Kappa parent, BasicNet, reported that combined sales of all brands increased 1.2% to €106 million ($136.4 mm) and direct revenues rose 5.5% to €41.7 million ($53.6 mm) for the first half ended June 30, 2005.

Sizeable investments have been made in communications, in strengthening the operating structure, and in the expansion of the retail network; margins are down, with EBITDA falling to €0.3 million ($0.4 mm) from €6 million ($7.4 mm) in 2004 and a net loss of €5.9 million ($7.6 mm).

Group management foresees a substantial recovery in the second half of the year.

The Board of Directors of BasicNet has examined and approved the Half-Yearly Statement as at June 30, 2005, drafted with the application of the new IAS/IFRS international accounting standards.

Period results have been affected by sizeable investments in reinforcement of the operating structure, expansion of the direct sales network, and an increase in promotional and marketing activities carried out by the Group in the first half of the year, aimed in large part at relaunching the new brands K-Way and Superga.

Combined sales of brands by the network of license holders, despite an unfavourable trend the relationship between the euro and the US dollar, exceeded €105.9 million ($136.2 mm), up 1.2% compared to the figure of €104.7 million ($128.5 mm) in the first half of 2004.

Particularly positive results were seen in the Asian markets, first and foremost the Chinese market (357 Kappa brand shops in this country), with an increase of 28.38%, and on American markets, where sales were up by 50.61%.

Consolidated revenues total approximately €41.7 million ($53.6 mm), down 5.5% compared to the figures for the first half of the previous year, due above all to a slight fall in the domestic market.

As mentioned above, the group structure has been adjusted to support the development of the new brands that have been acquired, with costs (new collections, review of the supply system, and dedicated human resources) not directly connected to the flow of sales made in the period, but with returns expected in sales over the next few years.

To back the development plans, promotional investments have been increased by 48%, with costs entered on a cash basis, but with returns over a longer time span. Sponsorship costs grew in the first half of 2005, primarily due to contracts with UC Sampdoria S.p.A. and Napoli Soccer S.p.A., which took effect in the second half of 2004.

For these reasons, the gross operating margin (EBITDA) stood at €0.3 million ($.4 mm) (€6 million ($7.4 mm) as at June 30, 2004), operating income (EBIT) fell to -€2.3 million (-$3.0 mm) (€3.6 million ($4.4 mm) in the first half of 2004), and the group showed a loss of €5.9 million ($7.6 mm) as compared with a profit of €0.8 million ($1.0 mm) in 2004.

Figures for the first half of the year show a net consolidated financial exposure which rose from €64 million ($87.3 mm) as at December 31, 2004 to €69.8 million ($84.2 mm) as at June 30, including €18.5 million ($22.3 mm) in debt related to leasing contracts for group real estate.


New licenses and retail outlets

The first half of 2005 saw considerable expansion in the worldwide distribution of the brands Kappa and Robe di Kappa, due above all to the new licensing agreements signed in India, the Middle East, Greece, Cyprus, Russia, and Ukraine, and the agreements already existing in Turkey, Belgium, Scandinavia, the Baltics, and Brazil.

The company increased its direct presence in Italian retail, opening of nine new single-brand RdK shops under franchise agreements, which will bring the number of operative retail outlets to twenty-six. In addition, four new Kappa and Robe di Kappa brand outlets have been opened, as well as a third single-brand Superga® shop.

“In the first half of the year,” commented Franco Spalla, managing director of BasicNet, “we were working hard to integrate the new brands K-Way and Superga into the group's business system, and to implement measures needed to relaunch two historic brands.”

“All of this has entailed investments to create new collections from scratch,” continued Spalla, “to reinforce the group's operating structure, to accelerate our direct distribution retail plan of, and to strengthen promotional and sponsorship activities.”

“These are sizeable investments that have had a strong impact on accounts as at June 30, but which will bring noteworthy benefits in terms of income starting in the second half of the year,” says Spalla, “closing out 2005 with a sizeable recovery in operating results.”