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Ferre bankruptcy warning as luxury market falls
2009-02-09
MILAN (AFP) - The Italian owner of the Gianfranco Ferre fashion label warned Monday it may be forced to file for bankruptcy protection because of financial trouble as the economic crisis cuts into the global luxury market. Milan-based IT Holding, which also owns the licences for Just Cavalli, Versace Sport and Galliano products, said that its Ittierre division would file for bankruptcy after running out of cash to pay royalties on the brands. "It is very probable" that a demand for bankruptcy protection will be made for the group as a whole and not just its subsidiary, said a company spokesman who pointed to obligations to holders of the company's debt. Italy's stock exchange suspended trading of IT Holding shares "indefinitely" and Moody's lowered its Probability of Default Rating (PDR) for the firm from Ca to D -- the lowest rating, meaning the company is already in default. IT Holding is the most high-profile victim so far of a downturn in the global luxury market that has forced companies to cut costs drastically amid uncertainty over the year ahead as the crisis hits full force. In December, Italian fashion groups representing tens of thousands of smaller companies and union leaders called for an "urgent" meeting with Prime Minister Silvio Berlusconi to discuss ways to limit the impact of the crisis. The crisis has had wider repercussions in the global luxury sector as a whole, with champagne and jewellery sales sharply down and fashion designers forced to stay away from some of the haute couture shows this year. "It would be inconceivable to stage a show when my main worry is to be able to pay staff their salaries," French designer Anne Valerie Hash said last month ahead of Paris Fashion Week, which was shortened this year because of no-shows. Even iconic French label Chanel has said it is taking "prudent measures," including cutting staff travel costs, hiring on a temporary basis and halting a world tour of a mobile art exhibition inspired by the Chanel quilted handbag. Luxury giant LVMH last week reported record profits for 2008 but said it would not be making any forecasts for 2009 after a slowdown in sales of champagne and watches and warned it may be forced to cut jobs. "We hope to do well and we'll see where we are in six months," LVMH chief executive Bernard Arnault said at a press conference. "The 2008 results demonstrate the exceptional reactivity of our organization in this period of economic crisis," said Bernard Arnault, LVMH's chief executive, in a statement. But the Christian Dior holding company which owns LVMH on Monday revealed a sharp slide in performance with a 9.5-percent drop in net profit to 796 million euros (1,026 billion dollars). In a statement to Italy's stock exchange, Ittierre said the decision to file for bankruptcy protection was made in light of "the absence of the conditions necessary to continue its operations in a regular course of business." The statement referred to problems with "the availability of the necessary financial resources" and said the company had taken its decision "to allow the group to be restructured and to continue its business operations." The group said it would take advantage of an Italian law on emergency administration that would offer it protection from creditors, allowing the company time to restructure and trade its way out of difficulty. IT Holding, which employs around 1,800 people and had sales of 637 million euros in 2007, has to pay off debts of around 300 million euros (389 million dollars). Ittierre makes up around 60 percent of the company's revenues.
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