To help support its present recovery, Marcolin's board of directors is expected to vote at its next meeting on a proposal to increase the company's equity by up to €50 million over the next five years. The Della Valle and Marcolin families will probably retain their equal shares. The proceeds would be added to a €25 million 5-year credit line granted earlier by Banca Intesa, €15 million of which have already been spent.

The refinancing package is part of the huge efforts that the Italian company is making to compensate for the shock of losing Dolce & Gabbana, which accounted for half of its turnover until the end of 2004 and in early 2005, and for lower sales at its subsidiary in France, Cébé. The negative impact of this loss on Marcolin's 2005 results was lower than expected, and the first quarter of 2006 has been marked by a substantial recovery, confirmed by the orders taken at MIDO. Profits will still be affected this year by heavy investments required to launch new brands such as Tom Ford, Ferrari and Web, but the revenues should not be far off from the €154 million turnover generated in 2005.

In the first quarter of 2006, D&G accounted for only 6 percent of turnover, and it generated very little margin because Marcolin sold the line to the brand's new licensee, Luxottica. Instead the revenues generated by all the other brands of the group grew by 80 percent. The management is now confident that its 4 top brands ? Tom Ford, Ferrari, Web and Just Cavalli ? will together generate annual sales of at least €80 million over the next four years, or the same turnover that was previously generated with Dolce & Gabbana. Cébé recorded a 3.7 percent sales decline, but its gross margins improved.

The Tom Ford and Just Cavalli collections were launched between January and March this year. Furthermore the company recorded during the period sales increases of 121 percent for its Roberto Cavalli line, 192 percent for Montblanc, 71 percent for Miss Sixty, 37 percent for Timberland and 59 percent for Kenneth Cole.

Both Timberland and Kenneth Cole have extended their licensing deals with Marcolin ahead of the expiry date. The deal with Timberland now extends through 2010, calling for minimum revenues of $50-60 million over the 2006-2010 period. The deal with Kenneth Cole goes up to the end of 2011, guaranteeing revenues of €148 million throughout the 2008-2011 period while expanding the coverage of the license outside the USA.

Marcolin's business grew everywhere except in European export markets. Excluding domestic sales, which were on the rise, sales on the old continent, which account for one-third of the total, were off by 20 percent. They were up by 16.8 percent in the USA in terms of euros, and by 11 percent in dollars, and the profitability of Marcolin USA improved.

Overall, Marcolin's revenues declined by 4.2 percent to €40.8 million in the 1st quarter, which was less than the 11.2 percent drop recorded in the same period a year ago. Operating profit before amortization and charges (EBITDA) was off by 33.3 percent to €1.4 million and profit before interest and tax (EBIT) declined by 32 percent to €0.8 million. In the 1st quarter of 2005, these operating results had fallen by 115 and 237 percent, respectively. However, the 1st quarter of the current year ended up for Marcolin with a net loss of €1.9 million as compared to a profit of about €20,000.

In tune with its gradual return to health, Marcolin has frozen a tentative plan to lay off dozens of employees, in addition to the 40 staff members already let go at Cébé, as they will be needed to service Marcolin's new licenses. The reorganization program for Cébé has been completed, with much of its production now outsourced in the Far East.

To avoid anything resembling the D&G drama, no single licensed brand will be allowed to reach half of the group's turnover. Their shares will be more balanced. Marcolin confirms that it is looking for new brands, and that candidates must fulfill the following requirements:

1) luxury brands, but not just brands that happen to be temporarily in fashion;

2) strong renown in various countries;

3) brands that fit the ?Made in Italy? image in terms of quality of design and technology.

This would rule out brands outside the luxury sector, such as Benetton, which is currently looking for a new licensee after the liquidation of Metzler Italia. Diego Della Valle, the Italian footwear magnate who owns 40.43 percent of Marcolin together with his brother, has not excluded that his own Tod's brand may be licensed to the group, but there is apparently nothing concrete about this for the moment. Della Valle and Luca Cordero di Montezemolo, the Ferrari boss who owns a stake of less than 3 percent in Marcolin, own the Web brand. The Web eyewear line licensed by Marcolin, which was presented at the MIDO fair earlier this month along with the Ferrari line, is distributed only in Italy for the moment, but the distribution will be extended to other European countries and to the USA in 2007.