5 Aug 2008 08:31
5 August 2008
Marchpole Holdings PLC
("Marchpole", the "Company" or the "Group")
Final Results for the 53 weeks ended 5 April 2008
Marchpole Holdings plc (LSE: MPH), the fashion brand management group that designs, produces and sells clothing and accessories for ten globally recognised fashion labels (Boateng, Emmanuel Ungaro, Ungaro Homme, Jean Charles de Castelbajac ("JCC"), Jean Charles de Castelbajac / Rossignol, Jean Charles de Castelbajac/Okaidi, Jean Charles de Castelbajac / New Era, JCDC/Lee Cooper and Homebody and Homemummy) announces its final results for the 53 weeks ended 5 April 2008.
Financial and Operational Highlights
Turnover £44.7m (2007: £90.5m)
EBITDA £3.8m (2007: EBITDA profit £8.7m)
Operating loss £4.7m (2007 operating profit restated £8.0m)
Loss before taxation £6.1m (2007 profit before tax: restated £6.3m)
Loss of 19.9 pence per share (2007 restated earnings per share 15.3 pence)
Two high-profile partnership agreements for JCC:
Exclusive partnership with global denim brand, Lee Cooper Inc.
Licence agreement with world famous headwear company, New Era
Post the period end
Agreement with Lee Cooper Inc. extended and renegotiated in June 2008 with increased minimum income and increased distribution
June 2008, first UK JCC flagship store opened in London
Two prominent licensing and distribution agreements for JCC extended and renegotiated:
Licensing and distribution agreements with Rossignol and Bragard with increased in the minimum annual incomes
New distribution agreements for both Emanuel Ungaro and Ungaro Homme in South Korea worth a guaranteed EUR 5.2 million
Commenting on the results, Michael Morris, Executive Deputy Chairman, said: "This has been a challenging year for the Company. However, our pipeline remains healthy and in line with our growth strategy, we have successfully strengthened our presence in major brand-driven consumer markets through new earnings enhancing licensing and partnership agreements."
"Marchpole is no longer reliant on a single brand and is now a well diversified multi-brand business. Through a number of new initiatives during the year, we have laid strong foundations to capitalise on our core strength of fashion brand management on an international platform. We have continued to source new earnings enhancing opportunities to deliver solid growth over the longer term."
For further information please contact:
Marchpole Holdings plc 0207 908 7777
Michael Morris, Executive Deputy Chairman
John Macaulay, Group Finance Director
Bell Pottinger Corporate & Financial 0207 861 3232
David Rydell/Emma Kent/Amy Rajendran
Shore Capital 0207 408 4090
Pascal Keane
CHAIRMAN'S STATEMENT
The following statement is a report of the final results of Marchpole Holdings plc for the 53 weeks ended 5 April 2008.
Despite a difficult trading year and making a substantial loss for the full year, we have made significant progress in all parts of our business and continue to evolve into a diversified international luxury brand management business. During the period, Marchpole has successfully negotiated a number of new partnerships and licence agreements for its globally recognised brands. We have broadened our customer base and capitalised on the popularity of our portfolio in key brand-driven consumer markets that are experiencing a rising demand for luxury fashion apparel. We remain committed to strengthening our presence on an international platform and we now operate in all major fashion markets of Continental and Eastern Europe, Asia, the Americas, the Middle East, as well as the UK. We anticipate that these markets will make an increasing contribution to earnings enhancing growth over the longer term.
We continue to work with Jean-Charles de Castelbajac to broaden the customer base of the popular JCC label. During the period, we were delighted to sign an exclusive agreement with global denim brand, Lee Cooper Inc. ("Lee Cooper") to launch the first and only premium denim lines offered by Lee Cooper. Additionally, we signed a long term agreement with world famous headwear company, New Era. Both fashion lines were well received and, post the period end, we successfully renegotiated and extended our contract with Lee Cooper for improved returns during the next financial period.
