Annual Report 2013

IndexThe PRADA Group
Financial Review
Directors and Senior Management
Directors’ Report
Corporate GovernanceConsolidated Financial Statements
Financial Statements of PRADA spa
Notes to the Consolidated Financial Statements
Independent Auditors’ Report

3
33
51
63
77
91
97
103
177

Patrizio Bertelli

Miuccia Prada2

PRADA Group

Annual Report 2013

The PRADA GroupPRADA Group

Annual Report 2013 - The PRADA Group3

The first Prada store,
Galleria Vittorio Emanuele II
Milan

4

PRADA Group

Annual Report 2013 - The PRADA GroupThe PRADA Group
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 coreof Prada’s creativity and modernity. This has pushed Prada beyond the physicallimitations of boutiques and showrooms, leading us to interact with diverse, seemingly
distant worlds, and introduce, very naturally, a new way of creating fashion.”
Miuccia Prada and Patrizio Bertelli
These values have transformed a family business into a major player in the luxury
market worldwide with the Prada, Miu Miu, Church’s and Car Shoe brands.
The Group operates in 70 countries through 540 DOS, 32 franchise operated 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 management of thecreative and production process which allows the Group to offer its customers allaround the world 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 andoutside 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 something exclusive, important and personal which represents theimage they wish to portray of themselves.

PRADA Group

Annual Report 2013 - The PRADA Group5

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

6

PRADA Group

Annual Report 2013 - The PRADA GroupThe second Prada Epicenter Concept Store,
Aoyama, Tokyo
by architects Herzog & de Meuron

PRADA Group

Annual Report 2013 - The PRADA Group7

Prada Store
by architect Roberto Baciocchi

Prada Store
by architect Roberto Baciocchi

8

PRADA Group

Annual Report 2013 - The PRADA GroupMiu Miu Store
by architect Roberto Baciocchi

Miu Miu Store
by architect Roberto Baciocchi

PRADA Group

Annual Report 2013 - The PRADA Group9

Spring/Summer 2014
Advertising campaign
for Prada

10

PRADA Group

Annual Report 2013 - The PRADA Group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, beauty cases, refined luxury accessories, jewels andarticles of value. Thanks to its exclusively designed goods, handcrafted using finematerials and sophisticated techniques, Prada rapidly became a reference point foraristocracy and the most elegant members of the haute-bourgeoisie in Europe.
In 1919, Prada became an official supplier to the Italian Royal Family. Since then, Prada
has been able to display the House of Savoy coat of arms on its label.
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 granddaughter, launched a partnership with
Tuscan businessman Patrizio Bertelli. This partnership combined creativity and businessideas to commence a new era.
In 1977, Patrizio Bertelli set up IPI spa to consolidate the production resources that hehad built up over the previous ten years in the leather goods segment. In the same
year, IPI spa obtained an exclusive license from Miuccia Prada to produce and distributeleather goods bearing the Prada brand name. In the following years, the activities of thetwo families were gradually brought together within a single Group.
In 1983, the Prada family opened a second store in the prestigious Via della Spiga in
Milan, one of Europe’s key shopping destinations. The new store showcased the new
brand image as it blended traditional elements with a modern architectural setting andwould represent a revolution and a benchmark for luxury retail.
Commencing in 1986, new stores were opened in New York and Madrid, followed by
London, Paris and Tokyo.
In response to the growing appreciation for the offer of Prada products, the range was
extended from leather goods (bags, luggage and accessories) to include footwear andas men’s and women’s apparel.
The first Prada Donna runway show was held in Milan in 1988.
In 1993, Ms. Miuccia Prada’s creative inspiration led to the establishment of a
new brand Miu Miu designed for women who are particularly fashion-forward andaware of avant-garde, trendy and sophisticated fashion and lifestyle. Miu Miu now
offers women’s ready-to-wear, bags, accessories, footwear and eyewear and is anincreasingly important component of the Group’s sales.
The Prada leisure range, with its distinctive “Red Line”, was launched in 1997.
In 1999 Prada acquired full control of Church’s, a prestigious brand of high-end English
footwear.
In 2001 Prada acquired control of Car Shoe, an historical Italian brand famous for its
exclusive driving moccasins. The first “Epicenter” store was opened the same year in
SoHo, New York.
In 2003, Prada entered into a licensing agreement with the Italian eyewear manufacturer
Luxottica, world leader in the eyewear industry. The Luxottica Group currently produces
eyewear for the Prada and Miu Miu brands. That same year, a second “Epicenter”
store was opened in Aoyama, Tokyo, and the Group also began its partnership with
the Spanish cosmetics manufacturer Puig Beauty & Fashion Group which launched thePrada Woman fragrance at the end of 2004.

PRADA Group

Annual Report 2013 - The PRADA Group11

Spring/Summer 2014
Advertising campaign
for Prada

12

PRADA Group

Annual Report 2013 - The PRADA GroupIn 2006, Miu Miu organized its first fashion show in Paris.
The first Prada by LG cellphone was launched in March 2007, the world’s first touch
screen cell phone.
The Prada e-store first went online in 2010.
The Miu Miu e-store went online in 2011. The same year, Prada entered into a joint
venture with the Al Tayer Insignia llc Group to develop a Prada and Miu Miu retail
network in the Middle East.
On June 24, 2011, 19% of the share capital of PRADA spa was successfully placed on
the Main Board of the Hong Kong Stock Exchange.
In December 2012, Prada sa and Luxottica srl renewed their worldwide licensing
agreement for production and marketing of Prada and Miu Miu brand eyewear.
In January 2013, Prada and Miu Miu announced the collaboration of Miuccia Prada on
the costume design for The Great Gatsby movie directed by Baz Luhrmann.
In the summer of 2013, the Luna Rossa Challenge team, sponsored by Prada, took
part in the 34th edition of the America’s Cup, reaching the finals of the Challengers’
elimination series for the third time in four attempts.
In August 2013, the Group reached a total of five hundred DOS.
In November 2013, the Prada Group and Coty Inc announced an exclusive agreement
for the creation, development and distribution of a line of Miu Miu fragrances, marking
the brand’s entrance into the prestige fragrance segment.

PRADA Group

Annual Report 2013 - The PRADA Group13

Spring/Summer 2014
Advertising campaign
for Miu Miu

14

PRADA Group

Annual Report 2013 - The PRADA GroupThe Group brands
PRADA Group owns and manages some of the most prestigious luxury brands in theworld. These brands, together with control over the key elements of the value chain,represent key assets for the Group. All of the Group’s activities are geared towards
constantly increasing brand value, in order to raise their profile and recognition, and,ultimately, make them more desirable.
Prada
The Prada brand was created in 1913 by Mario Prada and has since become one of
the most prestigious and widely-recognized brands in the fashion and luxury goods
industries. The brand’s iconic trademarks, which are readily recognized around theworld, incorporate the House of Savoy coat of arms surrounded by the knotted insignia,
reflecting its heritage as an official supplier to the former Royal Family of Italy.
Prada represents the best of Italian manufacturing creativity and tradition, sophisticatedstyle and uncompromising quality. As one of the most innovative fashion brands, it iscapable of re-defining “the norm”, always anticipating and often setting new trends.
Prada has also become a recognized symbol of elegance, the very essence of fashion. It
has even captured the attention of the world of literature and cinema with, for example,
the best selling novel "The Devil Wears Prada" which was made into a successful
movie of the same name. The brand’s distinctive originality is built on its innovative
approach to style, craftsmanship and quality and constant research in all sectors. Pradarelentlessly applies its creative approach not only to design development but also to
the most innovative production techniques.
Prada has been a sophisticated interpreter of its times and a frontrunner of styleand trends. The Prada brand targets an international customer base that is modern,sophisticated, aware of stylistic innovations and expects craftsmanship of the highest
quality. By combining attention to detail and quality with a cutting-edge production anda unique and strong identity style, it aims to make each Prada product one-of-a-kind.
Miu Miu
Named for Miuccia Prada’s nickname in her younger years, Miu Miu was created in
1993 as a brand with a separate identity from Prada and has since evolved into oneof the leading high fashion brands in the world, based on the same creativity, quality
and culture of innovation at the heart of all Group activities. Miu Miu is characterized
by its avant-garde, sensual and provocative style, which seeks to evoke a sense of
freedom and intimacy with attention to detail and high quality. Miu Miu targets womenparticularly aware of the latest fashion trends, driven by a modern spirit of explorationand experimentation in their fashion choices.
The Group has made major efforts since 2005 to enhance the independent identity of the
Miu Miu brand. The brand’s fashion shows and the nerve center of its communications
and marketing activities have been moved to Paris while international activities andevents have increased and the retail network has expanded swiftly in order to cover
all leading markets.
Church's
The Church’s brand was founded in 1873 in Northampton, England by Thomas Churchand his three sons, based on the historical family experience in the production ofhandmade men’s shoes since 1675. At the beginning of the 20th century, Church’s
began exporting outside of Europe to the United States, Canada and South America
and received the prestigious Queen’s Award for Exports from Queen Elizabeth II in
1965. Church’s remains a recognized leader in the men’s handmade luxury footwear
industry. Church’s footwear stands out for its classical style and sophisticated English

PRADA Group

Annual Report 2013 - The PRADA Group15

Spring/Summer 2014
Advertising campaign
for Prada Eyewear

16

PRADA Group

Annual Report 2013 - The PRADA Groupelegance based on the combination of fine leather and high-quality craftsmanship.
Church’s collections are designed to appeal to a discerning, international clientele
which appreciates high-quality shoes, combining a classical range with modern stylecollections, both sharing the same top quality and elegance.
Car Shoe
Car Shoe was founded in 1963 by Gianni Mostile whose passion for sports and racingcars led him to design handmade moccasins made from very soft leather and soles
set on tiny rubber studs to improve grip on car pedals. The Car Shoe driving moccasinsdesign was awarded a registered patent by the Italian Ministry of Trade and Industry in1964 though it has now expired. The brand has since become an iconic Italian classic,
known for its technical-design originality with high-quality leather and handmade
craftsmanship. We believe Car Shoe is a symbol of exclusive and relaxed living with
luxury in mind. Particularly suited for leisure time and informal occasions, Car Shoe
products are targeted at a sporty and elegant clientele.

PRADA Group

Annual Report 2013 - The PRADA Group17

Spring/Summer 2014
Advertising campaign
for Miu Miu Eyewear

18

PRADA Group

Annual Report 2013 - The PRADA Group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. Thishas made it possible to establish in Prada a genuine “in house” design culture, also
based on method and discipline, which guides everyone working in the Prada creative
process.
This unique approach enables Prada to anticipate and set trends, continuallyexperimenting with new designs, fabrics, leathers and production techniques. This
experimentation and 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” on research and stylistic development for the brands is fundamental in
defining each collection: all items of ready-to-wear apparel, footwear and accessories
complement one another and create a well-defined, consistent brand image.
Miuccia Prada and Patrizio Bertelli’s flair, coupled with their extraordinary charisma,continues to attract talented people from all over the world who want to work withthem in many different creative fields. This results in formidable teams in all aspectsof the creative process: from fashion design to manufacture, from architecture tocommunication and photography, from interior design of the stores to all unique andspecial projects in which the Prada Group is involved.

PRADA Group

Annual Report 2013 - The PRADA Group

19

2013
Advertising campaign
for Prada Parfums

20

PRADA Group

Annual Report 2013 - The PRADA GroupProduction
The second phase of the quality process involves the careful selection of materials
which are often exclusively made for Prada to very detailed specifications. Given thevolume of fabric and leather consumed in production, Prada enjoys the priority attentionof the world’s best fabric makers and tanners.
Prada products are made at eleven state-of-the-art facilities owned by the Group in Italy
and England and through a network of external sub-contractors, all of them selected fortheir craftsmanship skills and coordinated by a team of specialists internal to the Group.
This system enables close control of each stage of the overall production process andmaximizes the individual capacities of each facility. Furthermore, it guarantees theutmost and uncompromised quality of each product as well as maximum flexibility.
The core of Prada’s production employees has been working with the Group foran average of 20 years. This leads to the highest level of specialization, extensive
knowledge and understanding of the Group brands and ensures that know-how of
production techniques and core values 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 incollaboration with world renowned architects Rem Koolhaas and Herzog & de Meuron,
to re-invent and re-visit the concept of shopping.
The retail network is constantly revised and updated in order to make it easier forcustomers to use and make product displays more effective.
Over the years, the Group has expanded its network of Directly Operated Stores (DOS),
alongside a significant presence in luxury department shares and selected high-end
multi-brand stores and a limited number of franchise stores.
Directly Operated Stores offer an effective platform to showcase new collections,communicate with customers and offer real-time information on the performanceof each product category. Apart from their primary sales function, the DOS are also
important means of communication; genuine brand embassies which portray a strong
and consistent brand image worldwide.
The wholesale channel (department and multi-brand stores) guarantees a number
additional of points of sale, selected on the basis of their prestigious location on key
markets and provides a direct and immediate comparison with the competition. In
recent years, this sales channel has been carefully reviewed with the aim of being
more selective in order to achieve consistency with the retail network expansion andto maintain the right positioning and international image of the brands.
The retail channel generates 84.5% of the PRADA Group’s consolidated sales while
the remaining 15.5% comes from the wholesale channel.

PRADA Group

Annual Report 2013 - The PRADA Group

21

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

22

PRADA Group

Annual Report 2013 - The PRADA GroupHuman Resources
Human Resources are a fundamental asset for the development of the Group whichbuilds 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,cooperating closely with the business areas in order to analyze processes, make themmore efficient and effective and make the most of skills and specific local characteristics
as part of an ongoing process to improve business processes, achieve integration
between central and outlying parts of the business while focusing on the business asmuch as possible.
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 have been mainly aimed atstrengthening the Product Development and Retail areas, in line with the policy ofachieving growth in the retail channel.
The Group’s presence on the international market through its four brands offers
employees the chance to grow both inside their areas of competence as well as on ahorizontal and international level.

PRADA Group

Annual Report 2013 - The PRADA Group23

AC72 Luna Rossa
San Francisco Bay, July 201324

PRADA Group

Annual Report 2013- The PRADA GroupImage and communication
Effective communications are key to building and maintaining a unique powerful andconsistent brands image. From fashion shows rich in content and impeccable executed
to award-winning advertising campaigns, Prada and all the Group brands continue
successfully to create an appealing and cutting-edge image that attracts a high quality,international client base and is appreciated by the most demanding of commentatorsand critics.
Strong press coverage, featured prominently on hundreds of covers of the world’s
most important fashion magazines not to mention the most important daily and weekly
publications, contributes towards the visibility of the products of the Group brands.
Cultural and commercial in-store events help raise the brands’ profile and increaseawareness of the most recent collections on local markets and, in particular, in leadinginternational cities from Tokyo to New York and London and from Hong Kong to
Shanghai and Beijing.
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.
As sponsor of Team Luna Rossa, Prada has taken part in the challenge for the America’s
Cup in the 2000, 2003, 2007 and 2013 editions. This experience, which led also to thedevelopment of a sports clothing and accessories line, helped further to spread thePrada image worldwide, associating it with the oldest and one of the most prestigious
international sporting competitions.
Art and culture
Miuccia Prada and Patrizio Bertelli’s interest in contemporary art led to their decision, in
1993, to create a space in Milan to hold exhibitions dedicated to acclaimed international
artists. The Fondazione Prada, managed by Germano Celant, was born in 1995 with the
purpose of receiving and communicating what Miuccia Prada calls “the most powerfulmental and cultural provocations of our time”.
Organized with the full collaboration of the artists themselves, the exhibitions presented
by the Fondazione Prada have so far included artists of international renown 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, John Wesley and John
Baldessarri.
The flexible nature of the Fondazione Prada has been confirmed with events,
conferences and film exhibitions covering a range of different sectors like architecture,philosophy, science, design and cinema. Over the years, a number of special projects
have also been organized abroad including Carsten Hoeller’s “Double Club” in London,
OMA’s “Prada Transformer” in Seoul, Francesco Vezzoli’s “24h Museum” and the“Auguste Perret: Huits Chefs d’oeuvre !/?” at Palais d’Iéna in Paris.
In 2011 the Fondazione Prada opened a new exhibition space in Venice, Ca’ Corner della
Regina, an historic palace on the Grand Canal. It aims to offer a culturally stimulating
program which commenced in 2011 with the “Fondazione Prada Ca’ Corner” exhibitionand continued in 2012 with “The Small Utopia. Ars Multiplicata”. In 2013, it was theturn of “When Attitudes Become Form: Bern 1969/Venice 2013”, a surprising andoriginal reconstruction by Germano Celant, in dialogue with Thomas Demand and Rem
Koolhaas, of the legendary “When Attitudes Become Form” exhibition organized by
Harald Szeeman in Bern in 1969.

PRADA Group

Annual Report 2013 - The PRADA Group25

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

26

PRADA Group

Annual Report 2013 - The PRADA GroupPRADA Group

Annual Report 2013 - The PRADA Group27

PRADA Group Structure
PRADA spa
Milan

HOLDING/MANUFACTURING/DISTRIBUTION/SERVICES

100%
66.7%

Artisans Shoes srl
Montegranaro
PRODUCTIONPRADA Hong Kong PD ltd 100%Hong KongSERVICES

60%

Pellettieri d’Italia srl
Milan
PRODUCTIONPRADA Dongguan
Trading Co ltd
DongguanSERVICES

100%

IPI Logistica srl
Milan
SERVICES

Post Developement Corp 100%
San Francisco
REAL ESTATE100%

SPACE Caffè srl
Milan
SERVICES

Church Holding UK ltd
Northampton
SUB-HOLDING49%

PAC srl in liquidazione
Milan(IN LIQUIDATION)

100%

100%

100% PRADA Australia Pty ltd
SydneyRETAIL100%

PRADA Korea ltd
Seoul
RETAIL

100%

Space USA Corp
New York
OUTLET

100% PRADA Singapore Pte ltd
Singapore
RETAIL55%

TRS Hawaii Ilc
Honolulu
DFS

100%

55%

TRS Guam Partnership
Guam
DFS

100%

100%

PRADA Retail Mexicos de rm de cv
Mexico CityRETAIL55%

PRADA Retail
Malaysia Sdn Bhd
Kuala Lumpur
RETAILPRADA Japan Co ltd
Tokyo
RETAIL
Travel Retail Shops
Okinawa KK
Tokyo
DFS

English Shoes
100% Church’s
Switzerland sa
LuganoRETAIL

Church & Co (USA) ltd
New York
RETAIL100%

TRS Saipan Partnership
SaipanDFS

55%

100% PRADA (Thailand) Co ltd
Bangkok
RETAIL

100% Church Japan Company ltd
Tokyo
RETAIL

Church UK Retail ltd
Northampton
RETAIL100%

TRS Hong Kong ltd
Hong Kong
DFS

55%

100% PRADA New Zealand ltd
Wellington
RETAIL100%

Church Hong Kong
Retail ltd
Hong Kong
RETAIL

Church’s English Shoes sa 100%
Bruxelles
RETAIL

Macau Branch
Macau
DFS

100% Church & Co (Footwear) ltd
Northampton
TRADEMARKS

Church France sas
Paris
RETAIL100%

TRS New Zealand ltd
Wellington
DFS

55%

100% Church Singapore pte ltd
Singapore
RETAIL

Church Italia srl
Milan
DISTRIBUTION/RETAIL

100%

TRS Singapore pte ltd
Singapore
DFS

55%

100%

Church Netherlands bv
Amsterdam
OUTLET

Church Spain sl
MadridRETAIL100%

PRADA Asia Paciﬁc ltd
100%
Hong Kong
DISTRIBUTION/RETAIL/SERVICES

100%

Church Footwear ab
Stockholm
RETAIL

Church Ireland Retail ltd 100%
DublinRETAIL
Church Austria gmbh
Wien
RETAIL100%

Church Footwear(Shanghai) Co ltd
Shanghai
RETAIL100%

Macau Branch ltd
Macau
RETAILPRADA Taiwan ltd
Hong KongSERVICES

100%

Taipei BranchTaipeiRETAILPRADA China ltd
Hong Kong
DORMANT100%

PRADA Trading(Shanghai) Co ltd
Shanghai
DORMANT

100%

Space Hong Kong ltd
Hong Kong
OUTLET

100%

100%

PRADA Fashion Commerce(Shanghai) Co ltd
Shanghai
RETAIL

100%

28

PRADA Far East bv
Amsterdam
SUB-HOLDING/OUTLETPRADA USA Corp
New York
DISTRIBUTION/SERVICES/RETAIL

