLANDSECCO Tannery (Holland) B.V.

THAILAND

ECCO Tannery (Thailand) Co., Ltd.


20/58

Throughout ECCOs more than 40-year history, our

employees have played a vital role in the Companys

success. Cultivating the good relationship requires aspecial effort on behalf of both employees and the

Company, and therefore training and constant develop-

ment are key elements of being an ECCO employee.

Investments in training and upgrading our 9,500 em-

ployees continued in 2004.

Training and continued development

All new employees sign up for the course From cow to

shoe, which is a combination of theory and practice

ending with the employees sewing a pair of shoes for

themselves. This very practical exercise provides the

employees with a clear idea of and respect for the

competencies required in sophisticated shoe production.

During the introduction process Welcome to the World of

ECCO new employees also meet representatives of each

business unit who provide a thorough understanding of

the overall structure of the Group.

All ECCOs factory units make targeted efforts to upgrade

their employees through multi-skill programmes intended

to enable employees to carry out versatile production

tasks, thereby achieving job variation.

Initiatives to strengthen in-house recruitment

ECCO offers several targeted trainee programmes which

select, support and develop employees to take on greater

responsibility in new management or specialist positions.

In 2004, ECCO focused specifically on middle and top

management training.

Staff

ECCOs global staff totalled 9,657 at 31 December 2004

an increase of almost 3% over 2003. A total of 8,094employees work in production, 1,010 in sales companies

and 553 at Danish headquarters.

employees our most valuable resource

No. of employees at 31 December 2004 Composition of employees according to function, 2004

No.ofemployee

s

2000 2001 2002 2003 2004

8,600

8,400

8,800

9,000

9,200

9,400

9,600

9,800

84%6%

10%

Production companies

Sales companies

HQ

Composition of employees by geography, 2004

6,758

955 708

915321

Western Europe

Eastern Europe

North America

Central Europe

Asia/Pacific


21/5821


Financial risks

Due to the international scope of ECCOs business

activities, a number of financial matters impact the Groupsresults of operations and its equity. The approach to

handling financial risk is determined by the Supervisory

Board and the Managing Board.

Foreign exchange risks

Foreign exchange risk is managed centrally. Through

active management of purchase and selling of currencies,

ECCO aims to minimise the net positions in the main cur-

rencies, EUR and USD. Material currency positions which

are not used commercially are hedged at least 12 months

ahead. Positions cannot be hedged more than 15 monthsahead.

Credit risks

The Group has no material credit risks apart from what

has been recognised in the financial statements.

The Group collaborates with a number of suppliers and

customers none of which constitute an unusual business

risk.

financial matters


22/58

ECCO Sko A/S has exercised its right to acquire 45%

of the shares in ECCO Benelux B.V. ECCO Sko A/S now

owns the entire share capital of that company.

Management believes that no other significant events

have occurred after the end of the financial year which

would materially change the Groups financial status.

Outlook for 2005

ECCO expects to continue the Groups good performance

in 2005.

In 2005, ECCO in particular intends to focus on the

growth markets in Eastern Europe and Asia, on sustainingmarket share growth in North America and Western

Europe, on implementing additional efficiency improve-

ments and on generating overall growth in all of ECCOs

business areas.

On this basis, ECCO expects earnings in 2005 to exceed

the 2004 result.

ECCO thus remains confident that the company is on the

right track to attaining the 10-year goal for 2013 of doub-

ling the 2003 revenues and volumes, while achieving an

operating margin of 10% after tax.

material events after 31 December 2004


23/58

annual accounts 2004

23



24/58

Managing Board

Dieter Kasprzak Mikael Thinghuus

Chief Executive Officer Chief Operating Officer

Jens Christian Meier Sren Steffensen

Executive Vice President, Production Executive Vice President, Sales & Retail

Supervisory Board

Hanni Toosbuy Kasprzak Karsten Borch

Chairperson Vice Chairman

Torsten Rasmussen Michael F iorini

Aage Andersen Bernd Scheelke Jakob Mller-Hansen

Employee representative Employee representative Employee representative

The Supervisory Board and Managing Board of ECCO

Sko A/S have today considered and adopted the Annual

Report for 2004.

The Annual Report is presented in accordance with the

Danish Financial Statements Act. We consider the

accounting policies to be appropriate to the effect that the

Annual Report provides a true and fair view of the Groups

and the Companys assets, liabilities and financial position

as of 31 December 2004 and of the results of the Groups

and the Companys operations and the consolidated cash

flows for the financial year ended 31 December 2004.

The Supplementary Environmental Report of ECCO Sko

A/S provides a true and fair view within the framework of

generally accepted guidelines for the area.

We recommend that the Annual Report be adopted by the

shareholders at the Annual General Meeting.

Bredebro, 9 March 2005

financial Statements 2004 Statement by the Management


25/5825


auditors report

To the shareholders of ECCO Sko A/S

We have audited the Annual Report of ECCO Sko A/S

for the financial year ended 31 December 2004, whichis presented in accordance with the Danish Financial

Statements Act. Our audit did not include the

supplementary environmental report on pages 45-58,

as this is not required by Danish law.

