S.p.A.

Via A. Fogazzaro n. 28, Milan, Italy
Registry of Companies of Milan, Italy: No. 10115350158(Incorporated under the laws of Italy as a joint-stock company)(Stock Code: 1913)

2011 Interim ReportPRADA GroupCONTENTS
The Group
Corporate Information
Corporate GovernanceDirectors’ Report
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Independent Auditors’ Report

PRADA Group

Contents - 2011 1ST Half Year Financial Report

4
25
27
32
49
55
132

3

Patrizio Bertelli

Miuccia Prada

4

PRADA GroupThe Group - 2011 1ST Half Year Financial ReportIntroduction

PRADA GroupThe Group - 2011 1ST Half Year Financial Report5The structure of
Terranuova Bracciolini (AR)The first store Prada,
Galleria Vittorio Emanuele II
Milan

6

PRADA GroupThe Group - 2011 1ST Half Year Financial ReportPRESENTATION“For Prada, fashion, luxury and style have always been core aspects of a project that
goes beyond production of clothes, footwear and handbags.
Careful observation and interest in the world, society, and culture are at the core of
Prada’s creativity and modernity. This has pushed Prada beyond the physical limitationsof boutiques and showrooms, leading us to interact with diverse, seemingly distantworlds, and introducing, very naturally, a new way of creating fashion”. Miuccia Pradaand Patrizio Bertelli.
These values have transformed a family business into a major player in the luxury market
worldwide.
The PRADA Group is one of the world’s leaders in the design, production and distributionof luxury handbags, leather goods, footwear, ready-to-wear apparel, accessories,
eyewear and fragrances. The Group owns some of the most prestigious international
brands: Prada, Miu Miu, Car Shoe and Church’s.
The Group operates in 70 countries through 345 directly operated stores, 30 franchise
stores and a network of selected high-end multi-brand stores and luxury department
stores.
Prada’s distinctive features and prestige derive from its particular industrial process
management which allows the Group to offer its customers products of unequalled
quality, creativity and exclusivity.
A focus on quality permeates every aspect of the Group’s business. The individual
heritage and identity of each brand is rigorously defended with the Group’s designers
and craftsmen being constantly challenged to keep tradition alive through a continuous
process of re-invention and innovation. Each step of the process, both inside and outside
the company, is carefully monitored in order to guarantee uncompromised quality.
The result is an exclusive relationship between each customer and the PRADA Groupbrands, its products, its communications and its stores. This is why customers recognize
in Prada’s products a personal and important part of their desire for self-expression andcommunication with the world around them.

PRADA GroupThe Group - 2011 1ST Half Year Financial Report

7The first Prada Epicenter Concept Store,
Broadway, New Yorkby architect Rem Koolhaas and Studio OMA

The third Prada Epicenter Concept Store,
Los Angeles, Beverly Hills
by architect Rem Koolhaas and Studio OMA

8PRADA GroupThe Group - 2011 1ST Half Year Financial Report

The second Prada Epicenter Concept Store,
Aoyama, Tokyo
by architects Herzog & de Meuron

PRADA GroupThe Group - 2011 1ST Half Year Financial Report9Fall/Winter 2011
Advertising campaign
for Prada

Fall/Winter 2011
Advertising campaign
for Prada

10

PRADA GroupThe Group - 2011 1ST Half Year Financial ReportHistory of PRADA Group
The Prada brand dates back to the beginning of the last century. In 1913, Mario Prada
opened a luxury store in the Galleria Vittorio Emanuele II in Milan, selling leather
handbags, travelling trunks, leather accessories and beauty cases, luxury accessories
and articles of value. Thanks to its exclusively designed goods, handcrafted using finematerials and sophisticated techniques, Prada rapidly became a point of reference forEuropean aristocracy and the most elegant members of the haute-bourgeoisie in Europe.
In 1919, PRADA became an official supplier to the Italian Royal Family. Over the years,
the Prada name gained increasing renown and prestige.
The Group saw a turning point in the development of its activities at the end of theSeventies, when Miuccia Prada, Mario’s grand-daughter, launched a partnership withPatrizio Bertelli, a Tuscan businessman already involved in the leather goods sector
with Granello and Sir Robert. This partnership combined creativity and business ideas
to commence a new era.
In 1977, Patrizio Bertelli set up I.P.I. spa to consolidate the production resources that hehad built up over the previous ten years, including those of Sir Robert and Granello. In
the same year, I.P.I. spa obtained an exclusive license from Miuccia Prada to produce
and distribute leather goods bearing the Prada brand name. In the following years, theactivities of the two families were gradually brought together within a single Group and,in 2003, IPI spa was merged into PRADA spa.
In 1983, the Prada family opened a second store in the prestigious Via della Spiga in
Milan. The new store showcased the new brand image as it blended traditional elementswith a modern architectural setting and would represent a revolution and a benchmark
for luxury retail. In response to the growing demand for and appreciation of Prada
products, the range was extended from leather goods (such as bags, luggage andaccessories) to include footwear, as well as men’s and women’s ready-to-wear apparel.
A new brand, Miu Miu, was launched in 1993.
In 1999 PRADA acquired full control of Church’s Group, a prestigious brand of English
shoes.
In 2001 PRADA acquired control of Car Shoe, an historical Italian brand famous for its
exclusive driving shoes.
In 2003, Prada entered into a ten-year licensing agreement with Italian eyewear
manufacturer Luxottica, one of the world leaders in the eyewear industry. The Luxottica
Group currently produces eyewear for the Prada and Miu Miu brands.
In 2003 a joint-venture with Spanish cosmetics manufacturer PUIG Beauty & Fashion
Group was set up and it launched its new Prada women’s fragrance at the end of 2004.
On April 27, 2011, the PRADA Group announced the signing of a joint-venture agreementwith UAE based Al Tayer Insignia llc for the development of a retail network for Pradaand Miu Miu throughtout countries in the Middle East.
On June 24, 2011, PRADA spa was listed on the Hong Kong Stock Exchange.

PRADA GroupThe Group - 2011 1ST Half Year Financial Report11Fall/Winter 2011
Advertising campaign
for Miu Miu

Fall/Winter 2011
Advertising campaign
for Miu Miu

12

PRADA GroupThe Group - 2011 1ST Half Year Financial Report

The main stages in the recent development of the Prada and Miu Miu brands were as
follows:
1979:

launch of Prada women’s footwear collection

1983:

opening of a second store in Via della Spiga, Milan

1986:

opening of the first store in the United States, in New York1989:

launch of Prada women’s ready-to-wear collection

1993:

launch of Miu Miu women’s collections(ready-to-wear apparel, handbags and footwear)
launch of PRADA men’s collections(ready-to-wear and footwear)

1997:

launch of Prada Linea Rossa products

2000:

launch of Prada eyewear collection

2001:

opening of the first “Epicenter” store in SoHo, New York

2003:

opening of the second “Epicenter” store in Aoyama, Tokyo
joint-venture with Puig Beauty for the fragrance lines

2004:

opening of the third “Epicenter” store in Beverly Hills, Los
Angeles

2006:

Miu Miu fashion show in Paris
Prada launches its first men’s fragrance

2007:

launch of first Prada phone by LG
launch of new Prada women’s fragrance, Infusion d’Iris2008:

launch of Infusion d’Homme, the new Prada men’s fragrance
launch of the new Prada phone by LG

PRADA GroupThe Group - 2011 1ST Half Year Financial Report

13Fall/Winter 2011
Advertising campaign
for Prada Eyewear

Fall/Winter 2011
Advertising campaign
for Prada Eyewear

14

PRADA GroupThe Group - 2011 1ST Half Year Financial Report2009:

launch of exclusive new “Made to measure” (customized andmade to measure men’s shirts) and “Made to order”(possibility to customize clothes, accessories and shoes)
services available as part of a new concept at the store in
Corso Venezia, Milan
launch of new Prada women’s fragrances Eau Ambrée andInfusion de Fleur d’Oranger

2010:

Prada is an official partner of the Italian Pavilion at the Shanghai
World Expolaunch of the “Prada Made in...” collection
launch of “Postcard” eyewear

2011:

launch of “Minimal Baroque” eyewear
Prada “made to order” goes on-line
Miu Miu e-store launched on April 6, 2011

The Group Brands
Prada spa owns and operates some of the most prestigious luxury brands in the world.
These brands, together with the Group’s know-how and expertise, represent a key
asset for the company.
— PRADA: an historic brand that represents the best of Italian culture and tradition
with unmistakable style, sophisticated elegance and uncompromising quality. At
the same time, this is one of the most innovative fashion brands, able to re-define
the norm and set new trends. Prada tends to go beyond conventional solutions toanticipate and satisfy consumer tastes.
— MIU MIU: Miuccia Prada’s other soul, a brand with a very strong and autonomous
identity, characterized by an avant-garde, sensual, sometimes provocative, style
aimed at a clientele particularly focused on experimentation and the pursuit oforiginality.
— Church’s: founded in Northampton (England) in 1873, is a world renowned symbolof a century-old tradition in luxury, handcrafted footwear production, characterized
by classic style and sophisticated English elegance. In 2009 the brand proposed a
new range of lifestyle items.
— Car Shoe: a long established Italian brand, identified for decades with the most
exclusive driving shoes with black rubber studded soles that give better grip on the
car pedals. More recently, the brand has developed new models and offers acomplementary line of accessories.

PRADA GroupThe Group - 2011 1ST Half Year Financial Report15

Fall/Winter 2011
Advertising campaign
for Car Shoe

Spring/Summer 2011
Advertising campaign
for Church’s

16

PRADA GroupThe Group - 2011 1ST Half Year Financial ReportStrategic processes
DesignCreativity is the first step of the quality process.
Miuccia Prada has the ability to combine intellectual curiosity, the pursuit of new andunconventional ideas, cultural and social interests with a strong sense of fashion andclose attention to detail.
This unique approach enables Prada to anticipate and set trends, continuallyexperimenting with shapes, fabrics, leathers and production techniques. This
experimentation and the exchange of ideas are the essential components of the designcontent found in each PRADA product. The time spent at the “drawing board” and in
the “fitting room” represents research and stylistic development for the brands and isfundamental in defining each collection so that each ready-to-wear apparel, footwear
and accessories complement one another and create a well-defined, consistent brandimage.
Miuccia Prada and Patrizio Bertelli’s flair, coupled with their extraordinary personalities,
continue to attract other internationally renowned talents who want to work with themin many different creative fields. This results in formidable teams in all aspects of thecreative process: from design, to architecture, to photography and the interior designof the stores. Prada products have even been presented and interpreted as works ofart.
Production
The second step of the value chain involves the choice and selection of fabrics, leathers
and other raw materials. These are always carefully chosen and often exclusively madefor Prada based on very detailed specifications. With annual consumption of some 4
million meters of fabric and a similarly impressive amount of leathers, Prada enjoys thepriority attention of the best fabric makers and tanners in the world.
Prada products are made at 11 state-of-the-art facilities in Italy and England and througha network of external sub-contractors, all of them selected for their craftsmanship skills.
This system enables close control of the overall production process and maximizes theindividual capacities of each facility. Furthermore, it guarantees the utmost quality andthe highest level of flexibility.
The core of Prada’s production employees has been working with the company for an
average of 20 years. This leads to the highest level of specialization and dedication to
the brand while ensuring that know-how is handed on smoothly to younger generations.
Distribution
The Group’s innovative approach and quality standards also apply to distribution.
The clearest evidence lies in the Epicenter Concept Store Program. These very special
stores, located in New York, Los Angeles and Tokyo, have been designed in collaboration
with world-famous architects such as Rem Koolhaas and Herzog & de Meuron, to reinvent and re-visit the concept of shopping. PRADA Epicenters blend shopping andinteraction with space, creating synergies with new technologies and different cultural
influences. This offers customers a multitude of unique experiences and exclusive
services.
In terms of distribution channels, the Group has developed a strong network of Directly
Operated Stores which is accompanied by franchise stores and a significant presence
in selected high-end multi-brand stores and luxury department stores.
PRADA GroupThe Group - 2011 1ST Half Year Financial Report

17

2011
Advertising campaign
for Prada Parfums

2010
Advertising campaign
for Prada Parfums

18

PRADA GroupThe Group - 2011 1ST Half Year Financial ReportDirectly Operated Stores provide a direct relationship with customers and offer realtime information on the performance of each product category. The retail network isalso an effective platform to showcase the product range and project a strong andconsistent brand image.
The wholesale channel (department and multi-brand stores) guarantees a number ofpoints of sale in prestigious locations in key markets and provides a direct and immediate
comparison with the competition. The sales performance in the wholesale channel is avery useful indicator of consumer tastes and the brand’s relative strength.
75% of PRADA Group’s consolidated sales are generated by the retail channel, while
the remaining 25% comes from wholesale.
Image and communications
Effective communication is the key to building and maintaining a unique and powerfulbrand image. From impeccably executed fashion shows to award-winning advertising
campaigns, PRADA continues to successfully create an appealing and cutting-edge
image that attracts an international customer base.
Strong editorial coverage of Prada and Miu Miu, featured prominently on hundreds ofcovers of the most important fashion magazines worldwide, contributes to the visibilityof both brands’ products.
Cultural and commercial in-store events (such as fashion and trunk shows as well as
the highly-acclaimed “Waist Down” skirt exhibition) help raise the brands’ profile andincrease awareness of the most recent collections in local markets, from Tokyo to New
York, from Hong Kong to London.
Special projects carried out in fields other than Prada’s core business form an importantpart of the Company’s communications strategy, highlighting the many different facetsthat identify the brand.
Prada took part in the America’s Cup in 2000, 2003 and 2007. This experience, which
led also to the development of a sports clothing and accessories line, helped further
spread the image of Prada in the world, associating the brand with one of the oldest
and most prestigious international sports competitions.
Art and culture
Miuccia Prada and Patrizio Bertelli’s interest in contemporary art led them to the decision,in 1993, to create a space to hold exhibitions dedicated to acclaimed international artists.
The Fondazione Prada was born with the purpose of receiving and communicating what
Miuccia Prada calls “the most powerful mental and cultural provocations”.
Organized with the full collaboration of the artists themselves, the exhibitions presented
by the Fondazione Prada in Milan have so far included artists of international fame suchas Anish Kapoor, Mariko Mori, Louise Bourgeois, Laurie Anderson, Walter De Maria,
Marc Quinn, Carsten Hoeller, Steve McQueen, Giulio Paolini, Francesco Vezzoli, Tom
Sachs, Thomas Demand, Tobias Rehberger, Natalie Djurberg and John Wesley.
The flexible nature of the Fondazione Prada has also developed along a number ofdifferent routes, in a variety of fields of cultural research including art, architecture,philosophy, science, design and cinema.

PRADA GroupThe Group - 2011 1ST Half Year Financial Report

19Luna Rossa
Valencia 200720

PRADA GroupThe Group - 2011 1ST Half Year Financial ReportPRADA Group’s Human Resources
Human Resources are considered a fundamental asset for the development of theGroup, which builds its competitive advantage on the skills and commitment of its
employees, promoting and rewarding pro-activity, goal orientation and teamwork.
The Human Resources Department operates in an international environment, cooperatingclosely with the business areas in order to verticalize processes and develop local
competencies and specificities.
Through a structured and transparent selection process which is also based oncooperation with the most prestigious universities and fashion schools, the Group
constantly seeks and attracts the best talents in the international employment market.
The training and development policies implemented were mainly aimed at strengthening
the Retail Stores Area fully in line with the development of this channel.
The Group’s presence in the international market through its four brands offers its
employees the chance to grow both inside their areas of competence as well as on ahorizontal and international level.

PRADA GroupThe Group - 2011 1ST Half Year Financial Report21

PRADA Group structure

22

PRADA GroupThe Group - 2011 1ST Half Year Financial ReportPRADA GroupThe Group - 2011 1ST Half Year Financial Report

23

The Calzaturificio Lamos facility
Montevarchi, (AR)by architect Guido Canali

The I.P.I. Amiata facility
Piancastagnaio (SI),project by Studio Cerri

24

PRADA GroupThe Group - 2011 1ST Half Year Financial ReportCORPORATE INFORMATION
Registered office
Via A. Fogazzaro, 28, 20135 Milan, Italy
Headquarters office
Via A. Fogazzaro, 28, 20135 Milan, Italy
Place of business in Hong Kong registeredunder Part XI of the Hong Kong
Companies Ordinance
36/F, Gloucester Tower, The Landmark
11 Pedder Street, Central, Hong Kong
Company website
www.pradagroup.com
Hong Kong Exchange Stock Code1913
Board of Directors
Miuccia Prada Bianchi (Chairwoman and Executive Director)
Patrizio Bertelli (Chief Executive Officer and Executive Director)
Carlo Mazzi (Deputy Chairman and Executive Director)
Donatello Galli (Chief Financial Officer and Executive Director)
Marco Salomoni (Non-Executive Director)
Gian Franco Oliviero Mattei (Independent Non-Executive Director)
Giancarlo Forestieri (Independent Non-Executive Director)
Davide Mereghetti (Director, resigned on May 9, 2011)
Sing Cheong Liu (Independent Non-Executive Director, appointed on May 9, 2011)
Gaetano Micciché (Non-Executive Director, appointed on May 9, 2011)
Marco Cerrina Feroni (Director, resigned on May 9, 2011)
Audit Committee
Gian Franco Oliviero Mattei
Sing Cheong Liu
Giancarlo Forestieri
Remuneration Committee
Gian Franco Oliviero Mattei
Giancarlo Forestieri
Marco Salomoni
Board of Statutory Auditors
Antonino Parisi (Chairman)
Riccardo Perotta (Standing member)
Gianandrea Toffoloni (Standing member)Supervisory Board (Law 231/2001)
David Terracina (Chairman)
Franco Bertoli
Marco Salomoni

PRADA Group

Corporate Information - 2011 1ST Half Year Financial Report25

Majority Shareholder
PRADA Holding B.V.
Dam 3-71012 JS Amsterdam - The Netherlands
Joint Company Secretaries
Patrizia Albano
Via A. Fogazzaro, 28
20135 Milan, Italy
Ying-Kwai Yuen (Fellow member, HKICS)
Flat A, 20th Floor
Block 4, Sceneway Garden
8 Sceneway Road
Kowloon, Hong Kong
Authorized Representatives
Donatello GalliVia Elba, 1020144 Milan, Italy
Ying-Kwai Yuen (Fellow member, HKICS)
Flat A, 20th Floor
Block 4, Sceneway Garden
8 Sceneway Road
Kowloon, Hong Kong
Alternate Authorized Representative to Donatello Galli
Sing Cheong Liu
House 7 Severn Hill
4 Severn Road
The PeakHong Kong
Hong Kong Share Registrar
Computershare Hong Kong Investor
Services Limited
Shops 1712-1716
17th Floor, Hopewell Centre
183 Queen’s Road East
Wanchai, Hong Kong
Auditor
Deloitte & Touche SpA
Via Tortona 25
20144 Milan, Italy
Compliance Advisor
Anglo Chinese Corporate Finance, Limited
40th Floor, Two Exchange Square
8 Connaught PlaceCentralHong Kong

26

PRADA Group

Corporate Information - 2011 1ST Half Year Financial ReportCORPORATE GOVERNANCE
Corporate Governance Practices
The Company is committed to maintaining a high standard of corporate governancepractices. The corporate governance model adopted by the Company consists of a setof rules and standards with the aim of establishing efficient and transparent operations
within the Group, to protect the rights of the Company’s shareholders and to enhanceshareholder value. The corporate governance model adopted by the Company is incompliance with the applicable regulations in Italy and the Rules Governing the Listingof Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).
The Board is responsible for setting up the overall strategy as well as reviewing theoperation and financial performance of the Company.
The Board has established the following committees:
1.

Audit Committee

2.

Remuneration Committee

3.

Supervisory Body

Audit Committee
The Company has established an audit committee in compliance with Rule 3.21 of the
Listing Rules. The members of the audit committee consist of three independent nonexecutive directors, namely, Mr. Gian Franco Oliviero Mattei (Chairman), Mr. Giancarlo
Forestieri and Mr. Sing Cheong Liu. The primary duties of the audit committee are toreview and supervise the financial reporting process and internal controls of the Company.
On September 19, 2011, the audit committee discussed the auditing and internal controls
activities of the Company and reviewed the audited consolidated interim financial
statements of the Company for the six months ended July 31, 2011.
Remuneration Committee
The Company has established a remuneration committee in compliance with the Codeon Corporate Governance Practices as set out in Appendix 14 to the Listing Rules (the“Code”). According to its terms of reference, the primary duties of the remunerationcommittee are to make recommendations to the Board on the Company’s policy andstructure for all remuneration of directors and senior management, the establishmentof a formal and transparent procedure for developing policy on such remuneration andthe appointment of Directors and management of Board succession. The remunerationcommittee consists of two independent non-executive directors, Mr. Gian Franco Oliviero
Mattei (Chairman) and Mr. Giancarlo Forestieri and one non-executive director, Mr.
Marco Salomoni. On September 19, 2011, the remuneration committee has reviewed
the budget for the attribution of specific benefits to the management of the Company
and its staff.

PRADA Group

Corporate Governance - 2011 1ST Half Year Financial Report27Supervisory Body
In compliance with Italian Legislative Decree 231 of June 8, 2001 (the “Decree”), theCompany has established a supervisory body whose primary duty is to ensure thefunctioning, effectiveness and enforcement of the Company’s Model of Organization,
adopted by the Company pursuant to the Decree. The supervisory body consists ofthree members appointed by the Board selected among qualified and experienced
individuals, including non-executive directors, qualified auditors, executives or external
individuals. The supervisory body consists of Mr. David Terracina (Chairman), Mr. Franco
Bertoli and Mr. Marco Salomoni.
Board of Statutory Auditors
Under Italian law, a joint-stock company is required to have a board of statutory auditors,
appointed by the shareholders, with the authority to supervise the Company on its
compliance with the law and the by-laws, compliance with the principles of proper
management and, in particular, on the adequacy of the organizational, administrative
and accounting structure adopted by the Company and on its functioning. The board of
statutory auditors of the Company consists of Mr. Antonino Parisi (Chairman), Mr.
Riccardo Perotta and Mr. Gianandrea Toffoloni.
Dividends
The Company may distribute dividends subject to the approval of the shareholders inan ordinary shareholders’ meeting.
No dividends have been declared or paid by the Company in respect of the six months
ended July 31, 2011.
Compliance with the Code on Corporate Governance Practices of the Listing Rules
The Board has reviewed the Company’s corporate governance practices and is satisfied
that the Company has complied with the code provisions set out in the Code from thetime of its listing on June 24, 2011 to July 31, 2011.
Directors’ Securities Transactions
The Company has adopted written procedures governing Directors’ securities
transactions in compliance with on terms no less than the standard set out in the Model
Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”)
contained in Appendix 10 of the Listing Rules. Relevant employees who are likely to bein possession of unpublished price-sensitive information of the Group are also subject
to compliance with the written procedures. Specific written confirmation has beenobtained from each Director to confirm compliance with the Model Code from the timeof listing on June 24, 2011 to July 31, 2011. There was no incident of non-complianceduring the period from the Company’s listing on June 24, 2011 to July 31, 2011.
Purchase, Sale, or Redemption of the Company’s Listed Securities
Neither the Company nor any of its subsidiaries has purchased, sold or redeemed anyof the Company’s listed securities during the period from June 24, 2011 to July 31,
2011.
Changes in Information of Directors Pursuant to Listing Rule 13.51B(1)There was no changes in the information of Directors since the listing date on June 24,2011 which are required to be disclosed under Rule 13.51B(1) of the Listing Rules.

28

PRADA Group

Corporate Governance - 2011 1ST Half Year Financial ReportDirectors’ Interests and Short Positions in Securities
As at July 31, 2011, the directors and chief executives of the Company and theirassociates had the following interests in the shares, underlying shares and debenturesof the Company and its associated corporations (within the meaning of Part XV of the
Securities and Futures Ordinance (“SFO”)) as recorded in the register required to be
kept under Section 352 of the SFO or as otherwise notified to the Company and The
Stock Exchange of Hong Kong Limited (the “Stock Exchange”) pursuant to the Model
Code for Securities Transactions by Directors of Listed Issuers (“Model Code”):
Long position in shares and underlying shares of the Company

Name of Director

Number of Shares

Nature of Interest

Approximate
Percentage ofIssued Capital

Ms. Miuccia Prada Bianchi

2,046,470,760(Notes 1 and 2)

Interest of Controlled corporation

80%

Mr. Patrizio Bertelli

2,046,470,760(Notes 1 and 3)

Interest of Controlled corporation

80%

Notes
1.

Prada Holding B.V. owns approximately 80% of the issued capital of the Company and is therefore
the holding company of the Company.

2.

The entire issued share capital of Prada Holding B.V. is held by Gipafin S.à.r.l. (“Gipafin”). Ms.
Miuccia Prada Bianchi, owns, indirectly through Ludo S.A., 53.8% of the capital of Bellatrix S.à.r.l.
(“Bellatrix”), which in turn owns 65% of the capital of Gipafin. Ms. Prada Bianchi is therefore
deemed under the SFO to be interested in all the shares registered in the name of Prada Holding
B.V. Ms. Prada Bianchi is also a director of Ludo S.A.

3.

Mr. Patrizio Bertelli owns, indirectly through companies owned by him (PaBe1 S.A., PaBe2 S.A.,
PaBe3 S.A. and PaBe4 S.A.), 35% of the capital of Gipafin. Mr. Bertelli is therefore deemed under
the SFO to be interested in all the shares registered in the name of Prada Holding B.V.

PRADA Group

Corporate Governance - 2011 1ST Half Year Financial Report

29

The interests of Ms. Miuccia Prada Bianchi and Mr. Patrizio Bertelli in the shares of theCompany as at July 31, 2011 are summarised in the following chart:

30

PRADA Group

Corporate Governance - 2011 1ST Half Year Financial ReportLong positions in shares and underlying shares of associated corporations:

Name of Director
Ms. Miuccia Prada
BianchiMr. Patrizio Bertelli

Name ofassociated corporations

Number ofsharesClass of shares

Prada Holding B.V.

Common Shares

1,001

PRADA Arte B.V.

Registered Shares

Prapar Corporation

Common Shares

EXHL Retail USA L.L.C.

Membership Interest

EXHL Italia S.r.l.