100%

100%
Church & Co ltd
Northampton
MANUFACTURING/
DISTRIBUTION/SERVICES100%

PRADA Canada Corp
Toronto
DISTRIBUTION/RETAILPRADA Group

Annual Report 2013 - The PRADA GroupCar ShoeHong Kong ltd
Hong Kong
RETAIL100%

PRADA Sweden ab
Stockholm
RETAIL100%

Kenon ltd
LondonREAL ESTATE100%

PRADA India Fashion
Private ltd
MumbaiRETAIL

100%
PRADA Hellas
Sole Partner llc
AthensRETAIL100%

100% PRADA Czech Republic sro
PragueRETAIL

100%

100%

PRADA Stores srl
Milan
RETAIL/SERVICESPRADA Monte-Carlosam
MonacoRETAIL100%

PRADA Portugal
Unipessoal lda
LisbonRETAIL100%

PRADA Austria gmbh
Wien
RETAIL100%

PRADA Rus llc
Moscow
RETAIL100%

PRADA Spain sl
MadridRETAIL

Bosphorus Deri
100% PRADA
Mamüller ltd Sirketi
Istanbul
RETAIL

100% PRADA Germany gmbh
MunichRETAIL/SERVICES

60% PRADA Middle East fzco
Jebel Ali Free Zone-Dubai
DISTRIBUTION/SERVICES

100%

Space sa
LuganoOUTLET

49%

PRADA Emirates llc
Dubai
RETAIL100%

PRADA Retail UK ltd
LondonRETAIL49%

PRADA Kuwait wll
Kuwait CityRETAILCar Shoe Italia srl
Milan
DISTRIBUTION/RETAIL
100%

100%

100%

Car ShoeSingapore pte ltd
Singapore
RETAILCar Shoe UK ltd
LondonRETAILPRADA sa
Luxembourg
TRADEMARK
Swiss Branch
LuganoSERVICES

100%PRADA Company sa
Luxembourg
SERVICES

Ireland Branch
DublinRETAIL
100% PRADA Retail France sas
Paris
RETAILPRADA Brasil
100% Importação e Comércio
de Artigos de Luxo ltda
Sãu Paulo
RETAIL100%

PRADA Ukraine llc
Kiev
RETAIL100%

PRADA Kazakhstan llp
AlmatyRETAIL100%

PRADA Maroc (Sarlau)
Casablanca
RETAIL100%

PRADA Retail spc
Doha
RETAIL100%

PRADA Switzerland sa
GenevaRETAILPRADA Group

Annual Report 2013 - The PRADA Group29

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
registered under Part 16 of theHong 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(appointed on May 22, 2012)

Carlo Mazzi(Chairperson, having assumed the role on February
14, 2014, and Executive Director)
Miuccia Prada Bianchi(Chief Executive Officer, having assumed the roleon February 14, 2014, and Executive Director)
Patrizio Bertelli(Chief Executive Officer and Executive Director)
Donatello Galli(Chief Financial Officer and Executive Director)
Alessandra Cozzani(Executive Director appointed on December 20,
2013)
Gaetano Micciché(Non-Executive Director)
Gian Franco Oliviero Mattei(Independent Non-Executive Director)
Giancarlo Forestieri(Independent Non-Executive Director)
Sing Cheong Liu(Independent Non-Executive Director)
Marco Salomoni (Non-Executive Director)
resigned on December 19, 201330

Audit Committee

Gian Franco Oliviero Mattei (Chairman)
Giancarlo Forestieri
Sing Cheong Liu

Remuneration Committee

Gian Franco Oliviero Mattei (Chairman)
Carlo Mazzi
Giancarlo Forestieri

Nomination Committee

Gian Franco Oliviero Mattei (Chairman)
Carlo Mazzi
Sing Cheong Liu

Board of Statutory Auditors

Antonino Parisi (Chairman)
Roberto Spada (Standing member)David Terracina (Standing member)

PRADA Group

Annual Report 2013 - The PRADA GroupSupervisory Board(Legislative Decree 231/2001)

David Terracina (Chairman)
Gian Franco Oliviero Mattei
Franco Bertoli

Main Shareholder

PRADA Holding B.V.
Keizersgracht 313 3rd floor
1016 EE Amsterdam - The Netherlands

Joint Company Secretaries

Patrizia Albano
Via A. Fogazzaro, 28
20135 Milan, Italy
Ying-Kwai Yuen (Fellow member, HKICS)
36/F, Gloucester Tower
The Landmark, 11 Pedder Street
Central, Hong Kong

Authorized Representatives
in Hong Kong

Carlo Mazzi
Via A. Fogazzaro, 28
20135 Milan, Italy
Ying-Kwai Yuen (Fellow member, HKICS)
36/F, Gloucester Tower
The Landmark, 11 Pedder Street
Central, Hong Kong

Alternate Authorized
Representative in Hong Kong
to Carlo Mazzi

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, 2520144 Milan, Italy

PRADA Group

Annual Report 2013 - The PRADA Group

31

32

PRADA Group

Annual Report 2013 - The PRADA GroupFinancial Review

PRADA Group

Annual Report 2013 - Financial Review

33

The Financial review of the Board of Directors refers to the Group of companies
controlled by PRADA spa (the "Company"), operating holding company of the PRADA
Group (the "Group") and is based on the Consolidated financial statements of the Groupfor the twelve months ended January 31, 2014 (year 2013), prepared in accordancewith IFRS as adopted by the European Union. This Financial review must be read
together with the Consolidated financial statements and the Notes which form an
integral part of the Consolidated financial statements.
Consolidated income statement(amounts in thousands of Euro)

RetailWholesaleRoyalties%

twelvemonths ended
January 31
2013

2,996,637

83.5%

2,664,238

80.8%

551,570

15.4%

592,190

18.0%%

39,1401.1%

40,791

1.2%

Net revenues

3,587,347

100.0%

3,297,219

100.0%

Cost of goods sold(938,698)-26.2%(920,678)-27.9%

Gross margin

2,648,649

73.8%

2,376,541

72.1%

Operating expenses(1,709,412)-47.7%(1,486,760)-45.1%

EBIT

939,23726.2%

889,78127.0%

Interest and other financial income/(expenses), net(17,357)-0.5%(7,131)

-0.2%

1,016

-

966

-

Income before taxation

922,89625.7%

883,616

26.8%

Taxation(285,091)-7.9%(250,339)-7.6%

Net income from continuing operations

637,805

17.8%

633,277

19.2%

Net income for the year

637,805

17.8%

633,277

19.2%

Dividends from investments

Net income from continuing operations –non-controlling interests

10,020

0.3%

7,596

0.2%

Net income – non-controlling interests

10,020

0.3%

7,596

0.2%

Net income from continuing operations - Group

627,78517.5%

625,68119.0%

Net income – Group

627,78517.5%

625,681

19.0%

Depreciation, amortization and impairment

203,949

5.7%

162,688

4.9%

1,143,186

31.9%

1,052,469

31.9%

EBITDA

Basic and diluted earnings per share(in Euro per share)

34

twelvemonths ended
January 31
2014

PRADA Group

0.245

Annual Report 2013 - Financial Review

0.245

Key financial information
twelvemonthsended
January 31
2014

twelvemonthsended
January 31
2013

twelvemonthsended
January 31
2012

% chg
on January
2013

CAGR %
2011-13

Net revenues

3,587,347

3,297,219

2,555,606

8.8%

18.5%

EBITDA

1,143,186

1,052,469

759,252

8.6%

22.7%

31.9%

31.9%

29.7%

-

-

939,237

889,781

628,935

5.6%

22.2%

Key income statement information(amounts in thousands of Euro)EBITDA %EBITEBIT %

26.2%

27.0%

24.6%

-

-

Income before tax

922,896883,616

602,908

4.4%

23.7%

Net income of the Group

627,785625,681431,929

0.3%

20.6%

Earnings per share (Euro)

0.245

0.245

0.170

0%

20.0%

Capital expenditure611,227

351,129

278,856--

Net operating cash flows

769,436759,272

479,954

1.3%

26.6%

Average number of employees

10,816

9,427

8,067

14.7%

-

January 31
2014

January 31
2013

January 31
2012changeon January
2013

Key statement of financial position information(amounts in thousands of Euro)Net operating working capital
Net invested capital
Net financial position
Group shareholders’ equity

409,774

317,714357,648

92,0602,405,650

2,017,844

1,817,327

387,806

295,890

312,648

13,640(16,758)

2,687,554

2,320,022

1,822,743

367,5322013 highlights
In 2013, the PRADA Group pursued with conviction its strategic plan of expansion in
the global luxury goods market, achieving one of the highest rates of growth in thesegment. The results achieved were all the more satisfying considering the ongoing
uncertainty of the economic environment, especially in some parts of Europe, and therelated exchange rate volatility. For the fourth consecutive year, signiﬁcant net revenue
growth was recorded.
Commercial growth was driven by the retail network thanks to both the solid
contribution of existing stores and the impact of newly opened stores. Retail network
expansion led to the opening of 79 net new Directly Operated Stores (DOS) during theyear. The total number of DOS hit 500 in August 2013 and reached 540 at January 31,
2014. The Group now covers with its own stores 40 out of the 70 countries where
Prada, Miu Miu, Church’s and Car Shoe ﬁnished products are distributed and thesestores generate 84.5% of consolidated net sales. At the same time, leather goods
generate around two thirds of consolidated net sales with the remainder coming fromclothing and footwear. This is consistent with the strategy of retail growth and theongoing policy of selective reduction of the independent customer base.
The revenue growth has been accompanied by a communications strategy focused onsustaining and developing brand identity and ranging from unique advertising campaigns
to sponsorship of events and initiatives with global visibility as the participation by Luna
Rossa in the XXXIV edition of the America’s Cup or the cultural and artistic initiativesof the Fondazione Prada.
Finally, in the industrial area, in 2013 management committed to improving further
processes in order to optimize the system of procurement for the retail network andmaintain high quality gross margins without affecting a tradition of craftsmanship thathas now lasted a hundred years.

PRADA Group

Annual Report 2013 - Financial Review

35

The Group’s net revenue for the twelve months ended January 31, 2014, totaled
Euro 3,587.3 million, 8.8% more than in 2012 (+13.3% at constant exchange rates).
An improvement in gross margin helped limit the impact of an increase in operating
expenses due to retail network expansion and EBITDA remained in line with prior yearat 31.9% of net revenue. In absolute terms, EBITDA totaled Euro 1,143.2 million, 8.6%
more than the ﬁgure of Euro 1,052.5 million achieved in 2012.
The Group’s net income totaled Euro 627.8 million, slightly higher than the ﬁgureof Euro 625.7 million for the twelve months ended January 31, 2013. In addition toreasons above explained, the Group’s net income, as a percentage of net revenue,
decreased from 19% to 17.5% because the increase in the direct tax burden.
The capital expenditure incurred during the twelve months ended January 31, 2014,
amounted to Euro 611.2 million and was mainly focused on the retail area. Capital
expenditure was mainly used to sustain the plan to open new stores and to acquirea prestigious building on Old Bond Street in London which the Group has alreadypartially deployed to open one of the most strategic Prada stores in the world.
Free cash ﬂows for the year enabled the Group to report a positive net ﬁnancial positionof Euro 295.9 million at January 31, 2014, after distributing dividends of Euro 230.3
million to the shareholders of PRADA spa. In terms of duration, the debt structure ismore favorable than at January 31, 2013, as it has shifted more towards a longer term
proﬁle. During the year, the Group made loan repayments falling due of Euro 162.5
million, issued a ﬁve year bond of Euro 130 million and arranged new long-term bankloans of Euro 46.8 million.

36

PRADA Group

Annual Report 2013 - Financial Review

Net sales analysis(amounts in thousands of Euro)

twelve months
ended January 31
2014

twelve months
ended January 31
2013% change

Net sales by geographical area
Italy

552,89715.6%

528,302

16.2%

4.7%

Europe776,49421.9%

739,634

22.7%

5.0%

Americas487,99013.8%

440,035

13.5%

10.9%

Asia Pacific

1,292,753

36.4%

1,160,166

35.6%

11.4%

Japan (including Hawaii)

340,784

9.6%

337,313

10.4%

1.0%

Middle East

91,1142.6%

44,803

1.4%

103.4%

Other countries
Total

6,175

0.1%

6,175

0.2%

0.0%

3,548,207

100.0%

3,256,428

100.0%

9.0%

Net sales by brandPrada2,943,633

83.0%

2,649,559

81.4%

11.1%

Miu Miu

519,14214.6%

512,762

15.7%

1.2%

Church's

68,6091.9%68,4472.1%

0.2%

Car Shoe

13,4270.4%

19,6600.6%-31.7%

Other

3,396

0.1%

6,000

0.2%

-43.4%

Total

3,548,207

100.0%

3,256,428

100.0%

9.0%

Net sales by product line
Clothing

581,59416.4%

563,322

17.3%

3.2%

2,332,518

65.7%

2,038,043

62.6%

14.4%

Footwear594,58616.8%

625,390

19.2%

-4.9%

Other

39,5091.1%

29,673

0.9%

33.1%

Total

3,548,207

100.0%

3,256,428

100.0%

9.0%

2,996,637

84.5%

2,664,238

81.8%

12.5%

551,570

15.5%

592,190

18.2%

-6.9%

Total

3,548,207

100.0%

3,256,428

100.0%

9.0%

Net sales

3,548,207

98.9%

3,256,428

98.8%

9.0%

Royalties

39,1401.1%

40,791

1.2%

-4.0%

3,587,347

100.0%

3,297,219

100.0%

8.8%

Leather goods

Net sales by distribution channelDOS
Independent customers and franchises

Total net revenues

Distribution channels
The retail channel delivered net sales of Euro 2,996.6 million for the twelve months
ended January 31, 2014, an increase of 12.5% compared to Euro 2,664.2 million in2012 (+17.8% at constant exchange rates).
On a Same Store Sales Growth (SSSG) basis, retail sales increased by 7%, performing
steady throughout 2013 and beneﬁting from the geographical distribution of stores allover the world. Sales growth was further boosted by the strategy of retail expansion
resulting in the opening of 79 net new stores during the year (93 openings and 14
closures). At January 31, 2014, the network included a total of 540 DOS. The results
achieved meant that the contribution of the retail channel to the Group’s consolidated
net sales increased from 81.8% in the twelve months ended January 31, 2013, to84.5%.
The wholesale channel contributed the remaining 15.5%, generating net sales of Euro
551.6 million and recording a 6.9% decrease (-5.8% at constant exchange rates) on
the Euro 592.2 million reported in the twelve months ended January 31, 2013. The
decrease due to rationalization of the independent customer base, the conversion of

PRADA Group

Annual Report 2013 - Financial Review

37retail corners in North America into DOS and the ongoing stagnation of the European
market – Italy included – was partially offset by the development of franchising
contracts in the Far East and Italy where, in July 2013, related company Fratelli Prada
spa launched a prestigious retail project in Galleria Vittorio Emanuele II in Milan.
Markets
In the twelve months ended January 31, 2014, net sales grew in all geographical areas
with even higher paces of growth at constant exchange rates.
The Asia Paciﬁc market reported net sales of Euro 1,292.8 million, an increase of
11.4% (+14.4% at constant exchange rates) compared to the Euro 1,160.2 million
posted in 2012. The increase in net sales in this area was achieved thanks to theperformance of existing stores, the 27 net new openings (31 openings and 4 closures)and the important new duty free franchise contracts in Korea, Taiwan and Singapore.
Net sales in the Greater China area totaled Euro 826 million, 12.3% more than in 2012.
Net sales on the European market totaled Euro 776.5 million, a 5% increase comparedto the Euro 739.6 million reported in 2012 (+7% at constant exchange rates). This
performance was achieved thanks to double-digit growth in the retail channel in relation
to both existing stores and the 13 new openings, net, during the year (14 openings
and 1 closure). The continuing selective policy applied to independent customers, also
considering the credit policy of the Group and tough market conditions, especially insmaller cities, have led to a signiﬁcant downturn in the wholesale channel.
The Italian market generated net sales of Euro 552.9 million in the twelve months
ended January 31, 2014, 4.7% more than the Euro 528.3 million reported for 2012. The
growth was essentially driven by the retail channel as the wholesale channel, similar
to the already highlighted European trends, remained almost unchanged compared to
2012.
The American market, meant as North, Centre and South America, recorded net salesof Euro 488 million, a 10.9% increase compared to the Euro 440 million reported forthe twelve months ended January 31, 2013 (+15.3% at constant exchange rates). It
is worth noting that, at the reporting date, there was an important ongoing strategic
program to convert a number of points of sale in the best department stores fromwholesale to direct operation. During the period, 21 retail corners were converted in
the United States and Canada (16 Prada and 5 Miu Miu corners).
The Japanese market recorded the highest rates of organic growth with a 23.6%
increase at constant exchange rates. However, the extreme weakness of the Japanese
Yen hit the Euro equivalent ﬁgure and net sales totaled Euro 340.8 million, 1% morethan the Euro 337.3 million recorded in the twelve months ended January 31, 2013.
The strategy of repositioning the product mix implemented since the start of the year
was highly successful and led to constant, double-digit sales growth throughout 2013
on an SSSG basis.
At January 31, 2014, the Middle East area included a total of 16 DOS (11 at January 31,2013). It achieved net sales of Euro 91.1 million, almost double the Euro 44.8 million
reported for 2012, and is now an important area of business for the Group.
Products
In the twelve months ended January 31, 2014, net sales of leather goods totaled
Euro 2,332.5 million and increased by 14.4% compared to Euro 2,038 million in theprevious year (+19.6% at constant exchange rates). This product category increased
from 62.6% of consolidated net sales in 2012 to 65.7% in 2013.

38

PRADA Group

Annual Report 2013 - Financial Review

Clothing generated net sales of Euro 581.6 million, 3.2% more than the Euro 563.3
million recorded in 2012 (+7.2% at constant exchange rates). Compared to prior year,
growth was achieved in the retail channel while the wholesale channel decreased. Miu
Miu achieved a double-digit growth (at constant exchange rates), a sign of the brand’sstrong identity. The total contribution by clothing to consolidated net sales decreased
from 17.3% to 16.4%.
Footwear generated net sales of Euro 594.6 million, a 4.9% decrease compared to2012 (-1.8% at constant exchange rates). This segment has suffered more than othersfrom the contraction of the wholesale channel though, like the clothing segment, it hasenjoyed strong growth from the Miu Miu brand.
BrandsIn 2013, the Prada brand contributed net sales of Euro 2,943.6 million or 83% ofconsolidated net sales, recording 11.1% growth compared to the Euro 2,649.6 million
reported for the twelve months ended January 31, 2013 (+15.6% at constant exchange
rates). Sales growth was driven by both SSSG and new openings and was strong in all
geographical areas, except for Italy where sales only recorded a single-digit increase.
The net sales of the Miu Miu brand totaled Euro 519.1 million, a moderate 1.2% increaseon the Euro 512.8 million reported for the previous year (+6.5% at constant exchange
rates). The increase was achieved thanks to the retail channel which, essentially thanks
to new openings during the year, grew by 3.9% compared to the previous year (+10.1%
at constant exchange rates).
In 2013, the Church’s brand recorded net sales of Euro 68.6 million, remaining almost
in line with the results achieved in 2012 (+3.2% at constant exchange rates). In Europe,
where the brand realized 59.5% of its net sales, performance was still affected bygenerally disappointing domestic consumption levels due to the ongoing negative
economic situation. Specific retail and wholesale dynamics did not differ greatly fromthe overall growth figures of the brand.
The Car Shoe brand generated net sales of Euro 13.4 million. The decrease compared to2012 when sales totaled Euro 19.7 million was influenced by the prevailing dependence
from the European wholesale. A new store was opened in Italy in 2013.
Royalties
In the twelve months ended January 31, 2014, licensing agreements generated royalties
income of Euro 39.1 million, 4% less than the Euro 40.8 million recorded in 2012. In
the previous year, the launch of the Prada phone LG 3.0 cellphone generated royalties
of Euro 5.4 million, essentially concentrated in the first half of the year. Excluding thiscomponent, licensed products, essentially eyewear and cosmetics, generated a 9.3%
increase in royalties compared to the twelve months ended January 31, 2013.