The Annual Report is the responsibility of the Companys

Supervisory Board and Managing Board. Our responsibility

is to express an opinion on the Annual Report, on pages

1-44, based on our audit.

Basis of opinionWe conducted our audit in accordance with Danish

auditing standards. Those standards require that we plan

and perform the audit to obtain reasonable assurance that

the Annual Report is free of material misstatement.

An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the Annual

Report. An audit also includes assessing the accounting

policies used and significant estimates made by the

Supervisory Board and the Managing Board, as well as

evaluating the overall annual report presentation. Webelieve that our audit provides a reasonable basis for

our opinion.

Our audit has not resulted in any qualifications.

Opinion

In our opinion, the Annual Report gives a true and fair view

of the Groups and the Company's assets, liabilities and

financial position at 31 December 2004 and of the results

of the Groups and the Companys operations and the

consolidated cash flows for the financial year ended 31December 2004 in accordance with the Danish Financial

Statements Act.

Bredebro, 9 March 2005

KPMG C. Jespersen

Statsautoriseret Revisionsinteressentskab

John Lesbo Kenn K. Karlsen

State Authorised Public Accountant State Authorised Public Accountant


26/58

Basis of preparation

The financial statements of the Parent Company and

the Group for 2004 are presented in accordance withthe provisions of the Danish Financial Statements Act

applicable to class C companies.

Basis of consolidation

The consolidated financial statements comprise ECCO

Sko A/S and subsidiaries in which ECCO Sko A/S has

a controlling influence on the companys operations. The

consolidated financial statements are prepared on the

basis of the audited financial statements of ECCO Sko

A/S and its subsidiaries by adding items of a similarnature. The financial statements used for consolidation

are adapted to the accounting policies of the Group.

On consolidation, intercompany income and expenses,

intercompany accounts and gains on intercompany sales

and purchases between the consolidated companies are

eliminated. On acquisition of subsidiaries, the share of the

acquired companys net asset value is determined based

on the Groups accounting policies. If the acquisition

price deviates from the net asset value, the difference is

allocated, wherever possible, to the assets and liabilities

or provisions that have a higher or lower value.

The income statements of foreign subsidiaries are transla-

ted at average exchange rates, and the balance sheet is

translated at the exchange rates ruling on the balance

sheet date. Exchange differences arising on the translation

of the opening equity of foreign subsidiaries at the

exchange rates ruling on 31 December, and differences

between the net profit of subsidiaries at average exchange

rates and the exchange rates ruling at 31 December are

recognised in equity. As in previous years, property,

machinery, plant and equipment in the production subsi-

diaries in Portugal, Indonesia, Thailand and Slovakia is

measured at cost in DKK less accumulated depreciation.

Currency translation of receivables from foreign

subsidiaries, where the receivables are part of the

total investment in the subsidiary, is recognised directly

in equity.

Minority interestsMinority interests share of profits and equity of subsidiary

undertakings is stated separately.

Income statement

Net revenue: Sales are recognised on dispatch of pro-

ducts, and net revenue consists of amounts invoicedexcluding VAT and less returned products, discounts and

rebates.

Raw materials and consumables: Raw materials and con-

sumables include raw materials and consumables used for

in-house production. Cost also includes consumption of

commercial products.

Other external costs: Other external costs comprise

costs relating to the Companys primary, ordinary activity,

including lasts, cutting dies, maintenance, rent of plant,premises, office expenses, sales promotion expenses,

fees, etc.

Staff costs: Staff costs comprise remuneration to

employees, including pension and social security costs.

Profit from subsidiaries: Profit from subsidiaries

comprise the proportionate share of profits before tax.

The proportionate share of tax in the companies is

recognised in the line item income taxes.

Unrealised intercompany profits: Unrealised intercompany

profits comprise profits unrealised in the Group on trading

in products and fixed assets between consolidated

companies.

Income taxes: Estimated tax on the profit for the year is

recognised in the income statement along with the years

change in deferred tax. No tax is set aside for investments

in subsidiaries as it is intended to hold the investments for

more than three years.

ECCO Sko A/S is taxed jointly with a few wholly-owned

subsidiaries. Income tax in respect of the jointly taxed

companies is allocated to the profit-making Danish

companies in proportion to their taxable income.

Jointly taxed companies are registered for the Danish

on-account tax scheme. Calculated supplements,

deductions and allowances regarding the tax payment

are recognised as part of the years tax charge.

Deferred tax is calculated at 30% of the difference

between the carrying amounts and tax values of current

assets and fixed assets. Furthermore, the tax value of

accounting policies


27/5827


tax losses carried forward is recognised in the amount

at which they are expected to be used.

If, on a net basis, there is a tax asset, the amount of future

tax savings is recognised, provided that it is deemed more

likely than not that the deduction can be offset against

future taxable profits.

Balance sheet

Intangible assets: Intangible assets are recognised at cost

less accumulated amortisation. Amortisation is charged on

a straight-line basis over 5-10 years.

Development projects: Development projects which are

clearly defined and identifiable and which are deemed to

be marketable in the form of new products in a future

potential market are recognised as intangible assets.

Development costs are recognised at cost under

intangible assets and are amortised over the expected

useful life of the project, when the criteria for such

treatment are met.