Participation
Quotas (Euro)

EXHL Japan Co. Ltd.
I.P.I. (21) UK Ltd
MFH Munich Fashion
Holding GmbHNature of Interests

Approximate
percentage
of Interests

Interest ofControlled corporation

100%

180

As above100%

50

As above

100%

0

As above100%

15,000As above100%

Ordinary Shares

200

As above100%

Ordinary Shares

750,000

As above

100%

Registered Share1

As above

100%

EXHL Design L.L.C.

Membership Interest0

As above

100%

PAC S.r.l. (in liquidation)

Participation
Quotas (Euro)30,600As above100%

Prada Holding B.V.

Common Shares

1,001

Interest ofControlled corporation

100%

PRADA Arte B.V.

Registered Shares

180

As above100%

Prapar Corporation

Common Shares

50

As above

100%

EXHL Retail USA L.L.C.

Membership Interest0

As above

100%

EXHL Italia S.r.l.

Participation
Quotas (Euro)

15,000As above

100%

EXHL Japan Co. Ltd.

Ordinary Shares

200

As above

100%

I.P.I. (21) UK Ltd

Ordinary Shares

750,000

As above

100%

MFH Munich Fashion
Holding GmbH

Registered Share1

As above

100%

EXHL Design L.L.C.

Membership Interest0

As above

100%

PAC S.r.l. (in liquidation)

Participation
Quotas (Euro)30,600As above

100%

Save as disclosed above, as at July 31, 2011, none of the directors and chief executivesof the Company or their associates had any interest or short position in the shares,
underlying shares and debentures of the Company or any of its associated corporations(within the meaning of Part XV of the SFO) as recorded in the register required to be
kept under Section 352 of the SFO or as otherwise notified to the Company and theStock Exchange pursuant to the Model Code.
Substantial Shareholders’ Interests and Short Positions in Securities
As at July 31, 2011, other than the interests of the directors or chief executives of theCompany as disclosed above, the following persons had interests or short positions inthe shares or underlying shares of the Company which fall to be disclosed to the Company
under Section 336 of the SFO:

Number of Shares

Approximate
percentage ofissued capital

Legal and beneficial owner

2,046,470,76080%Interest of controlled corporation

2,046,470,760

80%Bellatrix S.à.r.l.

Interest of controlled corporation

2,046,470,76080%

Ludo S.A.

Interest of controlled corporation

2,046,470,76080%

Name of Shareholder

Capacity

Prada Holding B.V.
Gipafin S.à.r.l.

Note:
Prada Holding B.V. owns approximately 80% of the issued capital of the Company. As Ludo S.A. owns
53.8% of Bellatrix S.à.r.l. which in turn owns 65% of Gipafin S.à.r.l (Giapfin S.à.r.l. owns the entire
issued capital of Prada Holding B.V.), Gipafin S.à.r.l., Bellatrix S.à.r.l. and Ludo S.A. were all deemed to
be interested in the 2,046,470,760 shares held by Prada Holding B.V.
PRADA Group

Corporate Governance - 2011 1ST Half Year Financial Report

31

DIRECTORS’ REPORTThe report of the Board of Directors refers to the Group of companies controlled by
PRADA spa (the “Company”), holding company of the PRADA Group (the “Group”)
and it is based on the Consolidated Financial Statements of the Group at July 31, 2011,
prepared in accordance with IFRS as adopted by the European Union. The Report must
be read together with the Financial Statements and the Notes to the Financial Statements
which are an integral part of the Consolidated Financial Statements.
Consolidated income statement(amounts in thousands of Euro)%

July 312010
unaudited%

Retail835,37273.6%

626,17866.9%

Wholesale282,03124.9%

294,223

31.4%

Royalties

16,878

1.5%

16,093

1.7%

Net revenues

1,134,281

100.0%

936,494

100.0%

Cost of goods sold

(329,098 )-29.0%(322,674 )-34.5%

Gross margin

805,183

71.0%

613,820

65.5%

Operating expenses(551,805 )-48.6%(441,596 )-47.2%

EBIT

253.378

22,3%

172,224

18.4%

Interest and other financial expenses, net(11,600 )-1.0%(19,613 )-2.1%

Income before taxation

241,77821.3%

152,611

16.3%

Taxation(60,577 )-5.3%(48,688 )-5.2%

Net income from continuing operations

181,201

16.0%

103,923

11.1%

Net income from continuing operations
pertaining to minority interests

1,669

0.1%

880

0.1%

179,532

15.8%

103,043

11.0%

—

—

—

—

Total Group net income

179,532

15.8%

103,043

11.0%

Amortization, Depreciation and Impairment

61,627

5.4%

52,996

5.7%

EBITDA

315,00527.8%

225,22024.0%Group net income from continuing operations
Net loss from discontinued operations

32

July 312011

Basic earnings per share (in Euro per share)

0.071

0.041

Diluted earnings per share (in Euro per share)

0.071

0.041

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial ReportKey financial information
Key income statement information(amounts in thousands of Euro)

July 312010
unaudited

January 31
2011

July 312011% change on
July 2010

Net revenues

936,494

2,046,651

1,134,281

21.1%

Total EBITDA

225,220535,930

315,005

39.9%

Total EBIT

172,224

418,387

253.378

47.1%

Income before tax

152,611388,229

241,77858.4%

Net income of the Group

103,043

250,819

179,532

74.2%

EBITDA %

24.0%

26.2%

27.8%

EBIT %

18.4%

20.4%

22.3%

Key statement of financial position info.
(amounts in thousands of Euro)

July 312010
unaudited

January 31
2011

July 312011

Non-current assets

1,544,090

1,595,990

1,683,787

5.5%

313,027

320,718

354,50710.5%

1,556,935

1,585,559

1,680,572

6.0%

460,123

408,604

135,202-66.9%
28.0%

Net operating working capital
Net invested capital
Net financial position (third party)
Group shareholders’ equity

1,094,115

1,204,350

1,541,134

Investments

94,583

206,860

134,726

Net operating cash flows

142,908

367,712

209,598

7,033

7,199

7,740

Average headcount (persons)% change on
January 2011

2011 first half highlights
In the first half of 2011, the Group’s net revenues totaled Euro 1,134.3 million, recording
an increase of 21.1% compared to the same period of 2010. The driver of this brilliant
performance was again the direct retail network with an outstanding 22% organic growth
and the contribution of the 53 openings since July 31, 2010, that led to a global 33.4%
growth. This performance confirms the effectiveness of the Group strategic focus on
the direct distribution channel.
EBITDA for the six-month period has benefited from the growth in sales and from theimprovement in the production margins. At July 31, 2011, EBITDA totaled Euro 315
million (Euro 225.2 million in the same period of 2010) with an increase of 39.9% thattook it from 24% of Group net revenues in the first half of 2010 to 27.8% in 2011.
Group net income amounted to Euro 179.5 million, an increase of 74.2% compared to
the Euro 103 million posted in the first half of 2010.
On June 24, 2011, the Company’s shares were successfully listed through an IPO on
the Hong Kong Stock Exchange. The new shares issued as part of the IPO process
enabled the Group to raise new funds amounting to Euro 206.6 million at the reporting
date, net of the costs directly attributable to the transaction.
Thus, despite a slight reduction due to exchange fluctuations (Euro 11.7 million) anddividends (Euro 35 million) distributed to Shareholders, Group Shareholders’ equity
strengthened further to stand at Euro 1,541 million at July 31, 2011.
The above-mentioned capital injection and the free cash flows available to the Group
enabled the Group to lower its own net financial position to Euro 135.2 million at July
31, 2011 and to finance the significant capital expenditure incurred during the six-months
period (Euro 134.9 million).

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial Report33

Net revenues analysis
July 312011(amounts in thousands of Euro)

July 312010
unaudited%changeNet sales by geographical area
Italy

213,44419.1%

184,301

20.0%

Europe250,66422.4%

211,794

23.0%

18.4%

North America

171,853

15.4%

147,617

16.1%

16.4%

Asia Pacific

367,995

32.9%

271,703

29.5%

35.4%

Japan

107,193

9.6%

99,107

10.8%

8.2%

6,254

0.6%

5,879

0.6%

6.4%

1,117,403

100%

920,401

100%

21.4%

Other countries
Total

15.8%

Net sales by brandPrada878,38378.6%

724,334

78.7%

21.3%

Miu Miu

198,872

17.8%

159,219

17.3%

24.9%

Church’s

27,003

2.4%

23,440

2.5%

15.2%

Car shoe

9,711

0.9%

9,811

1.1%

-1.0%

Other

3,434

0.3%

3,597

0.4%

-4.5%

Total

1,117,403

100.0%

920,401

100.0%

21.4%

Net sales by product line
Clothing

212,37119.0%

214,006

23.2%

-0.8%

Leather goods

616,58955.2%

455,641

49.5%

35.3%

Footwear

275,04824.6%

242,655

26.4%

13.3%

Other

13,395

1.2%

8,099

0.9%

65.4%

Total

1,117,403

100.0%

920,401

100.0%

21.4%

835,37274.8%

626,178

68.0%

33.4%

Net sales by distribution channel
DOS (including outlet stores)
Independent customers, franchises
and related parties

282,03125.2%

294,223

32.0%

-4.1%

Total

1,117,403

100.0%

920,401

100.0%

21.4%

Net sales

1,117,403

98.5%

920,401

98.3%

21.4%

Royalties

16,878

1.5%

16,0931.7%

4.9%

1,134,281

100.0%

936,494

100.0%

21.1%

Total net revenues

Consolidated net revenues for the period ended July 31, 2011 amounted to Euro 1,134.3
million, posting a remarkable increase of 21.1% compared to the first half of 2010. At
constant exchange rates, the increase would have been equal to 24.1%.
Distribution channels
Retail net sales totaled Euro 835.4 million, up by 33.4% (36.9% at constant exchange
rates), compared to Euro 626.2 million posted in the first half of 2010. The growth was
attributable to the full contribution of the 27 net new store openings in the second halfof 2010, to the contribution of the 26 net new store openings in the first half of 2011
and to the excellent 22% of organic growth. The Group’s commitment to improving its
DOS network was also confirmed by the significant refurbishment and expansion works
that were carried out on 9 more stores.
At the reporting date the Group owned 345 stores and they contributed 74.8% of Groupnet sales (68% in the first half of 2010).
The wholesale business, in keeping with the Group’s distribution strategy, is in linewith the first half of last year and reached Euro 282 million, accounting for 25.2% of theGroup’s net sales.

34

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial ReportMarkets
In the first half of 2011, net sales in Asia Pacific increased by 35.4% (41.1% at constantexchange rates) to Euro 368 million from Euro 271.7 million in the same period of 2010.
This outstanding performance was achieved primarily thanks to 31% organic growth
and the 9 net new store openings since July 31, 2010. Greater China made the greatest
contribution to this performance.
In Europe, the Group’s second largest market, net sales increased by 18.4% (18.7% atconstant exchange rates) to Euro 250.7 million in the first six-months of the 2011 fromEuro 211.8 million in the same period of 2010. This growth, driven by the 18 net new
store openings since July 31, 2010, and by the 18% organic growth of the retail channel,
was partially offset by a drop in sales for the wholesale business (down by 9.4%
compared to the first half of 2010). It is worth mentioninig that, on July 12, 2011, as partof a major DOS expansion in Russia, the Group opened its first independent store in
Moscow.
Net sales on the Italian market increased by 15.8% to Euro 213.4 million in the first halfof 2011 from Euro 184.3 million in the same period of 2010. Sales trends in Italy werefairly similar to those in Europe as a whole and led to an outstanding performance forretail (increase of 48.2% compared to the first half of 2010) and a decline in the wholesale
business (decrease of 8.2% compared to the first half of 2010).
The North American market recorded a 16.4% increase compared to the first half of2010. The growth was achieved thanks to the performances of both the retail and thewholesale channels. DOS sales, driven by an organic growth of 12% and 17 net store
openings since July 31, 2010, increased by 21% compared to the first half of 2010.
Thanks to deliveries to the US department stores and the general recovery of theconsumer market, the wholesale channel performed well with a 9.7% increase comparedto the first half of 2010.
After being hit by the dramatic events of March 2011, the Japanese market remainedsolid for the Group’s brands as net sales increased by 8.2% (6% at constant exchange
rates). There have been 3 net store openings since July 31, 2010 and organic growth
was almost flat.
After distribution network rationalization in the Middle East in 2010, the “Other countries”
area started to grow again: net sales increased by 6.4% to stand at Euro 6.3 million in
the first six months of 2011 compared to Euro 5.9 million in the same period of 2010.
Products
The 21.4% increase in Group net sales was mainly achieved as a result of the outperformance of leather goods which grew by 35.3% in the first six months of 2011
compared to the first half of 2010, increasing their contribution to the Group’s net sales
to 55.2%. The leather goods performance was mainly driven by the strong expansionof the retail channel in Asia Pacific where such products form the core of the productsales mix.

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial Report35

Brands
The Prada brand accounts for 78.6% of Group net sales (78.7% in the same period of
2010) and its sales performance was broadly in line with the comments made above
which apply to the entire Group. It is worth highlighting the worldwide success of thecolourful fruity stripes PRADA Woman 2011 S/S collection, the most used by global
magazine to grace their spring covers.
The Miu Miu brand, with a higher incidence in the retail and leather goods sales, recorded
the highest rate of growth in terms of net sales among the Group’s brands with anincrease of 24.9% (27.7% at constant exchange rates). Apart from Asia Pacific, where
Miu Miu achieved outstanding 36% growth (42.2% at constant exchange rates), theNorth American market also confirmed its appreciation of this brand with a 29.8%
increase in net sales compared to the first half of 2010 (40.8% at constant exchange
rates).
The Church’s brand confirmed its double-figure rate of growth with 15.2% increase
compared to the first half of 2010 (16.4% at constant exchange rates). In Europe, where
58% of the brand sales are concentrated, growth was solid with a 9.7% increase (10.2%
at constant exchange rates).
Despite the positive performance of the retail channel (+30.8%), Car Shoe net sales
remained almost unchanged on a total basis with an overall 1% decrease.
Royalties
The licensed products business contributed net revenues of Euro 16.9 million (Euro16.1 million in the first half of 2010), including royalties of Euro 13.7 million on sales ofeyewear (Euro 13.4 million in 2010), Euro 1.8 million on sales of perfume (Euro 1.8
million in 2010) and Euro 0.6 million from a new license with Hyundai, the Korean
automaker, for the launch of a special limited edition luxury version of their Genesis car.
Overall, royalties income increased by 4.9% compared to the first half of 2010.

36

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial ReportPrada brand revenues
July 312011(amounts in thousands of Euro)

July 312010
unaudited%changeNet sales by geographical area
Italy

164,79718.8%

140,691

19.4%

Europe188,96921.5%

160,218

22.1%

17.9%

North America

146,278

16.6%

127,709

17.7%

14.5%

Asia Pacific298,30734.0%

220,828

30.5%

35.1%

Japan

75,275

8.6%

70,502

9.7%

6.8%

Other countries

4,757

0.5%

4,386

0.6%

8.5%

878,383

100.0%

724,334

100.0%

21.3%

Total

17.1%

Net sales by product line
Clothing

180,41720.5%

186,050

25.7%

-3.0%

Leather goods

487,54655.5%

351,469

48.5%

38.7%

Footwear

198,363

22.6%

179,557

24.8%

10.5%

Other

12,057

1.4%

7,258

1.0%

66.1%

Total

878,383

100.0%

724,334

100.0%

21.3%

DOS (including outlet stores)

659,901

75.1%

490,302

67.7%

34.6%

Independent customers, franchises andrelated parties

218,48224.9%

234,032

32.3%

-6.6%

Total

878,383

100.0%

724,334

100.0%

21.3%

Net sales

878,383

98.1%

724,334

98.0%

21.3%

Royalties

16,582

1.9%

15,120

2.0%

9.7%

Total net revenues

894,965

100.0%

739,454100.0%

21.0%

Net sales by distribution channel

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial Report37Miu Miu brand revenues
July 312011(amounts in thousands of Euro)

July 312010
unaudited%changeNet sales by geographical area
Italy

33,99317.1%

29,26818.4%

Europe41,491

20.9%

33,010

20.7%

25.7%

North America

24,29412.2%

18,720

11.8%

29.8%

Asia Pacific

66,37033.4%

48,791

30.6%

36.0%

Japan

31,502

15.8%

28,343

17.8%

11.1%

Other countries

1,222

0.6%

1,087

0.7%

12.4%

198,872

100.0%

159,219100.0%

24.9%

Total

16.1%

Net sales by product line
Clothing

31,601

15.9%

27,573

17.3%

14.6%

Leather goods

127,103

63.9%

102,303

64.3%

24.2%

Footwear

38,83019.5%

28,504

17.9%

36.2%

Other

1,338

0.7%

839

0.5%

59.5%

Total

198,872

100.0%

159,219100.0%

24.9%

153,18177.0%

116,193

73.0%

31.8%

Net sales by distribution channel
DOS (including outlet stores)
Independent customers, franchises andrelated parties

45,691

23.0%

43,026

27.0%

6.2%

Total

198,872

100.0%

159,219100.0%

24.9%

Net sales

198,872

99.9%

159,219

99.5%

24.9%

Royalties

241

0.1%

845

0.5%

-71.5%

199,113100.0%

160,064100.0%

24.4%

Total net revenues

38

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial ReportChurch’s brand revenues
July 312011(amounts in thousands of Euro)

July 312010
unaudited%changeNet sales by geographical area
Italy

7,369

27.3%

6,247

26.7%

Europe15,66558.0%

14,286

60.9%

9.7%

North America

1,116

4.2%

886

3.8%

26.0%

Asia Pacific

2,322

8.6%

1,591

6.8%

45.9%

413

1.5%

250

1.1%

65.2%

Japan
Other countries

18.0%

118

0.4%

180

0.7%

-34.4%

27,003100.0%

23,440100.0%

15.2%

Clothing

256

0.9%

202

0.9%

26.7%

Leather goods

662

2.5%

650

2.8%

1.8%

26,085

96.6%

22,588

96.3%

15.5%

Total
Net sales by product line

Footwear
Other

—

—

—

—

—

Total

27,003100.0%

23,440100.0%

15.2%

17,31864.1%

15,294

65.2%

13.2%

Net sales by distribution channel
DOS (including outlet stores)
Independent customers, franchises
and related parties

9,685

35.9%

8,146

34.8%

18.9%

Total

27,003100.0%

23,440100.0%

15.2%

Net sales

27,00399.8%

23,440

99.7%

15.2%

Royalties

55

0.2%

72

0.3%

-23.6%

27,058100.0%

23,512100.0%

15.1%

Total net revenues

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial Report39Car Shoe brand revenues
July 312011(amounts in thousands of Euro)

July 312010
unaudited%changeNet sales by geographical area
Italy

6,545

67.4%

7,029

71.6%

Europe

1,890

19.5%

1,844

18.8%

2.5%

North America

145

1.5%

226

2.3%

-35.8%

Asia Pacific

973

10.0%

476

4.9%

104.4%

Japan

—

—

11

0.1%

-100.0%

Other countries
Total

-6.9%

158

1.6%

225

2.3%

-29.8%

9,711

100.0%

9,811

100.0%-1.0%

Net sales by product line
Clothing

—

—

—

—

—

Leather goods

1,250

12.9%

1,176

12.0%

6.3%

Footwear

-2.0%

8,461

87.1%

8,635

88.0%

Other

—

—

—

—

—

Total

9,711

100.0%

9,811

100.0%-1.0%

DOS (including outlet stores)

4,161

42.8%

3,182

32.4%

30.8%

Independent customers, franchises
and related parties

5,550

57.2%

6,629

67.6%

-16.3%

Total

9,711

100.0%

9,811

100.0%-1.0%

Net sales

9,711

100.0%

9,811

100.0%-1.0%

Royalties

—

—

—

—

—

9,711

100.0%

9,811

100.0%-1.0%

Net sales by distribution channel

Total net revenues

40

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial ReportNumber of stores
July 31, 2011DOS
franchises

January 31, 2011DOS
franchises

July 31, 2010
DOS
franchises

Prada

218

24

207

27

188

Miu Miu

82

6

71

6

64

6

Church’s

40

—

36

—

36

—

Car Shoe

5

—

5

—

4

—

345

30

319

33

292

35

Total

Jul 31, 2011DOS
franchises

Jan 31, 2011DOS
franchises29

Jul 31, 2010
DOS
franchises

Italy

42

5

37

5

36

5

Europe

97

12

88

13

79

13

North America

40

—

34

—

23

—

Far East

108

13

104

13

99

15

Japan

58

—

56

—

55

—

Middle East

—

—

—

2

—

2

Total

345

30

319

33

292

35

A list of stores opened and closed during the period is provided below.
Prada

DOS

OpenedLeccio (Italy)
Marcianise (Italy)
Forte dei Marmi Men (Italy)
Corte Ingles, Madrid (Spain)
Berlin (Germany)
Umeda Diamaru, Osaka (Japan)
Shinsagae Centum, Incheon (South Korea)
Hyundai, Ulsan (South Korea)
Galleria, Daejeon (South Korea)
Wuqing (China)
Fortune, Wenzhou (China)
Charter, Harbin (China)
Westfield, Sydney (Australia)

Miu Miu

DOS

OpenedCapri (Italy)
Corte Ingles, Madrid (Spain)
Heathrow Ready-to-Wear, London (United Kingdom)
Heathrow Bags&Accessories, London (United Kingdom)
Stoleshnikov, Moscow (Russia)
Short Hills (United States)
Umeda Diamaru, Osaka (Japan)
Nagoya (Japan)
Apku Hyundai Main, Seoul (South Korea)
Gyeonggi Shinsagae, Youngin (South Korea)
Sogo (Hong Kong)
Westfield, Sydney (Australia)

Church’s

DOS

OpenedMarcianise (Italy)
Printemps, Paris (France)
Printemps Parly, Paris (France)
New Bond St. Women, London (United Kingdom)

Prada

DOS

ClosedRenhe, Chengdu (China)
Martin Place, Sydney (Australia)

Miu MiuDOS

ClosedMitsukoshi, Nagoya (Japan)

PRADA Group

Directors’ Report - 2011 1 Half Year Financial Report
ST

41

Operating results
EBITDA for the period ended July 31, 2011 amounted to Euro 315 million, 39.9% morethan in the first half of 2010, while rising from 24% to 27.8% of net revenues. The
significant improvement in operating profitability has been achieved mainly as a resultof the actions taken to improve gross margin as a percentage of net revenues and it
rose from 65.5% in the first half of 2010 to 71% in the first half of 2011. The higher
incidence of retail channel sales, the increase in unit margins and the more favorable
ratio of full price sales to sales at promotional prices were the key factors behind thisimprovement.
Operating expenses increased mainly because of the DOS network expansion and thehigher spending on advertising and promotion. The expenses incurred in the first six
months of 2011 were approximately 25% higher than in the first half of 2010. Theyrose from 47.2% of net revenues to 48.6%.
Despite the major capital expenditure program undertaken since the year 2009, theEBIT still increased in absolute terms to reach Euro 253.4 million for the first half of2011; it also increased from 18.4% of net revenues in the first half of 2010 to 22.3% in
the first half of 2011. No significant impairment of assets incurred in either the first halfof 2010 or the first half of 2011.
The tax charge decreased from 31.9% in the first half of 2010 to 25.1%, essentiallybecause of changes in the geographical mix of taxable income, as a result of the different
geographical mix of sales in favour of areas with slightly more favorable tax rates andbecause of provisions made in the first half of 2010 for ongoing tax disputes.
The Group’s net income was Euro 179.5 million, or 15.8% of net revenues, a 74.2%
increase compared to net income of Euro 103 million reported in the first half of 2010.

42

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial ReportAnalysis of the statement of financial position
Net invested capital
The following table contains the statement of financial position, adjusted in order toprovide a better picture of the composition of net invested capital.

(amounts in thousands of Euro)

July 312010
unaudited

January 31
2011

July 312011

Non current assets

1,544,090

1,595,990

1,683,787

Current assets excluding financial assets

622,295

634,462

776,122

Current liabilities excluding financial liabilities

461,183

459,047

576,682

Net working capital

161,112

175,415

199,440

Assets held for sale

1,412

4,948

—

Long-term liabilities, including deferred taxation

96,911

103,236

113,115

Post employment benefits

37,586

34,83335,108Provisions for risks

15,182

52,72554,432

Net invested capital

1,556,935

1,585,559

1,680,572

Shareholders’ equity - Group

1,094,115

1,204,350

1,541,134

4,325

5,788

5,073

1,098,440

1,210,138

1,546,207

Long term financial payables

322,025305,917

223,012

Short term financial payables, net of cash and cash equivalents

136,470

69,504(88,647 )Net financial payables

458,495

375,421

134,365

1,556,935

1,585,559

1,680,572

Shareholders’ equity - Non Controlling Interests
Total consolidated shareholders’ equity

Shareholders’ equity and net financial payables

The increase in the Net invested capital at July 31, 2011 was substantially due to thecapital expenditure incurred during the first half of 2011.
The Group Shareholders equity increased mainly because of the capital injection resulting
from the IPO (Euro 206.4 million) and the Net income for the six month period (Euro179.5 million), as partially offset by dividends distributed (Euro 35 million) and the negative
impact of exchange rate fluctuation on net assets not denominated in Euro (Euro 11.7
million).
Analysis of non current assets(amounts in thousands of Euro)

July 312010
unaudited

January 31
2011

July 312011

Property, plant and equipment

486,590536,717606,971

Intangible assets

881,685

869,119

867,196

Investments in associated undertakings

10,061

1,753

1,753

Deferred tax assets

129,142

141,378

158,079

Other non current assets

35,77344,88349,241

839

2,140

547

1,544,090

1,595,990

1,683,787

0.51

0.50

0.49

Derivative financial instruments-non-current
Total non current assets
Percentage of tangible assets already depreciatedTaken together, “Property, plant and equipment” and “Intangible assets” showed a
net increase of Euro 68.3 million. Investments incurred during the period amounted toEuro 134.7 million and were distributed as follows: Euro 72.9 million in the retail area,
Euro 45.4 million in the industrial and logistics area and Euro 16.4 million in the corporate
area. Depreciation charges for the period totaled Euro 59.8 million and writedowns
amounted to Euro 1.8 million.

