The year 2006 was penalised with $/€ rate which remained unfavourable to our Sportswear business and the turnover developed by DMC Creative World in the United States and Asia, and closed with a loss of €6 M as opposed to €11.8 M in 2005. This improvement in earnings has not however enabled us to reach positive net results.Turnover for the business is down 4% due to the closure of our Sportswear production unit in the United States and difficulties in the crafts market in Europe.

Efforts designed to stimulate and actualise the strategies of each of the businesses have led to action plans during the year, meaning that we can expect to continue improving our earnings in a market which nevertheless remains difficult and competitive.

Sportswear

Even though we recorded a drop in turnover of 5% linked to the closure of the American plant in Orangeburg, our European activities have resisted well with stable turnover underpinning a good level of profitability. Although production from Pakistan has increased by 12%, it is not enough to take over from our American production.

Improvements in management have continued in the field of stock reduction, along with improvements in non-quality costs and cuts in production times, all of which are essential in gaining customer loyalty, particularly in Europe. The insufficient progress in turnover in Pakistan is largely due to our decision not to continue technology transfers without prior contractual relationships, particularly in capitalistic terms, enabling us to secure the enhancement of this immaterial asset. Faced with the difficulties existing in moving forward with this partnership, DMC has broadened its search, particularly in India, continuing its strategy designed to get closer to the major Asian clothes making areas through low-cost production units, while establishing relationships which could lead to a capitalistic agreement for our Sportswear business.

DMC Creative World

Despite a drop in turnover of 5% (-8% in Europe, -4.5% in the Americas and +10% in Asia), the division's operating profits increased 2.5 M thanks to substantial improvements in profitability in the United States and Asia, Europe remaining stable. Return on investment in the division remains at satisfactory level of 20%.

Given the difficulties in the markets in Europe and the United States, broad-ranging savings and performance improvement plans have been implemented, leading, notably, to the closure of the logistics centres in Spain, Portugal, Italy and the United Kingdom, and their being grouped together in the Mulhouse facility in France with the creation of a worldwide logistics centre serving the 86 countries active in the division. All these operations were finalised at the beginning of 2007.

Still during 2006, DMC Creative World launched new thread: “Variation” (changing effect), “Desire” (jewellery “memory” thread); signed licensing agreements with “Hello Kitty” and “Snoopy”; and developed a new line for children called “DMC Junior”. All these new products should enable us to continue our penetration into modern distribution (FNAC Eveil et jeux, Morrisson's, Tesco, Asda, Sainsbury, and Carrefour, among others) and to compensate in part for the slowdown in traditional trade in Europe.

Loisirs & Création

Loisirs & Création's turnover was stable at €29.2 M, but down 8.8 % for an identical surface area, due to the slump in the “beads and jewellery” market, where there is oversupply.

In this context, the chain, which today counts 21 stores in France and has become a major player in the crafts sector, has launched a vigorous action plan. A new team will up-date the product offer and change the way it is sold at the points of sale. A radical savings plan has been launched for central expenses and operating costs.

The Group

After long and intense negotiations with our partners in Alsace, we were able, at the beginning of 2007, to sell off real-estate assets which were not necessary for operations and set up financing to modernise our production facility in Mulhouse (France) and the creation of the new logistics centre. This industrial reorganisation will contribute substantially to improving the group's results as of 2008.

On the financial front, market operations launched in July 2006 have enabled the group to cut its net bank debt, which has gone from €62 M to €19 M and to reconstitute the group's permanent capital to €23 M, up €35 M.

In a market which remains extremely competitive in all our areas of activity, the group has continued implementing its strategy for sustainable improvements in earnings.

The Executive Board would like to thank all DMC's employees, customers and shareholders for their efforts, commitment and trust in the group.