Development costs that do not meet the criteria for

recognition in the balance sheet are recognised as

costs in the income statement when incurred.

Recognised development costs are measured at the

lower of cost less accumulated amortisation and

writedowns and the recoverable amount.

Patents and trademarks:The costs of registering new

patents and trademarks are recognised and amortised

over the term of the patent/trademark or its economic

life (5 years).

Costs of maintaining existing patents/trademarks are

recognised in the income statement when incurred.

Goodwill on consolidation: Goodwill on consolidation is

determined at the date of acquisition as the difference

between the cost and the net asset value of the acquired

company applying the Groups accounting policies.

Consolidated goodwill acquired from and including 1

January 2002 is capitalised and amortised on a straight-line basis over the expected useful economic life,

determined on the basis of earnings projections for the

individual business areas, not to exceed 20 years.

When the Parent Company acquires shares at a price

higher than the value determined applying the equity

method, such excess value is recognised as an intangibleasset and amortised over the same period as goodwill on

consolidation.

Property, plant, and equipment: Property, plant and

equipment is recognised at cost plus any revaluation and

less accumulated depreciation. Depreciation is charged

on a straight-line basis over the expected useful lives of

the assets.

The expected useful lives are as follows:

- Buildings 20 years- Plant and machinery, vehicles,

fixtures and fittings 5 years

- Computer software 3 years

Depreciation is not charged on land and staff housing.

Assets with a cost of less than DKK 10 thousand per

unit are charged to the income statement in the year of

acquisition. Investment grants are offset against the

assets that form the basis for the grants.

If an asset type is revalued, this applies to all assets within

that group of assets.

Investments: Investments in subsidiaries are recognised

applying the equity method at the proportionate share of

the equity of the companies, determined based on the

Groups accounting policies, less unrealised intercompany

profits.

Dividend receivable in subsidiaries is recognised in the

balance sheet when adopted by the shareholders at the

annual general meeting.

Dividends to be paid by the Parent Company are

recognised as a liability in the financial statements at the

time of adoption by the shareholders at the annual general

meeting. Dividend proposed in respect of the financial

year is stated as a separate line item under equity.

Inventories: Raw materials are measured at cost

determined on the basis of the most recent purchases.

Work in progress and finished products are measured atcalculated cost, consisting of the cost of raw materials

and consumables and manufacturing costs plus a share

of production overheads.


28/58

Commercial products are valued at acquisition price.

Products with a net realisable value lower than the cost or

acquisition price are written down to the lower value.

Receivables: Receivables are measured at amortised 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. Derivativefinancial 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 Companys 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 event, the Company

has a legal or constructive obligation, and it is likely

that the obligation will materialise.

Cash flow statement

The cash flow statement shows the Groups cash flow

during the year and liquidity position at the beginning andend of the year. The cash flow statement is divided into

three principal areas: operating, investing and financing

activities. Cash and cash equivalents in the cash flow

statement comprise cash and securities carried as

current assets.

In the statements, figures in brackets represent losses

or items deducted.


29/5829



30/58


31/5831


Group Parent Company

2004 2003 2004 2003

Note DKK 000

1 Net revenue 3,393,693 3,168,930 2,314,365 2,181,919Change in inventories of finished products

and work in progress (81,957) (137,046) (97,395) (145,792)

Costs of raw materials and consumables (1,346,339) (1,201,345) (1,671,913) (1,587,592)

Other external costs (713,786) (707,046) (253,267) (294,239)

2 Staff costs (803,639) (753,198) (222,238) (220,772)

5,6 Amortisation and depreciation (180,937) (188,657) (56,046) (57,105)

Profit before financials 267,035 181,638 13,506 (123,581)

3 Financial income 32,256 34,274 8,064 26,863

Financial expenses (92,850) (95,668) (36,260) (58,032)

Profit from subsidiaries - - 198,465 131,034

Intercompany profit - - 5,146 131,087

Profit before tax 206,441 120,244 188,921 107,371

4 Income taxes (42,883) (49,264) (38,260) (45,583)

Group profit 163,558 70,980 150,661 61,788

11 Minority interests (12,897) (9,192) - -

Profit for the year 150,661 61,788 150,661 61,788

Proposed allocation:

Revaluation reserve for undistributed

profit in subsidiaries 120,720 47,249

Retained earnings (59) (8,461)

Proposed dividend 30,000 23,000

150,661 61,788

income statement for the year ended 31 December 2004


32/58

balance sheet as of 31 December 2004Group Parent Company

Assets 2004 2003 2004 2003

Note DKK 000

FIXED ASSETS:Intangible rights 51,856 49,564 9,018 6,676

5 Total intangible assets 51,856 49,564 9,018 6,676

Land and buildings 468,069 444,743 126,132 136,384

Plant and machinery 209,456 207,805 15,175 24,248

Other fixtures and fittings, tools and equipment 222,114 229,200 83,376 88,254

Property, plant and equipment in progress 48,766 40,268 18,742 12,911

6 Total property, plant and equipment 948,405 922,016 243,425 261,797

7,8 Investments in subsidiaries - - 912,060 694,830

8 Receivables from subsidiaries - - 82,691 85,987

9 Deferred tax 112,336 101,867 95,996 89,296

Total long-term financial assets 112,336 101,867 1,090,747 870,113

TOTAL FIXED ASSETS 1,112,597 1,073,447 1,343,190 1,138,586

CURRENT ASSETS:

Raw materials and consumables 171,520 134,636 5,887 6,975

Work in progress 59,064 56,208 91 -

Finished products and commercial products 659,472 741,450 350,864 448,350

Total inventories 890,056 932,294 356,842 455,325

Trade receivables 416,659 373,894 60,905 71,388

Receivables from subsidiaries - - 322,128 262,878Other receivables 125,548 70,484 42,022 21,669

Prepayments 52,286 49,374 9,586 5,690

Total receivables 594,493 493,752 434,641 361,625

Securities 3,608 11,751 146 10,186

Cash 344,425 276,512 23,397 44,749

TOTAL CURRENT ASSETS 1,832,582 1,714,309 815,026 871,885

TOTAL ASSETS 2,945,179 2,787,756 2,158,216 2,010,471


33/5833


balance sheet as of 31 December 2004Group Parent Company

Equity and liabilities 2004 2003 2004 2003

Note DKK 000

Share capital 5,500 5,500 5,500 5,500Revaluation reserve - - 467,902 381,529

Retained earnings 1,028,526 945,516 560,624 563,987

10 Total equity 1,034,026 951,016 1,034,026 951,016

11 Minority interests 44,338 24,102 - -

Provisions 12,539 7,155 - -

Credit institutions 954,107 895,735 648,366 570,245

12 Total long-term debt 954,107 895,735 648,366 570,245

Short-term part of long-term debt 126,176 108,835 64,831 94,454

Credit institutions 422,940 484,380 216,565 221,927Trade payables 131,102 152,577 39,387 31,075

Payables to subsidiaries - - 80,787 70,206

4 Income taxes 21,417 1,380 6,771 2,910

Other payables 153,253 116,026 25,853 21,779

Deferred income 45,281 46,550 41,630 46,859

Total short-term debt 900,169 909,748 475,824 489,210

Total debt 1,854,276 1,805,483 1,124,190 1,059,455

TOTAL EQUITY AND LIABILITIES 2,945,179 2,787,756 2,158,216 2,010,471

13 Contingent liabilities and collateral security

14 Fees to auditors appointed at the annual general meeting

15 Related parties


34/58

consolidated cash flow statement for the year ended 31 December 20042004 2003

DKK 000

Cash flow from operating activities

Profit before tax 206,441 120,244Adjustment for non-cash operating items:

Amortisation and depreciation 180,937 188,657

Exchange rate adjustments (42,456) (43,735)

Income taxes (42,883) (49,264)

(Increase)/Decrease in inventories 42,238 94,519

(Increase)/Decrease in receivables (100,741) 109,209

Increase/(Decrease) in payables (21,475) (22,709)

Increase/(Decrease) in other payables 55,997 (39,208)

Increase/(Decrease) in provisions 5,384 (9,756)

(Increase)/Decrease in deferred tax (10,469) (11,579)

272,973 336,378

Cash flow from investing activities

Payments to invest in fixed assets:

Intangible assets (12,323) (15,331)

Property plant and equipment (200,488) (213,220)

(212,811) (228,551)

Cash flow from financing activities

Change in minority interests 8,335 (5,585)

(Repayment of)/proceeds from new long-term debt 58,372 (64,946)

Increase/(Decrease) in short-term debt (44,099) 19,723

Dividend paid (23,000) (23,000)

(392) (73,808)

Cash flow from operating, investing and financing activities 59,770 34,019

Cash and cash equivalents at beginning of year 288,263 254,244

Cash and cash equivalents at year-end 348,033 288,263

Breakdown of cash and cash equivalents:

Securities 3,608 11,751

Cash 344,425 276,512

348,033 288,263


35/5835



36/58


2004 2003 2004 2003

DKK 000

Salaries 723,127 682,468 209,572 208,411

Pensions 27,230 19,306 11,115 10,766

Other social security costs 53,282 51,424 1,551 1,595

Staff costs 803,639 753,198 222,238 220,772

Average number of employees 9,682 9,000 593 683

Number of employees at year-end 9,657 9,388 553 652

Fees to Managing Board and Supervisory Board:

Managing Board - - 9,491 7,863

Supervisory Board - - 321 271

1 Segment information

2 Staff costs and management and staff information

Group

2004 2003

DKK 000

Segment information

Shoes & accessories 3,132,004 2,872,171

Others 261,689 296,759

Total net revenue 3,393,693 3,168,930

Net revenue shoes & accessories

Western Europe 1,745,262 1,609,929

Eastern Europe 342,427 295,455

North America 855,024 795,511Asia/Pacific 175,368 144,736

Middle East/Africa 13,923 26,540

Total shoes & accessories 3,132,004 2,872,171

notes to the Group and Parent Company financial statements


37/5837


3 Financial income


DKK 000

Cost at 1 January 89,105 14,774

Currency translation (743) -

Reclassification (1,140) -

Additions on acquisition 241 -

Additions 16,800 3,962Disposals (5,073) -

Cost at 31 December 99,190 18,736

Accumulated amortisation at 1 January 39,541 8,098

Currency translation (235) -

Reclassification 201 -

Additions on acquisition - -

Amortisation 9,522 1,763

Amortisation on assets sold (1,695) (143)