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial Report43Deferred tax assets of Euro 158.1 million largely relate to deductible temporary
differences regarding the realizable value of inventories and the residual useful life oftangible and intangible assets.
Analysis of net operating working capital
July 312010
unaudited

January 31
2011

July 312011

Trade receivables

275,718

274,175

291,657

Inventories

262,017

280,409366,813

Trade payables(224,708)(233,866 )(303,963 )Net operating working capital

313,027

320,718

354,507(amounts in thousands of Euro)

The increase in “Net operating working capital” compared to January 31, 2011 wasdue to the higher volumes of production and distribution, in line with the expansion insales activities.
Analysis of Net Financial Position
The following table summarizes the items included in net financial indebtedness.
July 312010
unaudited

January 31
2011

July 312011

316,696

303,408

221,457

5,329

2,509

1,555

Long term financial payables

322,025305,917

223,012

Short term financial payables and bank overdrafts

273,736

194,240

161,952

Payables to parent company and related parties

2,844

281

—

Receivables from parent company and related parties(5,064)(34,044 )(1,410 )Obligations under finance leases

5,157

5,019

3,847

Payables to other shareholders

592

581

574

Cash and cash equivalents(140,795)(96,572 )(253,610 )Short term financial payables

136,470

69,504(88,647 )Net Financial Position, net of cash and cash equivalents

458,495

375,421

134,365

Net Financial Position, excluding receivables/payables with parent
company, related parties and other shareholders (NFP used to
calculate covenants - note 27 Consolidated financial statements)

135,202(amounts in thousands of Euro)Long term debt
Obligations under finance leases

460,123

408,604

NFP/EBITDA ratio

1.13

0.76

0.22

EBITDA/ net financial charges ratio

10.93

17.77

27.16

At July 31, 2011, the Group’s Net Financial Position amounted to Euro 135.2 million,
with a Euro 273.4 million reduction compared to January 31, 2011.
As shown in the Statement of Cash Flows included in the Consolidated Financial
Statements, the capital injection resulting from the IPO (Euro 206.6 million) and the
cash flows generated by operating activities (Euro 209.6 million) enabled the Group to
fund its capital expenditure for the period (Euro 134.9 million), to pay dividends (Euro
6.4 million), to reduce its bank borrowings by Euro 100.7 million and to increase its cash
and cash equivalent by Euro 174.2 million at July 31, 2011.
Dividends distributed to Shareholders totaling Euro 35 million were settled as follows:
Euro 32.5 million offset against receivables from parent Company PRADA Holding bv
and Euro 2.5 million paid in cash.
44

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial ReportRisk factors
Risk factors regarding the international luxury industry
Risks connected to the general state of the economy and the Group’s international
operations
The international environment exposes Prada operations to several macroeconomic
factors whose impact on consumer spending and confidence and on the volume of
tourist traffic may affect the results of the Group operations in terms of income
statements, equity and cash flows.
Prada strategy, focusing on international growth in the retail channel, has already provenits worth as a means of combating the effects of a worldwide downturn as it has led
the Group to highly satisfactory results as soon as the market started to recover. This
was the case in 2010 after the 2008-2009 global financial downturn.
Risks connected to the protection of intellectual property rights
Trademarks and other intellectual property rights are extremely important in the luxury
industry.
The success of Prada depends on its ability to protect and promote its own trademarks
and other intellectual property rights. For this purpose, the Group invests huge resourcesin the establishment and protection of its own trademarks and other intellectual property
rights, such as registered designs and patents on a worldwide basis, in order to taketough measures against counterfeiters of trademarks and designs.
Risks connected to brand image and recognition
The success of the Group in the international luxury market depends on the integrity,
image and recognition of its brands. These features depend on many factors such as
the style and design of products, the quality of materials and production techniques
used, the image and location of the Group’s directly operated stores, the careful selectionof licensees for certain product categories and communications activities including
advertising, public relations, marketing and the general corporate profile.
The preservation of the image and prestige acquired by the Group’s brands andtrademarks in the fashion and luxury goods industry is an objective that the PRADA
Group pursues by closely monitoring each step of the process, both inside and outside
the Group, in order to guarantee uncompromised quality. It also engages in a constantsearch for innovation in terms of style, product and communications in order to ensurethat its message is always consistent with the strong identity of the brands.
Risks connected to ability to anticipate trends and respond to changing
consumer preferences
The success of the Group depends in part on the ability to originate and define productand fashion trends, as well as to anticipate and respond to changing consumer
preferences and fashion trends in a timely manner.
The Group attempts to lead the fashion market by stimulating the consumer markets
and inspiring trends through the creative efforts of its design and product development
teams.

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial Report45

Risks factors specific to the Group
Risks connected to exchange rate fluctuations
The exchange rate risk to which the Group is exposed depends on foreign currency
fluctuations against the Euro.
In order to hedge this risk, which is mainly concentrated in the parent company PRADA
spa as worldwide distributor, the Group enters into option and forward sale and purchaseagreements so as to guarantee the counter value in Euro of identified financial andcommercial cash flows. Exchange rate risk management is described in more detail inthe “Notes to the Consolidated Financial Statements, note 12”.
Risks connected to interest rate fluctuations
The interest rate risk is the risk that cash outflows might vary as a result of interest rate
fluctuation.
In order to hedge this risk, which is mainly concentrated in the parent company PRADA
spa, the Group uses interest rate swaps and collars. These instruments convert variable
rate loans into fixed rate loans or loans at rates within a negotiated range of rates.
Interest rate risk management is described in more detail in “Notes to the Consolidated
Financial Statements, note 12”.
Risks connected to the importance of key personnel
The Group’s results depend both on the contribution of certain key figures who played
an essential role in the development of the Group and who have great experience andexpertise in the fashion and luxury goods business and on Prada’s ability to attract andretain the industry’s most talented designers and business leaders.
The Group believes it has a management structure capable of guaranteeing the ongoing
success of the business.
Risks connected to the implementation of strategy
The Group’s ability to increase revenues and improve profitability depends on the
successful implementation of its strategy for each brand. As already stated, this strategy
is based on the international development of the retail channel.
The Group is pursuing its objectives through gradual expansion in new geographicalareas, where its presence is not yet strong enough. When choosing where to open a
new DOS, the Group carefully evaluates market conditions and consumer trends in thearea to try to ensure the success of the DOS. Moreover, especially when entering a
new market, the Group spends significant amounts of time and effort to ensure managers
and sales staff properly portray an image consistent with the Group’s brands and provide
customer service in-line with the quality of the products. The utmost attention is also
paid to design and fitting out of the stores themselves.

46

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial ReportRisks connected to the out sourcing of manufacturing activities
The Group develops, controls and produces in-house the majority of its prototypes andsamples and out sources to external manufacturers with appropriate expertise andcapacity the production of most of the accessories and products.
The Group has established a rigorous inspection and quality control process for all out
sourced production and contractually requires all third-party manufacturers to comply
with intellectual property protections and confidentiality restrictions in addition to allapplicable labor, social security and health and safety laws and regulations.
Credit risk
Credit risk is defined as the risk that a counterparty in a transaction causes a financial
loss for another entity through failure to fulfill its obligations. The maximum risk towhich an entity is potentially exposed is represented by all financial assets recorded in
the financial statements. The Directors essentially believe that the Group’s credit risk
mainly regards trade receivables generated in the wholesale channel.
The Group manages the credit risk and reduces its negative effects through its
commercial and financial strategy. Credit risk management is performed by controllingand monitoring the reliability and solvency of customers and is carried out by the Group’s
Commercial Department. At the same time, the fact that the total receivables balance
is not highly concentrated on individual customers, the fact that net sales are evenly
spread around the world and the constant strategy of selectively reducing accounts forseveral reasons, including the prevention of sub-standard distribution and parallel export,
lead to a reduced risk of financial losses.
Liquidity risk
The liquidity risk relates to the difficulty the Group may have in fulfilling its obligations
with regard to financial liabilities. The Directors are responsible for managing the liquidity
risk while the Group Treasury and Corporate Finance Department, reporting to the C.F.O,
is responsible for managing financial resources as well as possible.
The Directors believe that the funds and lines of credit currently available, in addition to
those that will be generated by operating and financing activities, will allow the Groupto meet its needs resulting from investing activities, working capital management andrepayment of loans as they fall due. This can be achieved without using all available
funds and surplus resources can thus be used to pay dividends.

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial Report47Legal and regulatory risks
The PRADA Group operates in a complex regulatory environment and is exposed tolegal risks and risks regarding compliance with applicable laws, including:— the risks associated with health and safety at work in compliance with Italian
Legislative Decree 81/08 and equivalent regulations in other countries;— the possible legal sanctions for wrongful acts pursuant to Law 231/2001, as
subsequently amended;— the risks associated with antitrust rules in the areas where the Group operates;— the possibility of events that adversely affect the reliability of annual financial
reporting and the safeguarding of Group assets;— changes in international tax laws and practices applicable in various countries;— possible industrial compliance risks regarding the conformity of the finished goods
distributed and the raw materials and consumables used with Italian and internationallaws and regulations.
The Group involves the various divisions of the business to monitor legislative andregulatory change, deploying the services of external specialist advisors as necessary,in order to ensure that its processes and procedures are updated and risks kept down
to an acceptable level. These monitoring activities are guaranteed by Divisional Managers
and by normal audit activities as well as by specific bodies and committees such as theSupervisory Board, the Internal Control Committee and the Industrial Compliance
Committee.
Risks connected with data processing
Data is processed using information systems subject to a governance model that ensuresthat:— data is adequately protected against the risk of unauthorized access, loss (including
accidental loss) and utilization inconsistent with assigned duties;— data is processed in accordance with applicable laws and regulations.
Information on relationships and transactions with related parties
Information on the Group’s relationships and transactions with related parties is provided
in the “Notes to the Consolidated Financial Statements, note 39”.
Outlook for the second half of 2011
In the second half of 2011, the Group will continue to pursue growth, leveraging on its
creative and innovation capabilities and investing in the expansion of the DOS networkand on the promotion of its brands.
In the current climate of increasing global economic uncertainty, these actions will be
carried out maintaining rigorous control on costs and preserving flexibility.

Chief Executive Officer
Patrizio Bertelli
Milan, September 19, 201148

PRADA Group

Directors’ Report - 2011 1ST Half Year Financial ReportConsolidated Financial Statements

PRADA Group

Consolidated Financial Statements - 2011 1ST Half Year Financial Report49Consolidated Statement of Financial Position

Note

July 312011

Cash and cash equivalents

9

253,610

96,572

Trade receivables, net

10291,657

274,175

Inventories

11

366,813

280,409

Derivative financial instruments - current

12

7,321

7,379

Receivables from parent company and related parties

13

13,09236,317

Other current assets

14

98,64870,225

Assets held for sale

15

–

4,948

1,031,141

770,025(amounts in thousands of Euro)

January 31
2011

AssetsCurrent assets

Total current assets
Non current assets
Property, plant and equipment

16606,971536,717

Intangible assets

17

867,196

869,119

Associated undertakings

18

1,753

1,753

Deferred tax assets

37

158,079

141,378

Other non current assets

19

49,24144,883

Derivative financial instruments - non current

547

2,140

Total non current assets

1,683,787

1,595,990

Total Assets

2,714,928

2,366,015

Liabilities and Shareholders’ equity
Current liabilities
Bank overdrafts and short-term loans

20

161,952

194,240

Payables to parent company and related parties

21

618

1,107

Other shareholders’ loans

22

574

581

Trade payables

23

303,963

233,866

Current tax liabilities

24

150,555

107,592

Derivative financial instruments - current

12

3,564

5,279

Obligations under finance leases - current

25

3,847

5,019

Other current liabilities

26

117,981

111,482743,054659,166
303,408

Total current liabilities
Non-current liabilities
Long-term debt

27

221,457

Obligations under finance leases - non current

25

1,555

2,509

Long term employee benefits

28

35,10834,833

Provisions for risks and charges

29

54,432

52,725

Deferred tax liabilities

37

48,451

52,711Other non-current liabilities

30

64,11050,207

Derivative financial instruments - non current

12

554

318

425,667

496,7111,168,721

1,155,877

Share capital

255,882

250,000

Other reserves

1,157,447

743,543

Total non current liabilities
Total Liabilities
Shareholders’ equity

Translation reserve(51,727 )(40,012 )Net profit for the period

179,532

250,819

Total Shareholders’ Equity - Group

31

1,541,134

1,204,350

Shareholders’ Equity - Non Controlling Interests

32

5,073

5,788

2,714,928

2,366,015

Total Liabilities and Shareholders’ Equity
Net current assets
Total assets less current liabilities

50

PRADA Group

288,087

110,859

1,971,874

1,706,849

Consolidated Financial Statements - 2011 1ST Half Year Financial ReportConsolidated income statement(amounts in thousands of Euro)

Note

July 312011%

Net revenues

33

1,134,281

Cost of goods sold

34

(329,098 )Gross margin
Operating expenses

35

EBIT
Interest and other financial income/(expenses), net

36

Income before taxes
Taxation

37

Net income for the year from continuing operations
Non Controlling Interests net income fromcontinuing operations
Group net income from continuing operations
Net income for the year from discontinued
operations
Group net income of the period (continuing +discontinued)

32

July 312010
unaudited%

100.0%

936,494

100.0%-29.0%(322,674 )-34.5%

805,183

71.0%

613,82065.5%(551,805 )-48.6%(441,596 )-47.2%

253,37822.3%

172.224

18,4%(11,600 )-1.0%(19,613 )-2.1%

241,77821.3%

152,611

16.3%(60,577 )-5.3%(48,688 )-5.2%

181,201

16.0%

103,923

11.1%

1,669

0.1%

880

0.1%

179,532

15.8%

103,043

11.0%

–

–

–

–

179,532

15.8%

103,043

11.0%

Basic earnings per share (in Euro per share)

0.071

0.041

Diluted earnings per share (in Euro per share)

0.071

0.041

PRADA Group

Consolidated Financial Statements - 2011 1ST Half Year Financial Report51Consolidated Statement of Cash Flows(amounts in thousands of Euro)

July 31
2011

July 312010
unaudited

Income before taxation from continuing operations

241,778

152,611

Total income before taxation

241,778

152,611

Depreciation and amortization from continuing operations

59,83552,320

Impairment of property, plant and equipment and intangible assets

1,795

676

Financial (income) expenses

8,323

15,127

Other non monetary charges

12,996

10,699

Income Statement adjustments

Changes in the statements of financial position
Other non current assets and liabilities(6,122 )(6,101 )Trade receivables, net(18,475 )(48,117 )Inventories, net(87,506 )(25,468 )Trade payables

66,11627,149Other current assets and liabilities(22,450 )(5,701 )Cash flows from operating activities

256,290

173,195

Interest paid, net(9,132 )(13,499 )Taxes paid

(37,560 )(16,788 )Net cash flows from operating activities

209,598

142,908

Purchases of assets(138,480 )(82,934 )Proceeds from the sale of assets

1,800

–

Proceeds from the disposal of investments
Acquisition of consolidated investments from third parties

1,800
–

–
(4,000 )(134,880 )(86,934 )Dividends paid to shareholders of PRADA spa(2,482 )(27,852 )Dividends paid to minority shareholders(3,886 )(290 )

Repayment of long term borrowings - third parties(14,294 )–Repayment of current term portion of long term borrowings - third parties(58,737 )(160,372 )Cash flows generated/(utilized) by investing activities

Repayment of loans to other shareholders

(50 )

–

3,354

260,000

Change in short term borrowings – third parties(32,171 )(113,678 )Capital injection from Non Controlling Interests

1,383

–

Proceeds from long term borrowings – third parties

Issue of new shares

206,560–

Net change in short term borrowings – related parties(159 )(850 )Cash flows generated/(utilized) by financing activities

99,518(43,042 )Change in cash and cash equivalents, net of bank overdrafts

174,236

12,932Foreign exchange differences(1,163 )7,112Opening cash and cash equivalents, net of bank overdraft

79,49869,195

Closing cash and cash equivalents, net of bank overdraft

252,571

89,239Cash and cash equivalents

253,610140,795(1,039 )(51,556 )

252,571

89,239Bank overdraft
Closing cash and cash equivalents, net of bank overdraft

52

PRADA Group

Consolidated Financial Statements - 2011 1ST Half Year Financial ReportStatement of changes in Consolidated Shareholders’ Equity(amounts in thousands of Euro, except for number of shares)(amounts in thousands of Euro)

Number ofsharesShare
CapitalSharepremium Translation
reserve
reserve

Other
reserves

Cash
Flow
Hedge

Actuarial
Reserve

Net profit

Group
EquityBalance at January 31, 2010

250,000,000

250,000

209,298(45,671 )541,436(2,893 )(4,430 )100,163

1,047,903

Allocation of 2009 Net profit

–

–

–

–

100,163––(100,163 )–Other movements

–

–

–

–

(4 )

–

–

–

(4 )

Dividends

–

–

–

–

(111,000 )

–

–

–

(111,000 )Transactions with Non–
Controlling Interests

–

–

–

–

1,134

–

–

–

1,134

Comprehensive Net income
for the period

–

–

–

5,659

–

6,357

3,482

250,819

266,317

Balance at January 31, 2011

250,000,000

250,000

209,298(40,012 )531,7293,464(948 )

250,819

1,204,350

Allocation of 2010 Net profit

–

–

–

–

250,819––(250,819 )–Conversion of the shares parvalue from Eur 1.0 to Eur 0.1

2,500,000,000

–

–

–

–

–

–

–

–

58,824,000

5,882

200,506

–

–

–

–

–

206,389

Dividends

–

–

–

–

(35,000 )–––(35,000 )Comprehensive Net income
for the period

–

–

–

(11,716 )–(1,955 )(466 )

179,532

165,395

2,558,824,000

255,882409,804(51,727 )747,548

1,509(1,414 )Issue of new shares

Balance at July 31, 2011

179,532 1,541,134

Under Italian law, the Company has to allocate a portion of its annual net profits to a
non-distributable reserve and provide further information on the distribution of profits.
Details are set out in the “Notes to the Consolidated Financial Statements”, Note 31.
Certain subsidiaries were also required to allocate a portion of their annual net profits tothe legal reserve. Moreover, a certain portion of their profits is required to cover the
deficit in certain reserves in accordance with applicable laws and this amount is notavailable for distribution.

PRADA Group

Consolidated Financial Statements - 2011 1ST Half Year Financial Report53

Statement of consolidated comprehensive income(amounts in thousands of Euro)

July 31
2011

July 312010
unaudited

Consolidated Net income for the period

181,201

103,923

Cumulative Translation adjustment(11,587 )25,060Tax impact––

Cumulative Translation adjustment, net of tax impact(11,587 )25,060Change in Cash Flow Hedge Reserve(2,597 )(2,619 )Tax impact

642

716

(1,955 )(1,903 )Change in Actuarial Reserve(606 )(1,297 )Tax impact

130

287

Change in Actuarial Reserve, net of tax impact(476 )(1,010 )167,183

126,070129992

167,054

125,078

Change in Cash Flow Hedge Reserve, net of tax impact

Comprehensive Consolidated Net income for the period
Comprehensive Non-Controlling Interests Net income for the period
Comprehensive Group Net income for the period

The accounting policies and the following notes constitute an integral part of theConsolidated Financial Statements.

54

PRADA Group

Consolidated Financial Statements - 2011 1ST Half Year Financial Report

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.

General information
PRADA spa (the “Company”), together with its subsidiaries (jointly the “Group”),
is a world leader in the design, production and distribution of luxury handbags,
leather goods, footwear, apparel, accessories, eyewear and fragrances. Throughits directly-operated-stores network (DOS) and a select number of wholesalers,
the Group operates on all major international markets.
The Company is a joint-stock company, incorporated and domiciled in Italy. Its
registered office is in via Fogazzaro 28, Milan, Italy.
At the reporting date, 79.98% of the share capital was owned by PRADA Holding
bv, a company domiciled in The Netherlands, 1% was owned by IntesaSanPaolo
spa, a major banking group domiciled in Italy and the remaining 19.02% was floatingon the Main Board of the Stock Exchange of Hong Kong Limited.
The ultimate shareholders of PRADA Holding bv are Mr. Patrizio Bertelli and thePrada family.
In terms of Art. 2497 bis et seq. of the Italian Civil Code, the Company is not
subject to the management and control of any company or entity.
These Consolidated Financial Statements have been approved by the Board of
Directors for issue on September 19, 2011.

2.

Basis of preparation
The Consolidated Financial Statements of the PRADA Group as of July 31, 2011,
including the “Consolidated Statement of Financial Position”, the “Consolidated
Income Statement”, the “Consolidated Comprehensive Income Statement”, the“Consolidated Statement of cash flows“, the “Statement of changes in consolidated
shareholders’ equity” and the “Notes to the Consolidated Financial Statements”
have been prepared in accordance with the International Financial ReportingStandards (“IFRS”) issued by the International Accounting Standards Board (“IASB”)
as adopted by the European Union.
The IFRS adopted by the European Union and applicable to the PRADA Group are
similar to those issued by the IASB.
IFRS also refer to all the International Accounting Standards (“IAS”) and all theinterpretations of the International Financial Reporting Interpretation Committee(“IFRIC”), previously named the Standing Interpretations Committee (“SIC”).
The Group has prepared the Consolidated Statement of Financial Position classifying
separately current and non current assets and liabilities. All the details needed formore complete information are provided in the Notes to the Consolidated Financial
Statements.
The Consolidated Income Statement is presented by destination.
Cash flow information is reported in the Consolidated Statement of Cash Flows
which forms an integral part of the Consolidated Financial Statements and has
been prepared under the indirect method.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report

55

2.

Basis of preparation (continued)
Every item in the Consolidated Statement of Financial Position, Consolidated Income
Statement, Consolidated Statement of Cash Flows and Statement of Changes inConsolidated Shareholder’s Equity is detailed in the Notes to the Consolidated
Financial Statements.
The Consolidated Financial Statements have been prepared on a going concern
basis and are presented in Euro, the functional currency of PRADA spa.

3.

Amendments to Accounting Standards
Amendments to IFRS/IAS applicable from February 1, 2011
The following amendments to IFRS and their interpretation documents (SIC andIFRIC) have been adopted by the European Union effective from February 1, 2011.
They are not applicable to the PRADA Group as of the reporting date but they could
have future accounting effects.
— Improvements to IAS/IFRS (2010)— Amendment to IFRIC 14 Prepayments of a Minimum Funding Requirement— IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments— New version of the IAS 24 Related Party Disclosures
New standards issued and amendments and interpretations published by
the IASB not yet applicable and not early adopted— IFRS 9 Financial Instruments. This standard, effective from January 1, 2013,
constitutes the first part of the gradual process leading to the full replacementof IAS 39. It introduces new criteria for the classification and measurement offinancial assets and liabilities and the derecognition of financial assets.
— IFRS 7 Financial Instruments: Disclosures. The amendments to this standard,
effective from July 1, 2011, will improve the information to be provided interms of derecognition of financial assets.
— IFRS 1 First-time Adoption of International Financial Reporting Standards. The
amendments to this standard are effective from July 1, 2011.
— IFRS 10 Consolidated Financial Statements. This standard will be based on
existing guidelines providing further guidance about the definition and thedetermination of control. It will be effective from January 1, 2013.
— IFRS 11 Joint Arrangements. This standard, providing guidelines on the rights
for identifying joint arrangements, will replace IAS 31 Interests in Joint Ventures
and SIC 13 Jointly controlled Entities. It will be effective from January 1, 2013.
— IFRS 12 Disclosure of Interests in Other Entities. This standard, focusing on
disclosures to be provided for all forms of interests in entities, will be effectivefrom January 1, 2013.

56

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report3.

Amendments to Accounting Standards (continued)
New standards issued and amendments and interpretations published by
the IASB not yet applicable and not early adopted (continued)— IFRS 13 Fair Value Measurement. This standard, providing clarification andguidelines on the determination of the fair value, will be effective from January
1, 2013.
— IAS 1 Presentation of Financial Statements. The amendments to this standard,
focusing on the presentation of the Other Comprehensive Income and Loss,
will be effective from July 1, 2012.
— IAS 19 Employee Benefits. The amendments to this standard will exclude the“corridor method” and will request additional disclosures. They will be effectivefrom January 1, 2013.
— IAS 12 Income taxes. The amendments to this standard will regulate thedeferred tax asset measurement in relation to the recovery of the underlying
asset. They will be effective from January 1, 2012.
At July 31, 2011 the European Union had not yet completed its endorsement process
in relation to the above mentioned new standards, amendments and interpretations.

4.

Consolidation area
The consolidated financial information comprises the accounts of PRADA spa andthe Italian and foreign companies over which the Company directly or indirectly
exercises control, determining their financial and operating decisions and obtaining
benefits from their activities.
The companies in which the Group has more than 50% of the voting rights or thatare controlled by the Group in some other way are consolidated on a line by line
basis as from the date the Group acquired control and are no longer consolidated
from the date control ceases.
Joint ventures and associated companies are consolidated using the equity method.
Associated companies are those in which the Group has a significant influence but
does not exercise effective control.
Influence is considered significant when the Group owns between 20% to 50% of
the company’s share capital or when significant influence can be exercised throughexisting agreements.
Investments in other companies are those in which the Group holds less than 20%of the share capital. They are valued at cost.
A list of the companies included in the consolidated financial statements is provided
in Note 41 “Consolidated companies”.