We continue to strengthen the global reach of the JCC brand in major luxury brand driven markets and the label is now available in the Middle East, Russia and the Far East. We opened new flagship stores in Moscow and Tokyo. In addition to this, the brand continues to build upon its success in the USA. Notwithstanding the continued growth of the JCC brand, we have experienced a significant trading loss with our major partner in Korea resulting in a EUR 2.0 million (approximately) loss of revenue. However, our licensing income has doubled from £1.45 million to £2.9 million.
In the results for the period ending 5 April 2008, we had also expected a payment of £1.5 million in respect of the termination of the perfume licence with JCC agreed in February 2008. However, we were unable to recognise this payment as proceeds had not been received. This money will be shown in the six months to 30 September 2008 as the proceeds have now been received in full.
The sales of Emanuel Ungaro and Ungaro Homme remain in line with our expectations despite difficult trading conditions. We have renegotiated our terms of trading with the House of Ungaro's three major stores in Paris, New York and Palm Beach. These renegotiated terms will improve our cash flow and profitability.
Our two most recent acquisitions of Greenmark and Homebody are now fully integrated. We continue to work with both companies to fully exploit the potential of both businesses worldwide. Although the shoe retailing market is challenging, our Greenmark business has achieved £22.0 million turnover. Most encouragingly, we have expanded the business from single market sourcing and manufacturing in Brazil into the fast growing sourcing and manufacturing market of Asia. This initiative has been driven by our expertise in the Asian market.
Despite the legal dispute with Ozwald Boateng's Bespoke Couture Limited which has now been successfully settled in Marchpole's favour, we continue to make very good progress with this brand which has shown increased sales by 150%.
It is extremely frustrating that we have made this significant loss at the full year, even though the Company is making progress. We have experienced difficult trading conditions, in particular with one of our major international partners and also with one of our significant UK customers, resulting in this loss. We have taken action to mitigate against these issues and put Marchpole in a stronger position to take advantage of future profitable trading opportunities. We continue to make good progress in expanding sales in Russia, the Eastern European states, the Middle East and Asia where there is a rising demand for luxury brands. We recognise these markets as an integral part of the Company's future profitability.
Marchpole has a proven expertise in managing brands on a worldwide platform. We continue to assess earnings enhancing opportunities and we are well placed to capitalise on our core strength and deliver better shareholder value as part of our new three to five year programme for global growth.
Results
This has been a difficult trading year and as a result the Group has made a loss after taxation of £5.4 million (2007 restated profit £4.2 million).
The directors are not recommending the payment of a final dividend. The total dividend for the period was 1.1 pence (2007:3.75 pence).
Dividends
The Board is reviewing its dividend policy as a result of the Group's financial performance.
Board Changes and Management Structure
Following the departure of John Harrison in July 2007, John Macaulay was appointed to the position of Group Finance Director and joined the Board on 10 March 2008. John, who was Group Financial Officer, has over 15 years experience in senior financial positions in the clothing business. Raymond Harris, formerly Acting Finance Director since July 2007, resumed his position as Executive Director on the Board.
To support the next stage of the Company's development, Chris Phillips was appointed full time Executive Chairman in February 2008. Since joining the Board in 2002, Chris has been an integral part of the management team. In September 2007, Marchpole appointed John Molloy to the Board. John, who leads the London buying office for C&A Europe, has spent over 40 years in the retail industry and brings unrivalled commercial experience to the Group.
The Board has also restructured the management of the operating subsidiaries to enhance performance and improve corporate governance in each of the international subsidiaries.
Licences
Emanuel Ungaro and Ungaro Homme
Marchpole continues to develop its relationship with the House of Ungaro and has made further progress in establishing the Emanuel Ungaro and Ungaro Homme diffusion labels as a worldwide menswear brand.
The Board remains confident in its strategic decision to use the Ungaro brand to continue to develop the business. We have restructured the US business and cut overheads to realise cost savings. Although the retail environment in America continues to be extremely difficult, the US business has now turned the corner and we have seen a very significant increase in sales.