PRADA Group

Annual Report 2013 - Financial Review

39Number of stores
January 31, 2014

January 31, 2013

Owned

Franchises

Owned

Franchises

Prada

330

24

283

19

Miu Miu

150

8

126

6

Church’s

52

-

45

-

Car Shoe

8

-

7

-

Total

540

32

461

25

January 31, 2014
Owned

January 31, 2013

Franchises

Owned

Franchises

Italy

51

6

48

5

Europe

150

6

137

6

Americas

91

-

61

-

Asia Pacific

157

20

130

14

Japan

72

-

71

-

Middle East

16

-

11

-

Africa

3

-

3

-

Total

540

32

461

25

Operating results
Gross margin – net revenue less cost of goods sold – was Euro 2,648.6 million for thetwelve months ended January 31, 2014, up by 11.4% compared to the Euro 2,376.5
million reported for 2012. As a percentage of net sales, gross margin improved from
72.1% in 2012 to 73.8%, thanks to a better contribution – almost evenly distributed –from the usual drivers: product, distribution and market.
EBITDA for the year totaled Euro 1,143.2 million, 8.6% more than the Euro 1,052.5
million reported for 2012. EBITDA for 2013 represented 31.9% of net revenues, in linewith the 2012 results. The improvement achieved at gross margin level was absorbedby the greater burden of operating expenses, especially labor costs and lease costs
in relation to retail network expansion and greater investment on promotional andcommunications activities. The operating expenses for the year were affected by an
extraordinary expense that is the decision not to go ahead with the planned openingof a large new Prada store in Ginza, Tokyo, as it was no longer considered compatible
with proper positioning on the market. Termination of the lease agreement was agreed
subject to payment of an all-inclusive penalty of Japanese Yen 1.7 billion (Euro 13.1
million) which was recorded under operating costs for the period. Without this penalty,
EBITDA for the year would have totaled Euro 1,156.3 million or 32.2% of net revenues.
EBIT for the year totaled Euro 939.2 million, increasing by 5.6% compared to 2012
and representing 26.2% of net revenues. EBIT as well was affected by the above
mentioned extraordinary expense: without such penalty it would have been equal toEuro 952.3 million, or 26.5% on net revenues. Writedowns adjustments for the year
totaled Euro 5.1 million (Euro 7.8 million in 2012) and, as in prior year, were recognizedsolely in relation to projects no longer considered strategic. In both years, impairment
test results did not identify any impairment of value.
The Group’s net income totaled Euro 627.8 million, slightly more in absolute terms
than the net income of Euro 625.7 million achieved in 2012. As a percentage of net
revenues, net income decreased from 19% to 17.5%. The reduction in proﬁtability
below EBIT level was generated by the heavier tax burden because of tax charges

40

PRADA Group

Annual Report 2013 - Financial Review

of Euro 22 million relating to prior tax years and a general geographical mix of taxable
incomes and, to a lesser extent, to the impact of foreign exchange differences.
EBITDA by brandtwelve months
ended January 31, 2014
(amounts in thousands of Euro)

Group

Prada

Miu Miu

Church’s

Car Shoe

Other

Net sales

3,548,207

2,943,633

519,142

68,60913,427

3,396Royalties

39,14037,127

1,997

16

-

-

Net revenues

3,587,347

2,980,760

521,139

68,625

13,427

3,396

EBITDA

1,143,186

1,054,126

89,322

4,368(4,795)165

EBITDA %

31.9%

35.4%

17.1%

6.4%

-

-

twelve months
ended January 31, 2013
(amounts in thousands of Euro)

Group

Prada

Miu Miu

Church’s

Car Shoe

Other

Net sales

3,256,428

2,649,559

512,762

68,447

19,6606,000

Royalties

40,79139,453

1,248

90

-

-

Net revenues

3,297,219

2,689,012

514,010

68,537

19,6606,000

EBITDA

1,052,469

948,729

100,270

7,099(2,707)

(922)

31.9%

35.3%

19.5%

10.4%

-

-

Change in Net revenues

290,128

291,7487,129

88(6,233)(2,604)

Percentage change in Net
Revenues

8.8%

10.8%

1.4%

0.1%

-31.7%-43.4%

Change in EBITDA

90,717

105,397(10,948)(2,731)(2,088)1,087% change in EBITDA

8.6%

11.1%

-10.9%-38.5%-77.1%-EBITDA %The PRADA brand generated EBITDA of Euro 1,054.1 million (35.4% of net revenues)
for the twelve months ended January 31, 2014, 11.1% more than the Euro 948.7
million recorded in 2012 (35.3% of net revenues). Excluding the aforementioned
penalty for termination of the property lease in Ginza, Tokyo, the brand’s EBITDA
margin would have been 35.8%, conﬁrming a positive operating trend. The additional
expenses resulting from retail network expansion only partially absorbed the additional
proﬁts created through sales growth. Sales growth was achieved thanks to the 59 net
new stores opened in 2013, the full year contribution of DOS opened in 2012 and,above all, the SSSG performance which was the main driver of sales growth for theyear. In line with Group strategy, the retail expansion was accompanied by increased
communications activity to strengthen the global brand image.
Miu Miu generated EBITDA of Euro 89.3 million, 10.9% less than the Euro 100.3
million reported for 2012. Meanwhile, EBITDA margin decreased from 19.5% to17.1% essentially because of the increase in operating expenses triggered by rapid
expansion of the DOS network (up from 71 at January 31, 2011, a few months before
the listing, to 150 at January 31, 2014, with a net of 24 new openings in the last year
alone). Another factor was investment in DOS restyling and in communications, also
in order to strengthen international brand awareness. Beyond the short-term impact,
the Group Management believes that these measures are necessary with a view toachieving long-term sustainable growth for the brand.

PRADA Group

Annual Report 2013 - Financial Review

41Church’s recorded EBITDA of Euro 4.4 million, 38.5% down on the Euro 7.1 million
reported in 2012. The lower proﬁtability is partly due to a less impressive performanceby several traditional markets and partly to the greater burden of selling costs, again asa result of retail network expansion in new countries. During the year, Church’s opened
7 new DOS including its ﬁrst ever stores in China, Japan, Sweden and the Netherlands.
The Car Shoe brand reported negative EBITDA of Euro 4.8 million, a deterioration onprior year because of the decline in wholesale sales.
Analysis of the statement of financial position
Net invested capital
The following table contains the statement of ﬁnancial position as reclassiﬁed in orderto provide a better picture of the composition of Net invested capital.
(amounts in thousands of Euro)

Non-current assets (excluding deferred tax assets)

January 31
2014

January 31
2013

January 31
2012

1,650,329

2,225,451

1,821,773

Trade receivables, net

308,405

304,525

266,404

Inventories, net

449,903343,802374,782

Trade payables(348,534)(330,613)(283,538)

Net operating working capital

409,774

317,714357,648

Other current assets (excluding items of financial position)

132,866

165,962

112,623

Other current liabilities (excluding items of financial position)(291,378)(230,285)(262,534)

Other current assets/(liabilities), net(158,512)(64,323)(149,911)

Provision for risks(52,660)(46,914)(56,921)

Post-employment benefits(63,279)(45,538)(35,898)

Other long-term liabilities(113,698)(85,289)(75,991)

Deferred taxation, net

158,574

120,421

128,071

Other non-current assets/(liabilities)(71,063)(57,320)(40,739)

Net invested capital

2,405,650

2,017,844

1,817,327

Shareholder's equity – Group

(2,687,554)(2,320,022)(1,822,743)

Shareholder's equity – Non-controlling interests(13,986)(10,470)(8,224)(2,701,540)(2,330,492)(1,830,967)

Long term financial payables(207,969)(79,348)(179,542)

Short term financial, net surplus/(deficit)

503,859

391,996

193,182

Net financial position surplus/(deficit)

295,890

312,648

13,640(2,405,650)(2,017,844)(1,817,327)

n.a.

n.a.

n.a.

Total consolidated shareholders' equity

Shareholders’ equity deducted the positive Net financial position
Debt to Equity ratio

At January 31, 2014, Net invested capital stood at Euro 2,405.7 million, Euro 387.8
million more than the Euro 2,017.8 million reported at January 31, 2013. The increase
mainly regarded non-current assets, especially investments.
Indeed, during 2013, capital expenditure totaled Euro 611.2 million, including Euro
521.5 million in the retail area and comprising the purchase cost of prestigious retailpremises in London and St Petersburg for some Euro 182 million. Intangible assets
at January 31, 2014, include assets with an indeﬁnite useful life i.e. goodwill totaling
Euro 504.4 million. As required by “IAS 36 Impairment of assets”, these assets were
subjected to an impairment test at the reporting date. The value in use of the goodwill,
essentially determined using methods based on discounted future cash ﬂows, did
not reveal any impairment of value. The results of the impairment tests were further
supported by sensitivity tests. More information is provided in the Notes to theconsolidated ﬁnancial statements under Note 16.
Net operating working capital increased by Euro 92.1 million from Euro 317.7 million
at January 31, 2013, to Euro 409.8 million at January 31, 2014. The increase is due tothe higher value of retail inventories mainly because of the number of stores opened
42

PRADA Group

Annual Report 2013 - Financial Review

during the 2013.
Total other current liabilities, net, increased from Euro 64.3 million at January 31, 2013,
to Euro 158.5 million mainly because of the higher tax burden and a reduction in thereporting date fair value of derivative instruments used to hedge the exchange risk
(forward contracts and options).
Other non-current liabilities, net, totaled Euro 71.1 million and increased by Euro 13.7
million compared to January 31, 2013, as a result of higher liabilities for long-term
employee beneﬁts and deferred lease income, net of an increase in deferred tax
assets mainly because of higher temporary differences between the tax value andconsolidated reported value of the stock of ﬁnished products.
Group shareholders’ equity rose from Euro 2,320 million at January 31, 2013, to Euro2,687.6 million at January 31, 2014. The increase generated by the Group’s net income
for the twelve months ended January 31, 2013, Euro 627.8 million, was partially offset
by the dividends of Euro 230.3 million distributed to the PRADA spa shareholders (asapproved by the Annual General Meeting on May 22, 2013, on the ﬁnancial statements
for the year ended January 31, 2013) and negative changes totaling Euro 30 million in
the translation reserve and other IFRS reserves.
Net financial position
The following table summarizes the items included in the net ﬁnancial position.
January 31
2014

January 31
2013

January 31
2012(207,950)(78,830)(178,442)

(19)

(518)

(1,100)Long term financial payables(207,969)(79,348)(179,542)

Short term financial payables and bank overdrafts(61,909)(175,570)(165,485)

Payables to parent company and related parties(4,130)(5,018)(3,574)

Receivables from parent company and related parties

2,008

1,413

1,410

Obligations under finance leases

(524)

(575)

(1,453)

Cash and cash equivalents

568,414571,746362,284

Short term financial (payables)/receivables, net of cash and cash
equivalents

503,859

391,996

193,182

Net financial surplus/(deficit)

295,890

312,648

13,640Net financial surplus/(deficit), excluding receivables/(payables)with parent company and related parties and other shareholders(NFP used to calculate covenants - note 25 Consolidated financial
statements)

298,012316,253

15,804

n.a.

n.a.

n.a.

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

NFP/EBITDA ratioNFP/EBITDA ratio

Cash ﬂows from operating activities totaled Euro 769.4 million for the twelve months
ended January 31, 2014 (Euro 759.3 million in 2012) after cash absorbed by investing
activities of Euro 548.3 million (Euro 331.6 million in 2012). After the distribution ofdividends of Euro 230.3 million (Euro 127.9 million in 2012), this enabled the Group toachieve a positive net ﬁnancial position of Euro 295.9 million. At January 31, 2013, thenet ﬁnancial position was slightly higher and stood at Euro 312.6 million.
As far as liquidity concerns, the composition of bank borrowings at January 31, 2014,
was more favorable than at January 31, 2013, because of a shift towards longer term
borrowings: indeed, long-term ﬁnancial payables have increased from Euro 78.8 million

PRADA Group

Annual Report 2013 - Financial Review

43

at January 31, 2013, to Euro 208 million, while short-term ﬁnancial payables havedecreased from Euro 175.6 million to Euro 61.9 million. In 2013, PRADA spa issued aﬁve year bond listed on the Irish Stock Exchange with a nominal amount of Euro 130
million. During 2013, the Group also repaid the Euro 100 million installment due on
a syndicated loan by PRADA spa while debt due for repayment by PRADA Japan coltd was reﬁnanced with a new line of credit totaling Japanese Yen 9 billion, used partin part to ﬁnance the investment plan in Japan; at January 31, 2014, the outstanding
amount on this line of credit was Japanese Yen 8.8 billion. At January 31, 2014, theGroup had a short-term net ﬁnancial surplus of Euro 503.9 million (Euro 392 million at
January 31, 2013), as well as other available lines of credit of Euro 454.3 million (Euro473.1 million at January 31, 2013).

44

PRADA Group

Annual Report 2013 - Financial Review

Risk factors
Risk factors regarding the international luxury goods market
Risks regarding the general state of the economy and the Group’s international
operations
The Group is exposed to several macroeconomic factors as a consequence of its
operations on an international scale.
The current international economic environment could have a negative impact on
demand for the Group’s products and reduce access to credit, causing ﬁnancial
problems for customers and other parties with which the Group operates. Overall,these factors could have a negative impact on the business, results, cash ﬂows andthe ﬁnancial condition of the Group.
A signiﬁcant portion of the Group’s sales is made to customers who purchasegoods during trips abroad. Consequently, unfavorable economic conditions (e.g. theglobal ﬁnancial crisis of 2008 and 2009), global political developments (e.g. the war
in Iraq in the spring of 2003), other social or geopolitical factors resulting in unrest,
instability, disorder, civil war or military conﬂict, natural disasters like ﬁres, ﬂooding andearthquakes, or other events (e.g. the events of September 11, 2001 in the UnitedStates or travel advice issued by the World Health Organization in response to Severe
Acute Respiratory Syndrome, “SARS”) which lead to changes in the ﬂow of travelers
or a reduction in the volume of travel have in the past and could in future have anegative impact on the Group’s business and results.
Risks regarding the protection of intellectual property rights
The Group believes that its trademarks and other intellectual property rights arefundamental to its success and market position. Consequently, the Group’s businessis strongly dependent on its ability to protect and defend its trademarks and otherintellectual property rights.
The Group is constantly committed to the international registration and protection of
its trademarks and other intellectual property. It maintains that its trademarks and otherintellectual property rights are adequately protected on major markets by registration
applications, existing registrations and other legal safeguards.
Risks regarding brand image and recognition
The success of the Group on the international luxury goods market is linked to theimage and distinctiveness of its brands. These features depend on many factors, likethe 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 carefulselection of licensees for certain product categories and the communications activities
in terms of public relations, advertising, marketing and Group proﬁle in general.
Preservation of the image and prestige acquired by the Group’s brands and trademarksin 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 company,in order to guarantee uncompromised quality. It also engages in a constant search forinnovation in terms of style, product and communications in order to ensure that its
message is always consistent with the strong identity of the brands.

PRADA Group

Annual Report 2013 - Financial Review

45

Risks regarding ability to anticipate trends and respond to changing customer
preferences
The Group’s success depends on its ability to create and drive market and producttrends while anticipating changes in customer preferences and in the dynamics of theluxury goods market.
The Group pursues its objective of driving the luxury goods market by stimulating
consumer markets and setting trends thanks to the creative efforts of its Design and
Product Development department. This area of the business includes around 900
persons divided between design – where creativity is boosted by a strong mix ofnationalities, cultures and talents – and development – where craft skills combinedwith tried and tested industrial processes ensure that the Group continues to compete
in order to keep up with consumer trends and emerging lifestyles.
Risk factors specific to PRADA Group
Risks regarding exchange rate fluctuations
The Group has a vast international presence and is, therefore, exposed to the foreignexchange risk which can negatively impact revenue, costs, margins and proﬁt. In orderto hedge the foreign exchange risk, the Group enters into hedging derivatives designed
to guarantee the Euro (or other operating currency) amount of identiﬁed future cash
ﬂows. These future cash ﬂows mainly regard the collection of trade and ﬁnancial
receivables and the settlement of trade payables. They are mainly concentrated in
PRADA spa, Group holding company and worldwide distributor of Prada and Miu Miu
brand products.
Exchange rate risk management is described in the Notes to the consolidated ﬁnancial
statements.
Risks regarding 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 theparent 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 anegotiated range of rates.
Interest rate risk management is described in more detail in the Notes to theconsolidated ﬁnancial statements.
Risks regarding the importance of key personnel
The Group’s results depend both on the contribution of certain key ﬁgures who
have played an essential role in the development of the Group and who have great
experience of the fashion and luxury goods industry and on Prada’s ability to attract
and retain personnel who are highly capable in terms of the design, marketing andmerchandising of products.
The Group believes it has a management structure capable of guaranteeing theongoing success of the business and has recently implemented a long-term incentive
plan in order to retain key ﬁgures so that they will continue to fulﬁl roles essential toachievement of the challenging objectives that the Group constantly sets itself.
Risks regarding 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, thisstrategy is mainly based on the international development of the retail channel.

46

PRADA Group

Annual Report 2013 - Financial Review

The Group is pursuing its objectives through gradual expansion in new geographicalareas or in areas where its presence is not yet considered strong enough. In order toensure the success of each new DOS, the Group carefully assesses market conditions
and consumer trends in the new DOS location. In particular, when entering into new
countries, the Group dedicates signiﬁcant resources to ensuring that sales managers
and personnel convey an image consistent with the identity of the Group brands anda level of service in keeping with the quality of the products. The utmost attention is
also paid to the design and ﬁtting out of the stores themselves so that brand identify
is properly represented.
Risks regarding the outsourcing of manufacturing activities
The Group designs, checks and produces in-house most of its prototypes and samples
while outsourcing production of most of its accessories and products to third parties
with the right experience and skills.
The Group has implemented a rigorous inspection and quality control process for all
outsourced production. Prada contractually requires its outsourcers to comply withrules and regulations on brand ownership and other intellectual property rights, with all
the provisions of laws and national collective agreements on labor and social security
rules and with laws and regulations on health and safety in the workplace. It also
requires them to read the PRADA Group Code of Ethics and make an undertaking torespect the principles set out in it.
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 to which
an entity is potentially exposed is represented by all ﬁnancial assets recorded in theﬁnancial statements. The Group essentially believes that its credit risk mainly regards
trade receivables generated in the wholesale channel and cash equivalents. The Groupmanages the credit risk and reduces its negative effects through its commercial andﬁnancial strategy.
On the trade receivables side, credit risk management is performed by controlling andmonitoring the reliability and solvency of customers. At the same time, the fact that the
total receivables balance is not highly concentrated on individual customers, the factthat net sales are evenly spread geographically and the ongoing strategy of selective
reduction of the wholesale customer base (for reasons including the prevention ofparallel distribution) have led to a reduced credit risk.
On the cash equivalents side, the risk of default substantially relates to bank deposits
which is the method most widely used by the Group, also considering its low-risk
policy, to invest the surplus funds generated by operations. The default risk is mitigatedby the allocation of the available funds among different bank deposits in terms ofcountries, currencies and banks as well as by the term proﬁle of such investments
which is always short-term. The residual signiﬁcant portion of the line-item cash andcash equivalents is made up of bank accounts and cash. The Group maintains that there
is no signiﬁcant risk on these kinds of liquid assets as their use is strictly connectedwith the business operations and corporate processes and, as a result, the number ofparties involved is highly fragmented.
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 Corporate ﬁnance department, reporting to the CFO, is responsible formanaging 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
PRADA Group

Annual Report 2013 - Financial Review

47

operating and ﬁnancing activities, will allow the Group to meet its needs resulting frominvesting activities, working capital management, repayment of loans as they fall due
and dividend payments as planned.
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 the failure to comply with the Rules Governing the
Listing of Securities on the Stock Exchange of Hong Kong or with other laws or
regulations in force in Hong Kong and applicable to the Company following its
listing on the Stock Exchange of Hong Kong Limited;–

the risks associated with the failure to comply with the laws and regulations
applicable to the Company following the listing of the Notes issued on August
2013 on the Irish Stock Exchange;–

the risks associated with health and safety at work in compliance with Italian
Legislative Decree 81/08 and equivalent regulations in other countries;–

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 rules applicable in the various countries where theGroup operates that could expose the Group to the risk of non-compliance;–

possible industrial compliance risks regarding the conformity of the ﬁnishedgoods distributed and the raw materials and consumables used with Italian andinternational laws and regulations.

