MILAN — Prada’s recently published annual report sheds light on the factors that fueled a 34 percent jump in its net profits last year — namely a $20 million tax benefit.

Prada released its key 2003 figures in March, which showed that net profit grew 34.3 percent to 36.3 million euros, or $41 million, as cost-cutting boosted margins. Prada said the Iraq war, SARS and a strong euro eroded sales by 13.4 percent to 1.36 billion euros, or $1.5 billion.

Dollar figures have been converted from the euro at average exchange rates for the period to which they refer.

But the luxury goods group’s 122-page annual report, a document it has been publishing over the last few years as it flirts with the idea of an initial public offering, states that a 17.7 million euro, or $20.04 million, tax benefit made a significant contribution to its bottom line. In fact, Prada’s pretax profits in 2003 dropped 43.4 percent to 16.1 million euros, or $18.2 million.

Prada attributed the 2003 tax benefit to credit matured on its dividends from subsidiaries and a recent court ruling. Last year, the European Community Court of Justice overruled a Dutch law that stated that costs and interests linked on companies’ European subsidiaries weren’t tax deductible. Prada is registered in the Netherlands and can now deduct such costs.

The report forecast a rosier 2004, citing a “brisk pickup” in sales for the first four months of the year. It said sales in the U.S. grew by more than 25 percent in that period, while tourist-reliant Europe is “showing signs of steady growth.” It also noted 80 percent growth in China and 50 percent expansion in Singapore, places Prada is aggressively targeting with new stores.

As it voiced optimism on the year ahead, Prada alluded to the high-profile departures earlier this year of Domenico De Sole and Tom Ford at Gucci Group, albeit without naming them directly, and the opportunity this might create for Prada and other luxury goods groups.

“One of the sector’s most dynamic and most visionary management teams has decided to step down from the helm of one of the world’s largest luxury goods houses,” the report stated. “With this change, a big opportunity presents itself for the Prada Group, as well as for other global players in the marketplace as each one attempts to capture share in an increasingly competitive market.”

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