Demand for the new first line Emanuel Ungaro collection continues to increase. The House of Ungaro has committed to opening a menswear only flagship store in Paris later this year.
Additionally, the rising demand for the premium brand has led to three new flagship stores being scheduled, with one store already trading in Bucharest during the period. The additional stores will be opened in Azerbaijan and Uzbekistan.
Post the period end, we successfully agreed terms with leading Korean distributor, Hanamel Group for the distribution of the Emanuel Ungaro first line menswear collection throughout South Korea. The contract is worth a EUR 5.2 million and has been signed for an initial period of five-years, extendable for a further five years. As part of the exclusive agreement, Marchpole will open a new Emanuel Ungaro flagship store in Seoul in 2009. Additionally, Emanuel Ungaro SAS signed a licence agreement with E-Sense Co. Ltd to produce and distribute the Ungaro Homme second line menswear collection as well as the Ungaro Golf men's collection in South Korea.
Jean-Charles de Castelbajac S.A. ("JCC")
Building on the established popularity of the JCC brand, we continue to work with Jean-Charles de Castelbajac to fully exploit the potential of the label in the international fashion arena.
During the period, the JCC brand has enjoyed an increase in royalty income from £1.46 million to £2.85 million all as a direct result of new licensing agreements that Marchpole has initiated in the past year. However, sales decreased from £6.0 million to £5.2 million due to loss of revenue of approximately EUR 2.0 million from our Korean partner.
We are committed to broadening the customer base of the brand by adding important product lines to the JCC portfolio. In April 2007, we signed a long-term licence agreement with world famous headwear company, New Era.
Notably, JCC signed an exclusive partnership with global denim brand, Lee Cooper Inc. for an initial period of five years to design two premium denim lines, the only premium lines offered by Lee Cooper. The range of denim lines and casual tops are sold throughout JCC flagship stores and 110 Lee Cooper stores worldwide. Since the period end, we extended our initial agreement with Lee Cooper and will now supply a minimum of 100,000 pieces of denim wear per annum. As part of the successful renegotiations, Marchpole will receive guaranteed minimum annual incomes and royalties. The collection will be sold through Lee Cooper own outlets commencing with 181 stores worldwide in spring 2009, increasing to 240 stores for winter 2009.
There is a growing popularity for the JCC label in Russia, Eastern Europe and the Middle East. Following entering into an exclusive contract with Russian based, The Crocus Group, in winter 2007 we opened a JCC flagship store in Moscow. Our strong position in Russia has supported our expansion of the brand into other Eastern European states where the label has a growing popularity.
In the Middle East our distribution agreement with The Chalhoub Group, a specialist company which has promoted luxury brands in region for over 50 years has enabled us to establish a presence throughout the region.
The JCC range remains a highly sought after brand in the Far East. To support the increased demand for the label, Marchpole signed a new agreement with Coronet, a member of the Itochu Group for distribution throughout Japan and Korea. Additionally, a new flagship store was opened in Tokyo in summer 2007. However, during the period, we have experienced problems with our Korean partner which has led to a decrease in wholesale sales but we have increased revenues from our licensing income.
In the USA, JCC has increased its distribution.
Post the period end, we successfully extended and renegotiated licensing agreements with Rossignol, the major skiwear company recently acquired by the Quicksilver Group, and Bragard, the major French uniform company. Both contracts were due to expire in 2010 and have been extended for a further five years to 2015 with an increase in the minimum annual incomes.
Most recently, we opened the first UK JCC flagship store in Conduit Street, a prime retail space in London's fashion district. The new store houses the entire JCC collection.
Greenmark Limited ("Greenmark")
Greenmark Limited, the footwear designer and importer has been fully integrated into the Company. During the period, Marchpole made the strategic decision to terminate an agreement with its main customer who was unable to meet the requirements of its contract due to financial constraints. This has had a significant impact on our results and going forward, we anticipate a decrease in sales of approximately 40%. Since the termination of this contract, Marchpole has strengthened the Greenmark business and we anticipate improved margins. We have diversified the business adding new sourcing areas in Asia to ensure more cost efficient production. We have achieved solid sales from this new sourcing initiative.