Accumulated amortisation at 31 December 47,334 9,718

Carrying amount at 31 December 51,856 9,018

Amortised over 5-10 years 5-10 years

2004 2003

DKK 000

In the Parent Company, interest income from subsidiaries amounted to 9,360 8,614


Parent Company

4 Income taxes

Cost Debt Cost Debt

2004 2004 2004 2004

DKK 000

Income taxes payable as at 1 January - 1,380 - 2,910

Income taxes paid in 2004 - (1,380) - (2,234)

Prior-year adjustment (3,408) (676) (3,408) (676)

Estimated tax for 2004 56,760 56,760 9,468 9,468

of which paid - (34,667) - (2,697)

Tax in subsidiaries - - 37,924 -

Years adjustment of deferred tax (10,469) - (5,724) -

42,883 21,417 38,260 6,771

5 Intangible assets



38/58

6 Property, plant and equipment


DKK 000

GROUP

Cost at 1 January 628,598 647,233 665,591 40,268

Currency translation (195) (68) (3,804) (410)

Reclassification 10,023 - (8,883) -

Addition on acquisition - - 2,488 -

Additions 45,549 67,327 88,040 19,260

Disposals (1,245) (17,111) (33,714) (10,352)

Cost at 31 December 682,730 697,381 709,718 48,766

Revaluation - - - -

Depreciation base at 31 December 682,730 697,381 709,718 48,766

Accumulated depreciation at 1 January 183,855 439,428 436,391 -

Currency translation (204) (30) (1,559) -

Reclassification 2,875 - (3,076) -

Addition on acquisition - - 788 -

Depreciation 28,783 63,561 79,071 -

Depreciation on disposals (648) (15,034) (24,011) -

Accumulated depreciation at 31 December 214,661 487,925 487,604 0

Carrying amount at 31 December 468,069 209,456 222,114 48,766

PARENT COMPANY

Cost at 1 January 227,039 96,779 206,146 12,911

Additions 2,498 1,702 33,260 10,064

Disposals (1,024) (2,895) (15,498) (4,233)

Cost at 31 December 228,513 95,586 223,908 18,742

Revaluation - - - -

Depreciation base at 31 December 228,513 95,586 223,908 18,742

Accumulated depreciation at 1 January 90,655 72,531 117,892 -

Depreciation 11,749 10,630 31,904 -Depreciation on disposals (23) (2,750) (9,264) -

Accumulated depreciation at 31 December 102,381 80,411 140,532 0


Depreciated over 20 years 5 years 3-5 years

(The officially rated cash property value at 1 January 2004 of the Parent Companys properties excluding additions was DKK 180,880

thousand).