By involving all of its various divisions and using external specialist advisors whennecessary, the Group ensures that its processes and procedures are updated to comply
changes in rules and regulations, reducing the risk of non-compliance to an acceptablelevel. As well as by Divisional Managers and by audit activities, monitoring activities
are also carried out by speciﬁc entities and committees such as the Supervisory Board,
the Internal Control Committee and the Industrial Compliance Committee.
Risks regarding data processing
Data is processed using information systems subject to a governance model which
ensures that:–data is adequately protected against the risk of unauthorized access and disclosure(including means for protecting personal privacy and propietary information),
improper information modiﬁcation or destruction (including accidental loss) andutilization 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 Directors’ Report and in the Notes to the consolidated ﬁnancial statements.

48

PRADA Group

Annual Report 2013 - Financial Review

Non-IFRS measures
The Group uses certain ﬁnancial measures (“non-IFRS measures”) to measure its
operating performance and to help the reader to understand and analyze its statementof ﬁnancial position. Although they are used by Group management, these measures
are not universally or legally deﬁned and are not regulated by IFRS based on which
the Consolidated ﬁnancial statements are prepared. As other companies operating in
the luxury goods segment might utilize the same measures, but based on different
calculation criteria, it is worth noting the fact that said non-IFRS measures should
always be read together with the related notes and may not be suitable for a directcomparison between different companies.
In this Annual Report, the PRADA Group has used the following non-IFRS measures:
EBITDA: Earnings Before Interests, Taxation, Depreciation and Amortization, i.e.
“Consolidated net income for the year” adjusted to exclude “Interest and otherﬁnancial income/(expense) and dividends from investments”, “Taxes on income” and“Depreciation, amortization and impairment”.
EBIT: Earnings Before Interest and Taxation, i.e. “Consolidated net income for theyear” adjusted to exclude “Interest and other ﬁnancial income/(expense) and dividends
from investments” and “Taxes on income”.
SSSG: Same Store Sales Growth, i.e. same store sales growth comparing constantexchange rate results of all DOS operational for more than a year and utilizing theeffective number of days of operations for each DOS in the previous year (i.e. only the
number of days in which the DOS were open in both reporting periods).
Net ﬁnancial position: Short term and long term ﬁnancial payables towards third parties,
towards related parties and under ﬁnance leases less Cash and cash equivalents, shortterm and long term ﬁnancial receivables from third parties and related parties.
DOS (Directly Operated Store): store operated directly by PRADA Group.
Free cash ﬂows: net cash ﬂows generated by operating activities less cash ﬂows
utilized in investing activities.
The following table shows the calculation of EBITDA and EBIT for the last threereporting periods.
twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

twelve months
ended
January 31
2012

Consolidated net income for the period

637,805

633,277

436,425

Taxes on income

285,091

250,339

166,483

Interest and other financial income/(expense) anddividends from investments

16,341

6,165

26,027

EBIT (Earnings Before Interest and Taxation)

939,237

889,781

628,935

Depreciation, amortization and impairment

203,949

162,688

130,317

EBITDA (Earnings Before Interest, Taxation,
Depreciation and Amortization)

1,143,186

1,052,469

759,252(amounts in thousands of Euro)PRADA Group

Annual Report 2013 - Financial Review

49

Outlook
In 2013, the Group continued its program of development centered on growth and,once again, achieved encouraging growth ﬁgures. However, the macroeconomic
environment, especially in Europe, remains difﬁcult and the recovery is struggling
to take hold also because of the ongoing strength of the Euro which does not help
exports. The Group will balance its attempts to achieve growth and development withcareful management of its operations in order to ensure that the results achieved todate are built upon in future

Milan, April 2, 201450

PRADA Group

Annual Report 2013 - Financial Review

Directors and Senior Management

PRADA Group

Annual Report 2013 - Directors and Senior Management51

Directors
Our Board consists of nine Directors, of whom five are executive Directors, one is nonexecutive Director and three are independent non-executive Directors. The Board of
Director is appointed for a term of three years.
Chairperson
MAZZI, Carlo, aged 67, was appointed as Chairperson of the Board on February 14,
2014 and was the former Deputy Chairman since 2007. He was first appointed to theBoard in 2004 and was re-elected as Executive Director on May 22, 2012. Mr. Mazzi
holds directorships in subsidiaries of the Company. He was appointed on November
21, 2013 to be director of Prada Holding B.V. and Gipafin S.àr.l., which are substantial
shareholders of the Company. Mr. Mazzi obtained a degree “cum laude” (with praise)in Mechanical Engineering from the Bologna University of Italy in 1971 and obtained
a Master’s degree in Business Administration from Bocconi University of Milan in
1976. Mr. Mazzi worked as a Manager of the Large Corporate department of IMI and
San Paolo IMI Bank from 1994 to 2000. He was a board member of IBI International
Business Advisors Investment N.V. - Amsterdam; Vice Chairman and Executive
Committee Member of IBI Bank AG - Zurich; Board Member of IBI Corporate Finance
B.V. - Amsterdam; Managing Director of IBI S.p.A. - Milan (financial intermediation ex
art. 106 TUB) from 2000 to 2004. He is currently a board member of SECVA S.r.l. Arezzo (a service company).He was previously a board member of ABN AMRO S.p.A. Milan (focused on merchant banking), SAGO S.p.A. - Florence (an IT research company
responsible for the management of health facilities), IMILEASE S.p.A. - Rome (a leasing
company), Banca di Intermediazione Mobiliare IMI S.p.A. - Milan (now Banca IMI S.p.A.)(focused on investment banking), Tecnofarmaci S.p.A. - Pomezia (a research company
in the pharmaceuticals industry), SIM S.p.A. - Rome (focused on project management)
and Paros International Insurance Brokers S.r.l. - Milan (in the insurance brokerage
sector). He is currently a member of the Remuneration Committee and Nomination
Committee. Mr. Mazzi is not and has not been a director of any other listed companies
in Hong Kong or overseas in the past three years.
Executive Directors
PRADA BIANCHI, Miuccia, aged 65, was appointed as Chief Executive Officer of theCompany on February 14, 2014. Prior to that Ms. Prada was the Chairperson of theBoard. She was first appointed to the Board on November 20, 2003 and she was
re-elected as Executive Director on May 22, 2012. Ms. Prada holds a directorship in
Ludo S.A., which is a substantial shareholder of the Company. Ms. Prada received an
Honorary Doctorate from the Royal College of Art (London) in 2000. Ms. Prada is a cofounder of our Group along with Mr. Bertelli. Ms. Prada is the wife of Mr. Bertelli, oneof our Chief Executive Officers. Ms. Prada is not and has not been a director of any
other listed companies in Hong Kong or overseas in the past three years.
BERTELLI, Patrizio, aged 67, is a Chief Executive Officer of the Company. He was first
appointed to the Board on November 20, 2003 and was re-elected as Executive Director
on May 22, 2012. Mr. Bertelli holds directorships in subsidiaries of the Company. Mr.
Bertelli received an honorary degree in Business Economics from the University of
Florence in October, 2000. Mr. Bertelli is a co-founder of our Group along with Ms.
Prada. Mr. Bertelli is the husband of Ms. Prada, one of our Chief Executive Officers.
Mr. Bertelli is not and has not been a director of any other listed companies in Hong
Kong or overseas in the past three years.
GALLI, Donatello, aged 52, is Chief Financial Officer of the Company. He was appointed
to our Board first on January 21, 2005 and was re-elected as Executive Director on May
22, 2012. Mr. Galli holds directorships in subsidiaries of the Company. Mr. Galli received
a degree “cum laude” (with praise) in Economics and Banking from the University of

52

PRADA Group

Annual Report 2013 - Directors and Senior Management

Siena in Italy in July, 1986. He started his career as business controller at Faricerca
S.p.A. (now the Angelini Group) (pharmaceutical laboratories and Lines consumer
products business), from 1987 to 1990. Mr. Galli was a financial analyst at Istituto
Mobiliare Italiano S.p.A. from 1990 to 1999 and then Head of the Large Corporate
Division central assessment office of San Paolo IMI S.p.A. until 2000. He was also the
Administration and Finance Director of IBI S.p.A. (now Alerion Clean Power S.p.A., arenewable energy company) from 2000 to 2004 and later joined Enertad S.p.A. (nowERG Renewable S.p.A., a renewable energies company) - both are listed companies
on the Italian Stock Exchange. Mr. Galli is not and has not been a director of any otherlisted companies in Hong Kong or overseas in the past three years.
COZZANI, Alessandra, aged 51, was appointed to the Board as Executive Director on
December 20, 2013. She has been our Investor Relations Director since July 2010,
responsible for managing financial communication and relationships with investmentcommunity. She holds directorships in subsidiaries of the Company. Ms. Cozzani
joined our Group in 2000 and has covered different managerial roles within the Financedepartment. In 2003, she was appointed as Group Financial Reports Director. Ms.
Cozzani obtained a degree “cum laude” (with praise) in Business Administration fromthe University of Genoa in 1988. She started her career as an auditor at Coopers &Lybrand (1989 to 1995). Prior to joining our Group, she worked in Castelletti International
Transports, the Italian subsidiary of an international logistic company (now Schenker
Group) for five years, most of the time as Finance and Control Director. Ms. Cozzani is
not and has not been a director of any other listed companies in Hong Kong or overseas
in the past three years.
Non-Executive Directors
MICCICHÈ, Gaetano, aged 63, was appointed as Non-Executive Director first on May
9, 2011 and was re-elected on May 22, 2012. Mr. Miccichè obtained a degree in Law
from Università degli Studi di Palermo (Italy) in 1984 and a master’s degree in Business
Administration from SDA Bocconi University (Italy) in 1985. Mr. Miccichè began his
career in Cassa Centrale di Risparmio delle Provincie Siciliane in 1971 and became
Head of Corporate Clients. In 1989 he joined Rodriquez S.p.A., the luxury yachting
group, as Chief Financial Officer. Mr. Miccichè also worked as General Manager ofGerolimich-Unione Manifatture (holding company with business in various industries),
as General Manager of Santa Valeria S.p.A. (chemical company) and as Managing
Director and General Manager of Olcese S.p.A. (yarn and thread mill company), allof which were listed on the Italian Stock Exchange. Since June 2002, he has beenwith the Intesa Sanpaolo Group (formerly Banca Intesa) and currently serves as theGeneral Manager and Head of Corporate and Investment Banking Division and Chief
Executive Officer of Banca IMI. Furthermore on May 9, 2013, he was appointed to bea member of the Management Board of Intesa Sanpaolo S.p.A.. Mr. Miccichè is alsoa board member of Telecom Italia S.p.A., a major Italian telecom group whose sharesare listed on the Italian Stock Exchange, a board member of Pirelli & C. S.p.A., a major
Italian group which operates in the tyre sector, whose shares a are listed on the Italian
Stock Exchange, a board member of ABI Associazione Bancaria Italiana, and a memberof the Supervisory Board of Fondazione Ricerca e Imprenditorialità (Foundation of
Research and Entrepreneurship). On May 31, 2013 he was granted the honorary titleof “Cavaliere del Lavoro” by the President of the Republic of Italy. Save as disclosed
herein, Mr. Miccichè is not and has not been a director of any other listed companies
in Hong Kong or overseas in the past three years.
Independent Non-Executive Directors
MATTEI, Gian Franco Oliviero, aged 68, was appointed as Independent Non-Executive
Director first on May 28, 2009 and was re-elected on May 22, 2012. Mr. Mattei obtaineda Degree in Economics from the University La Sapienza of Rome in 1970 and becamea Public Chartered Accountant (member of the Registro dei Revisori Contabili) with the
PRADA Group

Annual Report 2013 - Directors and Senior Management53

Italian Ministry of Justice in 1995. He has worked as Managing Director (Investment
Banking) in Credit Suisse, Managing Director (Global Banking & Markets) in The RoyalBank of Scotland, Head of Investment Banking at Sanpaolo IMI and Chairman of Banca
IMI and was previously Head of the Finance Department at the Istituto Mobiliare Italiano
IMI. Mr. Mattei has also been a Board Member of Borsa Italiana. He is Chairman of
Officine CST - Consulting Services & Technology - S.p.A.. Mr. Mattei is currently the
Chairman of the Audit Committee, the Remuneration Committee and the Nomination
Committee. Mr. Mattei is not and has not been a director of any other listed companies
in Hong Kong or overseas in the past three years.
FORESTIERI, Giancarlo, aged 67, was appointed to our Board first on May 31, 2007
and was re-elected as Independent Non-Executive Director on May 22, 2012. Mr.
Forestieri obtained a degree in Economics and Banking from the University of Siena
in 1970 and obtained a Specialization in Corporate Finance from the Scuola Mattei ENI in 1971. From 1988 to the present, Mr. Forestieri has been a Full Professor of
Financial Markets and Institutions at the Bocconi University in Milan. Mr. Forestieri’s
professional experience includes serving as a member of the boards of directors of
INA and Assitalia (from 1993 to 1994), Mediofactoring (from 1997 to 1999), Cassa
di Risparmio di Parma e Piacenza (from 1996 to 1999 and then from 2003 to 2007
as the chairman of the board), Banca Intesa (from 1999 to 2006) and as a member
of its executive committee (from 2000 to 2006), Alleanza Assicurazioni (from 2001
to 2007), Centrosim (from 1998 to 2003 where he was the chairman of the board)
and Crédit Agricole Vita (from 2007 to present as the chairman of the board). Mr.
Forestieri is a member of the Italian Scientific Societies in the Fields of Finance andManagement. Mr. Forestieri is currently a member of the Audit Committee and theRemuneration Committee. Mr. Forestieri is not and has not been a director of any otherlisted companies in Hong Kong or overseas in the past three years.
LIU, Sing Cheong, JP, aged 58, was appointed as Independent Non-Executive
Director first on May 9, 2011 and was re-elected on May 22, 2012. He has been the
Chairman of My Top Home (China) Holdings Limited (a Guangzhou-based property
agency and consultancy) since 2005, the Vice Chairman of Guangzhou Pearl River- Hang Cheong Real Estate Consultants Limited (from 1993 to 2008), Chairman ofEvergreen Real Estate Consultants Limited since 2001, Director of HKS Education
Fund Limited (“HKSEF”) since 2005 (HKSEF is a charitable institution which holds
certain % of shares in Hongkong Sales (International) Limited (“HKSI”), an investment
holding, knitwear manufacturing company ), and Non-executive Director of HKSI since2005 and its Vice Chairman since April 1, 2012 all of which are private companies. He
has been an independent non-executive director of Swire Properties Limited since2010 (Swire Properties Limited was listed on the Stock Exchange of Hong Kong on
January 18, 2012). Mr. Liu graduated from The Hong Kong Polytechnic in 1979 with an
Advanced Higher Diploma in Surveying and from The Hong Kong University of Scienceand Technology in 1994 with a Master of Business Administration degree. He has
been a fellow of the Royal Institution of Chartered Surveyors since 1994 and the Hong
Kong Institute of Surveyors since 1993. Mr. Liu is currently a member of the Audit
Committee and the Nomination Committee. Save as disclosed above, Mr. Liu is notand has not been a director of any other listed companies in Hong Kong or overseas in
the past three years.

54

PRADA Group

Annual Report 2013 - Directors and Senior Management

Senior Management
Our senior management is responsible for the day-to-day management of our businessof the Group.
ANDREANI, Alessandra, aged 43, has been Regional Director for the Iberian Peninsula
and Africa since 2013. She is primarily responsible for overseeing the commercial
operations of the Group in Spain, Portugal and Morocco, where she covers several
managerial roles at the Company’s subsidiaries. She obtained a degree in Oriental
Languages and Literature from the University of Venice. Ms. Andreani joined our Group
in 2003 as Retail Operations Manager in Japan. Prior to joining our Group, she worked
for Mauboussin Group and for Furla Group (1998 – 2002), covering different managerial
roles in Japan and Taiwan. Ms. Andreani is not and has not been a director of any otherlisted companies in Hong Kong or overseas in the past three years.
ANTONACCI, Nicola, aged 50, has been Senior Vice President Prada Retail/Wholesaleof Prada USA Corp. since 2012. Mr. Antonacci is primarily responsible for overseeing
the commercial operations of the Group in the USA and Canada. Mr. Antonacci joined
our Group in 1996 and covered, until 2010, different managerial roles within thecommercial and the collections development areas. From 2010 to 2011 he worked
in Paris, as Men’s RTW Director for Givenchy. Prior to joining our Group, he worked
for Giorgio Armani S.p.A. and Hermes as store manager and visual merchandiser. Mr.
Antonacci is not and has not been a director of any other listed companies in Hong
Kong or overseas in the past three years.
BERTOLI, Franco, aged 55, has been Group Internal Auditing Director since 2007. He is
primarily responsible for the management of the Group internal control system and tooversee and verify the correct application of procedures within the Group. Mr. Bertoli
obtained a master degree in Economics and Business, from the University of Torino.
He started his career as CFO in Multimedia Pubblicità S.p.A. (1994 – 1998). Then heworked for almost ten years for the Telecom Group (1998 – 2007), covering different
managerial roles within the Group in Italy and abroad. Mr. Bertoli is not and has notbeen a director of any other listed companies in Hong Kong or overseas in the past
three years.
BESIO, Paolo, aged 51, has been Group Tax Director since 2002. He is primarily
responsible for the management of the Group strategic tax policy. Mr. Besio obtained
a master degree in Economics and Business, from the University of Genova. Before
joining the Group he worked for Pirola Pennuto Zei & Associati, where he acquired
extensive knowledge in corporate tax for domestic and multinational companies withspecialization in international tax, business restructuring and M&A (1998 - 2001). He
is currently member of various tax committees. Mr. Besio is not and has not been a
director of any other listed companies in Hong Kong or overseas in the past three years.
BOZZI, Bruno, aged 52, has been Prada Woman’s Ready to Wear Industrial Division
Director since 2010. Mr. Bozzi is primarily responsible for the manufacturing of thewoman’s ready to wear collection of the Prada brand. He joined our Group in 1996 andundertook managerial roles in the planning and production of ready to wear for both
Prada and Miu Miu brands. In 2009 he was appointed as Knitwear Division Director,role he is still covering. Prior to joining the Group he covered different roles in the
production departments of a number of manufacturing companies. Mr. Bozzi is notand has not been a director of any other listed companies in Hong Kong or overseas in
the past three years.
BRINI, Giulio, aged 46, has been Retail Director for Prada brand since 2011. He is
primarily responsible for overseeing worldwide the retail strategy and operations of the
Prada brand. Mr. Brini obtained a degree in Economics and Banking from the Universityof Siena, in 1993. Mr. Brini joined the Group in 1995 and before being appointed to his