Homebody Limited
Homebody, the luxury ladieswear, maternity wear and menswear clothing company has suffered a reduction in sales as direct result of the challenging retail environment. However, the brand continues to develop its website sales which have shown a slight increase. Furthermore, in the UK the brand has increased its presence in Harrods at the Knightsbridge flagship store as well as at the Harrods outlet at the new Terminal 5 in Heathrow, and also online at www.harrods.com. Additionally, the brand continues to develop its presence in overseas markets.
Boateng
In January 2008, Marchpole finally concluded its legal dispute with Ozwald Boateng's Bespoke Couture Limited in an out of court settlement, under the terms of which Marchpole has extended its manufacturing and distribution licence with Ozwald Boateng.
These court proceedings have been an unwelcome distraction for management but the settlement will realise significant cost savings for the Company. Marchpole will not have to make any contractual payment to Bespoke Couture Limited for the next three years, which represents a saving of £1 million plus for the Company. Additionally, Marchpole will be reimbursed £137,000 in lieu of the professional fees incurred.
Our commitment to the brand remains unaltered and the Company continues to sell the Boateng collection and we have experienced increase in sales orders year on year.
Financial risk
The key components of financial risk are credit risk, currency risk and cash flow risk. Credit risk is mitigated by accepting only the major retailers in each country as customers, and obtaining, if available, credit insurance for sales. Only when sales orders have been contracted are purchase orders placed with reputable manufacturers thus giving the Group a forward view of at least six month's revenue at any time. This forward order book also enables the Group to manage its forward cash flow proactively, and to use both import loan and invoice finance facilities to minimise cash exposures. During the period, and subsequent to the period end, the Group has faced certain cashflow challenges. Management have addressed the risks through negotiations with the Group's lenders and suppliers and, as described in the Chairman's Statement have recently secured future funding for the Group. The foreign exchange risk inherent in the purchase order is economically hedged with forward foreign exchange contracts to lock in the bulk of the cost economically.
The Board is satisfied that the financial statements should be prepared on a going concern basis.
There is no material difference between the bought value and the carrying value of fixed assets held by the Group.
The Holding Company's principal activity is the holding of investments in subsidiary companies.
Outlook
Although we continue to make progress in all parts of our business, poor retail trading conditions in many of our major markets as well as financial problems suffered by our customers and partners have had a serious impact on our results for the full year. However, there are opportunities for growth and we are confident that Marchpole is well positioned in all key retail markets to deliver a better financial performance during the longer term.
We have successfully strengthened our presence in major brand-driven consumer markets through new licensing and partnership agreements, as well as new store openings. Additionally, we have restructured some areas of the business to improve efficiency and reduce costs.
We continue to seek new partnerships to diversify product lines and expand the customer base of our brands. We are in the process of signing a major new joint venture with one of the world's leading fashion design houses. Furthermore, we have successfully renegotiated our banking facilities with increases to support this joint venture. We expect to formally announce this joint venture imminently.
We have laid strong foundations during the period, taken the necessary actions to mitigate against our losses and unforeseen trading issues and we believe that we are now much better placed to capitalise on profitable opportunities. We look forward to retaining our leading position in a challenging and competitive environment.
Chris Phillips
Executive Chairman
A copy of the Annual Report and Accounts for the 53 week period ended 5 April 2008 has been published and is available on Marchpole's website www.Marchpole.com.
A copy of the annual report and accounts, Notice of AGM and associated Proxy Form will be posted to shareholders and will also be submitted to the UK Listing Authority and will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:
Documents Disclosure Team
UK Listing Authority
Financial Services Authority
25 The North ColonnadeCanary Wharf
London E14 5HS
Tel. (0)20 676 1000
The Annual Report and Accounts 2008 is also be available on www.marchpole.com
Registered number: 3328638
Registered office: 19-20 Berners Street
London W1T 3LW
Telephone: (0)20 7908 7700