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Basis of consolidation
The main consolidation criteria applied when preparing the consolidated financial
statements for the years ended January 31, 2011 and January 31, 2010 inaccordance with IFRS, are as follows:— the financial statements of PRADA spa are prepared under IFRS and those of
its subsidiaries are adjusted, as necessary, to comply with IFRS accounting
standards and with the standards applied throughout the Group. The financial
statements used to prepare the consolidated financial information are those
closed at the reporting date;— assets and liabilities, costs and revenues of companies consolidated on a lineby-line basis are fully included in the consolidated financial statements
irrespective of the percentage held. The book value of equity investments,
directly or indirectly owned by the holding company, is eliminated against thecorresponding portion of shareholders’ equity of the companies in which theinterest is held;— for companies consolidated on a line by line basis that are not 100% owned by
the Group, the share of net equity and results for the year of minority interests
are disclosed as “Minority interests” in the consolidated statement of financial
position and consolidated income statement. When the net equity pertaining
to minority interests is negative, it is shown under other receivables where
the minority shareholder has made a binding agreement to cover the losses;— the difference between the acquisition cost of investments in subsidiaries
acquired after the date of first-time application of IFRS (January 1, 2004) andthe corresponding share of shareholders’ equity at the date of acquisition isallocated, if positive, to assets, liabilities and contingent liabilities based on
their fair value at the date of acquisition. Any residual positive amount isaccounted for as goodwill while any negative amount is charged to the income
statement immediately. The positive difference between the acquisition costof an additional stake in a controlled company and the value of the interest
acquired is directly recognized in equity;— at the date of the first time application, goodwill was stated at deemed costless any impairment losses. Deemed cost is calculated based on the difference
between the amount paid for the investment and the relevant net equity.
Goodwill arising from various acquisitions is not amortized but tested annuallyfor impairment. Any impairment in the value of goodwill is charged to theincome statement;— profits and losses, assets and liabilities of joint ventures and associatedundertakings are accounted for using the equity method. According to thismethod, investments in joint ventures and associated undertakings are recordedin the statement of financial position at cost, and adjusted to account for any
changes in the companies’ net equity post acquisition, less any impairment of
the investment value. Losses exceeding the Group’s interest are recorded
only if the Group has undertaken an obligation to cover them. The excess of
the acquisition cost of the investment over the Group’s interest in the net fairvalue of identifiable assets and liabilities acquired and contingent liabilities isrecorded as goodwill. Goodwill is included in the book value of the investment
and tested for impairment. If the cost is lower than the Group’s interest in thefair value of identifiable assets, liabilities and contingent liabilities, the difference
is recorded in the income statement for the year of acquisition;

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Basis of consolidation (continued)— during the consolidation process, receivables and payables, costs and revenues
arising from inter-company transactions are fully eliminated. Any unrealized
gains or losses generated by transactions between the Group’s consolidated
companies and included in inventories and fixed assets at the balance sheet
date are also eliminated. Unrealized losses are eliminated unless the transaction
provides evidence of an impairment of the asset transferred. In this case, thetransferred asset is impaired;— dividends paid by consolidated companies are also eliminated from the income
statement and added to prior year retained earnings if, and to the extent that,they have been drawn from the latter;— the financial statements of subsidiary companies are prepared in their respective
local currency. The statement of financial position is translated into Euro using
the year end exchange rate, whereas the income statement is translated using
the average exchange rate for the year. Translation differences arising onconversion of the statement of financial position, using the exchange rate at
the start of the period and the exchange rate at the end of the period andtranslation differences arising on conversion of the income statement using
the average rate for the period and the rate at the end of the period are recorded
as a translation reserve in the consolidated shareholder’s equity. The translation
reserve in consolidated shareholder’s equity represents translation differences
recorded as from first time application on January 1, 2004. When preparing
the consolidated statement of cash flows, the cash flows of subsidiarycompanies are translated using the average rate for the period;— the reporting currency used to prepare the consolidated financial statements
is the Euro. All amounts are stated in thousands of Euro unless otherwise
stated.

6.

Main accounting policies
Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position at nominal
value. Cash equivalents include all highly liquid investments with an original maturityof three months or less.
For the purposes of the cash flow statement only, cash and cash equivalents
comprise cash on hand, bank accounts, deposit accounts and bank overdrafts. In
the statement of financial position, bank overdrafts and current portions of payables
to banks for medium and long-term loans are included in “Bank overdrafts andshort-term loans”.

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Main accounting policies (continued)
Trade receivables and payables
Trade account receivables are carried at nominal value less the provision for doubtful
accounts, estimated based on an assessment of all disputed and doubtful balances
at year-end. Bad debts are written off when identified.
Trade account payables are recorded at nominal value.
Transactions denominated in foreign currencies are recorded at the exchange rate
as at the date of the transaction. At the reporting date, transactions denominatedin foreign currencies are translated using the exchange rate as at the reporting
date. Gains and losses arising from the translation are reflected in the income
statement.
The transfer of a financial asset to third parties implies its derecognition from thestatement of financial position only if all risks and rewards connected with thefinancial asset are substantially transferred. Risks and rewards are consideredtransferred when exposure to variability in the present value of future net cash
flows associated with the asset changes significantly as a result of the transfer.
Inventories
Raw materials, work in progress and finished products are recorded at the lower ofacquisition cost, production cost and net realizable value. Cost comprises direct
production costs and those overheads that have been incurred in bringing theinventories to their present location and condition. Acquisition or production cost isdetermined on a weighted average basis. Provisions, adjusting the value of theinventory, are made for slow moving and obsolete inventories and if estimatedselling prices are lower than cost.
Assets held for sale
A non-current asset is classified as held for sale if its carrying amount will be mainly
recovered through sale rather than through its continued usage.
Assets held for sale are valued at the lower of net book value and fair value lessany costs to sell.
Property, plant and equipment
Property, plant and equipment are recorded at purchase cost or production cost,
including any charges directly attributable. They are shown net of accumulated
depreciation calculated on the basis of the useful lives of the assets and any
impairment losses. Interest costs on borrowings to finance directly purchase,
construction or production are capitalized to increase the value of the asset. Allother borrowing costs are charged to the Income Statement.
Ordinary maintenance expenses are charged in full to the Income Statement for
the year they are incurred.
Extraordinary maintenance expenses are capitalized if they increase the value or
useful life of the related asset.

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Main accounting policies (continued)
Property, plant and equipment (continued)
The costs included in “Leasehold improvements” relate to refurbishment work
carried out on assets not owned by the Group.
All costs incurred during the period between the start of refurbishment work andthe opening of the store are capitalized as “Leasehold improvements”, as they are
deemed necessary to bring the related assets to their working condition inaccordance with company guidelines. The relevant construction or refurbishment
period ranges from six to eighteen months depending on the type of store/work.
Depreciation methods, useful lives and net book values are reviewed annually.
The depreciation rates representing the useful lives are listed below:
Category of Property, Plant and Equipment

Depreciation rate

Buildings

3% - 10%

Production plant and equipment
Leasehold improvements

7.5% - 25%
Shorter of lease term and 10%

Furniture and fittings

10% - 20%

Other equipment

6% - 33%

When assets are disposed of, their cost and accumulated depreciation are eliminatedfrom the financial statements and any gains or losses are recognized in the income
statement.
The value of land is stated separately from the value of buildings. Depreciation is
only charged on the value of buildings.
Every year, a test is performed for indications that the value of property, plant andequipment has been impaired. If any such indications are found, an impairment
test is used to estimate the recoverable amount of the asset. The impairment loss
is determined by comparing the carrying value of the asset with its recoverable
value i.e. the higher of the fair value of the asset less costs to sell and its value inuse.
Fair value is determined based on the best information available to reflect the amountthat could be obtained, at the reporting date, from the disposal of the asset.
Value in use is an estimate of the present value of future cash flows expected toderive from the asset tested for impairment.
Impairment losses are recorded immediately in the Income Statement.
At every reporting date, the Group will assess whether there is any indication thatan impairment loss recognized in prior periods may no longer apply and should bedecreased. If any such indication exists, the Group will estimate the recoverable
amount of that asset. The recoverable amount of the asset shall not exceed thecarrying amount that would have been determined had no impairment loss beenrecognized for the asset in prior years.
Reversal of an impairment loss for an asset will be recorded in the income statement.

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Main accounting policies (continued)
Intangible assets
Only identifiable assets, controlled by the company and capable of producing future
economic benefits are included in intangible assets.
Intangible assets include trademarks, licenses, store lease acquisition costs,
software, development costs and goodwill.
Trademarks are recorded at cost or at the value attributed upon acquisition andinclude the cost of trademark registration in the various countries in which theGroup operates.
The Directors estimate a useful life from 20 to 40 years for trademarks. This assumes
there are no risks or limitations on control over their use. Every trademark is tested
for impairment whenever indicators of impairment emerge.
The useful life of trademark registration costs is estimated to be 10 years.
Software refers to Information Technology development projects and includes all
internal and external costs incurred to bring the asset into use. IT projects include
costs incurred to acquire licenses as well the cost of development and installation.
Software is capitalized on condition that it is identifiable, reliably measurable and if
it is probable that the asset will generate future economic benefits.
Store lease acquisition costs represent expenditures incurred to enter into or takeover retail store lease agreements. These costs are capitalized and amortized overthe shorter period of the lease term or 10 years.
Development costs include expenses incurred to strengthen the brand image
through the implementation of retail projects with a high technological or stylistic
content, e.g. “In-Store Technology” project, or through projects aimed at developing
the store “concept”. The relevant useful life is estimated based on the Directors’
understanding and amounts to between three and ten years.
Intangible assets with a determinate useful life are amortized on a straight-line
basis at the following rates:
Category of intangible assets
Trademarks

Amortization rate
2.5% - 10%

Store lease acquisition costs

Shorter of lease term and 10%

Software

10% - 33%

Other intangible assets

10% - 33%

All business combinations included within the scope of IFRS 3 are recorded using
the acquisition method whereby identifiable assets, liabilities and potential liabilitiesof the acquired business are measured at their acquisition-date fair value.
The difference between the cost of the business combination and the interest
acquired in the net fair value of identifiable assets, liabilities and potential liabilities
is recorded as goodwill. If additional interests in subsidiaries already controlled are
acquired, the positive difference between the acquisition cost and the value of theinterest acquired is recognized in equity.
Goodwill, as an asset that produces future economic benefits but which is notindividually identified and separately measured, is initially recognized at cost.

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Main accounting policies (continued)
Intangible assets (continued)
Goodwill is not amortized but tested for impairment every year to check if its value
has been impaired. If specific events or altered circumstances indicate the possibility
that goodwill has been impaired, the impairment test is performed more frequently.
If goodwill is initially recorded during the current year, the impairment test is
performed before the end of the year.
For impairment test purposes, goodwill acquired in a business combination shall,from the acquisition date, be allocated to each of the acquirer’s cash generating
units that are expected to benefit from the synergies of the combination. Cash
Generating Units are determined based on the organizational structure of the Groupand represent groups of assets that generate independent cash inflows fromcontinuing use of the relevant assets. The PRADA Group’s Cash Generating Units
include trademarks, sales channels and geographical areas.
The cash generating units to which goodwill has been allocated are tested for
impairment annually and, whenever there is an indication of impairment, the carrying
value of the cash generating units is compared with their recoverable amount.
Recoverable value is the higher of fair value less costs to sell and value in use, ascalculated based on an estimate of the future cash flows expected to derive fromthe cash generating unit tested for impairment. Cash flow projections are based onbudget and forecast and on long-term business plans (generally five years) approvedby the management of the relevant business units.
An impairment loss is recorded in the Income Statement for the period whenever
the recoverable value of the cash generating unit is lower than its book value.
An impairment loss recorded for goodwill is never reversed in subsequent years.
Investments
Investments in associated undertakings and joint ventures - companies in which
the Group generally holds between 20% and 50% of the voting rights or on which
the Group has significant influence - are accounted for under the equity method of
accounting.
Under the equity method of accounting, investments are initially recognized at
cost.
The carrying amount is later increased or decreased to reflect the parent company’s
share of the profits or losses of the investee after the date of acquisition. Any
goodwill included in the historical cost of the investment is tested annually for
impairment.
The parent company’s share of the profit or loss of the investee is recorded in its
income statement.
Dividends received from the investee company reduce the carrying amount of theinvestment.
The parent company’s share in an associated undertaking’s profits and losses
resulting from inter-company transactions is eliminated.

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Main accounting policies (continued)
Investments (continued)
The reporting date of associated undertakings is the same as the parent company’s.
If a subsidiary or associated undertaking uses accounting policies other than IFRS,
adjustments are made to bring its accounting policies into line with those of theparent company.
If the parent company’s share of the losses made by an associated undertaking or
joint venture exceeds the carrying amount of the investment in the associate or
joint venture, the parent company will recognize a liability for additional losses only
to the extent that it has incurred legal or constructive obligations on behalf of theassociate undertaking or joint venture.
Other investments and marketable securities
Investments that are acquired principally for the purpose of generating a profit
from short-term fluctuations in price are classified as held for trading. They areincluded in current assets and stated at fair value through profit and loss.
Investments intended to be held for an indefinite period of time that may be solddepending on liquidity requirements, are classified as available-for-sale and stated
at fair value through shareholders’ equity. These assets are included in non-current
assets unless the Directors intend to hold them for less than twelve months fromthe reporting date, in which case they are included in current assets.
All purchases and sales of investments are recognized on the trade date i.e. thedate that the Group commits to purchase or sell the asset. Purchase cost includes
all transaction costs. Realized and unrealized gains and losses arising from changes
in the fair value of trading investments are included in the income statement, while
those regarding investments available-for-sale are included in shareholders’ equity
in the period in which they arise.
Deferred tax assets
Deferred tax assets are amounts of income taxes recoverable in future periods inrelation to deductible temporary differences and carryforward of unused tax losses.
Deductible temporary differences are differences between the carrying amount ofan asset or liability in the statement of financial position and its tax value which, in
determining taxable income for future years, will result in deductible amounts when
the carrying amount of the asset or liability is realized or settled.
Deferred tax assets are recognized for all deductible timing differences, tax losses
carried-forward and unused tax credits only to the extent that is probable that taxable
profit will be available in future years against which the deductible timing differences
can be used. Recoverability is reviewed at every year end. Deferred tax assets aremeasured at the tax rates which are expected to apply to the period when theasset is realized based on tax rates (and tax laws) in force at the reporting date.
Deferred tax assets are not discounted.

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Main accounting policies (continued)
Deferred tax assets (continued)
Deferred tax assets are recognized through the income statement unless the tax
amount is generated from a transaction or an event directly recognized in equity orfrom a business combination.
Taxation for deferred tax assets relating to items credited or debited directly toshareholders’ equity is also credited or debited directly to shareholders’ equity.
Derivative financial instruments
Derivative financial instruments that hedge interest rate risk and exchange raterisk exposure are recorded based on hedge accounting rules.
Hedging contracts are designated as cash flow hedges. Hedge accounting treatment
is used if derivative financial instrument is designated as a hedge of the exposure
to changes in future cash flows of a recognized asset or liability or a highly probabletransaction and which could affect profit or loss. In this case, the effective portionof the gain or loss on the hedging instrument is recognized in shareholders’ equity.
Accumulated gains or losses are reversed from shareholders’ equity and recordedin the income statement for the period in which the income statement effect of
the hedged operation is recorded.
Any gain or loss on a hedging instrument (or portion thereof) which is no longer
effective as a cash flow hedge is immediately recorded in the income statement. If
a hedging instrument or a hedging relationship has expired but the hedgedtransaction has not yet occurred, any accumulated gains or losses, recognized inshareholders’ equity until then, is recorded in the income statement when thetransaction takes place.
If the hedge transaction is no longer expected to take place, any related cumulative
gain or loss outstanding in equity will be recognized in the income statement.
Obligations under finance leases
Fixed assets acquired under finance leases are recorded at the lower of market
value and the present value of future payments due under the lease agreement on
the date of the transaction and are depreciated based on their useful life.
Short-term portions of obligations related to discounted future lease payments arerecorded among current liabilities under “Obligations under finance leases, current”,
while medium and long-term portions are recorded among non-current liabilities
under “Obligations under finance leases, non-current”.

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Main accounting policies (continued)
Non-current financial liabilities
Non-current financial liabilities include payables to banks for medium and long termloans. Bank borrowing includes principal amounts, interest and additionalarrangement costs accruing and due at the balance sheet date even when they arecharged at a later date.
Non-current financial liabilities are initially recorded at fair value on the transaction
date less transaction costs which are directly attributable to the acquisition.
After initial recognition, non-current financial liabilities are valued at amortized costi.e. at the initial amount less principal repayments already made plus or minus theamortization (using the effective interest method) of any difference between that
initial amount and the maturity amount.
Post-employment benefits
Post-employment benefits mainly consist of Italian Staff Leaving Indemnities(hereinafter TFR) which are classed as defined-benefit plans.
Defined benefit plans are recognized, using actuarial techniques to estimate theamount of the obligations resulting from employee service in the current and past
periods and discounting it to determine the present value of the Group’s obligations.
The actuarial valuation is carried out by an independent actuary using the Projected
Unit Credit Method.
This method considers each period of service provided by the employee as anadditional unit right and measures the actuarial liability on the basis of the matured
years of service only at the date of measurement. This actuarial liability is then remeasured taking into account the relationship between the service years provided
by the employee at the date of measurement and the total years of service expected
at the forecast date of settlement of the benefit. Moreover, this method takes
account of future salary increases, for whatever reason (inflation, career progression
and new employment agreements) until the estimated termination date of theemployment relationship.
The cost of defined-benefit plans, accruing during the year and recorded in theincome statement under labor costs, is equal to the average present value of rights
accruing in favor of employees service during the current period, plus the annualinterest accruing on the present value of the Group’s obligation at the beginning of
the year. The interest cost is calculated adopting the previous year discount rate of
future outflows used to estimate the liability at the reporting date.
Actuarial gains and losses are recognized directly in equity, net of the tax effect.
Other long-term employee benefits are recorded among non-current liabilities andtheir value corresponds to the present value of the defined benefit obligation at thereporting date, adjusted according to the period of the underlying agreement. Like
defined benefit plans, other long term benefits are also valued using the Projected
Unit Credit Method.

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Main accounting policies (continued)
Provisions for risks and charges
Provisions for risks and charges cover costs of a determinate nature, that werecertain or probable but whose amount or due date was uncertain at year end.
Provisions are only recorded when the Group has a legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will be required
to settle the obligation and a reliable estimate of the amount can be made basedon available information.
Where the Group expects reimbursement of a charge that has been provided for(e.g. under an insurance policy) the reimbursement is recognized as a separate
asset but only when the reimbursement is certain.
Deferred tax liabilities
Deferred tax liabilities are amounts of income taxes due in future periods in respectof taxable temporary differences.
Taxable temporary differences are differences between the carrying amount of anasset or liability in the statement of financial position and its tax base which, in
determining the taxable income for future years, will result in taxable amounts
when the carrying amount of the asset or liability is recovered or settled.
Deferred tax liabilities are recognized for all taxable timing differences except whenliability is generated by:— the initial recognition of goodwill, or— the initial recognition of an asset or liability in a transaction other than a businesscombination that does not affect the accounting result or the tax result at thetransaction date.
Deferred tax liabilities are measured at the tax rates which are expected to apply tothe period when the liability is settled, based on tax rates (and tax laws) that havebeen enacted or substantively enacted by the balance sheet date.
Deferred tax liabilities are not discounted.
Taxation for deferred tax liabilities relating to items credited or debited directly toshareholders’ equity is also credited or debited directly to shareholders’ equity.
The deferred tax provision is only offset against deferred tax assets when the twoitems refer to the same tax and the same period.

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Main accounting policies (continued)
Revenue recognition
Revenues from the sale of goods are recognized in the income statement when:— the risks and rewards of ownership are transferred to the buyer;— the value of the revenues can be reliably measured;— the company’s control over the goods sold has ceased;— the economic benefits generated by the transaction will probably be enjoyedby the Company;— the costs pertaining to the transaction can be measured reliably.
Royalties are accounted for based on sales made by the licensees and the terms ofthe contracts. Cash discounts are recognized as financial charges.
Costs are recorded on an accrual basis. In particular, a cost is immediately recognizedin the income statement when:— an expense does not generate any future economic benefit;— the future economic benefits do not qualify or cease to qualify as assets forrecognition in the statement of financial position;— a liability is incurred and no asset has been recorded.
Operating leases
Operating leases are recorded in the income statement on a straight-line basis forthe whole lease term.
When calculating the lease term, renewal periods are also considered if provided
for by the agreement and the amount due is known or can be estimated.
Store opening costs
Costs incurred during the pre-opening period of new or refurbished retail storesare charged to the consolidated income statement when incurred, except for thosecapitalized as leasehold improvements. Upon closure of a store, the net book valueof the leasehold improvements, less the expected recoverable amount, is charged
to the income statement.
Financial charges
Financial charges include interest on bank overdrafts, on short and long term loans,financial charges on finance leases and securitization operations, amortization of
initial costs of loan operations, changes in the fair value of derivatives - insofar as
chargeable to the income statement - and annual interest maturing on the present
value of post-employment benefits.

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Main accounting policies (continued)
Income taxes
The provision for income taxes is determined based on a realistic estimate of thetax charge of each consolidated entity, in accordance with the tax rates and tax
laws in force or substantially approved in each country at the reporting date.
Current taxes are recorded in the income statement as an expense. This is except
for taxes deriving from transactions or events directly recognized throughshareholders’ equity which are directly charged to equity.
Earnings per share
Basic earnings per share are calculated by dividing Group net profit by the weighted
average number of ordinary shares.
Changes of accounting policy, errors and changes in accounting estimates
The accounting policies adopted are only modified from one year to another if thechange is required by an accounting standard or if it provides more reliable andmore relevant information on the effects of operations on the entity’s statement offinancial position, income statement or cash flows.
Changes of accounting policy are applied retrospectively, adjusting the opening
balance of each affected component of equity for the earliest prior period presented.
Other comparative amounts, disclosed for each prior period presented, are also
adjusted as if the new accounting policy had always been applied. A prospective
approach is applied only when it is not possible to restate the comparative
information.
The adoption of a new or amended accounting standard is implemented inaccordance with the requirements of the standard itself. If the new standard does
not include specific transition provisions, the change of accounting policy is applied
retrospectively or, if this is not feasible, prospectively.
In the case of material errors, the same approach adopted for changes in accounting
standards described in the previous paragraph shall be followed. Non material errors
are recognized in the income statement in the period in which the error is identified.
The effect of changes in accounting estimates are prospectively recorded in theincome statement for the year the change takes place if it is the only year affected.
It is also reflected in later years if they too are affected by the change.

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Main accounting policies (continued)
Financial risk management
The Group’s international activities expose it to a variety of financial risks including
the risk of exchange rate and interest rate fluctuation. The Group’s overall risk
management policy takes account of the volatility of financial markets and seeks tominimize uncertainty regarding cash flow and the resulting potential adverse effects
on its results.
The Group enters into hedging contracts to manage risks arising from exposure to
the exchange rate and interest rate risks.
Financial instruments are accounted for based on hedge accounting rules. At the
inception of the hedge contract, the Group formally documents the hedging
relationship assuming that the hedging is effective during the different accounting
periods it is designated for.
Exchange rate risk
The Group’s has a multinational structure and sells its products in 70 different
countries. It is exposed to an exchange rate risk due to fluctuations in the exchange
rate of the Euro against the US Dollar, Hong Kong Dollar, Japanese Yen and, to alesser extent, other currencies. The Corporate Finance Department is responsible
for foreign currency hedges by entering into derivative contracts (forward sale andpurchase, options) with third parties. In accordance with IAS 39, these hedging
contracts are classed as cash flow hedges. The fair value of the hedging contracts
designated as cash flow hedges is recorded under shareholders’ equity net of thetax effect.
Interest rate risk
The debt taken on by the Group exposes it to the interest rate risk. The Group
Treasury department hedges this risk by arranging Interest Rate Swap and Collar
agreements. In accordance with IAS 39, these hedging contracts are classed as
cash flow hedges. The fair value of the hedging contracts qualified as cash flow
hedges is recorded under shareholders’ equity net of the tax effect.
Use of estimates
The process of preparing the financial statements underlying the Financial
Information in compliance with IFRS requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses and whenvaluing contingent assets and liabilities. Such assumptions relate primarily tounsettled transactions and events as at the end of each reporting period. Accordingly,
upon settlement, the actual results may differ from the estimated amounts.
Estimates and assumptions are periodically reviewed and the effects of any
differences are immediately charged to the profit or loss.
Estimates are used for impairment tests, in determining provisions, allowance for
doubtful accounts, allowance for obsolete and slow moving inventories, derivatives,
post-employment benefits and in calculating taxes.

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Main accounting policies (continued)
Fair value of derivatives and other financial instruments
The Directors of the Group use their judgement in selecting an appropriate valuation
technique for financial instruments not quoted in an active market.
Valuation techniques commonly used by market practitioners are applied. For
derivative financial instruments, assumptions are made based on quoted market
rates adjusted for specific features of the instrument. Other financial instruments
are valued using a discounted cash flow analysis based on assumptions supported,
where possible, by observable market prices or rates. The Directors believe thatthe chosen valuation techniques and assumptions are appropriate in determining
the fair value of financial instruments.

7.

Incorporation and disinvestment of subsidiaries
On February 23, 2011 PRADA spa sold to Puig sl its investment in Fragrance &Skincare sl, a joint-venture created with Puig sl in 2003. The relationship with the
Spanish fragrance producer is continuing under the license agreement with
Fragrance & Skincare sl that has been extended until the year 2020.
On April 12, 2011 the Group set up the commercial subsidiary Prada Brasil
Importaçào e Comércio de Artigos de Luxo Ltda with the aim of carrying out retail
activities in Brazil.
On May 25, 2011 PRADA spa and Al Tayer Insignia llc incorporated Prada Middle
East fzco in the Jebel Ali Free Zone of Dubai, United Arab Emirates, with stakes of
60% and 40% respectively. The Al Tayer Insignia Group is the largest luxury retailer
in the Middle East hosting a remarkable portfolio of some the world’s best luxury
brands in the fashion, jewellery and home categories.
Prada Middle East fzco will operate with the purpose of selling, distributing andpromoting Prada and Miu Miu products across the Middle East area.
On July 7, 2011 the Group set up commercial subsidiary Church Netherlands bv
with the aim of carrying out retail activities in the Netherlands.
On July 17, 2011 the Group set up commercial subsidiary Prada Retail Mexico, S.
de R.L. de C.V. with the aim of carrying out retail activities in Mexico.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report

71

8.

Operating segment
IFRS 8 requires that detailed information be provided for each “operating segment”
that makes up the business. An operating segment is intended as a business division
whose operating results are regularly reviewed by top management so that they
can make decisions about the resources to be allocated to the segment and assess
its performance.
The Group’s matrix-based organizational structure - whereby responsibility is
assigned cross-functionally in relation to brands, products, distribution channels
and geographical areas, together with the complementary nature of the production
processes of the various brands and the many relationships between the different
business segments - means that operating segments compliant with IFRS8 cannot
be identified also in light of the fact that only income statement results at Grouplevel are provided to the highest decision maker. For this reason, the business has
been considered as a single operating segment as this better represents the specificcharacteristics of the PRADA Group business model.
Detailed information on net revenues by brand, geographical area, product anddistribution channel is provided below. It is also reported in the Directors’ Report
where it is accompanied by further information on the Group’s operating results.

72

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report

8.