PRADA Group

Annual Report 2013 - Directors and Senior Management55

current position he covered different managerial roles in the merchandising planningand product development of leather goods for the Prada, Miu Miu and Car Shoe brands.
Mr. Brini is not and has not been a director of any other listed companies in Hong Kongor overseas in the past three years.
BUSO, Daniele, aged 46, has been our Prada Man’s Ready to Wear Industrial Division
Director since 2009. Mr. Buso is primarily responsible for the manufacturing of the
man’s ready to wear collection of the Prada brand. He obtained a high school diploma
at Giulio Natta Technical High School in Padova in 1986. Mr. Buso joined our Group in
2004 as Operations Director for Jil Sander brand and in 2008 was appointed as Linea
Rossa Ready to Wear Operations Director. He started his career in a Venetian fashioncompany before joining Gilmar in 1988. In 2001 he joined the Ferrè Group as Industrial
Director. Mr. Buso is not and has not been a director of any other listed companies inHong Kong or overseas in the past three years.
CANTINO, Stefano, aged 47, has been Group Communication and External Relations
Director since June 2009. He is primarily responsible for the Group’s communication
strategy and global marketing functions. Mr. Cantino obtained a degree in Political
Science from the University of Turin in 1993. Mr. Cantino joined our Group in 1996
and held several managerial roles in the commercial and marketing areas with Prada,
Church’s and Car Shoe, including Alaïa Operations Director, Car Shoe Commercial
Director and Church’s Brand and Retail Director. He was Prada’s Marketing Director
from 2005 to 2009 until he was appointed to his current position. Mr. Cantino is notand has not been a director of any other listed companies in Hong Kong or overseas in
the past three years.
CARETTA, Fabrizio, aged 48, has been Group Legal Director since 2004. He is primarily
responsible for overseeing and assuring legal protection of the Group mainly concerning
contracts, litigation and real estate. He obtained a degree in Law from the Universityof Torino in 1993 and he is admitted to the Italian Bar since 1996. Mr. Caretta joined
our Group in 2000 as Legal Director of Prada Industrial. Prior to joining our Group, hestarted his career cooperating with the Italian law firm Studio Tucci. From 1995 to 2000
he worked for Fila Sport S.p.A. as Senior Legal Counsel. Mr. Caretta is not and has notbeen a director of any other listed companies in Hong Kong or overseas in the past
three years.
CAROLA, Pablo, aged 46, has been Regional Director for Central America and Caribbean
since 2013. Mr. Carola is primarily responsible for overseeing the commercial operationsof the Group in the Central America area, where he covers several managerial rolesat the Company’s subsidiaries. Mr. Carola obtained a University Degree in Business
Administration at Universidad de Politecnica de Catalunya (Spain). He joined the Group
in 2011 to manage human resources of both Miu Miu and Prada stores worldwide.
Prior to joining our Group he worked for almost twelve years as human resources
Director at Louis Vuitton. Mr. Carola is not and has not been a director of any otherlisted companies in Hong Kong or overseas in the past three years.
CARRARO, Luca, aged 47, has been Miu Miu Ready to Wear Industrial Division
Director since 2003 and Leatherwear/Furs Ready to Wear Industrial Division Director
since 2010. He obtained a textile expert high school diploma in Padova at Giulio Natta
Technical High School in 1986. He joined our Group in 1999 and undertook several
managerial roles in the planning and production of leatherwear for the Prada brand.
Prior to joining Prada he worked for various ready to wear manufacturing companies
in Italy as production and sample collection manager. Mr. Carraro is not and has notbeen a director of any other listed companies in Hong Kong or overseas in the past
three years.
CATERINI, Ruggero, aged 52, has been Chief Operating Officer and Chief Financial
Officer of Prada USA since 2006. Mr. Caterini is primarily responsible for planning,

56

PRADA Group

Annual Report 2013 - Directors and Senior Managementdeveloping and implementing strategy for operational management of the USA and
Canadian area. Before joining our Group, Mr. Caterini covered different Finance &Administration Executive roles within several multinational companies operating in
the telecommunication sector, in Brasil, Greece and Austria. He obtained a University
Degree in Mechanical Engineering at “La Sapienza” University of Rome. Mr. Caterini is
not and has not been a director of any other listed companies in Hong Kong or overseas
in the past three years.
CHOI, Moonyoung, aged 51, has been General Manager of Prada Korea since 2007.
She is primarily responsible for overseeing the commercial operations of the Group in
Korea. She started her carrier at Louis Vuitton, as the first Louis Viutton Store Manager
in Korea (1991 – 1999). From 1999 to 2002 Ms. Choi worked at Celine Korea, LVMH
Group, as Retail Manager, subsequently becoming Country Manager for Korea. Ms.
Choi is not and has not been a director of any other listed companies in Hong Kong oroverseas in the past three years.
CIABATTI, Maurizio, aged 48, has been Group Engineering Director since 2006. He is
primarily responsible for real estate development, equipment and maintenance of retailstores, corporate offices and production sites. Mr. Ciabatti joined our Group in 1989
and has covered different managerial roles in the maintenance and real estate area and,starting from 2005, in Corporate Engineering. Mr. Ciabatti is not and has not been a
director of any other listed companies in Hong Kong or overseas in the past three years.
D’IPPOLITO, Andrea, aged 46, is Purchasing and Research Ready to Wear Industrial
Division Director. He joined our Group in 1989, and since 1996 he had been responsible
for purchases for the sample collection within the ready to wear Division and then he
was promoted as ready to wear Purchasing Director for all Group brands. Since 2010
he has also overseen the research fabrics, the raw material warehouses (as well as
the finished product quality control and repairs Departments). Mr. D’Ippolito is not andhas not been a director of any other listed companies in Hong Kong or overseas in thepast three years.
ETHERIDGE, Stephen, aged 55, has been Chief Executive Officer of Church & Co
Ltd. since 2001. He is primarily responsible for the industrial operations of the Church
Group. Prior to this he has covered the role of Chief Executive at Cheaney & Son
Footwear (1995 to 2001), a company which belonged to the Church Group. He started
his career in the Sales Department at John White Footwear Limited UK and increased
his responsibility up to the role of Managing Director (1986 to 1990). From 1990 to
1994 he was Managing Director of SE Marketing for Epic Fashion Footwear Limited, acompany specialized in production and distribution of men’s footwear. Mr. Etheridge is
not and has not been a director of any other listed companies in Hong Kong or overseas
in the past three years.
FAYARD, Pierre, aged 52, has been Regional Director for Middle East since he joined
our Group in 2011. He is responsible for overseeing the commercial operations of
the Group in the Middle East area, where he covers several managerial roles at theCompany’s subsidiaries. Mr. Fayard obtained a degree in Business Administration from
Paris Business School, in 1984. Prior to joining our Group he worked for almost twelve
years for the LVMH Group, covering different managerial roles at Sephora International,
Sephora Middle East, Sephora UK and Sephora Europe. Mr. Fayard is not and has notbeen a director of any other listed companies in Hong Kong or overseas in the past
three years.
GALANTE, Ivano, aged 50, has been Footwear Division Director since 2010. He is
primarily responsible for the manufacturing of the Group’s footwear collections. Mr.
Galante obtained a master degree for the development of three-dimensional landscape
cad and, before that, he graduated as Electronic Engineer at Politecnico of Turin in
1989. Mr. Galante joined our Group in 1997 where he held several managerial roles in

PRADA Group

Annual Report 2013 - Directors and Senior Management

57

the collection purchasing and purchasing of leather goods and footwear. Prior to joining
the Group, he worked for the Fiat Group (1992-1997). Mr. Galante is not and has notbeen a director of any other listed companies in Hong Kong or overseas in the past
three years.
GIANNESSI, Giuliano, aged 50, has been Group Corporate Finance Director since March
1999. He is primarily responsible for finance and bank relationships, cash management
and interest and exchange rates hedging activities. Mr. Giannessi obtained a degree“cum laude” (with praise) in Business Administration from the University of Pisa in
1987 and obtained the chartered accountant qualification in 1988. He started his careerin Banca Commerciale Italiana. Prior to joining our Group he worked at the Piaggio
Group as Treasurer (1991 to 1993) and Financial Planning Manager (1994 to 1995) andlater in Salov Group as Treasurer and Credit Manager (1995 to 1999). Mr. Giannessi is
not and has not been a director of any other listed companies in Hong Kong or overseas
in the past three years.
GOTTI, Camillo Aldo, aged 49, has been Regional Director for France, Belgium and thePrincipality of Monaco since 2014. He is responsible for overseeing the commercial
operations of the Group in France, Belgium and the Principality of Monaco area, where
he covers several managerial roles at the Company’s subsidiaries. Mr. Gotti joined
our Group in 1990 and before being appointed to his current position, he held several
managerial roles in the wholesale, marketing and communication areas of the Pradaand Miu Miu brands, including Miu Miu General Manager. Mr. Gotti is not and has notbeen a director of any other listed companies in Hong Kong or overseas in the past
three years.
LAM, Janice, aged 43, has been General Manager of Prada China since 2013. She isprimarily responsible for overseeing the commercial operations of the Group in China,
where she covers several managerial roles at the Company’s subsidiaries. Ms. Lam
obtained a master in BA, Sociology from the University of Hong Kong. She started
her carrier at Jusco Store HK Ltd. (1993–1995); then she was worked at Chickeeduck
Distribution HK Ltd. in China (1999–2003). Before joining our Group she was Managing
Director at Alfred Dunhill China (2006 -2012). Ms. Lam is not and has not been a
director of any other listed companies in Hong Kong or overseas in the past three years.
LANIA, Lanfranco Fabio, aged 47, has been General Manager of Prada Far East B.V.
since 2012. He is primarily responsible for overseeing the financial operations of themain Company sub-holding. Mr. Lania joined our Group in 2008 as Administration,
Finance and Control Manager for European retail subsidiaries. Mr. Lania obtained amaster degree in Accounting, Financial Statements and Financial Control at Consorzio
Pavese per gli Studi Post Universitari in 1995, and graduated in Business Administration
at the Luigi Bocconi University of Milan in 1994. He started his career at KPMG Advisory
S.p.A. covering different advisory roles (2001 – 2008). Mr. Lania is not and has not beena director of any other listed companies in Hong Kong or overseas in the past three
years.
LOMANTO, Maria Cristina, aged 39, has been Retail Director for Miu Miu brand since2013. She is primaly responsible for overseeing worldwide the retail strategy andoperations of the Miu Miu brand. Ms. Lomanto obtained a degree in Law from the
University of Milano in 1998. She joined our Group in 1994 and before being appointed
to her current position she covered different managerial roles in wholesale, retail andcollection merchandising areas. Prior to joining Prada, she worked in Yves Saint Laurent
as Commercial Director Italy and Switzerland. Ms. Lomanto is not and has not been a
director of any other listed companies in Hong Kong or overseas in the past three years.
LUPAS, Domnica Alexandra, aged 41, has been Regional Director for Central Europe
since 2012. She is primarily responsible for overseeing the commercial operationsof the Group in Germany, Austria, Switzerland and Czech Republic area, where she

58

PRADA Group

Annual Report 2013 - Directors and Senior Management

covers several managerial roles at the Company’s subsidiaries. Ms. Lupas joined ourGroup in 1997 and has covered different managerial roles within the Group. In 2005,
she was appointed as Administration, Finance and Control European Retail Subsidiaries
Director. Ms. Lupas obtained a degree in International Business Administration fromthe European Business School in London in 1996. Ms. Lupas is not and has not been a
director of any other listed companies in Hong Kong or overseas in the past three years.
MECHERI, Fabrizio, aged 47, has been General Manager of Prada Singapore pte. Ltd.
since July 2012. He is primarily responsible for overseeing the commercial operationsof the Group in the South Asia area. Mr. Mecheri joined our Group in 1999 and covered
different managerial roles within the industrial area. Prior to joining our Group, heworked for Salvatore Ferragamo S.p.A. as production manager for ladies’ footwear.
Mr. Mecheri obtained an executive master degree in Business Administration from
Kellogg – HKUST of Hong Kong in 2012, and graduated in Electronic Engineering at the
University of Florence, in 1992. He started his career at Andersen Consulting S.p.A. as
top senior consultant (1993-1996). Mr. Mecheri is not and has not been a director of
any other listed companies in Hong Kong or overseas in the past three years.
MITCHELL, Mishelle Sandra aged 40, has been General Manager of Prada Australia
since 2010. She is primarily responsible for overseeing the Group commercial
operations in Australia and New Zealand, where she covers several managerial rolesat the Company’s subsidiaries. Ms. Mitchell joined our Group in 2006 and covered
different managerial roles within Retail Department. Prior to joining our Group, she
worked at Origins (Estee Lauder) as National Sales & Education Manager and Marcs asRegional Manager. Ms. Mitchell is not and has not been a director of any other listedcompanies in Hong Kong or overseas in the past three years.
NOSCHESE, Marcelo, aged 49, has been Regional Director for South America, since
December 2011, when he joined our Group. He is primarily responsible for overseeing
the commercial operations of our Group in Brazil. Mr. Noschese obtained a master
degree in Business Administration from INSEAD, Fontainebleau, France, in 1992 andgraduated in Business Administration in Getúlio Vargas Foundation São Paulo, Brazil.
He started his career at L’Oréal, as International Development Manager for the Fine
Fragrances Division, and then was appointed as General Manager for the Travel Retail
Division in North and South America (1992 – 1998). Prior to joining our Group, heworked for LVMH – Moët Hennessy Louis Vuitton as Country Manager for Brazil (2001– 2004) and for Salvatore Ferragamo S.p.A., as Regional Development Director forSouth America (2007 – 2011). Mr. Noschese is not and has not been a director of any
other listed companies in Hong Kong or overseas in the past three years.
PANERAI, Lorenzo, aged 46, has been Leather Goods Industrial Division Director
since July 2008. He is primarily responsible for the manufacturing of the leather goods
collections of the Group brands. Mr. Panerai joined our Group in 2001 and undertook
managerial roles in the planning and production of leather goods for the Prada and Miu
Miu brands. Mr. Panerai obtained a degree in Electronic Engineering from the University
of Florence in 1996. In 1996 he joined the Marketing and Commercial Division of FiatGroup Automobiles S.p.A., where he also worked in the Purchasing Department.
His last role at Fiat Group Automobiles S.p.A. was Plant Operational Manager of the
body assembly unit. Mr. Panerai is not and has not been a director of any other listedcompanies in Hong Kong or overseas in the past three years.
RASTRELLI, Stefano, aged 51, has been Group Human Resources Director since 2013.
Mr. Rastrelli obtained a degree in Law, from the University of Naples. He joined thePrada Group in 2007 to manage the human resources first of the Industrial Departments
subsequently extended also to the Commercial Departments. Prior to joining our Grouphe worked for almost twenty years for the Fiat Group, covering different managerial
roles within the Fiat Group for different branches in Italy and abroad (Argentina, Brasil).
From 2005 to 2007 Mr. Rastrelli was in Spain as Human Resources Director for GKN
PRADA Group

Annual Report 2013 - Directors and Senior Management59Driveline. Mr. Rastrelli is not and has not been a director of any other listed companies
in Hong Kong or overseas in the past three years.
ROMANO, Anthony, aged 47, has been Regional Director for the South East
Mediterranean area since 2013. Mr. Romano is primarily responsible for overseeing
the Group operations in the South East Mediterranean area, where he covers
several managerial roles at the Company’s subsidiaries. After the bachelor degree in
Economics in New Zealand, he worked for almost ten years for Calvın Kleın Europe(1995 – 2004) where he became C.E.O. and Managing Director. From 2004 to 2007,
he was the General Manager and Company Director of Luna Rossa Challenge for the2007 America’s Cup. He was partner of ADR – fashion and sport strategic consultancy
company, from 2008 to 2013. Mr. Romano is not and has not been a director of any
other listed companies in Hong Kong or overseas in the past three years.
SESIA, Davide, aged 46, has been President of Prada Japan since February 2004. He is
primarily responsible for overseeing the Group operations in Japan, Guam, Saipan and
Hawaii area, where he covers several managerial roles at the Company’s subsidiaries.
Mr. Sesia obtained a degree in Business Administration from the University Cattolicadel Sacro Cuore of Milan in 1991. He joined our Group in 2000 as Representative
Director and Chief Financial Officer of Prada Japan. Prior to that, he was Chief Financial
Officer and Director of Benetton Japan and Managing Director of Benetton Korea Ltd(1997 - 2000). He started his career in Japan working for several companies from 1992.
Mr. Sesia is not and has not been a director of any other listed companies in Hong Kongor overseas in the past three years.
SHIH, Louis, aged 44, has been General Manager of Taiwan since February, 2011. He is
primarily responsible for overseeing the commercial operations of the Group in Taiwan.
Mr. Shih joined our Group in 2006 and covered different managerial roles within Retail
Department. He obtained a University Degree in Science, Major in Environmental
Design. Prior to joining our Group, Mr. Shih worked five years for Fendi Taiwan Ltd.
covering different managerial roles within the commercial area. Mr. Shih is not and has
not been a director of any other listed companies in Hong Kong or overseas in the past
three years.
SUTTER, Stefano, aged 40, has been Regional Director for North Europe since
December 2010, when he joined our Group. Mr. Sutter is primarily responsible foroverseeing the Group operations in United Kingdom, Ireland and Sweden, where hecovers several managerial roles at the Company’s subsidiaries. Mr. Sutter obtained
a master in Business Administration from Columbia Business School, New York, in2005 and graduated “cum laude” (with praise) in Business Administration at Universityof Genoa in 1998. Prior to joining our Group, he worked for INDITEX Group covering
different managerial roles including as General Manager of Zara Canada (2006 to2007), Managing Director of Inditex UK and Ireland (2007 to 2009) and, then, Managing
Director of Inditex Austria, Hungary, Czech Republic and Slovakia. Prior to that, hespent five years working for Bain & Company Inc.. Mr. Sutter is not and has not been a
director of any other listed companies in Hong Kong or overseas in the past three years.
TOLOMELLI, Armando, aged 48, has been Chief Executive Officer of Prada Asia Pacificsince 2012. Mr. Tolomelli is primarily responsible for overseeing the Group operationsin the Asia Pacific region, where he covers several managerial roles at the Company’s
subsidiaries. Prior to this appointment Mr. Tolomelli has been our Group Controlling
Director since joining our Group in July 2005. Prior to joining our Group, he spent
fourteen years working for the Barilla Group, covering various roles including Financing
Office Manager, Divisional Business Controller, Business Controller for South Eastern
Europe, Group Controller of Wasa in Stockholm, Sweden (1999 to 2001), FinanceManager International Business Development of the Bakery Division (2001 to 2001)
and Corporate Controlling Director of Kamps in Düsseldorf, Germany (2002 to 2005).
Mr. Tolomelli is not and has not been a director of any other listed companies in Hong60

PRADA Group

Annual Report 2013 - Directors and Senior Management

Kong or overseas in the past three years.
ZAMBERNARDI, Fabio, aged 51, has been Design Director for the Prada and Miu
Miu brands since November 2002. He is responsible for the collection concept
development, overseeing all the strategic activities related to the coherence between
image and product development of the collection, as well as supporting the strategic
brands image communication. He has been collaborating with the Group since 1981.
He was promoted Shoe Design Director in 1997 and Design Fashion Coordinator in
1999. Mr. Zambernardi is not and has not been a director of any other listed companies
in Hong Kong or overseas in the past three years.
ZENKOVSKAYA, Vera, aged 37, has been Regional Director for the Russian area
since 2013. Ms Zenkovskaya is primarily responsible for overseeing the commercial
operations of the Group in Russia, Kazahstan and Ukraine, where she covers several
managerial roles at the Company’s subsidiaries. Ms. Zenkovskaya obtained a Foreign
Languages Degree at Language University of Kazahstan. Prior to joining our Group
in 2011 as Russia Country Manager, she worked within the beauty sector (L’Oreal,Temtrade) in marketing and retail areas. From 2006 to 2011, she covered several
managerial roles in Russia and Ukraine for Louis Vuitton. Mrs Zenkovskaya is not andhas not been a director of any other listed companies in Hong Kong or overseas in thepast three years.

