ecco annualreport 2004 uk
DESCRIPTION
ECCO AnnualReport 2004 UKTRANSCRIPT
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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.
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ECCOAnnualReport2004
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.
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ECCOAnnualReport2004
ECCOs new factory in Xiamen, China
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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.
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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
ECCOAnnualReport2004
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.
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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
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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
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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
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annual accounts 2004
23
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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
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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
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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
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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.
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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.
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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
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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
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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
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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
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Group Parent Company
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
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3 Financial income
notes to the Group and Parent Company financial statements
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
Group Parent Company
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
Group Parent Company
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6 Property, plant and equipment
notes to the Group and Parent Company financial statements
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
Carrying amount at 31 December 126,132 15,175 83,376 18,742
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
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7 Investments in subsidiaries
notes to the Group and Parent Company financial statements
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
notes to the Group and Parent Company financial statements
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
Group Parent Company
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) - -
Carrying amount at 31 December 912,060 694,830 82,691 85,987
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10 Equity
notes to the Group and Parent Company financial statements
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.
Group Parent Company
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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
notes to the Group and Parent Company financial statements
Group Parent Company
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
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14 Fees to auditors appointed at the annual general meeting
13 Contingent liabilities and collateral security
notes to the Group and Parent Company financial statements
Group Parent Company
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 - -
Group Parent Company
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
notes to the Group and Parent Company financial statements
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)
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environmental Statement 2004
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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).
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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.
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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
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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