Operating segment (continued)
Net sales analysis
July 312011(amounts in thousands of Euro)

July 312010
unaudited%changeNet sales by geographical area
Italy

213,44419.1%

184,301

20.0%

Europe250,66422.4%

211,794

23.0%

18.4%

North America

171,853

15.4%

147,617

16.1%

16.4%

Asia Pacific

367,995

32.9%

271,703

29.5%

35.4%

Japan

107,193

9.6%

99,107

10.8%

8.2%

6,254

0.6%

5,879

0.6%

6.4%

1,117,403

100%

920,401

100%

21.4%

Other countries
Total

15.8%

Net sales by brandPrada878,38378.6%

724,334

78.7%

21.3%

Miu Miu

198,872

17.8%

159,219

17.3%

24.9%

Church’s

27,003

2.4%

23,440

2.5%

15.2%

Car shoe

9,711

0.9%

9,811

1.1%

-1.0%

Other

3,434

0.3%

3,597

0.4%

-4.5%

Total

1,117,403

100.0%

920,401

100.0%

21.4%

Net sales by product line
Clothing

212,37119.0%

214,006

23.2%

-0.8%

Leather goods

616,58955.2%

455,641

49.5%

35.3%

Footwear

275,04824.6%

242,655

26.4%

13.3%

Other

13,395

1.2%

8,099

0.9%

65.4%

Total

1,117,403

100.0%

920,401

100.0%

21.4%

835,37274.8%

626,178

68.0%

33.4%

Net sales by distribution channel
DOS (including outlet stores)
Independent customers, franchises
and related parties

282,03125.2%

294,223

32.0%

-4.1%

Total

1,117,403

100.0%

920,401

100.0%

21.4%

Net sales

1,117,403

98.5%

920,401

98.3%

21.4%

Royalties

16,878

1.5%

16,0931.7%

4.9%

1,134,281

100.0%

936,494

100.0%

21.1%

Total net revenues

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report

73

8.

Operating segment (continued)
Prada brand revenues
July 312011(amounts in thousands of Euro)

July 312010
unaudited%changeNet sales by geographical area
Italy

164,79718.8%

140,691

19.4%

Europe188,96921.5%

160,218

22.1%

17.9%

North America

146,278

16.6%

127,709

17.7%

14.5%

Asia Pacific298,30734.0%

220,828

30.5%

35.1%

Japan

75,275

8.6%

70,502

9.7%

6.8%

Other countries

4,757

0.5%

4,386

0.6%

8.5%

878,383

100.0%

724,334

100.0%

21.3%

Total

17.1%

Net sales by product line
Clothing

180,41720.5%

186,050

25.7%

-3.0%

Leather goods

487,54655.5%

351,469

48.5%

38.7%

Footwear

198,363

22.6%

179,557

24.8%

10.5%

Other

12,057

1.4%

7,258

1.0%

66.1%

Total

878,383

100.0%

724,334

100.0%

21.3%

DOS (including outlet stores)

659,901

75.1%

490,302

67.7%

34.6%

Independent customers, franchises
and related parties

218,48224.9%

234,032

32.3%

-6.6%

Total

878,383

100.0%

724,334

100.0%

21.3%

Net sales

878,383

98.1%

724,334

98.0%

21.3%

Royalties

16,582

1.9%

15,120

2.0%

9.7%

Total net revenues

894,965

100.0%

739,454100.0%

21.0%

Net sales by distribution channel

74

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report

8.

Operating segment (continued)
Miu Miu brand revenues
July 312011(amounts in thousands of Euro)

July 312010
unaudited%changeNet sales by geographical area
Italy

33,99317.1%

29,26818.4%

Europe41,491

20.9%

33,010

20.7%

25.7%

North America

24,29412.2%

18,720

11.8%

29.8%

Asia Pacific

66,37033.4%

48,791

30.6%

36.0%

Japan

31,502

15.8%

28,343

17.8%

11.1%

Other countries

1,222

0.6%

1,087

0.7%

12.4%

198,872

100.0%

159,219100.0%

24.9%

Total

16.1%

Net sales by product line
Clothing

31,601

15.9%

27,573

17.3%

14.6%

Leather goods

127,103

63.9%

102,303

64.3%

24.2%

Footwear

38,83019.5%

28,504

17.9%

36.2%

Other

1,338

0.7%

839

0.5%

59.5%

Total

198,872

100.0%

159,219100.0%

24.9%

153,18177.0%

116,193

73.0%

31.8%

Net sales by distribution channel
DOS (including outlet stores)
Independent customers, franchises
and related parties

45,691

23.0%

43,026

27.0%

6.2%

Total

198,872

100.0%

159,219100.0%

24.9%

Net sales

198,872

99.9%

159,219

99.5%

24.9%

Royalties

241

0.1%

845

0.5%

-71.5%

199,113100.0%

160,064100.0%

24.4%

Total net revenues

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report

75

8.

Operating segment (continued)
Church’s brand revenues
July 312011(amounts in thousands of Euro)

July 312010
unaudited%changeNet sales by geographical area
Italy

7,369

27.3%

6,247

26.7%

Europe15,66558.0%

14,286

60.9%

9.7%

North America

1,116

4.2%

886

3.8%

26.0%

Asia Pacific

2,322

8.6%

1,591

6.8%

45.9%

413

1.5%

250

1.1%

65.2%

Japan
Other countries

18.0%

118

0.4%

180

0.7%

-34.4%

27,003100.0%

23,440100.0%

15.2%

Clothing

256

0.9%

202

0.9%

26.7%

Leather goods

662

2.5%

650

2.8%

1.8%

26,085

96.6%

22,588

96.3%

15.5%

Other

–

–

–

–

–

Total

27,003100.0%

23,440100.0%

15.2%

17,31864.1%

15,294

65.2%

13.2%

Total
Net sales by product line

FootwearNet sales by distribution channel
DOS (including outlet stores)
Independent customers, franchises
and related parties

9,685

35.9%

8,146

34.8%

18.9%

Total

27,003100.0%

23,440100.0%

15.2%

Net sales

27,00399.8%

23,440

99.7%

15.2%

Royalties

55

0.2%

72

0.3%

-23.6%

27,058100.0%

23,512100.0%

15.1%

Total net revenues

76

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report

8.

Operating segment (continued)
Car Shoe brand revenues
July 312011(amounts in thousands of Euro)

July 312010
unaudited%changeNet sales by geographical area
Italy

6,545

67.4%

7,029

71.6%

Europe

1,890

19.5%

1,844

18.8%

2.5%

North America

145

1.5%

226

2.3%

-35.8%

Asia Pacific

973

10.0%

476

4.9%

104.4%

–

–

11

0.1%

-100.0%Japan
Other countries
Total

-6.9%

158

1.6%

225

2.3%

-29.8%

9,711

100.0%

9,811

100.0%-1.0%

Net sales by product line
Clothing

–

–

–

–

–

Leather goods

1,250

12.9%

1,176

12.0%

6.3%

Footwear

8,461

87.1%

8,635

88.0%

-2.0%

Other

–

–

–

–

–

Total

9,711

100.0%

9,811

100.0%-1.0%

DOS (including outlet stores)

4,161

42.8%

3,182

32.4%

30.8%

Independent customers, franchises
and related parties

5,550

57.2%

6,629

67.6%

-16.3%

Total

9,711

100.0%

9,811

100.0%-1.0%

Net sales

9,711

100.0%

9,811

100.0%-1.0%

Royalties

–

–

–

–

–

9,711

100.0%

9,811

100.0%-1.0%

Net sales by distribution channel

Total net revenues

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report

77

8.

Operating segment (continued)
Analysis of EBITDA by brandJuly 31, 2011

Group

Prada

Miu Miu

Church’s

Car Shoe

Other

Net sales

1,117,403

878,383

198,872

27,003

9,711

3,434

Royalties

16,878

16,582

241

55

–

–

1,134,281

894,965

199,113

27,058

9,711

3,434

EBITDA

315,005

270,261

42,7893,309(1,302 )(52)

EBITDA %

27.8%

30.2%

21.5%

12.2%

–

–

July 31, 2010 unaudited

Group

Prada

Miu Miu

Church’s

Car Shoe

Other

Net sales

920,401

724,334

159,219

23,440

9,811

3,597

Royalties

16,093

15,120

845

72

–

56

Net revenues

936,494

739,454

160,064

23,512

9,811

3,653

EBITDA

225,220

190,928

34,0081,701(1,486 )69

EBITDA %

24.0%

25.8%

21.2%

7.2%

–

-1.9%

Net revenues

Geographical information
The Group’s operations are located in Italy (country of domicile of the Company),
Europe, America, Asia Pacific, Japan and Middle East.
(amounts in thousands of Euro)

July 312011

January 31
2011

Italy

392,047

350,685

Europe771,730

764,184

America

144,754

152,402Japan

99,30986,430Asia Pacific

109,629

98,771

Middle East

4,154

–

1,521,623

1,452,472

Total

Non-current assets excluded those relating to financial instruments, deferred tax
assets and the surplus arising from a pension benefit scheme.

78

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report9.

Cash and cash equivalents
Cash and cash equivalents are detailed as follows.
(amounts in thousands of Euro)

July 312011

January 31
2011

Cash on hand

26,567

17,794

Bank deposit accounts

156,573

6,222

Bank current accounts

70,47072,556

Total

253,610

96,572At July 31, 2011, bank deposit accounts included funds raised by the IPO. Bank
deposits and current accounts bear interest at market rates ranging from 0% to
3.43% at July 31, 2011 and from 0% to 0.897% at January 31, 2011.
The bank deposit accounts detailed by currencies are as follows:(amounts in thousands of Euro)

July 312011Euro

127,701

2

Hong Kong Dollar

10,8186,152

US Dollar

10,304–

Korean Won

7,648

–

102

68

156,573

6,222

OthersTotal

PRADA Group

January 31
2011

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report7910. Trade receivables, net
Trade receivables are detailed as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

Trade receivables - third parties

274,841

255,839

Trade receivables - associated companies

–

1,924

Trade receivables - related parties

16,816

16,412

Total

291,657

274,175

Net trade receivables increased at July 31, 2011 mainly because of higher sales.
Trade receivables from related parties referred to the sale of finished products(Euro 16.2 million) and royalties under franchise agreements (Euro 0.6 million) withretail companies owned by the main shareholders of PRADA Holding bv. A detailed
breakdown of these receivables by debtor is provided in Note 39.
At January 31, 2011, trade receivables from associated companies included royalties
accruing from Fragrance & Skincare sl in relation to the sale of fragrances bearing
the Prada brand. As the Group sold its stake in Fragrance & Skincare sl during theperiod (see Note 15), at period end this type of receivable (Euro 1 million at July 31,2011) was included under the Trade receivables - third parties.
(amounts in thousands of Euro)

July 312011

January 31
2011

Third party trade receivables, gross285,223

266,376

Allowance for bad and doubtful debts(10,382)(10,537 )Total third party trade receivables, net

274,841

255,839

The allowance for doubtful debts was determined on a specific basis considering
all information available at the date these Consolidated Financial Statements wereprepared. It is revised periodically to bring receivables as close as possible to theirfair value. The Group did not hold any collateral or other credit enhancements overthese balances nor does it have legal rights.
Movements during the period were as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

Opening balance

10,537

11,308Exchange differences

(80 )

204

Increase

382

1,345

Utilized(457 )(2,069 )Reversals–(251 )

10,382

10,537

Closing balance

80

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report11. Inventories
Inventories are analyzed as follows:
July 312011(amounts in thousands of Euro)

January 31
2011

Raw materials

74,986

63,672Work in progress

19,813

17,186

Finished products

337,427

263,341

Allowance for obsolete and slow moving inventories(65,413)(63,790 )Total

366,813

280,409

Materials being worked upon by third parties are included in raw materials.
Work in progress includes materials at the production stage with PRADA spa, Church& Co ltd and third party sub-contractors.
The increase in inventories of finished products is consistent with the higher volume
of production necessary to supply the expanded DOS network as well as with thegrowth of the business in general.
Movements on the allowance for obsolete and slow moving inventories are analyzed
as follows:(amounts in thousands of Euro)
Opening balanceRawmaterials

Finished
Products

Total

31,622

32,16863,790Exchange differences

(1 )

3

2

Increase

–

1,621

1,621

Decrease–––

31,62133,79265,413

Closing balance

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report8112. Derivative financial instruments: assets and liabilities
Derivative financial instruments: assets and liabilities, current portion
July 312011(amounts in thousands of Euro)

January 31
2011

Financial assets regarding derivative instruments

7,321

7,379

Financial liabilities regarding derivative instruments(3,564 )(5,279 )Net carrying amount - current

3,757

2,100

Derivative financial instruments: assets and liabilities, non-current portion
July 312011

January 31
2011

Financial assets regarding derivative instruments

547

2,140

Financial liabilities regarding derivative instruments(554 )(318 )

(7 )

1,822

(amounts in thousands of Euro)Net carrying amount - non current

The net assets/(liabilities) under derivative financial instruments (current and noncurrent) are detailed as follows:(amounts in thousands of Euro)
Forward contracts

July 312011

January 31
2011

IFRS7
category

454

607

Level II

Options

6,169

6,561

Level IIInterest rate swaps

1,245

2,351

Level II

Positive fair value

7,868

9,519

Forward contracts(1,680)(469 )

Options(2,375)(4,217 )Level II
Level IIInterest rate swaps(63)(911 )

Level II

Negative fair value(4,118)(5,597 )Net carrying amount

3,750

3,922

All of the derivative instruments reported in the financial statements at July 31,
2011, are classified as Level II of the fair value hierarchy proposed by IFRS 7. So,
the Group did not enter into any derivative financial contract classified as Level I or
III on the basis of the said hierarchy.
The Group entered into the financial derivative contracts in the course of its risk
management activities in order to hedge financial risks connected with exchange
rate and interest rate fluctuations.

82

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report12. Derivative financial instruments: assets and liabilities (continued)
Foreign exchange rate transactions
The Group’s cash flows are exposed to exchange rate volatility as a result of theoperations carried out at international level. In order to hedge this risk, the Group
enters into options and forward sale and purchase agreements so as to guarantee
the value in Euro (or in other currencies, for Group companies outside the Eurozone) of identified cash flows.
Expected future cash flows mainly regard the collection of trade receivables andsettlement of trade payables.
The most important currencies in terms of hedged amounts are the US Dollar, theHong Kong Dollar and the Japanese Yen.
The notional amounts of the derivative contracts, designated as foreign exchange
risk hedges (as translated at the European Central Bank exchange rate at July 29,2011), are stated below.
Contracts in place at July 31, 2011, to hedge projected future trade cash flows

Options

Forward sale
contracts

Forwardpurchase
contracts

July 312011

US Dollar

49,386–(1,795)47,591

GB Pound

21,880––21,880Japanese Yen

81,622

2,034–

83,656

Hong Kong Dollar

56,283–(2,331)

53,952

Swiss Franc

10,107––

10,107Singapore Dollar

8,496

–

–

8,496

–

10,741–

10,741Other

11,947

7,264–

19,211

Total

239,721

20,039(4,126)

255,634(amounts in thousands of Euro)
Currency

Korean Won

With the exception of few contracts expiring by the end of the second half of 2012
for Euro 12.1 million, all of the contracts above will expire by July 31, 2012.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report8312. Derivative financial instruments: assets and liabilities (continued)
Foreign exchange rate transactions (continued)
Contracts in place as at July 31, 2011, to hedge projected future financial cash
flows
Forward sale Forward purchase
contracts
contracts(amounts in thousands of Euro)

July 312011

Currency
Australian Dollar

9,962

–

6,130

Singapore Dollar

582

–

291

Euro

–

(41 )

–

Yen

25,319

–

4,646

Total

35,863(41 )

35,822Contracts in place at January 31, 2011, to hedge projected future trade cash flows

Options

Forward sale
contracts

Forwardpurchase
contracts

January 31
2011

US Dollar

93,872

18,989(29,214 )

83,647

GB Pound

38,241––

38,241

Japanese Yen

76,518

6,978(19,557 )

63,939Hong Kong Dollar

116,226

14,612–130,838

Swiss Franc

19,490––19,490Singapore Dollar

15,761285(6,159 )

9,887

Other

18,38029,640–48,020

Total

378,488

70,504(54,930 )394,062(amounts in thousands of Euro)
Currency

Contracts in place as at January 31, 2011, to hedge projected future financial cashflows
Options

Forwardcontracts

January 31
2011Japanese Yen–

28,891

28,891

Hong Kong Dollar–

31,65931,659GB Pound

–

4,646

4,646

Total

–

65,196

65,196(amounts in thousands of Euro)
Currency

A liquidity analysis on the maturity dates of these derivative contracts is included inthese Notes in the Information on Financial Risks section.
All contracts in place at the reporting date were entered into with leading financial
institutions and the Group does not expect any default by these institutions.

84

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report12. Derivative financial instruments: assets and liabilities (continued)
Interest rate transactions
The Group enters into Interest Rate Swaps agreements (IRS) in order to hedge therisk of interest rate fluctuations regarding several bank loans.
The key features of the IRS agreements in place as at July 31, 2011, and January
31, 2011, are as follows
Contract

Currency

Notional
amountInterest rate Maturity dateJuly 312011

Hedged loan –lending institution

AmountExpiryFair value
IRS

Euro/000

220,000

1.511%

26/07/2013

1,115

Pool loan

220,000

07/2013IRS

Euro/000

22,5001.545%

02/06/2014

136

Intesa-Sanpaolo

22,50006/2014IRS

Euro/000

4,800

2.21%

01/07/2015

(22)

MPS

4,800

07/2015IRS
IRS

Euro/000
Euro/000

18,0006,250

1.745%
3.5%

29/05/2012
01/08/2012

10
Unicredit(57) Carilucca, Pisa e Livorno

18,0006,250

05/201208/2012Contract

Currency

Notional
amountHedged loan –lending institution

AmountExpiry2.027
Pool loan
249
Intesa-Sanpaolo(33)
Unicredit
6MPS(136) Carilucca, Pisa e Livorno(673)
Sovereign Bank

260,000
26,25024.0005,400
8,750
20,98807/201306/201405/201207/2015
08/201205/2014

Interest rate Maturity date

January 31
2011

Fair value
IRS
IRS
IRS
IRS
IRS
IRS

Euro/000
Euro/000
Euro/000
Euro/000
Euro/000
USD/000

260,000
26,25024,0005,400
8,750
20,9881.511%
1.545%
1.745%
2.21%
3.5%
5.7%

26/07/2013
02/06/2014
29/05/2012
01/07/2015
01/08/2012
01/05/2014

These IRSs convert the variable interest rates applying to a series of loans into
fixed interest rates. These agreements have been arranged with leading financial
institutions and the Group does not expect them to default.
Under applicable regulations, all of the derivatives in place at the reporting datemeet the requirements for designation as cash flow hedges.
Movements in the cash flow hedge reserve included in Group shareholders’ equity,
before tax effects, since February 1, 2009, are as follows.
(amounts in thousands of Euro)
Opening balance at February 1, 2010

(4,046 )Change in the translation reserve

12

Change in fair value, recognized in Equity(17,836 )Change in fair value, charged to Income Statement

26,650

Closing balance at January 31, 2011

4,780

Change in the translation reserve

16

Change in fair value, recognized in Equity

5,517

Change in fair value, charged to Income Statement(8,114 )Closing balance at July 31, 2011

2,199

Changes in the reserve that are charged to the Income Statement are recognized
as financial or operating items depending on the nature of the underlying transaction.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report8512. Derivative financial instruments: assets and liabilities (continued)
Information on financial risks
Capital Management

The Group’s capital management strategy is intended to ensure it is able toguarantee a return to shareholders, while protecting the interests of otherstakeholders, to ensure that loan covenants are respected and to maintain an
adequate capital structure.
Categories of financial assets and liabilities according to IAS 39
Financial assets

receivables

Derivative
financial
instruments

Total

Cash and cash equivalents

253,610–

253,6109

Trade receivables

291,657–

291,657

10(amounts in thousands of Euro)

Derivative financial instruments

–

7,868

7,868

12

Financial receivables

1,410

–

1,410

13

Total at July 31, 2011

546,677

7,868

554,545

receivables

Derivative
financial
instruments

Total

Cash and cash equivalents

96,572–

96,5729

Trade receivables

274,175–

274,175

10(amounts in thousands of Euro)

Derivative financial instruments

86

Note

Note

–

9,519

9,519

12

Financial receivables

34,044–

34,044

13

Total at January 31, 2011

404,791

9,519

414,310PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report12. Derivative financial instruments: assets and liabilities (continued)
Financial liabilities

Loans andpayablesDerivative
financial
instruments

Total

Note

Financial payables

383,983–

383,983

20, 21, 22, 27

Trade payables

303,963–

303,963

23

Obligations under finance leases

5,402

–

5,402

Derivative financial instruments

–

4,118

4,118

693,348

4,118

697,466

Loans andpayablesDerivative
financial
instruments

Total

Note

Financial payables

498,510–498,51020, 21, 22, 27

Trade payables

233,866–

233,866

23

Obligations under finance leases

7,528

–

7,528

Derivative financial instruments

–

5,597

5,597

739,904

5,597

745,501(amounts in thousands of Euro)

Total at July 31, 2011

(amounts in thousands of Euro)

Total at January 31, 2011

12

12

Credit risk
Credit risk is defined as the risk that a counterparty in a transaction may cause afinancial loss for another entity by failing to fulfil its obligations. The maximum risk
to which an entity is potentially exposed is represented by all financial assets
recorded in the financial statements.
The Directors essentially believe that the Group’s credit risk mainly regards tradereceivables generated in the wholesale channel.
The Group manages the credit risk and reduces its negative effects through its
commercial and financial strategy. Credit risk management is performed bycontrolling and monitoring the reliability and solvency of customers and is carriedout by the Group’s Commercial Department.
At the same time, the fact that the total receivables balance is not highly
concentrated on individual customers and the fact that net sales are evenly spreadaround the world lead to a reduced risk of financial losses.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report8712. Derivative financial instruments: assets and liabilities (continued)
Credit risk (continued)
The following table contains a summary of total receivables before the allowancefor doubtful debts at the reporting date:Days overdue(amounts in thousands of Euro)

Total

Current

0 < 3031 < 60

61 < 90

91 < 120> 120

Trade receivables

302,039

250,293

18,749

9,018

8,042

42

15,895

Total as at July 31 2011

302,039

250,293

18,749

9,018

8,042

42

15,895

Days overdue(amounts in thousands of Euro)

Total

Current

0 < 3031 < 60

61 < 90

91 < 120> 120

Trade receivables

284,713238,248

18,543

7,438

4,176

342

15,966

Total as at January 31 2011

284,713238,248

18,543

7,438

4,176

342

15,966

Trade receivables disclosed below include amounts overdue at the end of eachreporting period, net of their relevant provision for doubtful debt.
Days overdue(amounts in thousands of Euro)Total

0 < 3031 < 60

61 < 90

91 < 120> 120

Trade receivables
past due, netof provision for
doubtful debts

41,892

18,742

8,983

8,006

26

6,135

Total as at July 31 2011

41,892

18,742

8,983

8,006

26

6,135

Days overdue(amounts in thouands of Euro)Total

0 < 3031 < 60

61 < 90

91 < 120> 120

Trade receivables
past due, netof provision for
doubtful debts

36,356

18,463

7,390

4,083

239

6,181

Total as atJanuary 31 2011

36,356

18,463

7,390

4,083

239

6,181

At the reporting date, the expected loss on doubtful receivables was fully coveredby the allowance for doubtful receivables.
Movements on the allowance for doubtful receivables are shown in Note 10 “Trade
receivables, net”.

88

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report12. Derivative financial instruments: assets and liabilities (continued)
Liquidity risk
The liquidity risk relates to the difficulty the Group may have in fulfilling its obligations
with regard to financial liabilities. The Directors are responsible for managing theliquidity risk while the Group Treasury Department and Corporate Finance, reportingto the CFO, is responsible for managing financial resources as well as possible.
The Directors believe that the funds and lines of credit currently available, in addition
to those that will be generated by operating and financing activities, will allow theGroup to meet its needs resulting from investing activities, working capitalmanagement and repayment of loans as they fall due. This can be achieved without
using all available fund and surplus resources can thus be used to pay dividends.
As at July 31, 2011, the Group had unused and available bank borrowing facilities
totaling Euro 480.8 million (Euro 440.6 million as at January 31, 2011).
Financial liabilities associated with trade payables (Euro 304 million as at July 31,
2011, and Euro 233.9 million as at January 31, 2011) are due within 12 months.
The following table contains an ageing analysis of trade payables presented basedon the due date at the end of the reporting period and as at January 31, 2011.
Days overdue(amounts in thousands of Euro)

Total

Current

0 < 3031 < 60

61 < 90

91 < 120> 120

Trade payables

303,963

278,073

12,374

4,951

1,889

1,476

5,199

Total as at July 31 2011

303,963

278,073

12,374

4,951

1,889

1,476

5,199

Days overdue(amounts in thousands of Euro)

Total

Current

0 < 3031 < 60

61 < 90

91 < 120> 120

Trade payables

233,866

210,741

9,450

4,086

2,557

1,731

5,301

Total as at January 31 2011

233,866

210,741

9,450

4,086

2,557

1,731

5,301

The Group has financial risk management policies in place to ensure that all payables
are paid within the pre-agreed credit terms.
The following table details the maturity of derivative and non-derivative financial
liabilities showing the earliest date on which the Group could be called upon to
make payment (worst-case scenario).