PRADA Group

Annual Report 2013 - Directors and Senior Management

61Company Secretary
ALBANO, Patrizia, aged 60, is the joint company secretary of the Company. Ms. Patrizia
Albano has been the Head of Group Corporate Affairs since September 2008 and is
responsible for monitoring general legal compliance. Ms. Albano obtained a degreein Law from the University La Sapienza of Rome in 1979 and was admitted to the
Bar Association (Ordine degli Avvocati di Roma) in 2006. She started her career as an
in-house legal advisor at the Istituto Mobiliare Italiano S.p.A. from 1981 to 1999 andthen worked as Head of the Large Corporate Division central legal office of San Paolo
IMI S.p.A. until 2000. She has also worked as General Counsel of IBI (now Alerion
Clean Power S.p.A.), and as Company Secretary of Risanamento Napoli S.p.A. andFincasa S.p.A., both of which are listed companies on the Italian Stock Exchange. In
2002, Ms. Albano became the General Counsel and Company Secretary of a privatecompany active in services provision, property and facility management and renewableenergy. She then worked at an Italian law firm, Studio Legale Carbonetti, from 2003
to 2007, and also founded her own private practice law firm, Albano Baldassari, in2007 before joining our Company in 2008. Ms. Albano is the wife of Mr. Carlo Mazzi,
the Chairperson of the Board of our Company. Ms. Albano is not and has not been a
director of any other listed companies in Hong Kong or overseas in the past three years.
YUEN, Ying-kwai, aged 47, is the joint company secretary of the Company. She is
responsible for corporate secretarial duties. Ms. Yuen joined our Group and was
appointed joint company secretary in May 2011. Ms. Yuen has over 20 years of working
experience in the corporate secretariat and compliance areas of sizeable organizations
and professional firms. Prior to joining our Group, she worked with Li & Fung group for
15 years. She first joined in 1995 as company secretary of Li & Fung (1937) Limited until
1999 when she was transferred to Li & Fung Distribution (Management) Limited andappointed as group company secretary in 2000. Ms. Yuen was the company secretary ofIntegrated Distribution Services Group Limited (member of Li & Fung Group) between
2004 and 2011. Ms. Yuen received an Honours Diploma in Company Secretaryshipand Administration from Lingnan College (now known as Lingnan University) in 1988.
Ms. Yuen holds a Master degree in Business Administration (Executive) from City
University of Hong Kong, awarded in 2003. Ms. Yuen has been a fellow of both theHong Kong Institute of Chartered Secretaries and the Institute of Chartered Secretaries
and Administrators, UK since 2001. Ms. Yuen is not and has not been a director of any
other listed companies in Hong Kong or overseas in the past three yea

62

PRADA Group

Annual Report 2013 - Directors and Senior Management

Directors’ Report

PRADA Group

Annual Report 2013 - Directors' Report63Principal activities
PRADA S.p.A. (the “Company”), together with its subsidiaries (the “Group”), is aleading global luxury group in the design, production and distribution of high-end leather
goods, handbags, footwear, apparel, accessories, eyewear and fragrances. Through its
Directly Operated Stores network (DOS) and a selected number of wholesalers, theGroup operates in all major international markets.
The Company is a joint-stock company, incorporated and domiciled in Italy. Its registeredoffice is in Via A. Fogazzaro 28, Milan, Italy.
An analysis of the Group’s performance for the year ended January 31, 2014 byoperating segments is set out in the Financial review and note 8 to the Consolidated
financial statements.
Results and dividends
The results of the Group for the year ended January 31, 2014 are set out in theConsolidated income statements.
The Board recommends, for the twelve month period ended January 31, 2014, a final
dividend of Euro 281,470,640 (or 11 Euro/cents per share). The payments shall bemade:(i) in Euro to the shareholders recorded in the section of the Company’s shareholders
register kept by the Company at its registered office in Milan (Italy), and(ii) in Hong Kong dollars to the shareholders recorded in the section of the Company’s
shareholders register kept in Hong Kong. The relevant exchange rate will be theopening buying T/T rate of Hong Kong dollars to Euros as announced by the Hong Kong
Association of Banks (www.hkab.org.hk) on the day of approval of the final dividendby the shareholders.
The final dividend will be subject to approval by the shareholders at the forthcoming
shareholders’ general meeting of the Company to be held on Thursday, May 22, 2014.
The shareholders recorded on the Company’s shareholders register on Thursday, May
22, 2014, opening of business, will be allowed to attend and vote at the shareholders’general meeting of the Company. In order to qualify for attending and voting at theshareholders’ general meeting of the Company, all transfers accompanied by therelevant share certificate(s) must be lodged with:(i) the Company’s Hong Kong share registrar, Computershare Hong Kong Investor
Services Limited, at Shops 1712-16, 17th Floor, Hopewell Centre, 183 Queen's Road
East, Wanchai, Hong Kong, if the transfer concerns shares registered in the sectionof the Company’s shareholders register kept by the Company’s Hong Kong shareregistrar itself, or(ii) with the Company’s registered office in Milan (Italy), Via A. Fogazzaro, 28, if thetransfer concerns shares registered in the section of the Company’s shareholders
register kept by the Company itself,
in any case, not later than 4:30 p.m. (Hong Kong time) on Monday, May 19, 2014.
The Company’s shareholders register will be closed from Tuesday, May 20, 2014 toThursday, May 22, 2014, both days inclusive, during which no share transfer can beregistered.
Subject to the shareholders’ approving the recommended final dividend, such dividend
will be payable on or about Friday, June 20, 2014.

64

PRADA Group

Annual Report 2013 - Directors' Report

The final dividend will be paid to shareholders recorded on the Company’s shareholders
register on Friday, May 30, 2014. In order to qualify for the payment of the final dividend,
all transfers accompanied by the relevant share certificate(s) must be lodged with:(i) the Company’s Hong Kong share registrar, Computershare Hong Kong Investor
Services Limited, at Shops 1712-16, 17th Floor, Hopewell Centre, 183 Queen's Road
East, Wanchai, Hong Kong, if the transfer concerns shares registered in the sectionof the Company’s shareholders register kept by the Company’s Hong Kong shareregistrar itself, or(ii) the Company’s registered office in Milan (Italy), Via A. Fogazzaro, 28, if the transfer
concerns shares registered in the section of the Company’s shareholders register kept
by the Company itself,
in any case, not later than 4:30 p.m. (Hong Kong time) on Wednesday, May 28, 2014.
The Company’s shareholders register will be closed from Thursday, May 29, 2014
to Friday, May 30, 2014, both days inclusive, during which no share transfer can beregistered.
The dividend will be paid net of Italian withholding tax. The current rate of Italian
withholding tax applicable to dividend payment is 20%. Further details on withholding
tax have been already reported in the Tax Booklet available on the Company’s website
at www.pradagroup.com. Should there be any change of the withholding tax rateapplicable to dividend payment, the Company will inform the shareholders by way ofannouncement at the websites of the Stock Exchange and the Company.
Five-year financial summary
The five-year financial summary of the Group is set out in Note 42 to the Consolidated
financial statements.
Reserves
Details of the movements in the reserves of the Group and the Company during theyear are set out in the Consolidated Statement of Changes in Shareholders’ Equity andin the Statement of Changes in PRADA S.p.A. Equity.
Distributable reserves
As at January 31, 2014, the Company’s reserves available for distribution to shareholders
in accordance with the Company’s by-laws amounted to Euro 814,313 thousand.
Property, plant and equipment
Details of the movements in the property, plant and equipment of the Group during
the year ended January 31, 2014, are set out in Note 15 to the Consolidated financial
statements.
Pre-emptive rights
There is no provision for pre-emptive rights under the Company’s by-laws.
Purchase, sale or redemption of the Company’s listed securities
Neither the Company nor any of its subsidiaries has purchased, sold or redeemed
any of the Company’s listed securities during the year ended January 31, 2014 (the“Reviewed Period”).

PRADA Group

Annual Report 2013 - Directors' Report65Capital gain tax in Italy
Capital gains realized on disposals of the Company’s shares may be subject to tax in
Italy. Further details on Italian capital gains taxation have been already reported in theTax Booklet available on the Company’s website at www.pradagroup.com.
Subsidiaries
Details of the Company’s subsidiaries as at January 31, 2014, are set out in Note 43 to
the Consolidated financial statements.
Directors
The Directors of the Company during the Reviewed Period and up to the date of thisannual report are:Executive Directors
Mr. Carlo MAZZI (Chairperson of the Board, Mr. Carlo Mazzi has assumed the role witheffect from February 14, 2014)
Ms. Miuccia PRADA BIANCHI (Chief Executive Officer, Ms. Miuccia Prada Bianchi has
assumed the role with effect from February 14, 2014)
Mr. Patrizio BERTELLI (Chief Executive Officer)
Mr. Donatello GALLI (Chief Financial Officer)
Ms. Alessandra COZZANI (Ms. Alessandra Cozzani has assumed the role with effectfrom December 20, 2013)
Non-Executive Directors
Mr. Gaetano MICCICHÉ
Mr. Marco SALOMONI (Mr. Marco Salomoni has resigned from the role with effectfrom December 19, 2013)
Independent Non-Executive Directors
Mr. Gian Franco Oliviero MATTEIMr. Giancarlo FORESTIERI
Mr. Sing Cheong LIU
In accordance with the by-laws of the Company, the Board of Directors is appointed by
the shareholders’ general meeting for a period of up to three financial years. The term
lapses on the date of the shareholders’ general meeting to be called to approve thefinancial statements for the last year of its office. The Directors may be reappointed.
At the shareholders’ general meeting of the Company held on May 22, 2012, theBoard of Directors has been appointed for a term of three financial years. The Board’s
mandate will therefore lapse on the date of the shareholders’ general meeting to becalled to approve the financial statements for the year ending January 31, 2015.
On December 20, 2013 the Nomination Committee recommended and the Board
approved the appointment of Ms. Alessandra Cozzani as an Executive Director, tofill the casual vacancy caused by the resignation of Mr. Marco Salomoni as a NonExecutive Director rendered on December 19, 2013. Ms. Alessandra Cozzani’s
appointment as an Executive Director will be subject to election by the shareholders at
the forthcoming shareholders’ general meeting and in case of election her mandate as
Executive Director shall lapse at the same time as the other current Directors (i.e. on
the date of the shareholders’ general meeting to be called to approve of the financial
statements for the year ending January 31, 2015).

66

PRADA Group

Annual Report 2013 - Directors' ReportBiographical information of Directors
Brief biographical information of the Directors of the Company are set out in the“Directors and Senior Management” section of this annual report.
Directors’ service contracts
None of the Directors of the Company has or is proposed to have a service contract withany member of the Group that is not determinable within one year without payment ofcompensation, other than statutory compensation.
Directors’ interests in competing business
During the Reviewed Period, none of the current Directors of the Company, had any
interests in a business which competes, either directly, or indirectly, with the businessof the Company and the Group.
Prior to Mr. Marco Salomoni’s resignation with effect from December 19, 2013, he
was a director of GIVI Holding S.p.A. (holding company of the Gianni Versace S.p.A.)
and Aeffe S.p.A., a company listed on the Italian Stock Exchange.
Directors’ interests and short positions in securities
As at January 31, 2014, the Directors of the Company and their associates had thefollowing interests in the shares, underlying shares and debentures of the Company
and its associated corporations (within the meaning of Part XV of the Securities andFutures Ordinance (“SFO”)) as recorded in the register required to be kept by theCompany 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 theModel Code for Securities Transactions by Directors of Listed Companies (“Model
Code”) contained in Appendix 10 of the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited (the “Listing Rules”):(a) Long positions in shares and underlying shares of the Company
Name of Director

Number of Shares

Nature of Interest

Approximate percentage
of Issued 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 in the Company
and is therefore the holding company of the Company.
2. The entire issued share capital in Prada Holding B.V. is held by Gipafin S.à r.l.. Ms.
Miuccia Prada Bianchi, owns, indirectly through Ludo S.A. 53.8% (which comprises
438,460 ordinary shares and 100,000 preference shares) of the capital in Bellatrix
S.à r.l., which in turn owns 65% (which comprises 1,650 ordinary shares and 300
preference shares) of the capital in Gipafin S.à r.l.. Ms. Miuccia Prada Bianchi istherefore deemed under the SFO to be interested in all the shares registered in
the name of Prada Holding B.V.. Ms. Miuccia 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% (which comprises 750 ordinary
shares and 300 preference shares) of the capital in Gipafin S.à r.l.. Mr. Patrizio
Bertelli is therefore deemed under the SFO to be interested in all the sharesregistered in the name of Prada Holding B.V..

PRADA Group

Annual Report 2013 - Directors' Report67The interests of Ms. Miuccia Prada Bianchi and Mr. Patrizio Bertelli in the shares of theCompany as at January 31, 2014 are summarized in the following chart:

Miuccia Prada
Bianchi

Patrizio
Bertelli

Ludo S.A.
53.8%

PaBe1 S.A.
17.6%

PaBe2 S.A.
5.8%

PaBe3 S.A.
5.8%

Gipaﬁn S.à.r.l.
100%

Prada
Holding B.V.
80%

PRADA S.p.A.

68

PRADA Group

Annual Report 2013 - Directors' Report

PaBe4 S.A.
5.8%

Bellatrix S.à.r.l.
65%

(b) Long positions in shares and underlying shares of associated corporations:
Name ofDirector

Name of associatedcorporations

Class of shares

Numberof shares

Nature of Interests

Approximate
percentage ofInterests

Ms. Miuccia
Prada Bianchi

Prada Holding B.V.

Common Shares

1,001

Controlled Corporation

100%

Prapar Corporation

Common Shares

50

As above

100%

EXHL Italia S.r.l.

Participation Quotas(Euro)

15,000As 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%

PAC S.r.l.
(in liquidation)

Participation Quotas(Euro)

30,600As above100%

Gipafin S.à.r.l.

Ordinary Shares

1,650

As above

68.75%

Gipafin S.a.r.l.

Preference Shares300

As above

50%

Bellatrix S.à.r.l.

Ordinary Shares

438,460

As above

49.83%

Bellatrix S.à.r.l.

Preference Shares

100,000

As above

83.34%

Ludo S.A.

Ordinary Shares

100,310

Beneficial Owner

100%

PRADA Arte B.V.

Registered Shares

180

Controlled Corporation

100%

Arte One B.V.

Ordinary Shares

180

As above100%

PRA 1 S.r.l.

Participation Quotas(Euro)

10,000As above100%

Prada Holding B.V.

Common Shares

1,001

Controlled corporation

100%

Prapar Corporation

Common Shares

50

As above

100%

EXHL Italia S.r.l.

Participation Quotas(Euro)

15,000As 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%

PAC S.r.l.
(in liquidation)

Participation Quotas(Euro)

30,600As above100%

Gipafin S.à.r.l.

Ordinary Shares

750

As above31.25%

Gipafin S.a.r.l.

Preference Shares300

As above50%

Mr. Patrizio
Bertelli

Save as disclosed above, as at January 31, 2014, none of the Directors of the Company
or their associates had any interest or short position in the shares, underlying shares anddebentures of the Company or any of its associated corporations (within the meaningof 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 the Stock Exchange pursuant
to the Model Code.

PRADA Group

Annual Report 2013 - Directors' Report69Substantial shareholders’ interests and short positions in securities
As at January 31, 2014, other than the interests of the Directors of the Company as
disclosed above, the following persons had interests or short positions in the sharesor underlying shares of the Company which fall to be disclosed to the Company under
Section 336 of the SFO:
Capacity

Number of Shares

Approximate percentage
of issued capital

Prada Holding B.V.

Legal and beneficial owner

2,046,470,76080%Gipafin S.à.r.l.

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

Note:
Prada Holding B.V. owns approximately 80% of the issued capital in 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.
(Gipaﬁn S.à r.l. owns the entire issued capital in 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 of the Company held by Prada Holding B.V..
Share capital
Details of the movements in the share capital of the Company during the year ended
January 31, 2014 are set out in the Consolidated Statement of Changes in Shareholders’Equity and Note 30 to the Consolidated ﬁnancial statements.
Directors’ interests in contracts
Save for those contracts disclosed under the section on Connected Transactions
below and in Note 40 Transactions with Related Parties and in Note 39 Remunerationof the Board of Directors to the Consolidated ﬁnancial statements, in the opinion of
the Directors, no contract of signiﬁcance with the Company or the Group subsists at
the end of the year ended January 31, 2014, or subsisted during the Reviewed Period
in relation to the Company and the Group business and in which a Director’s interestis or was material.
During the Reviewed Period, there were no arrangements to which the Company or
any of the Company's subsidiaries or holding companies or a subsidiary of any of theCompany's holding companies is a party, being arrangements whose objects are, or
one of whose objects is, to enable Directors of the Company to acquire beneﬁts bymeans of the acquisition of shares in, or debentures of, the Company.
Issuance of debt securities
As announced on August 1, 2013, the Company issued Euro 130 million 2.75 percent Notes due on August 1, 2018 (the “Notes”). The Notes were subscribed byprofessional and institutional investors and the settlement occurred on August 1, 2013.
The Notes were admitted to the ofﬁcial list of the Irish Stock Exchange and to tradingon its regulated market. The Company may, at its option, redeem all, but not some
only, of the Notes at any time after their issuance at an amount equal to their principal
amount plus (if applicable) a premium, together with any accrued interest or at par plus
accrued interest, in the event that certain tax changes occur. The Notes are not rated.
Save as disclosed above, neither the Company nor any of its subsidiaries issued any
debt securities during the Reviewed Period.