Landand

buildings

Plantand

machinery

Fixtures andfittings, tools

and equipment

Property, plantand equipment

underconstruction


39/5839


7 Investments in subsidiaries


Ownership interest(in thousands) Share capital

ECCO (Thailand) Co., Ltd. 95% 200,000 THB

ECCO Slovakia, a.s. 94.78% 230,000 SKK

Ecco'let (Portugal) Fbrica de Sapatos, Lda. 100% 2,770 EUR

P.T. ECCO Indonesia 100% 43,976,000 IDR

ECCO China Holding (Singapore) Pte. Ltd. 80% 12,000 USD

ECCO (Xiamen) Co. Ltd. 80% 5,000 USD

ECCO Shoe (Xiamen) Co. Ltd. (dormant) 80% 315 USD

ECCO Tannery Holding (Singapore) Pte. Ltd. (dormant) 100% 1,100 USD

ECCO Tannery (Xiamen) Co. Ltd. (dormant) 100% 1,000 USD

ECCO Tannery (Thailand) Co. Ltd. 100% 185,000 THB

ECCO Tannery (Holland) B.V. (Netherlands) 100% 1,000 EUR

ECCO Leather B.V. (Netherlands) 100% 400 EUR

ECCO Accessories Ltd. (UK) (dormant) 100% 100 GBP

ECCO Asia Limited (Hong Kong) 100% 10,000 HKD

ECCO Belgium N.V. 100% 360 EUR

ECCO Benelux B.V. (Netherlands) 55% 23 EUR

ECCO Boty Ceska republika s.r.o. (Czech Republic) 100% 65,000 CZK

ECCO Exportadora Ltda (Brazil) (dormant) 100% 48 BRL

ECCO France Diffusion S.a.r.l. 100% 8 EUR

ECCO India Trading Private Limited 100% 1,000 IDRECCO Norge A/S 100% 15,000 NOK

ECCO (Portugal) Sales-Comercilizaco de Sapatos, Lda. 100% 800 EUR

ECCO Retail A/S (Denmark) 100% 1,000 DKK

ECCO Retail LLC (USA) 100% 300 USD

ECCO Scarpe Italia S.r.l. (Italy) 100% 150 EUR

ECCO Schuhe GmbH (Germany) 100% 1,790 EUR

ECCO Schuhe Schweiz GmbH (Switzerland) 100% 170 CHF

ECCO Shoes (NZ) Limited (New Zealand) 100% 100 NZD

ECCO Shoes Canada, Inc. 100% 6,502 CAD

ECCO Shoes Hong Kong Ltd. 100% 1,000 HKD

ECCO Shoes International Ltd (Switzerland) 100% 2,250 CHF

ECCO Shoes Pacific Pty. Ltd. (Australia) 100% 250 AUD

ECCO Shoes Poland Sp. zo.o. (Poland) 100% 2,250 PLN

ECCO Shoes UK Limited 100% 4,000 GBP

ECCO Singapore Pte. Ltd. 100% 10 SGD

ECCO Shoes Iberica, S.L. (Spain) 100% 4 EUR

ECCO Sverige AB (Sweden) 100% 1,000 SEK

ECCO Trading GmbH (Austria) 100% 400 EUR

ECCO USA, Inc. 100% 7,500 USD

ECCO Wholesale Limited (UK) (dormant) 100% 1,200 GBP

Eccolet Portugal ApS (Denmark) 100% 200 DKK

Oy ECCO-Suomi Ab (Finland) 100% 102 EUR

Salgsselskabet ECCO Danmark A/S 100% 1,000 DKK


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8 Investments in subsidiaries

9 Deferred tax


2004 2003 2004 2003

DKK 000

Deferred tax comprises:

Inventories, unrealised intercompany gains 31,739 33,703 31,739 33,703

Tax loss 84,982 85,304 82,425 77,688

Other assets (4,385) (17,140) (18,168) (22,095)

Recognised at 31 December 112,336 101,867 95,996 89,296

Recognised at 1 January (101,867) (90,288) (89,296) (71,628)

Total adjustment 10,469 11,579 6,700 17,668

Of which adjusted in equity 975 3,724 975 3,724


Investments insubsidiaries

Receivables fromsubsidiaries

2004 2003 2004 2003

DKK 000

Cost at 1 January 425,695 360,923 85,987 152,629

Additions 125,714 64,772 1,892 6,902

Disposals - - (5,188) (73,544)

Cost at 31 December 551,409 425,695 82,691 85,987

Accumulated revaluation at 1 January 381,478 371,175 - -

Currency translation of foreign subsidiaries (34,347) (36,947) - -

Profit after tax of subsidiaries 155,210 94,960 - -

Dividend (34,490) (47,710) - -

Net revaluation 86,373 10,303 - -

Accumulated revaluation at 31 December 467,851 381,478 0 0

Intercompany gains (107,200) (112,343) - -



41/5841


10 Equity


2004 2003 2004 2003

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 - - 381,529 371,227

Net revaluation - - 86,373 10,302

Reserve for net revaluation at 31 December - - 467,902 381,529

Revaluation of properties at 1 January - - - -Revaluation - - - -

Revaluation of properties at 31 December - - - -

Total revaluation 0 0 467,902 381,529

Brought forward from prior years/revaluation reversed 945,516 952,660 563,987 581,433

Proposed dividend in respect of the financial year 30,000 23,000 30,000 23,000

Dividend paid (23,000) (23,000) (23,000) (23,000)

Exchange rate adjustment to year-end exchange rates (34,347) (36,947) - -

Currency translation of subordinated loan capital in subsidiaries (2,275) (8,651) (2,275) (8,651)

Retained from profit for the year 120,661 38,788 (59) (8,461)

Adjustment of currency hedges of future sales (8,029) (334) (8,029) (334)

Total retained earnings 1,028,526 945,516 560,624 563,987

Total equity 1,034,026 951,016 1,034,026 951,016

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.



42/58

Group

2004 2003

DKK 000

Minority interests at 1 January 24,102 20,502

Additions 14,045 -

Disposals (5,711) (5,585)

Share of profit for the year 12,897 9,192

Currency translation (995) (7)

Minority interests at 31 December 44,338 24,102

Breakdown of minority interests:

Minority interests regarding ECCO (Thailand) Co., Ltd. 4,695 3,187Minority interests regarding ECCO Shoes Pacific Pty. Ltd. - 768

Minority interests regarding ECCO Benelux B.V. 19,881 15,381

Minority interests regarding ECCO Shoes (NZ) Limited - 115

Minority interests regarding ECCO Slovakia, a.s. 6,640 4,651

Minority interests regarding ECCO China Holding (Singapore) Pte. Ltd. 13,122 -

11 Minority interests

12 Long-term debt



2004 2003 2004 2003

DKK 000

Long-term debt due more than five years after

the end of the financial year 127,227 244,123 119,888 235,341


43/5843


14 Fees to auditors appointed at the annual general meeting

13 Contingent liabilities and collateral security



2004 2003 2004 2003

DKK 000

CONTINGENT LIABILITIES

Rent and lease liabilities 411,389 352,191 20,444 30,233

Guarantees and letters of comfort for staff 864 1,235 864 864

Guarantees to suppliers 16,768 34,244 10,364 25,595

Litigation 5,088 6,940 5,088 5,093

Sponsorships 10,115 5,087 10,115 4,887

COLLATERAL SECURITYThe following assets have been lodged in security of theGroups loans from credit institutions and other long-term debt:

Bearer mortgages on property, plant and equipment 174,084 180,068 80,000 80,000

Guarantee for import duty 28,582 30,242 - -


2004 2003 2004 2003

DKK 000

Total fees to auditors appointed at the annual general meeting:

KPMG 4,899 5,093 939 1,117

Others 307 347 - 28

5,206 5,440 939 1,145

Of which fees for non-audit services:

KPMG 1,459 1,789 409 600

Others - 28 - 28

1,459 1,817 409 628


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15 Related parties


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

ECCO HOLDING A/S

Prilen 13, Rm, 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 Companys 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

Companys 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, Rm, Denmark (Parent Company)


45/5845


environmental Statement 2004


46/58

ECCO gives high priority to environmental considerations

in its development and production.