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report8912. Derivative financial instruments: assets and liabilities (continued)
Financial liabilities under derivative financial instruments
Futurecontractual
cash flows at
July 31, 2011

6 mthsor less

6 to
12 mths

1 to
2 years

2 to
3 years

3 to
4 years

Cash outflows(1,573 )(1,573 )

–

–

–

–

–

Cash inflows

340

340

–

–

–

–

–

Cash outflows(12,656 )(9,841 )(924 )(1,891 )–––Cash inflows

11,308

8,675

814

1,819

–

–

–

(122 )

(45 )

(61 )

(16 )

–

–

–

(2,703 )(2,444 )(171 )(88 )(amounts inthousands of Euro)

Futurecontractual
cash flows at
January 31, 2011

6 mthsor less

6 to
12 mths

1 to
2 years

2 to
3 years

3 to
4 years

4 to
5 years

Forward contracts
designated as
cash flow hedges
Cash outflows
Cash inflows(11,986 )
11,432(11,477 )11,092(509 )
340

–
–

–
–

–
–

–
–

Other contracts
designated as
cash flow hedges
Cash outflows
Cash inflows(21,771 )
18,768(20,196 )17,345(1,575 )
1,423

–
–

–
–

–
–

–
–

Interest rate swaps - cash
flow hedges(1,106 )(305 )(249 )(404 )(145 )(3 )–Net value(4,663 )(3,541 )(570 )(404 )(145 )(3 )–(amounts inthousands of Euro)

4 to
5 years

Forward contracts
designated as
cash flow hedges

Other contracts designatedas cash flow hedges

Interest rate swaps - cash
flow hedges
Net value90

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report12. Derivative financial instruments: assets and liabilities (continued)
Non derivative financial liabilities(amounts in thousands of Euro)

FutureCarrying contractual
amount at cash flows
Jul 31,
at Jul 31,
2011
2011

on
demand6 mthsor less

6 to
12 mths

1 to
2 years

2 to
3 years

3 to
4 years

4 to
5 years

Obligations under finance leases

5,402

5,602

–

3,384

594

985

207

423

9

Financial liabilities - third parties

385,976

403,510881

96,42877,602207,023

18,310

3,266

–

574

574

574

–

–

–

–

–

–

391,952

409,686

1,455

99,812

78,196208,008

18,5173,689

9FutureCarrying contractual
amount at cash flows
Jan 31,
at Jan 31,
2011
2011

on
demand6 mthsor less

6 to
12 mths

1 to
2 years

2 to
3 years

3 to
4 years

4 to
5 years

Financial liabilities to other shareholders
Total(amounts in thousands of Euro)
Obligations under finance leases

7,528

7,878

—

2,317

2,925

1,487

616

529

4

Financial liabilities - third parties

501,952

530,676

17,186115,21176,537

137,738

156,789

24,196

3,019

Financial liabilities - to othershareholders, to parent company
and other companies controlledby PRADA Holding bv

862

862

862

–

–

–

–

–

–

510,342

539,416

18,048

117,528

79,462

139,225

157,405

24,725

3,023

Total

Some financial liabilities are subject to financial parameters that have to be met bycertain Group companies. These covenants are described in Note 27 “Long-termdebt” and Note 20 “Bank overdrafts and short-term loans”.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report9112. Derivative financial instruments: assets and liabilities (continued)
Exchange rate risk
The exchange rate risk to which the Group is exposed depends on foreign currency
fluctuation, mainly against the Euro. It is largely concentrated in PRADA spa.
The exchange rate risk mainly involves the risk that the cash flows of the Group’s
distribution company will fluctuate as a result of changes in exchange rates. The
most important currencies for the Group are: the U.S. Dollar, Hong Kong Dollar andJapanese Yen.
In addition to the worldwide distribution company, other Group companies also
have cash flows in currencies other than their own and are exposed to the exchange
rate risk as well.
The following table shows the sensitivity of the Group’s net income andShareholders’ equity to a range of fluctuation in the main foreign currencies against
Euro, based on the Group statement of financial position at July 31, 2011.
Euro - strengthening of 5%(amounts in thousands of Euro)

Effect on net
incomeEffect on
shareholders’equityEuro - weakening of 5%

Effect on net
incomeEffect on
shareholders’equityGreat Britain Pound(595 )(595 )

806

806

Hong Kong Dollar

843

2,525

(1,219 )(2,221 )

1,438

2,424

(1,504 )(2,721 )

282

282

(56 )

(56 )

(2,565 )(1,769 )

3,136

2,049

(597 )

2,867

1,163

(2,143 )Japanese Yen
US Dollar
Other currencies
Total

The total impact on shareholders’ equity (Euro 2.9 million positive and Euro 2.1
million negative) is the sum of the effect on the income statement and on the cash
flow hedge reserve of an hypothetical strengthening/weakening of the Euro against
other currencies.
The effects on the above-mentioned items are recorded before the tax effect.
Management believes that this sensitivity analysis is purely indicative, as it is basedon the period end exposure which might not reflect the effects actually generated
during the year.

92

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report12. Derivative financial instruments: assets and liabilities (continued)
Interest rate risk
The PRADA Group is exposed to interest rate fluctuations mainly with regard to
the interest charges on the debt carried by parent company PRADA spa and someof its subsidiaries.
Management of this risk falls within the scope of the risk management activities
the Group carries out through its centralized Treasury and Corporate Finance
Department.
The following table shows the sensitivity of the Group’s net result and Shareholders’equity to a shift in the interest rate curve in relation to the Group companies’ financial
position as at July 31, 2011.
(amounts inthousands ofEuro)

Shift ininterest rate
curve

Effect on net
income for theperiodEuro+ 0.50%Japanese yen+ 0.50%US Dollar
Other currencies
Total

Effect on
shareholders’equityShift ininterest rate
curve

Effect on net
income for theperiodEffect on
shareholders’equity(763 )

206- 0.50%

765

(465)

(353 )(353 )- 0.50%353

353+ 0.50%147

147- 0.50%(147 )(147)+ 0.50%168

168- 0.50%(168 )(168)(801 )

168

803

(427)

The total impact on Shareholders’ equity (positive impact of Euro 168 thousand
and negative impact of Euro 427 thousand, respectively) should be considered as
the sum of the effect of an hypothetical shift in the interest rate curve on theincome statement and on the cash flow hedge reserve.
The effects on the above-mentioned items are stated before the tax effect.
The sensitivity analysis was based on the period end net financial position so it
might not reflect the actual exposure to the interest rate risk during the year.
Therefore, this analysis should be considered as indicative only.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report9313. Receivables from parent companies and related parties
Receivables from parent companies and related companies are detailed below:
July 312011

January 31
2011

Financial receivables - PRADA Holding bv–

32,558Financial receivables - other companies controlled by PRADA Holding bv

–

77

1,410

1,409

(amounts in thousands of Euro)

Financial receivables - other related parties
Other receivables - PRADA Holding bv

8,911

767

Other receivables - other related parties

2,756

1,329

Other receivables - other companies controlled by PRADA Holding bv

15

172

Other receivables - associated companies–

5

13,09236,317Total

The financial receivable the Group had from PRADA Holding bv at January 31,
2011, was entirely settled during the first half of 2011 using financial resources
resulting from the dividend distribution approved by PRADA spa.
The caption “Other receivables from Prada Holding bv” includes a recharge ofEuro 8.8 million relating to the costs associated with the listing of the existing
shares. The receivable has been collected after the reporting date. Details of financial
and non-financial other receivables are provided in Note 39.
14. Other current assets
Other current assets are detailed as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

VAT

27,546

19,249

Income tax and other tax receivables

7,895

9,794

Other

24,008

7,783

Prepayments and accrued income

37,44531,842

Deposits

1,754

1,557

Total

98,64870,225

July 312011

January 31
2011

Advertising contributions under license agreements

7,976

1,952

Advances to suppliers

1,596

566

Incentives for retail investments

7,793

2,222

Other
(amounts in thousands of Euro)

Advances to employees

832

647

Other receivables

5,811

2,396

Total

24,008

7,783“Advertising contributions under license agreements” relates to Prada sa receivablesfrom licensees that manufacture and distribute Prada and Miu Miu eyewear. They
relate to contributions towards costs incurred for advertising campaigns during theperiod ended July 31, 2011.
“Other Receivables” includes Euro 2.8 million for the recharge to Intesa SanPaolo
spa of the costs associated to the listing of the existing shares.

94

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report14. Other current assets (continued)
Prepayments and accrued income(amounts in thousands of Euro)

July 312011

January 31
2011

Rental charges
Insurance
Design costs
Fashion shows and advertising campaigns
Sponsorship
Consulting
Amortized costs on loans
Other15,381
2,048
8,836
3,239
101
3,413
788
3,639

11,357873
10,620
2,133
236
2,762
985
2,876

Total

37,44531,842“Design costs” mainly include costs incurred for the conception and realization ofcollections that will revenue after July 31, 2011.
Deposits“Deposits” mainly includes guarantee deposits paid under commercial leaseagreements.
15. Assets held for sale
The decrease in “Assets held for sale” related to the sale of the stake in Fragrance& Skincare sl, a joint-venture set up in 2003 with Spanish fragrance manufacturer
Puig which was sold on February 23, 2011, and to the Genny brand which was also
sold on March 16, 2011.
16. Property, plant and equipment
Changes in the historical cost of “Property, plant and equipment” in the period
ended July 31, 2011 and January 31, 2011, are as follows:
Land andbuildings

Production
plant andmachinery

Leaseholdimprovements

Furniture& fittings

Balance at January 31, 2010

128,794

90,119382,524

144,063

72,84861,616879,964

Additions

10,4797,609

83,16526,437

11,93058,446

198,066

Disposals

–

1,057

110

416

434

309

2,326

Exchange differences

1,257

46

12,788

4,086

579

2,195

20,951Other movements

31,995346

23,766

3,857

(54 )

(60,710 )

(800)

–

15

14,925

1,515

376

2,081

18,912

Balance at January 31, 2011

172,525

97,048487,208

176,51284,49359,157

1,076,943

Additions

35,481

3,562

32,185

4,397

13,32632,294

121,245

Disposals

–

83

20

484

1,172

47

1,806

(1,423 )(117 )(6,233 )(912 )(88 )738(8,035)(amounts in thousandsof Euro)Impairment and write off

Exchange differences
Other movements

AssetsOther
underequipment construction

Total
historical
cost

324

(8 )

12,829

4,291

1,031

(18,041 )426

Impairment and write off

–

(1 )

(1,411 )(1,152 )(118 )(1,159 )(3,841)

Balance at July 31, 2011

206,907

100,401

524,558

182,652

97,472

72,942

1,184,932

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report9516. Property, plant and equipment (continued)
Changes in accumulated depreciation of “Property, plant and equipment” in the period
ended July 31, 2011 and January 31, 2011, are as follows:(amounts inthousandsof Euro)Land andbuildings

Production
plant andmachinery

Leaseholdimprovements

Furniture &fittings

Other
equipment

Total accum.
depreciation

Balance at January
31, 2010

22,33776,599221,776

87,85953,428461,999

Depreciation

4,295

6,319

49,923

15,861

6,646

83,044

–

929

25

247

378

1,579

Exchange differences

134

39

6,975

2,206

435

9,789

Other movements

157

(7 )

(349 )(32 )38(193 )

Impairment andwrite off–

15

11,204

1,244

371

12,834

Balance at January
31, 2011

26,92382,006

267,096

104,403

59,798540,226

Depreciation

2,190

3,252

29,393

8,889

2,748

46,472

–

79

5

320

1,121

1,525

(266)

(103 )(4,053 )(608 )(63 )(5,093 )Other movements

–

–

(50 )

947

(955 )(58 )Impairment andwrite off–

(1 )(957 )(986 )(117 )(2,061 )Balance at July
31, 2011

28,84785,075

291,424

112,325

60,290577,961

Disposals

Disposals
Exchange differences

Changes in the net book value of “Property, plant and equipment” in the period ended July
31, 2011 and January 31, 2011, are as follows:
Land andbuildings

Production
plant andmachinery

Leaseholdimprovements

Furniture& fittings

Balance at January 31, 2010

106,459

13,520160,747

56,204

19,42061,616417,965

Additions

10,4797,609

83,16526,437

11,93058,446

198,066

Depreciation

4,295

6,319

49,923

15,861

6,646–

83,044

0

128

85

169

56

309

747

Exchange differences

1,123

7

5,813

1,880

144

2,195

11,162Other movements

31,838353

24,115

3,889

(92 )

(60,710 )(607 )

–

–

3,721

271

5

2,081

6,078

Balance at January 31, 2011

145,602

15,042

220,112

72,10924,69559,157536,717Additions

35,481

3,562

32,185

4,397

13,32632,294

121,245

Depreciation(2,190 )(3,252 )(29,393 )(8,889 )(2,748 )–(46,472)

–

4

15

164

51

47

281

(1,157 )(14 )(2,180 )(304 )(25 )

738(2,942 )(amounts in thousandsof Euro)Disposals

Impairment and write off

Disposals
Exchange differences
Other movements

96

AssetsOther
underequipment construction

Total
historical
cost

324

(8 )

12,879

3,344

1,986

(18,041 )484

Impairment and write off––(454 )(166 )(1 )(1,159 )(1,780 )Balance at July 31, 2011

178,060

15,326

233,134

70,32737,182

72,942606,971

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report16. Property, plant and equipment (continued)
Additions to “Land and buildings”, amounting to Euro 35.5 million, mainly regard
the purchase and refurbishment cost of a property in Tuscany already used by theGroup under a rental agreement for the ready-to-wear production. This investment
was part of a purchase agreement signed in November 2010 by PRADA spa
concerning a plan of acquisitions of buildings mainly located in Tuscany.
The increases in “Production plant and machinery” mainly relate to purchases ofequipment involved in the footwear production.
In line with the Group’s growth strategy, most of the investments made during theperiod were concentrated, as in prior years, in building up the retail network. In
2011, the increase in “Property, plant and equipment” and “Intangible assets”
relating to this sales channel amounted to Euro 72.9 million and was mainly split
between “Leasehold improvements”, “Furniture and fittings” and “Assets underconstruction”. Euro 63.8 million out of this total amount was invested in opening
new stores (Euro 31.7 million for stores that opened in the first half of 2011 andEuro 32.1 million for stores opening shortly) with Euro 9.1 million invested in the
expansion and refurbishment of existing stores.
The additions leading to the increase in “Other equipment” mainly regarded
purchases of hardware.
“Assets under construction” amounted to Euro 72.9 million at July 31, 2011,
including Euro 4.5 million regarding a property held under a finance lease in Milan,
Euro 55 million relating to stores opening shortly (mainly in Europe and Japan) andEuro 13.4 regarding the Industrial and Corporate area.
“Land and buildings” included capitalized interest charges as follows:(Amounts in thousands of Euro)Land and buildings

PRADA Group

Opening net
book value

Increases

Exchangedifferences

Amortization

Closing net
book value

7,821

30

(2 )

(108 )

7,741

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report9717. Intangible assets
Changes in the historical cost of “Intangible assets” in the period ended July 31,
2011 and January 31, 2011, are as follows:Total
historical
cost

816

1,135,479

Trademarks

Goodwill

Store Lease
Acquisitions

Balance at January 31, 2010

395,114532,992

105,510

–

–

–

–

–

–

–

184

–

1,529

3,339

1,599

2,143

8,794

Change in consolidation area
Additions
Disposals

Development
Softwarecosts

Assets inprogress(amounts in thousandsof Euro)57,01444,033

0

–

–

2

–

3

5

(5,208 )

176

340

185

1

19

(4,487 )Other movements

1

–

381

216

21

(603 )

16

Impairment and write off

–

–

–

24

189

–

213

390,091

533,168

107,760

60,72845,4652,372

1,139,584

Change in consolidation area

–

–

–

–

–

–

–

Additions

64

–

1,252

831

823

10,511

13,481

Exchange differences

Balance at January 31, 2011

Disposals

–

–

–

1

1

–

2

(1,205 )(431 )(155 )

(73 )

1

2

(1,861 )Other movements

–

–

–

808

–

(1,670 )(862 )

Impairment and write off

–

–

–

(37 )

–

(14 )

(51 )

Balance at July 31, 2011

388,950

532,737

108,857

62,256

46,288

11,2011,150,289

Exchange differences

Changes in the accumulated amortization of “Intangible assets” in the period ended
July 31, 2011 and January 31, 2011, are as follows:(amounts inthousandsof Euro)Balance at January
31, 2010
Change inconsolidation area
Amortization
Disposals

Goodwill

Store Lease
Acquisitions

SoftwareDevelopment
costs

Accumulated
amortization

66,96029,10363,05851,25031,789242,160

–

–

–

–

–

–

11,110

–

8,358

2,955

5,987

28,410

–

–

–

–

–

–

Exchange differences(439 )

119

157

162

1

–

Other movements

–

–

100

–

(2 )

98

Impairment andwrite off

–

–

–

24

179

203

77,631

29,222

71,67354,34337,596

270,465

–

–

–

–

–

–

5,485

–

3,784

1,448

2,646

13,363

Balance at January
31, 2011
Change inconsolidation area
Amortization
Disposals

98

Trademarks

–

–

–

–

–

–

Exchange differences(288 )(290 )(106 )(71 )

2(753 )

Other movements

–

–

55

–

–

55

Impairment andwrite off

–

–

–

(37 )

–

(37 )

Balance at July
31, 2011

82,82828,93275,406

55,68340,244

283,093

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report17. Intangible assets (continued)
Changes in the net book value of “Intangible assets” in the period ended July 31,
2011 and January 31, 2011, are as follows:(amounts in thousandsof Euro)Trademarks

Goodwill

Store Lease
Acquisitions

SoftwareDevelopment
costs

Assets inprogress

Total net
book value

328,154503,889

42,452

5,764

12,244816

893,319

Balance at January 31, 2010
Change in consolidation area

–

–

–

–

–

–

–

184

–

1,529

3,339

1,599

2,143

8,794

11,110

–

8,358

2,955

5,987

–

28,410

–

–

–

2

–

3

5

(4,769 )

57

183

23

–

19

(4,487 )Other movements

1

–

281

216

23

(603 )(82 )Impairment and write off

–

–

–

–

10

–

10

312,460

503,946

36,087

6,385

7,869

2,372

869,119

Change in consolidation area

–

–

–

–

–

–

–

Additions

64

–

1,252

831

823

10,511

13,481(5,485 )–(3,784 )(1,448 )(2,646 )–(13,363 )

–

–

–

1

1

–

2

Exchange differences(917 )(141 )

(49 )

(2 )

(1 )

2

(1,108 )Other movements

–

–

(55 )

808

–

(1,670 )(917 )

Impairment and write off

–

–

–

–

–

(14 )

(14 )

Balance at July 31, 2011

306,121503,805

33,451

6,573

6,044

11,201

867,196

Additions
Amortization
Disposals
Exchange differences

Balance at January 31, 2011

Amortization
Disposals

The net book value of Trademarks at July 31, 2011 and January 31, 2011, is broken
down as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

Miu Miu

179,347

182,112Church’s

107,718

110,546

Luna Rossa

7,601

8,093

Car Shoe

6,089

6,177

Prada

4,557

4,637

Other

809

895

Total

306,121

312,460

No impairment losses were recognized in relation to the Group’s trademarks in the
period ended July 31, 2011. The caption “Other” includes trademark registration
expenses.
“Store lease acquisition costs” (key-money) include intangible assets recognized
in respect of costs incurred by the Group to enter into, take over or extend, leaseagreements for retail premises in the most prestigious retail locations worldwide.
The increase recognized during the period regards lease agreements in Italy.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report9917. Intangible assets (continued)
The following table contains a summary of total additions to “Property, plant andequipment” and “Intangible assets” for each business area.
July 312011

January 31
2011

Retail

72,939153,684

Industrial and logistics

45,37728,385

Corporate

16,41024,792

Total

134,726

206,861(amounts in thousands of Euro)

Goodwill
As at July 31, 2011, “Goodwill” amounted to Euro 503.8 million. A breakdown of
goodwill by Cash Generating Unit is provided below:(amounts in thousands of Euro)

July 312011

January 31
2011

Italy Wholesale

78,35578,355Asia Pacific and Japan Retail311,936

311,936

Italy Retail25,85025,850Germany and Austria Retail

5,064

5,064

United Kingdom Retail

9,300

9,300

Spain Retail

1,400

1,400

France and Monte Carlo Retail

11,70011,700

North America Retail and Wholesale

48,00048,000Industrial division

3,492

3,492

Church’s

8,709

8,849

503,806

503,946

Total

As required by IAS 36 the goodwill with an indefinite useful life is not amortized.
Instead, it is tested for impairment at least once a year.
The method used to identify the recoverable value (value in use) is based on the
discounted expected free cash-flow (hereinafter DCF) generated by the assets
directly attributable to the business to which the goodwill has been allocated (CashGenerating Units, hereinafter CGUs).
The value in use is calculated as the sum of the present value of future free cashflows expected from the business plan projections prepared for each CGU and thepresent value of the operating activities of the sector at the end of the businessplan period (terminal value).
Business plans cover a period of five years and the discount rate used to discountcash flows is calculated using the weighted average cost of capital approach(W.A.C.C.). For the year ended January 31, 2011, the W.A.C.C. used for discounting
purposes was in a range between 5.55% and 9.6% (5.66% and 8.84% for the year
ended January 31, 2010).
The impairment test performed as at January 31, 2011, did not identify any loss
and no evidence emerged during the period under review to suggest any indicationof impairment.
However, as the recoverable amount is determined on the basis of estimates, theGroup cannot guarantee that the value of goodwill will not be impaired in futureyears.
100

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report18. Associated undertakings(amounts in thousands of Euro)
Investments in associated undertakings and joint-ventures
Other investments
Total

July 312011

January 31
2011

1,739

1,739

14

14

1,753

1,753

Investments in associated undertakings and joint ventures are accounted for underthe equity method.
19. Other non current assets
Other non-current assets may be analyzed as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

Guarantee deposits

41,95837,945

Deferred rental income

2,058

1,981

Other receivables

5,225

4,957

Total

49,24144,883The increase in “Guarantee deposits” is due to expansion of the retail network.
“Other receivables” include Euro 3.5 million representing the actuarial valuation of
the Group’s pension plans in the United Kingdom, as described in Note 28 “Longterm employee benefits”.
Guarantee deposits are analyzed below by nature and maturity:
July 312011

January 31
2011

Stores39,961

34,639

Offices

1,320

1,268

(amounts in thousands of Euro)Nature:Warehouses

133

152

Other

544

1,886

Total

41,95837,945(amounts in thousands of Euro)

July 312011

Maturity:
By July 31 2013

6,060

By July 31 2014

4,331

By July 31 2015

6,321

By July 31 2016

2,843

After July 31 2016

22,403

Total

41,958PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report10120. Bank overdrafts and short-term loans(amounts in thousands of Euro)Bank overdrafts
Short-term loans and current portion of long-term loans
Deferred costs on loans
Total

July 312011

January 31
2011

1,040

17,074

162,456

179,389(1,544 )(2,223 )161,952

194,240“Short-term loans and current portion of long-term loans” are detailed as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

Short-term bank loans

29,91562,304Current portion of long term loans

132,541

117,085

Total

162,456

179,389“Bank overdrafts and short-term loans”, which went from Euro 194.2 million toEuro 162 million at July 31, 2011, generally benefited from the free cash flow
generated and the capital injection resulting from the IPO project.
“Short-term bank loans and current portion of long-term loans” are detailed bycurrency as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

Euro

114,914

136,451

Japanese Yen

40,431

36,163

Other currencies

7,111

6,775

162,456

179,389

Total

The Group generally borrows at variable rates of interest and manages the risk ofinterest rate fluctuation by entering into hedging agreements that convert thevariable rates applied on medium/long term debt into fixed rates or rates within a
specific range.
Considering hedges in place at the reporting date, some 90% of the current portionof medium/long term loans consisted of fixed rate loans (96% at January 31, 2011)
with variable rate loans making up the remaining 10% (4% at January 31, 2011).
Financial payables are stated net of amortized costs totaling Euro 2.6 million incurred
to arrange the loans (Euro 1 million deducted from short-term loans and Euro 1.6
million deducted from long-term loans).

102

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report21. Payables to parent companies and related parties
Payables to parent companies and related parties are detailed as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

Financial payables - PRADA Holding bv–

40

Financial payables - other companies controlled by Prada Holding bv–

241

Other payables - PRADA Holding bv

15

30

Other payables - other related parties

603

786

–

10

618

1,107

(amounts in thousands of Euro)

July 312011

January 31
2011

Payables to other shareholders

574

581

Total

574

581

Other payables - other companies controlled by Prada Holding bv
Total

A detailed breakdown of the balance is provided in Note 39.
22. Other shareholders’ loans

At the reporting date, payables to other shareholders included loans received fromthe minority shareholders of companies called “TRS” (Travel Retail Shop).
23. Trade payables
Trade payables are detailed as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

Trade payables - third party

301,782

232,143

2,181

1,701

–

22

303,963

233,866

Trade payables - related parties
Trade payables - associated companies
Total

The increase in Trade payables is consistent with the higher volume of production
necessary to supply the expanded DOS as well as to the growth of the business ingeneral.
A detailed breakdown of trade payables to related parties is provided in Note 39“Transactions with related parties”. They mainly regard purchases of finishedproducts by retail companies owned by the main shareholders of PRADA Holding
bv.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report10324. Current Tax liabilities
Current tax payables are detailed as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

Current income tax

130,929

89,197

VAT and other taxes

19,626

18,455

Total

150,555

107,592

25. Obligations under finance leases
The change compared to January 31, 2011 should be considered together with thedecrease in non-current obligations under finance leases. It regards capital repaid
in accordance with the said lease agreements.
Maturities of the lease payments are detailed as follows:(amounts in thousands of Euro)
Payable by the end of the period ending:July 31, 2012

3,847

July 31, 2013

948

July 31, 2014

186

July 31, 2015

421

July 31, 2016–

Periods after July 31, 2016

–

Total

5,402

26. Other current liabilities“Other current liabilities” are detailed as follows:104(amounts in thousands of Euro)

July 312011

January 31
2011

Payables for capital expenditure

31,58041,134

Accrued expenses and deferred income

23,04323,423

Other payables

63,35846,926

Total

117,981

111,483

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report26. Other current liabilities (continued)“Accrued expenses and deferred income” are as follows:(amounts in thousands of Euro)Deferred income

July 312011

January 31
2011

978

1,208

Advertising

1,740

76

Commercial lease charges

11,586

9,845

Consulting

1,534

1,774

908

1,258

Maintenance, security, utilities and insuranceCommission

542

888

Logistics costs and customs charges

3,016

2,364

Other

2,739

6,010

Total

23,04323,423(amounts in thousands of Euro)

July 312011

January 31
2011

Short term benefits for employees and other personnel

48,48432,768Customer advances

3,901

2,473

“Other payables” are detailed as follows:

Customs duties

–

2,099

Returns from customers

4,800

4,491

Other

6,173

5,095

Total

63,35846,926(amounts in thousands of Euro)

July 312011

January 31
2011Bank borrowing

222,481

305,489(1,024)(2,081 )

221,457

303,408

27. Long term debt
Long term debt is detailed below.

Deferred costs on loans
Total

The decrease in “Bank borrowing” is mainly due to the reimbursement in advanceof a US Dollar mortgage (Euro 13.9 million as at January 31, 2011) thanks to thefunds raised by the IPO and the reclassification to “Bank overdrafts and short-termloans” of the current portions of the long-term loans. Some 74% of “Bankborrowing” consists of fixed rate loans (80% at January 31, 2011) with variable
rate loans accounting for the remaining 26% (20% at January 31, 2011).