70

PRADA Group

Annual Report 2013 - Directors' ReportConnected transactions(A) Continuing Connected Transactions
During the Reviewed Period, the Group had the following non-exempt continuingconnected transactions, details of which were disclosed in the Prospectus of theCompany dated June 13, 2011 and in the Company’s announcements dated April 27,
2012, January 29, 2013 and April 5, 2013:(a) Franchise Agreement – Prada Milan Stores
As disclosed in the Prospectus dated June 13, 2011, the Company originated asa family business in 1913 in Milan and has continued as such since Ms. Miuccia
Prada Bianchi and Mr. Patrizio Bertelli began their cooperation in the late 1970s.
Therefore, the Prada stores in Milan have historically been operated by companies
that are connected to the Prada family.
The Company’s subsidiary, Prada S.A., currently owns the rights to the Prada
trademark and, as a licensor, licenses the use of the Prada trademark to theCompany as a licensee.
Against this historical background, on January 28, 2009, the Company enteredinto a franchise agreement in relation to the Prada stores based in Milan (the“Franchise Agreement”) with ﬁve companies that operated the stores and theircontrolling entity, which all subsequently merged with Fratelli Prada S.p.A. (the“Franchisee”). The Franchisee is a company indirectly controlled by Ms. Miuccia
Prada Bianchi, a Chief Executive Ofﬁcer, an executive director and a substantial
shareholder of the Company. The Franchise Agreement will expire on January 31,
2024 and will be automatically extended for a further 15-year term provided that (i)the Franchisee has met the minimum annual budget for the initial 15-year term; or(ii) the cumulative amount of the purchases made by the Franchisee for the entire
initial 15-year term is at least equal to the sum of the minimum annual budget foreach of the 15 years.
The table below sets out the annual caps relating to the Franchise Agreement for
the Reviewed Period:
Franchise Agreement – Prada Milan Stores

millionRevenues from sales of goods

58.1

Revenues from services

4.3

Royalties income

1.6

Purchase of goods by the Group(4.0)

Net transaction amount

60.0(b) Consulting Agreement with Ms. Miuccia Prada Bianchi
On April 26, 2012, the Company renewed its consultancy agreement with Ms.
Miuccia Prada Bianchi, the Chief Executive Ofﬁcer, an executive director and asubstantial shareholder of the Company, which took effect from February 1, 2012,
for a term of three years, under which Ms. Miuccia Prada Bianchi continues toact as a strategic consultant of the Company for: (i) identifying and elaborating
creative design concepts and styles; (ii) coordinating and supervising collections
development and all of the dedicated structures and functions; (iii) deﬁning
concepts for fashion shows and supervising their execution and (iv) setting
guidelines for brands communication and advertising campaigns and supervising
related activities.
On April 5, 2013, the Company and Ms. Miuccia Prada Bianchi entered into a
supplemental agreement to amend the consultancy agreement to include a variable
incentive component in the consideration to be paid to Ms. Miuccia Prada Bianchi

PRADA Group

Annual Report 2013 - Directors' Report71which is conditional upon the further renewal of the consultancy agreement uponits expiry. This is aimed at strengthening the consultancy relationship between theparties.
The revised annual cap for the remuneration payable to Ms. Miuccia Prada
Bianchi, or accruable by the Company in accordance with applicable accounting
rules, under the consultancy agreement as supplemented on April 5, 2013, for the
Reviewed Period is Euro 16 million.
(c) Consulting Agreement with Mr. Patrizio Bertelli
On April 26, 2012, the Company renewed its consultancy agreement with Mr.
Patrizio Bertelli, the Chief Executive Ofﬁcer, an executive director and a substantial
shareholder of the Company, which took effect from February 1, 2012, for a termof three years under which Mr. Patrizio Bertelli continues to act as a strategic
consultant of the Company for: (i) deﬁning the collections development andindustrialization processes; (ii) developing the leather goods and shoes collection
concept and supervising the related structures and (iii) selecting locations for the
new DOS and refurbishment of existing stores, conceiving store concepts anddeﬁning guidelines and coordination of related project development activities.
On April 5, 2013, the Company and Mr. Patrizio Bertelli entered into a supplemental
agreement to amend the consultancy agreement to include a variable incentive
component in the consideration to be paid to Mr. Patrizio Bertelli which isconditional upon the further renewal of the consultancy agreement upon its expiry.
This is aimed at strengthening the consultancy relationship between the parties.
The revised annual cap for the remuneration payable to Mr. Patrizio Bertelli, or
accruable by the Company in accordance with applicable accounting rules, under
the consultancy agreement as supplemented on April 5, 2013, for the Reviewed
Period is Euro 16 million.
(d) Galleria Transaction
The Company was granted the right to use the prestigious premises in the Galleria
Vittorio Emanuele II in Milan, Italy (the “Galleria Property”) by the Municipalityof Milan under a concession agreement for an 18-year term (the “Concession
Agreement”), in its own capacity and as the representative of Progetto Prada Arte
S.r.l. (“PPA”). In this context, the Company entered into two continuing connectedtransactions.
On January 29, 2013, the Company entered into a business combinationagreement with PPA (the “PPA Business Combination Agreement”) for an 18-year
term. PPA is a company indirectly controlled by Ms. Miuccia Prada Bianchi and Mr.
Patrizio Bertelli (both Chief Executive Ofﬁcers, executive directors and substantial
shareholders of the Company). Under the Business Combination Agreement, theCompany is granted the right to represent on an exclusive basis the businesscooperation between the Company and PPA vis-à-vis the Municipality of Milan in
all aspects relating to the Concession Agreement and PPA is bound to pay to theCompany the portion of the annual concession fee allocated to PPA, based on the
portion of the Galleria Property used by PPA to carry on the activites, particularly
the cultural activities, in the premises.
On November 29, 2013, the Company entered into a business managementagreement with Fratelli Prada S.p.A., as the franchisee of the Prada retail businessin Milan, to allow the latter to manage the retail activity of the Prada brand in theGalleria Property (the “Fratelli Prada Business Management Agreement”). Fratelli
Prada S.p.A. is a company indirectly controlled by Ms. Miuccia Prada Bianchi (aChief Executive Ofﬁcer, an executive director and a substantial shareholder of the72

PRADA Group

Annual Report 2013 - Directors' ReportCompany). The Fratelli Prada Business Management Agreement will expire on
January 31, 2024, provided that, upon the renewal of the Franchise Agreement, thisagreement will be automatically extended until the expiration of the Concession
Agreement.
Given that the duration of each of the PPA Business Combination Agreement
and the Fratelli Prada Business Management Agreement is, or will be, longer
than three years, pursuant to Rule 14A.35(1) of the Listing Rules, an independentﬁnancial advisor, namely Somerley Limited, was appointed by the Company and it
has conﬁrmed that the duration of each of the above two agreements is required
and is in accordance with normal business practice for contracts of this type.
The annual cap for the rent to be paid by PPA to the Company under the PPA
Business Combination Agreement for the Reviewed Period is Euro 1.1 million.
The annual cap for the business management fee to be paid by Fratelli Prada
S.p.A. to the Company under the Fratelli Prada Business Management Agreement
for the Reviewed Period is Euro 3.3 million.
Below is a table setting out the aggregate value for each of the non-exempt continuingconnected transactions for the Reviewed Period:
Total impact on
Accounting
Continuing
the income staadjustment to theConnected
tements for the
CCT following theTransaction
twelve months
application of(“CCT”)
ended January“IAS 17 Leases”
31, 2014(a) Franchise Agreement – Prada Milan Stores

Euro million

Euro million

Euro million

Revenues from sales of goods

48.0

-

48.0

Revenues from services, net

3.6

-

3.6

Royalties income

1.4

-

1.4

Purchase of goods by the Group

(1.0)

-

(1.0)

52

-

52

13.8

-

13.8

14.0

-

14.0

0.9

0.6

1.5

1.3

0.9

2.2

Net transaction amount(b) Consulting Agreement with Ms. Miuccia Prada Bianchi
Annual amount paid to Ms. Miuccia Prada Bianchi
or accrued by the Company(c) Consulting Agreement with Mr. Patrizio Bertelli
Annual amount paid to Mr. Patrizio Bertellior accrued by the Company(d) PPA Business Combination Agreement
Rental income(e) Fratelli Prada Business Management Agreement
Business management income

The Independent Non-executive Directors have reviewed the above non-exempt
continuing connected transactions and conﬁrmed that these have been entered into:(i)in the ordinary and usual course of business of the Company;(ii) either on normal commercial terms or, on terms no less favourable to the Company
than terms available to or from independent third parties; and(iii) in accordance with the relevant agreement governing them on terms that are
fair and reasonable and in the interests of the shareholders of the Company as awhole.

PRADA Group

Annual Report 2013 - Directors' Report73The Directors of the Company have engaged the auditor to review the above nonexempt continuing connected transactions. The auditor has, based on the work
performed, provided a letter to the Directors of the Company (with a copy provided
to the Stock Exchange) to conﬁrm that the above continuing connected transactions:(i)have been approved by the Company’s Board of Directors;(ii) are in accordance with the pricing policies of the Group;(iii) have been entered into in accordance with the terms of the relevant agreements
governing such transactions; and(iv) have not exceeded the relevant annual limits set out in the Prospectus of theCompany dated June 13, 2011 and in the Company’s announcements dated April
27, 2012, January 29, 2013 and April 5, 2013, as applicable.
(B) Connected Transactions
During the Reviewed Period, the Group had the following non-exempt connectedtransactions, details of which were disclosed in the Company’s announcements dated
January 10, 2012, April 16, 2013 and June 28, 2013.
(a) Luna Rossa sponsorship agreement
On January 10, 2012, Prada S.A. a wholly-owned subsidiary of the Company,
entered into a sponsorship agreement with certain companies which are indirectly
owned by Mr. Patrizio Bertelli, a Chief Executive Ofﬁcer, an executive director anda substantial shareholder of the Company, in relation to the sponsorship for theparticipation of the Luna Rossa yacht in the XXXIV edition of the America’s Cup(the “Luna Rossa Sponsorship Agreement”).
The total amount of the sponsorship under the Luna Rossa Sponsorship Agreement
is Euro 40 million which was paid in installments over the period from January
2012 to September 2013.
On April 16, 2013, the parties to the Luna Rossa Sponsorship Agreement enteredinto a supplemental agreement to grant to the Luna Rossa sailing team an
additional sponsorship contribution the maximum amount being Euro 10 million to
support its participation in an additional international race hosted by Naples, Italy
from April 16 to April 21, 2013.
The nature and reasons for the above connected transaction have been disclosed
in the Company’s announcements dated January 10, 2012 and April 16, 2013.
(b) Sponsorship Agreement with Progetto Prada Arte S.r.l.
On June 27, 2013, the Company’s wholly-owned subsidiary, Prada S.A., enteredinto an agreement to grant a sponsorship to Progetto Prada Arte S.r.l. (“PPA”) for,amongst others, arranging various art exhibitions. PPA is indirectly controlled by
Ms. Miuccia Prada Bianchi and Mr. Patrizio Bertelli (both Chief Executive Ofﬁcers,
executive directors and substantial shareholders of the Company). The total
maximum amount of sponsorship is Euro 5.65 million which was paid by January
31, 2014.
The nature and reasons for the above connected transaction have been disclosed
in the Company’s announcement dated June 28, 2013.
Other than the above non-exempt continuing connected transactions and non-exempt
connected transactions, no other transaction disclosed in the Consolidated ﬁnancial
statements falls under the deﬁnition of “connected transactions” or “continuing

74

PRADA Group

Annual Report 2013 - Directors' Reportconnected transaction” contained in Chapter 14A of the Listing Rules or, where it
falls under the deﬁnition of “connected transactions” or “continuing connectedtransaction” contained in Chapter 14A of the Listing Rules, it is exempted from thereporting, annual review, announcement and independent shareholders’ approvalrequirements contained in Chapter 14A of the Listing Rules.
The Company has complied with the disclosure requirements governing “connectedtransactions” or “continuing connected transactions” in accordance with Chapter 14Aof the Listing Rules.
Bank loans and other borrowings
Details of the Group’s bank loans and other borrowings as at January 31, 2014 are set
out in Notes 19 and 25 to the Consolidated ﬁnancial statements.
Major customers and suppliers
The nature of the Group’s activities are such that the percentage of sales or purchases
attributable to the Group’s ﬁve largest customers or suppliers is signiﬁcantly less than
30% of the total and the Directors do not consider any one customer or supplier to beinﬂuential to the Group.
Retirement benefit schemes
Details of the retirement beneﬁt schemes of the Group are set out in Note 26 to theConsolidated ﬁnancial statements.
Model Code for securities transactions
The Company has adopted the Model Code. Having made speciﬁc enquiries of all
Directors, all Directors have conﬁrmed that they have complied with the required
standard of the Model Code throughout the Reviewed Period.
Events after the reporting period - if applicable
Details of signiﬁcant events occurring after the reporting date are set out in Note 44 to
the Consolidated ﬁnancial statements.
Commitments and contingencies
Details of capital commitments and contingent liabilities of the Group as at January
31, 2014 are set out in Notes 41 and 27 respectively to the Consolidated ﬁnancial
statements.
Sufficiency of public float
The Stock Exchange granted to the Company at the time of its listing a waiver from strict
compliance with Rule 8.08(1) of the Listing Rules (“Public Float Waiver”). Pursuant to
the Public Float Waiver, the Company must at all times maintain a minimum public
ﬂoat of 20%. Based on the information that is available to the Company and within theknowledge of the Directors, the Company has maintained the amount of public ﬂoat
as approved by the Stock Exchange and as permitted under the Listing Rules as at thedate of this annual report.
Directors’ responsibilities for the Consolidated financial statements
The Directors are responsible for the preparation of Consolidated ﬁnancial statements
for the year ended January 31, 2014, with a view to ensuring such Consolidated
ﬁnancial statements give a true and fair view of the state of affairs of the Group.
In preparing these Consolidated ﬁnancial statements, the Directors have selectedsuitable accounting policies, made judgments and estimates that are prudent and

PRADA Group

Annual Report 2013 - Directors' Report75

reasonable, and prepared the Consolidated ﬁnancial statements on a going concern
basis and in accordance with International Financial Reporting Standards issued by
the International Accounting Standards Board as adopted by the European Union. The
Directors are responsible for keeping proper accounting records for safeguarding theassets of the Company and the Group.
Auditor
The Consolidated ﬁnancial statements and the Separate ﬁnancial statements of theCompany were audited by Deloitte & Touche S.p.A.. Under Italian company law,
the auditor is appointed and its remuneration is resolved every three years by theshareholders in a general meeting of the Company, on the basis of a proposal from theBoard of statutory auditors.
On April 13, 2012, the Stock Exchange granted to the Company a waiver from strict
compliance with Rule 13.88 of the Listing Rules, which requires the appointmentof an auditor at each annual general meeting to hold ofﬁce until the next annual
general meeting. As a consequence, the Company’s auditor will be appointed and its
remuneration determined every three years at the shareholders’ general meeting of
the Company under the applicable Italian laws.
On April 5, 2013, the Board had resolved, in accordance with the recommendation
received from the Board of statutory auditors and the Audit Committee, to propose aresolution at the shareholders’ general meeting of the Company held on May 23, 2013
to appoint Deloitte & Touche S.p.A. as the auditor of the Company for the relevant
three year-term and to ﬁx its remuneration.
At the shareholders’ general meeting of the Company held on May 23, 2013, it was
resolved to appoint Deloitte & Touche S.p.A. as the auditor of the Company for aterm of three ﬁnancial years and to ﬁx its remuneration at Euro 472,000 for eachﬁnancial year of its three-year term, for the provision to the Company of the audit of
the Separate ﬁnancial statements and the Consolidated ﬁnancial statements, which isincluded in the overall annual remuneration of Euro 1,605,000 for Deloitte & Touche
S.p.A. and its network in respect of provision of audit services to the Group as a whole.
The auditor’s annual remuneration shall be subject to adjustment in accordance withchanges in relevant applicable laws or additional requirements for the audit services
as well as the annual upward adjustment linked to index of ISTAT – the Italian National
Institute for Statistics. The auditor’s mandate lapses on the date of the shareholders’general meeting to be called to approve the ﬁnancial statements for the year ending
January 31, 2016.

By order of the Board

Carlo Mazzi
Chairperson

April 2, 201476

PRADA Group

Annual Report 2013 - Directors' ReportCorporate Governance

PRADA Group

Annual Report 2013 - Corporate Governance77

Corporate governance practices
The Company is committed to maintaining a high standard of corporate governancepractices and fulﬁlling its commitment to effective corporate governance. The corporate
governance model adopted by the Company consists of a set of rules and standards
with the aim at establishing efﬁcient and transparent operations within the Group, toprotect the rights of the Company’s shareholders and to enhance shareholder value.
The corporate governance model adopted by the Company is in compliance with theapplicable regulations in Italy, as well as the principles of the Corporate Governance
Code (the “Code”) contained in Appendix 14 of the Listing Rules.
Compliance with the Code
The Board has reviewed the Company’s corporate governance practices and is satisﬁedthat such practices have complied with the code provisions set out in the Code, during
the Reviewed Period (i.e. the year ended January 31, 2014). This Corporate Governance
Report summarizes how the Company has applied the principles and implemented thecode provisions contained in the Code throughout the Reviewed Period.
Directors’ securities transactions
The Company has adopted written procedures governing Directors’ securities
transactions on terms no less exacting than the standard set out in the Model Code.
Speciﬁc written acknowledgments have been obtained from each Director to conﬁrm
compliance with the Model Code throughout the Reviewed Period. There was no
incident of non-compliance during the Reviewed Period.
The Company has also adopted written procedures governing securities transactions
carried out by the relevant employees who are likely to possess inside information in
relation to the Company and its securities. The terms of these procedures are no lessexacting than the standard set out in the Model Code.
Directors’ interests as at January 31, 2014, in the shares of the Company and its
associated corporations (within the meaning of Part XV of the Securities and Futures
Ordinance) are set out in the Directors’ Report.
Board of Directors
a. Board Composition
The Board is currently composed of nine Directors, of which ﬁve are Executive Directors,
one is Non-Executive Director and three are Independent Non-Executive Directors. All
Directors have distinguished themselves in their ﬁeld of expertise and advised theBoard in the area of their specialty, relevant to the Group’s business activities andstrategic development. Biographical details of the Directors and their relationships,
where applicable, are set out in the Directors and Senior Management section. The
Company has maintained on its website and on the website of the Stock Exchange
an updated list of its Directors, identifying their respective roles and functions andwhether they are Independent Non-Executive Directors.
With a view to achieving a sustainable and balanced development, the Company
has viewed diversity at the Board level as an essential element in supporting theattainment of its strategic objectives and its development. The Board diversity policy
has been considered and adopted by the Board. All Board appointments are basedon meritocracy and candidates are proposed and selected on an objective basis, with
due regard for the beneﬁts of diversity of the Board. A range of diversity perspectives
is considered, including but not limited to gender, age, cultural and educational
background, professional experience, skills and knowledge. The ﬁnal selection is basedon merit and the contribution that the candidates can bring to the Board.

78

PRADA Group

Annual Report 2013 - Corporate GovernanceAt the Board meeting approving the change of director on December 20, 2013, Board
diversity was one of the key aspects that were discussed. Out of the total number ofnine Directors, the number of female Directors has increased to two.
The Nomination Committee has been delegated with the overall responsibility for
implementing and monitoring the application of the Board diversity policy. The
Nomination Committee will discuss any revisions that may be required to ensure theeffectiveness of the Board diversity policy and will recommend any such revisions to
the Board for consideration and approval. The Board will review its composition on aregular basis to assess its optimal structure.
b. Board Meetings
During the Reviewed Period, the Board held ﬁve meetings to discuss the Group’s
overall corporate strategic direction and objectives, to assess its operational andﬁnancial performance (including the annual budget, annual, interim and quarterly
results), to issue Euro 130 million Notes listed on the Irish Stock Exchange, to appointa new Director and new members of Committees, to approve connected transactions
and the Group’s investments plan. The average attendance rate of the Directors forthese ﬁve meetings either in person or through electronic means of communication
was 85%.
Minutes of the Board meetings are kept by the Group Corporate Affairs Director
and Joint Company Secretary, Ms. Patrizia Albano. Minutes of the meetings of theBoard and all the Board Committees are available to any Director for inspection at any
reasonable time by giving reasonable notice.