ECCO focuses on optimising existing production methods

and on developing new and more environmentally friendly

processes.

ECCOs employees are involved in the Companys

environmental, health and safety activities. Each

employee is responsible for making proactive efforts to

continually improve environmental, health and safety con-

ditions.

This focus is also reflected in the Groups in-house course

From cow to shoe, which contains a presentation ofECCOs environmental, health and safety initiatives. This

part of the course often provokes a lively and constructive

discussion and introduces many ideas for future activities

based on the employees extensive experience.

The ECCO Group and harmful chemical substances

The ECCO Group uses a minimum of harmful

chemical substances. The criteria for these substances

are based, among other things, on the internationally

recognised SG list for shoes. SG is an abbreviation of the

German term Schadstoffgeprft (tested for harmful/toxic

substances). The SG list contains threshold values for

undesirable chemical substances in leather products. The

list is based on updated knowledge concerning the effect

of chemical substances on human beings and animals.

The SG list is published by the recognised German testing

institute TV Produkt und Umwelt GmbH, Rheinland in

collaboration with Institut Fresius GmbH and Prf- und

Forschungsinstitut Pirmasens. These institutes constantly

assess the effect of different substances used in the

industry.

The SG list is generally far more detailed and restrictive

than the legislation in the countries in which ECCO mar-

kets products. Nevertheless, ECCO has chosen to expand

the list to include undesirable chemical substances which

ECCO considers to be critical. See ECCO Supplement to

the SG-list. Both lists are available at

www.ecco.com/environment.

Consumption of resources

The production of ECCO shoes requires different kinds of

resources, including energy, water, raw materials and

components. For several years, ECCO has made dedica-

ted efforts to reduce the consumption of resources in the

production of shoes, among other things by using the

best possible production technologies and by ensuring

that the production equipment used at all ECCO tanneries

and factories is well-functioning and up to date.

Only the tanneries contribute actual process waste water,

whereas the shoe factories mainly produce domestic

waste water. All tanneries have sophisticated waste water

treatment plants for the treatment of tannery waste water.

ECCO thus ensures that waste water is purified to such a

degree that not only local discharge requirements are met

but so that the tanneries comply with the Best Available

Technology (BAT).

The main environmental impact from the shoe factories

derives from energy consumption and waste production.

ECCOs annual internal environmental audits focus on

these issues. Another important issue addressed by these

audits is the exchange of best practise among the pro-

duction units.

Through a number of initiatives, some of which are

exemplified below, ECCO intends to make continued

and dedicated efforts to ensure optimum environmental

performance.

A list at the back of this environmental statement contains

information and key figures for all ECCO tanneries and

shoefactories for the past five years.

These figures are recorded on an ongoing basis to avoid

deviations and unnecessary environmental impact. The

consumption of resources by the individual tanneries and

factories in 2004 did not differ significantly from prior

years.

ECCO and the environment

ENVIRONMENTAL ASPECTS AND THE ECCO GROUPEnvironmental aspects are considered by ECCO to be the

effect on human beings and the external environment

as a result of the production, use and disposal of ECCO

products.

External environmental aspects mean:

The effect on immediate and distant environments (soil,

water and air, for example in the form of waste,

wastewater and discharge).

Internal environmental aspects mean:

The effect on the employees manufacturing the

products (health and safety issues such as physical,

chemical, biological, ergonomic factors, employee con-

ditions and rights as well as social factors).


47/5847


THE ECCO GROUPS ENVIRONMENTAL, HEALTH

AND SAFETY POLICY

External environment

ECCO aims to be a market leader in terms of environ-

mental performance in the shoe manufacturing industry.

ECCO seeks to attain this goal through sustainable devel-

opment of the entire company and expedient develop-

ment and production of all products. ECCO also aims to

make a proactive effort to minimise the environmental im-

pact from all of the Groups activities. ECCO intends to

achieve this through optimum utilisation of raw materials

and energy and by giving consideration to the external

environment and the working environment in the choice

of raw materials, production methods and finished pro-

ducts.

In terms of the environmental suitability of ECCO shoes,

the aim is to manufacture environmentally friendly pro-

ducts. Strenuous demands therefore apply to products

and suppliers. For example, all raw materials and compo-

nents must comply with internationally recognised requi-

rements for undesirable substances and the physical re-

quirements defined in the SG list and by SATRA.

To ensure sustainable development of the Company,

each ECCO entity is required:

to develop more environmentally friendly products;

to minimise resource consumption; and

to minimise waste volumes.