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report10527. Long term debt (continued)
Details of long-term borrowing at July 31, 2011 are provided below.
Amount inthousandsof EuroBorrowerLoancurrency

LenderExpiry date

Interest
rate (1)

07/20133.011%PRADA spa

140,000

Euro

Pool loan

PRADA spa

3,600

Euro

Monte dei Paschi di Siena 07/2015

3.310%PRADA spa

15,000Euro

IntesaSanPaolo

06/20142.145%PRADA spa

1,250

Euro

C.R. Lucca. Pisa. Livorno

08/20124.400%PRADA spa

13,393Euro

Cariparma

06/20152.720%PRADA Japan Co. ltd

6,004

Japanese Yen

Mizuho Bank

07/2013

2.093%PRADA Japan Co. ltd

28,936

Japanese Yen

Mizuho Bank

07/20131.550%

Church & Co plc

1,225

GB Pound

HSBC

07/20131.200%PRADA Fashion Commerce
Shanghai) co limited

9,805

Chinese Renminbi

Mizuho Bank

09/20135.914%PRADA Fashion Commerce
Shanghai) co limited

3,268

Chinese Renminbi

Bank of China

09/20125.400%

LenderExpiry date

Interest
rate (1)

Total

(1)

222,481the interest rates include the effect of interest rate risk hedging transactions

Details of long term borrowing at January 31, 2011 are provided below.
Amount inthousandsof EuroBorrower

Loan currency

Post Development Corp

14,844US Dollar

Sovereign Bank

05/2014

5.70%

PRADA Fashion Commerce
Shanghai) co limited

3,322

Chinese Renminbi

Bank of China

09/2012

5.40%

07/2013

3.01%

PRADA spa

180,000

Euro

Pool loan

PRADA spa

4,200

Euro

Monte dei Paschi di Siena 07/2015

3.31%

PRADA spa

18,750Euro

IntesaSanPaolo

06/20142.145%PRADA spa

12,000Euro

Unicredit

05/20122.345%PRADA spa

3,750

Euro

C.R. Lucca. Pisa. Livorno

08/2012

4.40%

PRADA spa

16,243Euro

Cariparma

06/2015

2.19%
2.09%

PRADA Japan Co. ltd

8,872

Japanese Yen

Mizuho Bank

07/2013

Church & Co plc

1,660

GB Pound

HSBC

07/2013

1.20%

PRADA Japan Co. ltd

32,003

Japanese Yen

Mizuho Bank

07/2013

1.55%

PRADA Fashion Commerce
Shanghai) co limited

9,845

Chinese Renminbi

Mizuho Bank

09/2013

5.57%

Total

(1)

305,489

the interest rates include the effect of interest rate risk hedging transactions

The financial instruments used to hedge the interest rate risk - interest rate swaps andcollars - convert the variable rates of interest due on loans into fixed rates or rates within acertain range.

106

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report27. Long term debt (continued)
The pool loan is subject to compliance with certain covenants based on theConsolidated Financial Statements of the Group. Specifically the ratio of total net
borrowings and EBITDA cannot exceed 2.5 at year end (3 at six-monthly reportingdate), the ratio of EBITDA to total net interest charges must be greater than 4 and,
finally, shareholders’ equity must not be lower than Euro 650 million. At July 31,
2011, the Group fully respected all these covenants.
The Mizuho Bank loan granted to Prada Japan co ltd is subject to certain covenants
based on the Statutory Financial Statements of Prada Japan co ltd. At the reporting
date all these covenants were fully respected.
During the period, with the exception of an additional long-term funding of Renminbi
31 million from Mizuho, no new long-term loans were taken on.
Long-term borrowing is analyzed by currency and maturity date as follows:
July 312011

January 31
2011

Euro

173,243

234,943

Japanese Yen

34,94040,875

GB Pound

1,225

1,660

US Dollar–

14,844Chinese Renminbi

13,073

13,167

Total

222,481

305,489(amounts in thousands of Euro)
Currency:(amounts in thousands of Euro)

July 312011

Maturity:
July 31, 2013

201,500

July 31, 2014

17,788July 31, 2015

3,193

After July 31, 2015

–

Total

222,481(amounts in thousands of Euro)

January 31
2011

Maturity:
January 31, 2013

127,176

January 31, 2014

151,970

January 31, 2015

23,422After January 31, 2015

2,920

Total

305,489

The long-term loan made by Banca Monte dei Paschi di Siena to PRADA spa in2008 is secured by a mortgage on a building in Tuscany that houses offices andresearch and development workshops.
The long-term loan made by Cassa di Risparmio Parma e Piacenza to PRADA spa in2008 is secured by a mortgage on a building in Tuscany where the Group hasconcentrated the logistics activities of the footwear and leather goods divisions.
The interest rates applicable to the Group’s bank debts (short and long term) ranged
from 1.165% to 11.06% at July 2011 and from 1.17% to 10.30% at January 2011.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report10728. Long term employee benefits(amounts in thousands of Euro)

July 312011

January 31
2011

Post employment benefits

34,01533,451Other long term employee benefits

1,093

1,382

Total liabilities for long term benefits

35,10834,833

Post employment benefit (pension plan surplus)(3,538 )(3,595 )Net amount of long term benefits

31,57031,238

Post employment benefits
Liabilities for post employment benefits reported at July 31, 2011, amounted to a
net of Euro 30.5 million (Euro 29.9 million as at January 31, 2011) and are considereddefined benefit plans. The pension plan surplus was included in “Other non current
assets” (Note 19).
The balance includes Euro 21.6 million of liabilities recorded in the financial
statements of Italian companies and Euro 8.9 million reported by foreign companies.
The Italian liabilities for post employment benefits regard the “Trattamento di Fine
Rapporto” (hereinafter “TFR” i.e. staff leaving indemnity) and the balance - whichreflects fair value - was determined projecting the benefit, accruing under Italian
law at the reporting date, to the future date when the employment relationship will
be terminated and discounting it at the reporting date using the actuarial “Projected
Unit Credit Method”.
The following table shows movements on Liabilities for post-employment benefits
in the period ended July 31, 2011:
Post
employment
benefits
Italiancompanies (TFR)

Post
employment
benefits
non-Italiancompanies

Group
Total

22,322

7,534

29,856

Current service cost

49

1,219

1,268

Interest cost

219

38

257

Actuarial (gains)/losses

349

215

564

(1,357)(404 )(1,761 )

–

291

291

21,582

8,893

30,475Opening balance

Benefits paid
Exchange differences
Closing balance

The TFR liability was determined based on an independent appraisal which
considered demographic, economic and financial evidence and assumptions. The
technical part of the computation was based on an historical analysis of the data.
For the demographic assumptions, variables such as mortality, early retirement
and resignation, dismissal, expiry of employment contract, advance payment on
leaving indemnities and supplementary pension schemes were considered.
Economic and financial assumptions were made based on variables such as inflationand discount rates.
At July 31, 2011, the discount rates used for the purposes of the actuarial valuationof the Italian TFR was in a range between 1.935% to 4.5% and the expected rateof salary increase was in a range between 1.5% to 2.0%.

108

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report28. Long term employee benefits (continued)
Post employment benefits (continued)
Post-employment benefits of non-Italian companies are stated net of the surplus
on pension plans relating to Group companies operating in the United Kingdom
which provide pension services for their employees. The positive fair value of thesepension funds, amounting to Euro 3.5 million as at July 31, 2011, has not been
updated since January 2011. The Directors believe that there has been no significant
changes in their fair value during the period.
The amount related to the current service cost, equal to Euro 1.3 million (Euro 1.1
million as at July 2010) and interest cost amounting to Euro 0.3 million (Euro 0.2
million as at July 2010) was recognized through the income statement.
Other long-term employee benefits
These long-term employee benefits fall into the IAS 19 category “Other long-term
employee benefits”. As at July 31, 2011, their actuarial valuation, obtained using
the Projected Unit Cost Method, was Euro 1.1 million.
29. Provisions for risks and charges
Movements on provisions for risks and charges are summarized as follows:(amounts in thousands of Euro)
Opening balance
Exchange differences
Reversals

Provision
for litigation

Provision fortax disputes

Other
provisions

Total

846

40,091

11,78852,725

–

217

(261)

(44 )

(47 )

(1,087 )(55)(1,189 )Utilized–(182 )(940)(1,122 )Increases

358

1,302

2,402

4,062

1,157

40,341

12,93454,432

Closing balance

Provisions for risks and charges represent the Directors’ best estimate of maximum
contingent liabilities. In the Directors’ opinion and based on the information available
to them, as supported by the opinions of independent experts, at the reporting
date, the total amount provided for risks and charges was reasonable considering
the contingent liabilities that might arise.
Provision for litigation
The provision for litigation amounted to Euro 1.2 million and mainly regarded disputes
with landlords and other suppliers of the Group.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report10929. Provisions for risks and charges (continued)
Provision for tax disputes
On December 30, 2005, Genny spa (a company incorporated into PRADA spa)
received two notices of tax assessment for VAT purposes for the 2002 fiscal year.
The assessments regarded the failure to apply VAT to the value of the “Genny”
and “Byblos” brands which were sold along with their respective business units.
The total amount assessed was about Euro 20 million. On April 21, 2006 PRADA
spa - in favour of Genny spa - appealed to the Provincial Tax Commission of Anconaand hearings took place on January 16, 2007. On May 15, 2007, the Provincial Tax
Commission issued its decisions which were favorable to the Company. On June
7, 2008 the Revenue Agency filed its appeals against these decisions and on
September 18, 2008 PRADA spa filed its own counter arguments. The above appeal
hearings were held on December 21, 2010. Following to the official communicationof outcomes favorable to the Company, on June 21 2011 the Revenue Agency
filed further appeals to the Supreme Court of Cassation and the Company ispreparing the related counterclaims.
On August 4, 2006, IPI Italia spa (a company incorporated into PRADA spa), as
purchaser of the Genny business, received a demand for VAT penalties totaling
Euro 5.7 million for the year 2002 in relation to its alleged failure to issue a “selfinvoice” for the value of the “Genny” brand acquired as part of the business. On
November 14, 2006, PRADA spa - in favour of the merged company - submitted
defensive arguments against this claim. On October 9, 2007 PRADA spa received
a request for penalties against which it filed an appeal with the Milan Provincial Tax
Commission on December 14, 2007. On January 19, 2009 the appeal was rejected
and the Company filed another appeal on May 8, 2009. This appeal was heard
before Milan Regional Tax Commission on December 1, 2009 and officially rejected
on January 20, 2010. On March 3, 2011 the Company filed a further appeal to theSupreme Court of Cassation, against which, on April 13, 2011 the Revenue Agency
filed its counterclaim. Full provision was made for the amount involved in the disputeduring prior year. The penalty, which was totally accrued in 2009, is not included
within the provisions for risks at the reporting date as, according to applicable tax
regulations, was already paid to the relevant tax authorities.
On November 30, 2005, PRADA Retail France SAS received a notice of assessment
following an inspection by the French Tax Authorities. The assessment essentiallyregarded inter-company transfer pricing adjustments in 2003 and 2004. The disputeconcerned the adjustment of the tax losses incurred by the French company.
As no agreement was reached with the French Tax Authorities, on May 31, 2007,
PRADA Retail France filed an application to open a mutual agreement procedure interms of the Franco-Swiss Treaty. If the matter was against PRADA Retail France,
it wouldn’t generate any taxable income as affecting tax loss carryforwards onwhich no deferred tax assets were recognized at all. In July 2011 French and SwissTax authorities informally communicated that an agreement regarding the litigation
was reached and consequently the mutual agreement procedure could be finalized.
The Company is waiting for the formal proposal of the resolution.

110

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report29. Provisions for risks and charges (continued)
Provision for tax disputes (continued)
On December 9, 2009, PRADA Retail France SAS received a notice of assessment,
following an inspection by the French Tax SAS Authorities essentially with regard
to transfer pricing adjustments in 2005, 2006 and 2007. In the first few months of2010, PRADA Retail France commenced a mutual agreement procedures withregard to both the Franco-Swiss and Franco-Italian bilateral tax conventions. In themeantime, on August 30, 2010, PRADA Retail France received a notice from the
French Tax Authorities stating that they have partially cancelled part of the initialadjustment to the extent of Euro 1.5 million. In relation to the remaining part of theadjustment, the agreement reached in July 2011 between Franco-Swiss authorities(see the above detail concerning Prada Retail France 2003 and 2004 assessment)
covers also this mutual agreement procedure. Also with reference to these years,
the agreement will affect only the losses carried forward.
On the basis of the risk assessed on this litigation the directors, also supported bya recognized fiscal advisor, deemed reasonable not to accrue any provision.
In 2008, PRADA Germany received a notice of assessment in relation to intercompany transfer pricing in the tax years 2001, 2002, 2003 and 2004. In July 2008,
the company started the mutual agreement procedure provided for by the Double
Taxation Agreement between Germany and Switzerland and, on September 10,
2008, the German Tax Authorities announced the suspension of the ordinary
contestation procedure and of the payment due.
In July 2011 German and Swiss Tax authorities informally communicated that anagreement regarding the litigation was reached and consequently the mutual
agreement procedure could be finalized. The Company is waiting for the formal
proposal of the resolution. In the meantime, the German Tax Authorities commenced
an inspection in relation to transfer pricing in the 2005, 2006, 2007 and 2008 tax
years; this inspection is still in progress.
In the last few months of 2009, the Japanese tax authorities began an inspectionof PRADA Japan in relation to transfer pricing in the tax years 2004, 2005, 2006,
2007 and 2008; this inspection is still in progress.
In 2007, the Korean tax authorities commenced a tax inspection of PRADA Korea
Ltd, mainly in relation to transfer pricing, for the 2002, 2003, 2004, 2005 and 2006
tax periods. In 2008, the inspection resulted in notices of tax assessment thatwere challenged by PRADA Korea although, in the meantime, as required by local
regulations, it paid the full amount of the assessment in order to avoid the risk ofhigher penalties. After its initial challenge was thrown out, in September 2008,
PRADA Korea filed an appeal that was heard in August 2010. During this appeal,
the tax tribunal stated that it would make its final decision on the issue of transfer
pricing only after it had been informed of the outcome of a new inspection being
carried out by the tax authorities in order to gain a better understanding of themethods used to value the company’ intercompany transactions; this inspection
was completed and Tax authorities ruled in favour of the Company with areimbursement of approximately Euro 0.7 million.
In some countries, the Tax Authorities have requested information to assess thereasonableness of the transfer prices of products for the determination of income
taxes and the imposition of customs duties on imports.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report11129. Provisions for risks and charges (continued)
Provision for tax disputes (continued)
Except where there is an express statement that no provision has been made, theDirectors, supported by the opinion of their tax advisors, believe that the provisions
totaling Euro 40.3 million carried at July 31, 2011 in respect of the tax disputes
described above represents the best estimate of the obligations that the Group
could be called upon to fulfill.
Other provisions for risks“Other provisions” amounted to Euro 12.9 million as at July 31, 2011. They mainly
included the provisions made in relation to lease agreements which may be definedas onerous contracts under IAS 37 “Provisions, contingent liabilities and contingent
assets”. The increase for the period mainly regards a new leased commercial
property in the Far East.
30. Other non-current liabilities“Other non-current liabilities” amounted to Euro 64.1 million (Euro 50.2 million as
at January 31, 2011). They mainly regarded liabilities to be recognized on a straightline basis in relation to commercial lease costs.

112

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report31. Group’s Shareholders’ equity
The Group’s shareholders’ equity is as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

Share Capital

255,882

250,000

Share premium

409,804

209,298

Other reserves

747,643534,245

Translation reserve(51,727)(40,012 )Net profit for the period

179,532

250,819

1,541,134

1,204,350

Total

Share capital
On May 26, 2011, the PRADA spa Shareholders - PRADA Holding bv and Intesa
SanPaolo spa, representing a total number of 237,216,515 and 12,783,485 shares
respectively - resolved to change the par value of the Company shares from Euro
1.00 to Euro 0.10 each. As a consequence of the resolution the subscribed capitalamounting to Euro 250,000,000 was thus represented by some 2,500,000,000
shares.
On June 24, 2011, PRADA spa was listed on the Hong Kong Stock Exchange withthe start of the trading of 423,276,000 of its shares on the main board. The total
number of charges traded included 58,824,000 new shares, as resolved by the
Shareholders’ meeting held on May 26, and 364,452,000 shares sold by the existing
Shareholders. The shares were placed with an offer price of HKD 39.5 per share sothat the capital injection, net of the incremental directly attributable costs, amounted
to Euro 206.4 million at July 31, 2011.
On July 6, 2011, the International Underwriters exercised their over-allotment option
for a total number of 63,489,000 shares. These shares were placed by the existing
Shareholders only, so no further funds were raised by the PRADA Group.
At the reporting date, the floating portion represented 19.02% of the share capitalwhile the remainder was owned by PRADA Holding bv (79.98%) and Intesa SanPaolo
spa (1%).
Share premium reserve
The increase in the Share premium reserve, amounting to Euro 200.5 million, relates
to the 58,824,000 new shares issued in relation to the IPO project. The change inthe reserve came as a result of the difference between the net capital injection
resulting from the listing (Euro 206.4 million) and the par value of the new sharesissued (Euro 5.9 million).
Other reserves
At the reporting date, “Other reserves” amounted to Euro 747.6 million and mainly
consisted of prior year retained earnings. The balance included, net of the related
tax impact, the Actuarial Reserve with a negative balance of Euro 1.4 million and
the Cash Flow Hedge Reserve of Euro 1.5 million.
Net income for the period
The Group’s net income for the period amounted to Euro 179.5 million (Euro 250.8
million as at January 31, 2011).
PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report11332. Shareholders’ equity - non controlling interests
The following table shows movements on the Shareholders’ equity of NonControlling Interests during the periods ended July 31, 2011 and January 31, 2011.
(amounts in thousands of Euro)
Opening balance
Translation differences

July 312011

January 31
2011

5,788

8,756

129

(51 )

(3,886 )(530 )

Acquisition of 45% of Car Shoe sa–(5,134 )Other movements–

1

Net income for the period

1,669

2,732

Actuarial Reserve
Capital injection in subsidiaries

(10 )
1,383

14
–

Closing balance

5,073

5,788

Dividends

On the basis of their stake in the company, the Non-Controlling Shareholders of
PRADA Middle East fzco contributed to the capital injection for the development of
the business in the Middle East area.
Dividends were paid to the Non-Controlling Shareholders of TRS Guam Partnership,
TRS Hong Kong ltd and Artisans Shoes srl.
Consolidated income statement
33. Net revenues
Consolidated revenues are mainly generated by sales of products and are stated
net of returns and discounts.
July 31
2011

July 312010
unaudited

Net sales

1,117,403

920,401

Royalties

16,87816,093

1,134,281

936,494(amounts in thousands of Euro)

Total

Royalties are paid by licensees on sales of eyewear, fragrances, cars and underfranchise agreements. Total royalties income may be detailed as follows:(amounts in thousands of Euro)

July 31
2011

July 312010
unaudited

Eyewear13,685

13,444

Fragrances

1,774

1,771

Franchise agreements

757

750

Concept Cars

607

–

Other

55

128

Total

16,87816,093This item included Euro 0.5 million (Euro 2.1 million at July 31, 2010) of royalties
from related parties (Note 39).
A breakdown of net revenues by brand, geographical area and product is provided
in the Directors’ Report and in Note 8.
114

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report34. Cost of goods sold(amounts in thousands of Euro)

July 31
2011

July 312010
unaudited

Purchases of raw materials and production costs

349,833

296,153

Logistics costs, duties and insurance

62,99452,549Change in inventories(83,729)(26,028 )Total

329,098

322,674

Cost of goods sold has decreased by 5.5 percentage points on net revenues
compared to the same period of prior year (down from 34.5% to 29%). This is dueto the greater contribution made by the retail channel, to an increase in unit margins
and to a more favorable ratio of full price sales to sales at promotional prices.
35. Operating expenses
Operating costs can be analyzed as follows:(amounts in thousands of Euro)

July 312011% of netrevenues

July 312010
unaudited% of netrevenues

Product design and development costs

51,453

4.5%

49,2795.3%

Advertising and communications costs

53,915

4.8%

36,685

3.9%

Selling costs

357,15631.5%

289,150

30.9%

General and administrative costs

89,281

7.9%

66,482

7.1%

Total

551,805

48.6%

441,596

47.2%

Operating expenses increased from Euro 441.6 million in the period ended July 31,
2010 to Euro 551.8 million in the period ended July 31, 2011 and their incidence on
net revenues grew from 47.2% to 48.6%. At constant exchange rates, operating
expenses would have increased by 27.1% rather than by 25%.
Product design and development costs included both the design phase - i.e. researchand testing of shapes, fabrics, leather and production techniques plus definition of
the design concept -and the product development phase, involving planning ofproducts, production of prototypes and manufacture of the products themselves.
Their incidence on net revenues decreased compared to the same period in lastyear - from 5.3% to 4.5% - as they have been absorbed to greater extent by the net
sales generated in the first half of 2011.
Advertising and communications costs increased from Euro 36.7 million to Euro
53.9 million. They included expenses incurred to develop advertising campaigns
and organize fashion shows and other events plus sponsorship costs and overheads
attributable to this area of the business. The increase in absolute terms on prioryear is mainly due to incremental spending for media and press consistently with
the Group’s strategy of increasing communications expenses for the promotion of
all brands. At constant exchange rates, advertising and communications costs would
have increased by 49.2% rather than by 47%.
Selling costs increased from Euro 289.2 million to Euro 357.2 million and rose from
30.9% of net revenues to 31.5%. The increase is essentially due to the expansionof the retail network which recorded a net increase of 53 stores since July 31,
2010. At constant exchange rates general and administrative costs would haveincreased by 26.2% rather than by 23.5%.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report11535. Operating expenses (continued)
General and administrative costs increased slightly from 7.1% of net revenues in
the first half of 2010 to 7.9% in the same period of 2011. In absolute terms thesecosts increased from Euro 66.5 million to Euro 89.3 million as a result of higher
overhead expenses due to the expansion of the Group business. At constantexchange rates general and administrative costs would have increased by 35.5%
rather than by 34.3%.
In order to provide further information on the income statement structure, we notethat operating expenses include depreciation, amortization and impairment
adjustments for both property, plant and equipment and intangible assets for a
total amount of Euro 57.4 million (Euro 49.1 million at July 31, 2010), personnel
costs of Euro 178.7 million (Euro 146.1 million at July 31, 2010), fixed rent of Euro80 million (Euro 65.9 million at July 31, 2010) and variable rent of Euro 80.1 million(Euro 62.1 million at July 31, 2010).
36. Interest and other financial income (expenses), net(amounts in thousands of Euro)

July 31
2011

July 312010
unaudited

Interests expenses on borrowings(8,966 )(7,569 )Interest income

583

993

Exchange gains / (losses) - realized

35

551

Exchange gains/ (losses) - unrealized(924 )(12,190 )Other financial income / (expenses)(2,328 )(1,949 )–551(11,600)(19,613 )Revaluations and write-down of investments
Total

Interests expenses on borrowings increased slightly compared to the first half of2010. The benefit of lower average bank borrowing was more than offset by anincrease in the cost of funding as the debt profile became more long term.
Furthermore, the first half of 2011 was also affected by the cost of settlement of a
IRS contract relating to the US mortgage reimbursed in advance with funds raisedby the IPO.

116

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report37. Taxation
Income taxes for the periods ended July 31, 2011 and July 31, 2010 are analyzed
below:(amounts in thousands of Euro)

July 31
2011

July 312010(unaudited)

Current taxation

82,00762,501

Deferred taxation(21,430)(13,813 )Total

60,577

48,688Despite the higher level of income generated, the tax charge decreased from 31.9%
in the first half of 2010 to 25.1%, essentially because of the change in the geographicalmix of taxable income, as a result of the change in the geographical mix of sales withslightly more favorable tax rates, and provisions made in the first half of 2010 for
ongoing tax disputes.
The following table shows a reconciliation between the effective tax rate of theGroup and the theoretical tax rate of the parent company PRADA spa.
July 312011
Italian theoretical tax rate

31.40%Tax effect of expenses/income that are not deductible/taxable in determining taxable profit-1.27%Tax effect of utilization of tax losses carried forward-0.29%

Effect of different tax rates of subsidiaries operating in other jurisdictions-4.79%

Group effective tax rate

25.05%

Movements on net deferred tax assets and deferred tax liabilities are shown in thefollowing table:(amounts in thousands of Euro)

July 312011

January 31
2011

Opening balance

88,66751,969Translation reserve (exchange differences)(1,242)

8,345

Cash Flow Hedge reserve643(2,456 )Actuarial reserve89(1,068 )

Other

41

(255 )

Income statement

21,43032,132

Closing balance

109,628

88,667PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report11737. Taxation (continued)
The following table shows deferred tax assets and liabilities classified by nature:
July 312011(amounts in thousands of Euro)Inventories

Deferred tax
assetsDeferred tax
liabilities

Deferred tax
assets73,057–62,284

–

768

1,500

415

1,515

50,977

12,41753,8696,273–

29,486–39,548

Receivables and other assets
Depreciation/Useful life of non current assets

January 31
2011

Deferred taxes due to acquisitions

Deferred tax
liabilities

Provision for risks / accrued expenses

16,384267

10,790267

Non deductible / taxable charges / income

6,934

1,152

5,893

1,134

Tax losses carryforwards

5,334

–

3,129

–

–

605

303

1,455

Derivative financial instruments
Long term employee benefits

4,334

1,911

4,533

1,943

Other

291

1,113

162

576

Total

158,079

48,451

141,378

52,711

Tax losses carryforwards at July 31, 2011 are analyzed below:(amounts in thousands of Euro)

July 312011

January 31
2011

Expiring within 5 years

14,228

11,490

Expiring after 5 years

25,545

17,587Available for carry forward with no time limit

60,25877,469Total tax losses carryforwards

100,031

106,546

The Directors have updated their assessment of tax loss carryforwards and,considering the current uncertain macroeconomic environment, they have concluded
that it was reasonable to recognize deferred tax assets in some cases only.
38. Additional information
Earnings per share
Basic earnings per share are calculated by dividing the net profit attributable toequity owners of PRADA spa by the weighted average number of ordinary sharesin issue during the period.
July 312011

Group net result in Euro

July 312010
unaudited

179,531,725

103,042,594

2,512,349,790

2,500,000,000

Basic earnings per share (in Euro per share)

0.071

0.041

Diluted earnings per share (in Euro per share)

0.071

0.041

Weighted average number of ordinary outstanding shares

On May 26, 2011, the Shareholders of PRADA spa resolved to change the parvalue of the Company shares from Euro 1 to Euro 0.1 each. In accordance with IAS
33, the new number of shares - some 2,500,000,000 - has been adjusted
retrospectively for the purposes of the calculation of the earnings per share.

118

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report38. Additional information (continued)
Dividends per share
During the first half of 2011, the Company distributed dividends of Euro 35 million,
or Euro 0.14 per share, as approved by the Shareholders’ meeting held on March
28, 2011 in relation to Financial Statements at January 31, 2011. These dividends
were offset against receivables due from controlling Shareholder PRADA Holding
bv for an amount of Euro 32.5 million with the remaining amount being paid.
During the year ended January 31, 2011, the Shareholders’ meeting held on April
28, 2010 approved a distribution of Euro 0.32 per share, representing a total dividendof Euro 80 million. This dividend was paid on July 27, 2010, for an amount of Euro
27.9 million and, on the same date, an amount of Euro 52.1 million was offset
against the receivable due from our controlling shareholder. Furthermore, theshareholders’ meeting on January 27, 2011 approved a distribution of Euro 0.124
per share, representing a total dividend of Euro 31 million which was paid in full on
the same date.
Headcount
The average headcount by function was as follows:(no of employees)

Production

July 31
2011

July 312010
unaudited

1,699

1,800

Product design and development

793

735

Advertising and communications

98

97

4,461

3,734

689

667

7,740

7,033

Selling
General and administrative
Total

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report11938. Additional information (continued)
Employee remuneration
Employee remuneration for the periods ended July 31, 2011 and July 31, 2010, byfunction and by nature is analyzed below:(amounts in thousands of Euro)

July 31
2011

July 312010
unaudited

Production

38,20838,564

Product design and development

26,20725,441Advertising and communications

4,818

4,567

Selling

105,481

88,133General and administrative

42,18027,925

Total

216,894

184,630(amounts in thousands of Euro)

July 31
2011

July 312010
unaudited

Wages and salaries

167,355

138,988

Post-employment benefits

7,576

6,572

Social security

34,83531,824

Other

7,128

7,246

Total

216,894

184,630

The 2011 employee remuneration includes an extraordinary benefit recognizedfollowing to the Group’s successful performances.

120

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report38. Additional information (continued)
Remuneration of the PRADA spa Board of Directors(amounts inthousandsof Euro)Director’sfee

Salaries andotherbenefits

Bonus andother
incentives

Non-monetary
benefits

Contributions
to retirement
benefits
schemeJuly 312011

Miuccia Prada Bianchi

500

4,350

–

–

–

4,850

Patrizio Bertelli

500

2,500

1,500

–

–

4,500

Marco Salomoni

–

200

–

–

8

208

125

–

–

40

–

165

Donatello Galli

–

141

34

17

62

254

Marco Cerrina Feroni

11

–

–

–

–

11

Davide Mereghetti

11

–

–

–

–

11

Giancarlo Forestieri

30

–

–

–

–

30

Gian Franco
Oliviero Mattei

65

–

–

–

4

69

Gaetano Micciché

9

–

–

–

–

9

Sing Cheong Liu

11

–

–

–

–

11

1,262

7,191

1,534

57

74

10,118

Director’sfee

Salaries andotherbenefits

Bonus andother
incentives

Non-monetary
benefits

Contributions
to retirement
benefits
schemeJuly 312010
unaudited

Carlo Mazzi

Total(amounts inthousandsof Euro)Miuccia Prada Bianchi

500

4,350

–

–

–

4,850

Patrizio Bertelli

500

2,500

1,500

–

–

4,500

Marco Salomoni

–

400

–

–

16

416

Carlo Mazzi

–

483

–

22

1

506

Donatello Galli

–

141

36

13

61

251

Marco Cerrina Feroni

20

–

–

–

–

20

Davide Mereghetti

10

–

–

–

–

10

Giancarlo Forestieri
Gian Franco
Oliviero Mattei

30

–

–

–

–

30

55

–

–

–

5

60

Gaetano Micciché

–

–

–

–

–

–

Sing Cheong Liu

–

–

–

–

–

–

1,115

7,874

1,536

35

83

10,643

Total

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report12138. Additional information (continued)
Remuneration of the PRADA spa Board of Directors (continued)
The five highest paid individuals of the Group for the relevant periods included two
directors for the period ended July 31, 2010, and two directors for the period ended
July 31, 2011. The remunerations of the remaining three individuals for the period
ended July 31, 2010 and of the remaining three individuals for the period ended
July 31, 2011, are as follows:
July 31
2011

July 312010
unaudited

Wages and salaries

2,710

2,610

Bonus and other incentives

1,105

205

Non-monetary benefits

67

63

Contributions to retirement benefits scheme

78

80

3,960

2,958

(amounts in thousands of Euro)

Total

Distributable reserves of parent company PRADA spa
Summary of last three years’
utilizations(amounts in Euro thousands)

July 31
2011

Possibleutilization

Distributable
Amount393,068

Share Capital

255,882

Share premium reserve409,804

A,B,C

Legal reserve

34,440B

Other reserves

182,899

A,B,C

182,899

A,B,C

72,796

Non distributable reserves Art. 7of Legislative Decree 38/2005

20,516

Retained earnings

74,494

Actuarial gain and loss reserve(1,698 )Fair Value Reserve

1,594

Distributable AmountA

share capital increaseBcoverage of lossesC

distributable to shareholders

For losses
coverageFor dividends
distribution

15,774

158,750

648,763

Pursuant to Article 2431 of the Italian Civil Code, the share premium reserve is fully
distributable only when the legal reserve reaches an amount equal to the 20% of
share capital. The adjustment required to reach this level as at July 31, 2011 would
amount to Euro 16,736 thousand.

122

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report38. Additional information (continued)
Profit for the period from continuing operations(amounts in thousands of Euro)

July 312011

January 31
2011

Depreciation and amortization

59,835

111,455

(761)

5,164

(Loss) gain from hedge ineffectiveness on cash flow hedges
Impairment/written off of property, plant and equipment and intangible assets(1,794)

6,089

Write-down (reversal) of inventory

1,621(2,127 )

833

1,514

Auditors’ remunerations

Exchange rates
The exchange rates against the Euro used to consolidate statements of financial
position and income statements prepared in other currencies as at July 31, 2011,
January 31, 2011 and July 31, 2010 are shown below.
Average rate

Average ratein prior year

Closing rate

Opening rate

US Dollar

1.418

1.319

1.426

1.369

Canadian Dollar

1.376

1.354

1.356

1.368

GB Pound

0.874

0.855

0.875

0.861

Currency

Swiss Franc

1.254

1.367

1.142

1.289

Australian Dollar

1.355

1.426

1.356

1.368

Korean Won

1,546.938

1,522.048

1,503.600

1,534.050

Japanese Yen

115.489114.872

110.590112.490

Hong Kong Dollar

11.03410.25311.11310.676Singapore Dollar

1.768

1.786

1.719

1.753

Thai Baht

43.01641.57142.52342.295

Taiwan Dollar

41.14641.24341.09339.752

Russian Ruble

40.07840.09339.52040.795

Czech Koruna

24.32825.15724.18824.223

Macau Pataca

11.36510.55911.44710.996Chinese Renminbi

9.239

8.906

9.179

9.030

New Zealand Dollar

1.795

1.822

1.649

1.776

Malaysian Ringgit

4.284

4.215

4.231

4.189

Turkish Lira

2.251

1.996

2.397

2.197

Fees to Deloitte & Touche spa
The fees for the independent audit firm Deloitte & Touche spa for the statutory
audit of PRADA spa (audit of the separated and of the consolidated financial
statements and verifications that the accounting records are properly maintained
and operations are correctly reflected in the accounting records) accrued at Jul. 31,
2011 amounted to Euro 0.3 million, while the fees for the statutory and voluntary
audit of the subsidiaries of PRADA amounted to Euro 0.1 million. Deloitte & Touche
spa did not provide any other services to the Prada Group during the period.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report12339. Transactions with related parties
The Group enters into commercial and financial transactions with companies owned
by entities that directly or indirectly control PRADA spa (“related parties”).
These transactions mainly refer to the sale of goods, the supply of services, thegranting and receipt of loans and sponsorship and franchise agreements. Thesetransactions take place on an arm’s length basis at the same economic terms as
those applied to third parties.
The following tables show details of related party transactions for each item in theStatement of Financial Position and Income Statement.
Statement of financial position items at July 31, 2011

(amounts in thousands of Euro)PRADA Holding bv

TradepayablesPayables toparentcompanies andrelated parties

Maximum
amount due
from PRADA
Holding bv
32,558

–

8,911

–

15

16,816

4,166

2,181

603

Venezia 3 srl

1,658

–

187

297

F.lli Prada srl

5,733

–

714

6

Montenapoleone 6 srl

2,565

1

398

2

IPR srl

4,107

4

723

–

Spiga 1 srl

2,204

1

153

–

384

–

2

–

Other related parties

PRADA Italia spa
Stellarea

124

Trade
receivables

Receivablesfrom parent
companies andrelated parties

–

28

–

–

Luna Rossa Challenge 2007

165

–

4

200

Stichting Fondazione Prada/
Progetto Prada Arte srl

–

2,510

–

96

Gipafin sarl

–

20

–

1

CID USA Corp.

–

72

–

–

HMP srl

–

83

–

–

Prada America’s Cup srl

–

1,397

–

–

Others

–

50

–

1

Other companies controlled by
PRADA Holding bv

–

15

–

–

EXHL Retail USA llc

–

1

–

–

EXHL Italia Srl

–

13

–

–

Others–1––

Other related parties

–

–

–

214

Total at July 31, 201116,816

13,092

2,181

832

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report39. Transactions with related parties (continued)
Statement of financial position items at January 31, 2011

(amounts in thousands of Euro)PRADA Holding bv

Tradereceivables

Receivablesfrom parent
companies andrelated parties

TradepayablesPayables toparentcompanies andrelated parties

Maximum
amount due
from PRADA
Holding bv
52,873–33,325–70

16,412

2,738

1,701

786

Venezia 3 srl

2,182

–

272

299

F.lli Prada srl

5,474

–

452

6

Montenapoleone 6 srl

2,263

–

257

2

IPR srl

3,763

–

505

–

Spiga 1 srl

2,148

–

127

–

264

–

2

–

–

28

–

–

Luna Rossa Challenge 2007

318

–

86

5

Stichting Fondazione Prada/
Progetto Prada Arte srl

–

1,128

–

472

Gipafin sarl

–

20

–

1

CID USA Corp.

–

75

–

–

HMP srl

–

79

–

–

Prada America’s Cup srl

–

1,397

Other related parties

PRADA Italia spa
Stellarea

Others11

1

Other companies controlled by
PRADA Holding bv

–

249

–

EXHL Design llc

–

127

–

2

Prapar Corporation

–

1

–

249

EXHL Retail USA llc

–

102

–

–

EXHL Italia

–

6

–

–

13

–

–
–

Others251

Other associated undertakings

1,924

5

22

Fragrance and Skincare sl

1,924

5

22

–

–

–

–

134

18,33636,317

1,723

1,241

Other related parties
Total at January 31, 2011

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report12539. Transactions with related parties (continued)
Income statement items at July 31, 2011
(amounts in thousands ofEuro)
PRADA Holding bv

Netrevenues

General, admin.
Cost of & selling costs
goods sold(income)Royalties
incomeRoyalties
expenseInterest
incomeInterest
expense
–

–

–

(72 )

–

–

149

Other related parties

19,431

1.259

4,004

522

–

1

–

Venezia 3 srl

2,042

140

(914 )

54

–

–

–

F.lli Prada srl

6,648

344

203

179

–

–

–

Montenapoleone 6 srl

3,155

175

91

85

–

–

–

IPR srl

4,838

473

(119 )

129

–

–

–

Spiga 1 srl

2,742

156

(27 )

75

–

–

–

PRADA Italia spa––(114 )––––

Luna Rossa Challenge 2007

–

(25 )

1,999

–

–

–

–

HMP srl

–

–

235

–

–

1

–

Stichting Fondazione Prada/
Progetto Prada Arte srl

6

(4 )

2,098

–

–

–

–

Others

–

–

553

–

–

–

–

Other companies controlledby PRADA Holding bv

–

–

(9 )

–

–

–

1

Prapar Corporation

–

–

–

–

–

–

1

EXHL Italia srl

–

–

(3 )

–

–

–

–

EXHL Japan Co. ltd

–

–

(3 )

–

–

–

–

Prada Arte bv

–

–

(3 )

–

–

–

–

Others

–

–

–

–

–

–

–

19,431

1,259

3,924

522

–

150

1

Royalties
incomeRoyalties
expenseInterest
incomeInterest
expenseTotal at July 31, 2011

Income Statement items at July 31, 2010 (unaudited)(amounts in thousands ofEuro)
PRADA Holding bv

126

Net
revenues

General, admin.
Cost of & selling costs
goods sold(income)

–

–

(57 )

–

–

346

17

Other related parties

14,548

1,036

2,851

371

–

71

–

Venezia 3 srl (ex)

1,889

198

(915 )

48

–

–

–

F.lli Prada srl

4,988

331

(9 )

132

–

–

–

Montenapoleone 6 srl

2,410

123

19

60

–

–

–

IPR srl

3,266

290

(49 )

78

–

–

–

Spiga 1 srl

1,997

96

(8 )

53

–

–

–

PRADA Italia spa––(112 )––––

Luna Rossa Challenge 2007

(2 )

(2 )

2,299

–

–

60

–

Stichting Fondazione Prada/
Progetto Prada Arte srl

–

–

913

–

–

–

–

HMP srl

–

–

229

–

–

11

–

Other

–

–

484

–

–

–

–

Other companies
controlled by Prada

–

–

–

–

–

–

2

Prapar Corporation

–

–

–

–

–

–

2

Other

–

–

–

–

–

–

–

Other associated––(133 )

1,772

–

–

–

Fragrance and Skincare––(133 )

1,772

–

–

–

Total as at July 31, 2010

15,548

1,036

2,661

2,143

–

417

19

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report40. Commitments
Operating leases
At July 31, 2011 and July 31, 2010, operating lease commitments, by maturity
date, were as follows:(amounts in thousands of Euro)

July 312011

January 31
2011

Within a year

208,309

198,481

After between one year and five years

667,505

660,454

After more than five years

552,527535,779

1,428,341

1,394,714

Total

The following table shows the amounts paid in the first half of 2011 and 2010:(amounts in thousands of Euro)

July 31
2011

July 312010
unaudited

Fixed minimum lease payments

82,20869,078

Variable lease payments

80,234

62,149Total

162,442

131,227

Some Group companies are required to pay lease charges based on a fixed
percentage of net sales.
Finance leases“Property, plant and equipment” includes the following assets held under financeleases:(amounts in thousands of Euro)

July 31
2011

July 312010
unaudited

Land and buildings

31,40831,408

Furnishings and fittings

13,87913,628Other equipment

3,620

3,539

Accumulated depreciation(18,995)(16,025 )Total

29,91232,550PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report12740. Commitments (continued)
Other commitments
On November 16, 2010, PRADA spa signed a preliminary contract with third parties
whereby it undertook to purchase a number of real estate properties in Italy, alreadyused by PRADA spa in its business activities under rental agreements, at a total
cost of Euro 49.5 million. As at the reporting date, two of the properties had alreadybeen acquired for Euro 30.2 million while the remainder will be purchased by
February 2012; the Company has already made advance payments of Euro 2.5
million.
The Shareholders’ agreement signed between PRADA spa and Al Tayer Insignia llc
for the development of a retail network for Prada and Miu Miu across the Middle
East countries set out the option to the parties to invoke a buy-back by PRADA spa
up to 20% of PRADA Middle East fzco shares if certain conditions are met. Directors
do not believe that the fair value of the related liability can be reliably measured.
Guarantee
The letters of guarantee issued in favor of Fragrance & Skincare sl, in support oflines of credit and totaling Euro 6.25 million, were withdrawn on February 23, 2011
after PRADA spa sold its interest in the joint venture to the Puig Group of Spain.

128

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report41. Consolidated companies
The companies included in the consolidation area are as follows.
Share capital
(000s
Local
of localcurrency
currency)

Entity%interest

Registeredoffice–Milan, Italy

Date ofincorporation/
establishment

Main business

Italy
PRADA spa

EURO

255,882

Production/Distribution/
Group Holding company

Artisans Shoes srl(*)

EURO

1,000

66.73

Montegranaro, Italy

09/02/1977

Footwear production

Space Caffè srl (*)(ex PRADA Advertising srl)

EURO

20

100.00Milan, Italy

06/12/1990

Service company

IPI Logistica srl(*)

EURO

600

100.00Milan, Italy

26/01/1999

Service company

PRADA Stores srl(*)

EURO

520

100.00Milan, Italy

11/04/2001

Retail/sub holding company

Car Shoe Italia srl

EURO

10

100.00Milan, Italy

16/03/2001

Distribution/Retail

Church Italia srl

EURO

51

100.00Milan, Italy

31/01/1992

Distribution/Retail

PRADA Retail UK ltd (**)

GBP

5,000

100.00London, UK

07/01/1997

RetailPRADA Germany gmbh

EURO

215

100.00

Munich, Germany

20/03/1995

RetailPRADA Austria gmbh

EURO

40

100.00Vienna, Austria

14/03/1996

RetailPRADA Spain sa

EURO

240

100.00Madrid, Spain

14/05/1986

RetailPRADA Retail France sas

EURO

4,000

100.00Paris, France

10/10/1984

RetailPRADA Hellas Single Partner
Limited Liability Company (*)

EURO

6,000

100.00Athens, Greece

19/12/2007

RetailPRADA Monte-Carlo sam

EURO

150

100.00Monte-Carlo, Monaco

25/05/1999

RetailPRADA sa(*)

EURO

31

100.00

Luxembourg

29/07/1994

Service company/
Trademark owner

PRADA Company sa

EURO

3,204

100.00

Luxembourg

12/04/1999

Service company

Car Shoe sa

EURO

2,100

100.00

Luxembourg

13/03/2001

Service company/
Trademark owner

PRADA Far East bv(*)

EURO

20

100.00Amsterdam, Netherlands

27/03/2000

Sub-holding company/
Service company

EuropeSpace sa

CHF

200

100.00

Paradiso, Switzerland

17/07/2008

RetailChurch Holding UK plc (*)

GBP

78,126100.00

Northampton, UK

22/07/1999

Sub-holding

Church France sa

EURO

241

100.00Paris, France

01/06/1955

RetailChurch UK Retail ltd

GBP

1,021

100.00

Northampton, UK

16/07/1987

RetailChurch’s English Shoes Swiss

CHF

100

100.00St. Moritz / Switzerland

29/12/2000

RetailChurch & Co. Ltd

GBP

2,811

100.00

Northampton, UK

16/01/1926

Sub-holding company/
Production/Distribution

Church & Co. (Footwear) ltd

GBP

44

100.00

Northampton, UK

06/03/1954

Trademark ownerChurch English Shoes sa

EURO

75

100.00Brussels, Belgium

25/02/1963

RetailPRADA Czech Republic sro(*)

CZK

2,500

100.00Prague, Czech Republic

25/06/2008

RetailPRADA Portugal. Unipessoal lda(*)

EUR

5100.00Lisbon, Portugal

07/08/2008

RetailPRADA Rus llc(*)

RUR

278

99.90

Moscow, Russia

07/11/2008

RetailChurch Spain, S.L.

EUR

3100.00Madrid06/05/2009

RetailPRADA Bosphorus Deri Mamuller
Ticaret Limited Sirketi

TRY

7,630

100.00Istanbul, Turkey

26/02/2009

RetailChurch Netherlands

EUR

18

100.00Amsterdam, Netherlands

07/07/2011

RetailJCS (2009) ltd

GBP

90

100.00

Northampton, UK

21/09/1920

Dormant

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report12941. Consolidated companies (continued)

Local
currency

Sharecapital(000sof localcurrency)%interest

RegisteredofficeDate ofincorporation/
establishment

PRADA USA Corp.(*)

USD

152,211100.00

New York, U.S.A

25/10/1993

Services / Distribution/ RetailSpace USA Corp.

USD

301

100.00

New York, U.S.A.

15/02/1994

RetailService company

EntityMain businessAmerica

UPB Corp.

USD

70

100.00

New York, U.S.A.

18/05/1989

TRS Hawaii llc

USD

400

55.00

Honolulu, U.S.A.

17/11/1999

Duty free stores

PRADA Canada corp.(*)

CAD

300

100.00Toronto, Canada

01/05/1998

Distribution/Retail

Church & Co. (USA) ltd

USD

85

100.00

New York, U.S.A.

08/09/1930

RetailPost Development corp

USD

42,221100.00

New York, U.S.A.

18/02/1997

Real estate

Prada Brasil Importação e
Comércio de Artigos deLuxo Ltda. (*)

BRL

250

100.00Sãu Paulo, Brazil

12/04/2011

RetailPrada Retail Mexico, S. de R.L. de C.V. MXN

3

100.00

Mexico City, Mexico

12/07/2011

Retail

18,00060.00

Jebel Ali Free Zone Dubai

25/05/2011

Services / Distribution

Middle East
Prada Middle East fzco(*)

AED

Asia-Pacific and Japan130

PRADA Asia Pacific ltd

HKD

3,000

100.00Hong Kong

12/09/1997

Retail / Wholesale company

PRADA Taiwan ltd

TWD

3,800

100.00Hong Kong

16/09/1993

RetailRetailSpace HK Retail ltd

HKD

1,000

100.00Hong Kong

25/02/1993

PRADA Retail Malaysia Sdn. Bnd.

MYR

1,000

100.00

Malaysia

23/01/2002

RetailPRADA China ltd

HKD

7,000

100.00Hong Kong

03/11/1997

RetailTRS Hong Kong

HKD

500

55.00

Hong Kong

23/02/2001

Duty free stores

PRADA Singapore Pte. ltd

SGD

1,000

100.00Singapore

31/10/1992

RetailTRS Singapore

SGD

500

55.00

Singapore

08/08/2002

Duty free stores

PRADA Korea ltd

KOW

8,125,000

100.00Seoul, Korea

27/11/1995

RetailPRADA (Thailand) Co.. ltd

BTH

172,000

100.00

Bangkok, Thailand

19/06/1997

RetailPRADA Japan Co.. ltd

JPY

200,000

100.00Tokyo, Japan

01/03/1991

RetailTRS Guam Partnership

USD

1,095

55.00

Guam

01/07/1999

Duty free stores

TRS Saipan Partnership

USD

1,405

55.00

Saipan01/07/1999

Duty free stores

TRS New Zealand ltd

NZD

100

55.00

Auckland, New Zealand

04/11/1999

Duty free stores

PRADA Australia Pty. ltd

AUD

3,500

100.00

Sydney, Australia

21/04/1997

RetailTRS Australia ltd

AUD

600

55.00

Sydney, Australia

23/03/2000

Duty free stores

PRADA Trading (Shanghai)

RMB

1,653

100.00Shanghai, China

09/02/2004

RetailTRS Okinawa KK

JPY

10,000

55.00

Tokyo, Japan

21/01/2005

Duty free stores

PRADA Fashion Commerce(Shanghai) Co. ltd

RMB

48,966100.00Shanghai, China

31/10/2005

RetailChurch Japan Co.. ltd

JPY

3,050

100.00Tokyo, Japan

17/04/1992

RetailChurch Hong Kong Retail ltd

HKD

1,000

100.00Hong Kong

04/06/2004

RetailChurch Singapore Pte., ltd.

SGD

500

100.00Singapore

18/08/2009

RetailCar Shoe Singapore ltd.

SGD

500

100.00Singapore

01/02/2010

RetailCar Shoe Hong Kong ltd.

HKD

3,000

100.00Hong Kong

26/02/2010

Retail(*)

Companies owned directly by PRADA spa(**)

Share capital less than a thousand of local currency

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report41. Consolidated companies (continued)
The following table shows the companies not included in the consolidation area
and the related consolidation method:

Company

Percentage directinterest as at
July 31 2011

Percentage directinterest as atJanuary 31 2011

49.00

49.00

Associate

Equity method

–

50.00

Joint-venture

Fair Value

PAC srl
Fragrance & Skincare sl

Note

Consolidation method

42. Events after the reporting period
Nothing to report.

PRADA Group

Notes to the Consolidated Financial Statements - 2011 1ST Half Year Financial Report131

INDEPENDENT AUDITORS’ REPORT
Delotte & Touche S.p.A.
Via Tortona, 2520144 Milano
ItaliaTel: +39 02 83322111
Fax: +39 02 83322112

AUDITORS’ REPORTTo the Shareholders of
PRADA S.p.A.
1.

We have audited the accompanying interim consolidated financial statements of
Prada S.p.A. (the “Company”) and its subsidiaries (the “Prada Group”), which
comprise the Consolidated Statement of Financial Position as of July 31, 2011, theConsolidated Income Statement, the statement of consolidated comprehensive
income, the Statement of changes in Consolidated Shareholders’ equity and theConsolidated Statement of Cash Flow for the six-month period then ended, and asummary of significant accounting policies and other explanatory notes. These
interim consolidated financial statements prepared in accordance with International
Financial Reporting Standards as adopted by the European Union are theresponsibility of the Company’s Directors. Our responsibility is to express an opinion
on these interim consolidated financial statements based on our audit.

2.

We conducted our audit in accordance with Auditing Standards issued by the Italian
Accounting Profession (CNDCEC) and recommended by Consob, the ItalianCommission for listed Companies and the Stock Exchange. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether
the interim consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts andd is closures in the interim consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Directors, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
For the opinion on the prior year’s consolidated financial statements ended January
31, 2011, whose data are presented for comparative purposes in the Consolidated
Statement of Financial Position as of July 31, 2011 and in the Statement of changes
in Consolidated Shareholders’ equity, reference should be made to our auditors’
report issued on March 28, 2011. We draw attention to the fact that thecorresponding figures set out in the Consolidated Income Statement, in thestatement of consolidated comprehensive income, and in the Consolidated
Statement of Cash Flow for the six-month period ended July 31, 2010 and therelevant explanatory notes disclosed in the consolidated financial statements havenot been audited.

3.

In our opinion, the interim consolidated financial statements give a true and fairview of the financial position of the Prada Group as of July 31, 2011, and of theresults of its operations and its cash flows for the six-month period then ended inaccordance with Intenational Financial Reporting Standards as adopted by theEuropean Union.

DELOITTE & TOUCHE S.p.A.

Patrizia Arienti
Partner
Milan, Italy
September 19, 2011132

PRADA Group

Independent Auditors’ Report - 2011 1ST Half Year Financial Report