By carrying out supplier tests or audits, ECCO intends to

ensure that all raw materials and components meet de-

fined requirements. Environmental parameters constitute

an important criterion in the selection of products and

suppliers. In addition, ECCO intends to constantly colla-

borate with the suppliers to develop increasingly environ-

mentally friendly products and production processes.

Working environment

ECCOs employees are the companys most valuable

resource. ECCO therefore strives to be the market leader

in the shoe manufacturing industry in terms of the wor-

king environment. ECCO aims to create a good and

heal-thy working environment for all employees by taking

proactive measures to prevent industrial accidents and by

minimising the working environment impact on all

employees.

To ensure sustainable development of the working envi-

ronment, each ECCO entity is required:

to ensure minimum working environment impact on

the individual employee;

to strive to prevent industrial accidents of all kinds;

to safeguard employee welfare at work;

to utilise employee resources in a way that is most

expedient for all parties; and

to set up one or more organisations to handle health

and safety activities.

ECCO aims to collaborate openly with the authorities and

to observe statutory environmental, health and safety re-

quirements at all times.

ECCO intends to review the ECCO Groups environmen-

tal health and safety policies on an annual basis and,whenever necessary, to define new goals to ensure that

the policy adequately meets ECCOs environmental,

health and safety targets.


48/58

Resource savings in tannery processes

ECCOs Leather divisions R&D centre is situated at the

tannery in the Netherlands. This centre plays a unique role

in the development and innovation of all three ECCO tan-

neries, including reducing the environmental impact from

tanning processes.

The tanning process requires both energy and water. It istherefore of crucial importance to a company such as

ECCO to be able to develop new technologies that can

reduce the consumption of these resources.

In early 2004, two new drums were installed at ECCOs

tannery in the Netherlands one for the liming process

and one for the actual tanning process. During the year,

the new drums were tested, and extensive studies

were carried out at the Dutch tannery to establish and

document energy and water savings compared with

the existing drums.

Why would the new drums use less energy and water?

The answer to this question lies inside the drums, as

depicted in the figure below

The picture on the left shows the existing drums and the

one on the right shows the new drums:

The existing drums are fitted on the inside with short,

cone-shaped pieces of wood which pick up one or two

rawhides when the drum rotates.

project ECCOTAN


49/5849


The new drum is fitted with four wings. One of the wings

is a plate mounted on the inside of the drum. On each

rotation, the wings pick up and process large parts of the

drum contents.

A comparison of the two techniques reveals that the new

drums operate at a lower rotational speed and use sub-

stantially less water than the old drums.

These results are achieved without impairing the quality of

the tanning process.

The preliminary results of this three-year project, ending in

2006, are very promising. In addition to the resource

saving initiatives described above, the next stages of theproject also focus on the recycling of chromium and the

biogas potential of tanning waste.

The results of the project speak for themselves:

Energy consumption:

Old drum New Drum Reduction

(kWh/tons of rawhides) (kWh/tons of rawhides)

Limning 6.6 6.4 3 %

Tanning 57.2 22.4 61 %

Total reduction: 55 %

Water consumption:

Old drum New Drum Reduction

(m3/tons of rawhides) (m3/tons of rawhides)

Limning 4.8 3.2 33 %

Tanning 8.5 5.5 35 %

Total reduction: 34 %

ECCOTAN (Eco-friendly tanning at ECCO Tannery

Holland B.V.)

A three-year project which is funded by the EU LIFE

programme and focuses on the reduction of energy

consumption and waste as well as energy production

of waste.

Limning Limning Tanning Tanning

(old drum) (new drum) (old drum) (new drum)

Drum size (m) 4.00x4.50 4.20x3.70 3.65x3.80 4.20x3.70

Capacity (tons) 12 16.3 9 13

Engine power (kW) 55 18.5 55 18.5


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Since 2000, the shoe factory in Thailand has participated in projects to save energy. The results have

been very positive both in environmental and financial terms. The results were as follows:

In collaboration with the Energy Research Institute, Chulaongkorn University, Thailand, the ECCO

Thailand Energy Conservation Committee carried through an energy-saving project from August

2003 to March 2004. In addition to specific savings, the project resulted in a prize awarded by

the Thailand Ministry of Energy.

Parameter Savings Savings

(kWh) (Euro per year)

2001:

- Reduce top fussing machine heat generator

- Close cooling water after work

- Replace back mould machine air compressor

- Balance phase electrical

- Repair air leaks and replace air compressor

- Remove fluorescent tubes from unnecessary work points

2002:

- Project normal lantern to reflector lantern

- Balance phase electrical

- Reduce heat frame

- Repair leaks

- Modify embossing machine heater

- Turn off light fan and air compressor during lunch break

2003:

- Project repair main pipe air leaks

- Cover insulator at steam machine and top fussing machine

- Turn off air pump and local ventilation system after work

- Close air pump from Desma reduction air pipe

- Maintain air-conditioning system (88 units)

- Turn off heating machine insulator

- Improve lighting system to reduce moonlight lamp

2004:

- Cover top fussing machine insulator

- Cover high-pressure steam machine insulator

- Repair machine and main air pipe leaks

- Modify exhaust switch to joint with polishing machine

- Cover tower machine insulator- Maintain air-con

Documents

ECCO AnnualReport 2004 UK