PRADA Group

Annual Report 2013 - Corporate Governance79

c. Board Attendance
The details of attendance at Board Meetings, Committee Meetings and shareholders’general meeting held during the Reviewed Period are set out in the following table:
Directors

Board

Audit
Committee

Remuneration
Committee

Nomination Shareholder’sCommittee
Meeting

Executive Directors
Mr. Carlo MAZZI (Chairperson) 1

5/5

Ms. Miuccia PRADA BIANCHI 2(Chief Executive Officer)

1/1

1/1

2/5

1/1

Mr. Patrizio BERTELLI (Chief Executive Officer)

4/5

1/1

Mr. Donatello GALLI (Chief Financial Officer)

4/5

1/1

Ms. Alessandra COZZANI 3

1/1

Non-Executive Directors
Mr. Marco SALOMONI 4

4/4

Mr. Gaetano MICCICHÉ

3/5

1/1

2/2

1/1
0/1

Independent Non-Executive Directors
Mr. Gian Franco Oliviero MATTEI 5

5/5

6/6

1/1

Mr. Giancarlo FORESTIERI 6

5/5

5/6

1/1

Mr. Sing Cheong LIU 7

5/5

6/6

3/3

1/1
1/1

3/3

1/1

Statutory Auditors
Mr. Antonino PARISI (Chairman)

5/5

5/6

1/1

Mr. Roberto SPADA

4/5

4/6

1/1

Mr. David TERRACINA

5/5

6/6

1/1

April 5, 2013

April 3, 2013

Date(s) of Meeting

April 3, 2013

April 3, 2013

June 11, 2013 May 23, 2013

Sept. 17, 2013

July 30, 2013 June 11, 2013

Dec. 20, 2013

May 23, 2013

Sept. 17, 2013 Sept. 17, 2013
Dec. 20, 2013 Nov. 13, 2013
Dec. 20, 2013

Average Attendance Rate of Directors

85%

94.4%

100%

100%

88.9%

Notes:
1: Former Deputy Chairman, has assumed the role of Chairperson on February 14, 2014;
appointed as member of Remuneration Committee and Nomination Committee on December 20, 2013
2: Former Chairperson, has assumed the role of Chief Executive Officer on February 14, 2014
3: Appointed as Executive Director on December 20, 2013
4: Resigned as Non-Executive Director and ceased to be member of Remuneration Committee and Nomination Committee
on December 19, 2013
5: Chairman of Audit Committee, Remuneration Committee and Nomination Committee
6: Member of Audit Committee and Remuneration Committee
7: Member of Audit Committee and Nomination Committee

Ms. Miuccia Prada Bianchi, the former Chairperson of the Board and current Chief
Executive Ofﬁcer of the Company, was absent for three of the Board meetings due
to prior commitments concerning fashion shows. Attendance at such events wasimportant for the discharge of her duties to the Company. Prior to the relevant Board
meeting being held, she rendered her views and comments to Mr. Carlo Mazzi, theformer Deputy Chairman, who led the Directors through the agenda of the relevant
Board meetings.
d. Roles and Responsibilities
The Board is vested with full powers for the ordinary and extraordinary managementof the Company. The Board has the power to perform all acts it deems advisablefor the implementation and achievement of the corporate purposes, except for thoseacts reserved by laws or by the By-laws for resolution at a shareholders’ general
meeting. In particular, the Board is responsible for setting up the overall strategy as

80

PRADA Group

Annual Report 2013 - Corporate Governancewell as reviewing the operation and ﬁnancial performance of the Company and theGroup. The Board reserved for its decision or consideration matters covering overall
Group strategy, major acquisitions and disposals, annual budgets, annual, interim andquarterly results, approval of major transactions and connected transactions and othersigniﬁcant operational and ﬁnancial matters.
All Board members have been provided with monthly updates prepared by the
Executive Directors with the support of the management which give a balanced
and comprehensive assessment of the performance, position and prospects of theCompany and the Group, in sufﬁcient details to enable the Board as a whole and each
Director to discharge their duties.
Day-to-day operational responsibilities are speciﬁcally delegated by the Board to
management. Such responsibilities include:UÊthe preparation of annual, interim and quarterly results for the approval of theBoard before publication;UÊ

execution of business strategy and other initiatives adopted by the Board;UÊmonitoring of operating budgets adopted by the Board;UÊ

implementation of adequate systems of internal controls and risk management
procedures; andUÊcompliance with relevant statutory requirements, rules and regulations.

e. Non-Executive Directors
The Non-Executive Directors, including the Independent Non-executive Directors,
provide the Company with diversiﬁed skills, expertise and varied backgrounds andqualiﬁcations. They participate in the Board and Board Committees (including Audit
Committee, Remuneration Committee and Nomination Committee) meetings to bring
independent and objective views, advice and judgment on important issues relating to
the Company’s strategy, policy, ﬁnancial performance, and take the lead on matterswhere potential conﬂicts of interests arise. They also attend the annual general
meetings of the Company to understand the views of the shareholders. They make apositive contribution to the development of the Company’s strategy and policy throughindependent, constructive and informed comments.
f. Independent Non-executive Directors
The independence of the Independent Non-executive Directors has been assessedin accordance with the applicable Listing Rules. Each Independent Non-Executive
Director meets the independence guidelines set out in Rule 3.13 of the Listing Rules
and has provided to the Company the annual conﬁrmation as to his independence.
This was further conﬁrmed by the review of the Nomination Committee made on April
1, 2014. None of the Independent Non-Executive Directors of the Company has any
business or ﬁnancial interests with the Company or its subsidiaries and they continue
to be considered by the Company to be independent.
g. Liability Insurance for the Directors
The Company has arranged for appropriate liability insurance to indemnify its Directors
for their liabilities arising out of the corporate activities. The insurance coverage isreviewed on an annual basis.
h. Directors’ Training
Each Director, after his/her appointment, is provided with a comprehensive, formal
and tailored induction program to ensure that he/she has a proper understanding of
the key areas of business operations and practices of the Company, as well as his/her
responsibilities under the relevant laws, rules and regulations.

PRADA Group

Annual Report 2013 - Corporate Governance81All Directors are encouraged to participate in continuous professional training todevelop and refresh their knowledge and skills. In this respect, during the Reviewed
Period, Directors received regular updates on changes and developments of theGroup’s business and on the latest development of the laws, rules and regulations
relating to Directors’ duties and responsibilities. In addition, all Directors attended
an in-house seminar conducted by the Joint Company Secretaries covering mainly
the topic of inside information disclosure requirements. These initiatives are taken to
ensure the Directors’ awareness of the latest corporate governance practices and that
their contribution to the Board remains informed and relevant.
Directors are requested to provide records of the continuous training they havereceived during the Reviewed Period to the Group Corporate Affairs Director and the
Joint Company Secretary, Ms. Patrizia Albano.
Chairperson and Chief Executive Officers
As published in the announcement dated February 14, 2014, the current Chairperson is
Mr. Carlo Mazzi and the current Chief Executive Ofﬁcers are Ms. Miuccia Prada Bianchi
and Mr. Patrizio Bertelli. The role of the Chairperson is separate from that of the Chief
Executive Ofﬁcers. The Chairperson is vested with the power to represent the Company
and is responsible for ensuring that the Board is functioning properly, with good corporate
governance practices and procedures. The Chief Executive Ofﬁcers, supported by
the other Executive Directors and senior management, are responsible for managing
the Company’s business, including the implementation of major strategies and otherinitiatives adopted by the Board. The Chief Executive Ofﬁcers are husband and wife.
Appointment of Directors
At the shareholders’ general meeting of the Company held on May 22, 2012, theBoard (including the Non-Executive Directors) was appointed for a term of threeﬁnancial years. The mandate of the current Board of Director lapses on the date of theshareholders’ general meeting to be called to approve the ﬁnancial statements for theyear ending January 31, 2015.
The Board is empowered under the Company’s by-laws to appoint any person as a
Director to ﬁll a casual vacancy. On December 20, 2013, the Nomination Committee
recommended and the Board approved the appointment of Ms. Alessandra Cozzani
as an Executive Director, to ﬁll the casual vacancy caused by Mr. Marco Salomoni’s
resignation as Non-Executive Director on December 19, 2013. Ms. Alessandra Cozzani’s
appointment as Executive Director will be subject to election by the shareholders at
the forthcoming shareholders’ general meeting and her mandate as Executive Director
if so elected shall lapse at the same time as the other current Directors.
Under the Company’s By-laws, the Directors may be re-appointed.
Corporate Governance Functions of the Board
The Board is responsible for determining and supervising the application of appropriate
corporate governance policies of the Company, in accordance with the provisions of
the Code. The Board’s role in this regard is:(i)

to develop and review the Company’s policies and practices on corporate
governance;(ii) to review and monitor the training and continuous professional development of
directors and senior management;(iii) to review and monitor the Company’s policies and practices on compliance withlegal and regulatory requirements;

82

PRADA Group

Annual Report 2013 - Corporate Governance(iv) to develop, review and monitor the Code of Conduct, the Organisation,
Management and Control Model (adopted pursuant to Italian Legislative decree
231 of June 8, 2001) and the Company’s procedures;(v) to review the Company’s compliance with the Code and disclosure in the Corporate
Governance Report; and(vi) to perform any other corporate governance duties and functions set out by the
Listing Rules or other applicable rules, for which the Board shall be responsible.
During the Reviewed Period, the Board considered the following corporate governancematters:(i)adopted the Board diversity policy;(ii) reviewed connected transactions of the Company;(iii) reviewed the compliance with the Code;(iv) approved the issuance and the listing of Euro 130 million 2.75 per cent Notes on
the Irish Stock Exchange; and(v) reviewed the effectiveness of the internal controls and risk management systemsof the Company through the Internal Control Department and the Audit Committee.
Board Committees
The Board has established the Audit Committee, the Remuneration Committee and theNomination Committee. Each Committee is chaired by an Independent Non-Executive
Director. Each of the Committees’ terms of reference is available on the Company’s
and Stock Exchange’s websites. The terms of reference in respect of each Committee
are of no less exacting terms than those set out in the Code.
In addition, the Board has established a supervisory body under the Italian Legislative
Decree 231 of June 8, 2001.
a. Audit Committee
The Company has established an Audit Committee in compliance with Rule 3.21 of
the Listing Rules where at least one member possesses appropriate professional
qualiﬁcations in accounting or related ﬁnancial management expertise to discharge
the responsibility of the Audit Committee. The membership of the Audit Committee
consists of three Independent Non-Executive Directors, namely, Mr. Gian Franco
Oliviero Mattei (Chairman), Mr. Giancarlo Forestieri and Mr. Sing Cheong Liu. The primary
duties of the Audit Committee are to assist the Board in providing an independent viewof the effectiveness of the Company’s ﬁnancial reporting process and internal control
and risk management systems, to oversee the external audit process and the internal
audit process and to perform other duties and responsibilities as are assigned to the
Audit Committee by the Board.
During the Reviewed Period, the Audit Committee held six meetings (with anattendance rate of 94.4%) mainly to review with senior management and the Group’s
internal and external auditor and the board of statutory auditors, the signiﬁcant internaland external audit ﬁndings and ﬁnancial matters as required under the Committee’s
terms of reference. The Audit Committee’s review covers the recommendation to
the Board on the selection and appointment of external auditor, the audit plans andﬁndings of internal and external auditors, internal controls, risk assessment, annual
review of the continuing connected transaction of the Group, tax update and ﬁnancial
reporting matters (including the annual results for the year ended January 31, 2013,
the ﬁrst quarterly results as of April 30, 2013, interim ﬁnancial results as of July 31,
2013 and third quarterly results as of October 31, 2013, before recommending them

PRADA Group

Annual Report 2013 - Corporate Governance83

to the Board for approval).
The Audit Committee has also held a meeting on April 1, 2014 to review the annual
results for the year ended January 31, 2014 before recommending it to the Board forapproval.
Auditor’s compensation
The total fees and expenses accrued to Deloitte & Touche S.p.A. and its network forthe audit of the Consolidated ﬁnancial statements for the year ending January 31,
2014, together with non-audit services, are illustrated below:
Type of service

Audit Firm

Provided toFees in thousandsof EuroAudit services

Deloitte & Touche spa

PRADA spa

473

Audit services

Deloitte & Touche spa

Subsidiaries

209

Audit services

Deloitte Network

Subsidiaries

1,047

Total audit fees accruing for the twelve months ended January 31, 2014

1,729

Comfort letter on Euro
130 million Notes

Deloitte & Touche spa/
Deloitte Network

PRADA spa

175

Tax advisory

Deloitte & Touche spa/
Deloitte Network

PRADA spa and Subsidiaries

26

Certificates of sale

Deloitte & Touche spa/
Deloitte Network

Subsidiaries

9

Tax advisory

Deloitte Network

Subsidiaries

235

Other

Deloitte Network

PRADA spa and Subsidiaries

30

Total non-audit fees accruing for the twelve months ended January 31, 2014475

Out of pocket expenses

74

Total independent auditors’ compensation accruing for twelve months ended January 31, 2014

2,278

The total of the audit services provided to the Group increased from Euro 1,605
thousand, as approved by the shareholders’ general meeting held on May 23, 2013,
to Euro 1,729 thousand because of the new engagements committed to the Deloitte
network by the subsidiaries incorporated during the year.
b. Remuneration Committee
The Company has established a Remuneration Committee in compliance with the Code.
The primary duties of the Remuneration Committee are to make recommendations to
the Board on the Company’s policy and structure for the remuneration of Directors andsenior management and the establishment of a formal and transparent procedure fordeveloping policy on such remuneration. The recommendations of the Remuneration
Committee are then put forward to the Board for consideration and adoption, whereappropriate. The Remuneration Committee consists of two Independent Non-Executive
Directors, Mr. Gian Franco Oliviero Mattei (Chairman) and Mr. Giancarlo Forestieri andone Executive Director, Mr. Carlo Mazzi. Mr. Mazzi was appointed as a member of theRemuneration Committee on December 20, 2013 to replace Mr. Marco Salomoni whoceased to be a member of the Remuneration Committee on December 19, 2013.
During the Reviewed Period, the Remuneration Committee held one meeting (withattendance rate of 100%) mainly to review the long-term incentive plan connectedto the Group’s results and suggest its application to certain strategic consultants of
the Company and to recommend the supplementation of the consultancy agreementswith Ms. Miuccia Prada Bianchi and Mr. Patrizio Bertelli to include the variable incentive
components in their remuneration. On April 1, 2014, the Remuneration Committee

84

PRADA Group

Annual Report 2013 - Corporate Governanceheld one meeting to recommend the additional Directors' fee to be approved at theforthcoming shareholders' general meeting.
Remuneration Policy
The Group’s compensation policy is aimed at attracting, rewarding and protecting its
personnel, who is considered to be the key to the success of the business of theGroup. The overall market competitiveness and complexity of a position is taken into
account during the review of basic salaries. The Group has an incentive system thatlinks compensation with the annual performance of the Group itself, taking into accountthe Group’s objectives in net sales, as well as the objectives of each department.
The Group has adopted cash long term incentive plans for senior managers and asmall number of key managers for retention purposes, under which the beneﬁt of asenior manager or a key manager under the incentive plan would vest subject to theachievement by the Group of one or more economic objectives and his/her presence
within the Group at the end of a three-year period. Other incentive schemes speciﬁc
to sales staff are also in place, and technicians of the Group may receive a collection
bonus that is provided to them after the development of a seasonal collection.
The aggregate amount of remuneration of the Directors of the Company is approvedby the shareholders in a general meeting. The remuneration of each Director is thendetermined by the Board which receives recommendations from the Remuneration
Committee. Under the current compensation arrangements, the Executive Directors
receive compensation in the form of fees, salaries and other beneﬁts, discretionary
bonuses and other incentives, non-monetary beneﬁts and other allowances andcontributions to retirement beneﬁts schemes. The Non-Executive Directors (including
Independent Non-Executive Directors) receive compensation in the form of fees,salaries and contributions to retirement beneﬁts scheme, as the case may be. No
Director is allowed to approve his/her own remuneration.
c. Nomination Committee
The Company has established a Nomination Committee in compliance with the Code.
The primary duties of the Nomination Committee are to make recommendations to theBoard on the structure, size and composition of the Board itself, on the selection of
new Directors and on the succession plans for Directors. The Nomination Committee
also assesses the independence of Independent Non-Executive Directors. The
recommendations of the Nomination Committee are then put forward to the Board
for consideration and adoption, where appropriate. The Nomination Committee
consists of two Independent Non-Executive Directors, Mr. Gian Franco Oliviero Mattei(Chairman) and Mr. Sing Cheong Liu and one Executive Director, Mr. Carlo Mazzi. Mr.
Mazzi was appointed as a member of the Nomination Committee on December 20,
2013, to replace Mr. Marco Salomoni who ceased to be a member of the Nomination
Committee on December 19, 2013.
During the Reviewed Period, the Nomination Committee held three meetings on April
3, 2013, September 17, 2013, and December 20, 2013 (with all members attending)to review the adequacy of the structure and composition of the Board, to performthe annual review of the independence of the Independent Non-Executive Directors,
to propose to the Board the adoption of the Board diversity policy, the appointmentof a new Director and the substitution of the members of the Board Committees. In
addition, the Nomination Committee held two meetings, on February 14, 2014, torecommend to the Board the appointement of the new Chairperson and of an additional
Chief Executive Ofﬁcer, and on April 1, 2014, to assess and conﬁrm the independenceof the Independent Non-Executive Directors of the Company for the Reviewed Period
and to recommend to the shareholders the election of Ms. Alessandra Cozzani as an
Executive Director at the forthcoming shareholders’ general meeting.

PRADA Group

Annual Report 2013 - Corporate Governance85

d. Supervisory Body
In compliance with Italian Legislative Decree 231 of June 8, 2001, the Company has
established a supervisory body whose primary duty is to ensure the functioning,
effectiveness and enforcement of the Company’s Model of Organization, adopted by
the Company pursuant to the Decree. The supervisory body consists of three members
appointed by the Board selected among qualiﬁed and experienced individuals,
including Independent Non-Executive Directors, qualiﬁed auditors, executives orexternal individuals. The supervisory body consists of Mr. David Terracina (Chairman),
Mr. Franco Bertoli and Mr. Gian Franco Oliviero Mattei.
Board of statutory auditors
Under Italian law, a joint-stock company is required to have a board of statutory auditors,
appointed by the shareholders for a term of three ﬁnancial years, with the authority tosupervise the Company on its compliance with the applicable laws, regulations 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.
At the shareholders’ general meeting of the Company held on May 22, 2012, theboard of statutory auditors (including the alternate statutory auditors) was appointed
for a term of three ﬁnancial years. The mandate of all of the current statutory auditors(including the alternate statutory auditors) will therefore expire at the shareholders’general meeting to be called to approve the ﬁnancial statements of the Company forthe year ending January 31, 2015.
The board of statutory auditors of the Company consists of Mr. Antonino Parisi(Chairman), Mr. Roberto Spada and Mr. David Terracina. The alternate statutory auditors
are Mr. Marco Serra and Mr. Cristiano Proserpio.
Directors’ responsibility and auditors’ responsibility for Consolidated financial
statements
The Directors are responsible for preparing the Consolidated ﬁnancial statementsof the Company for the year ended January 31, 2014 with a view to ensuring such
Consolidated ﬁnancial statements give a true and fair view of the state of affairs of
the Group. In preparing these Consolidated ﬁnancial statements, the Directors haveselected suitable accounting policies and made judgments and estimates that are
prudent and reasonable. The Consolidated ﬁnancial statements have been preparedon a going concern basis and in accordance with International Financial ReportingStandards issued by the International Accounting Standards Board as adopted by theEuropean Union.
As regards the auditor of the Company, its responsibilities are stated in the auditor’sreport on the Consolidated ﬁnancial statements.
Internal control
The Board places great importance on maintaining a sound and effective system ofinternal control to safeguard the shareholders’ investment and the Company’s assets.
The Board is also responsible for assessing the overall effectiveness of the internal
control system including ﬁnancial, operational and compliance controls and risk
management functions. On December 6, 2012, the Board approved a revision of therisk assessment model adopted by the Company, aiming to cover developments since
the ﬁrst adoption of the risk assessment model.
The Internal Audit Department provides an independent review of the adequacy andeffectiveness of the internal control system. The audit plan is discussed and agreed
every year with the Audit Committee and then submitted to the Board for approval. In

86

PRADA Group

Annual Report 2013 - Corporate Governanceaddition to its agreed annual schedule of work, the Internal Audit Department conducts
other special reviews as required.
The Group’s internal control system has mainly been designed to safeguard the assetsof the Group itself, to maintain proper accounting standards, to ensure that appropriate
authority has been given for the performance of acts by the Company, and to comply
with relevant laws and regulations. During the Reviewed Period, no signiﬁcant control
failings or weaknesses was identiﬁed. The Board, through the Audit Committee,
reviewed and is generally satisﬁed that the internal control system has functioned
effectively and is adequate for the Group as a whole.
Joint Company Secretaries
As disclosed in the prospectus of the Company dated June 13, 2011, the Company has
appointed Ms. Patrizia Albano and Ms. Yuen Ying Kwai as joint company secretariesof the Company.
Ms. Patrizia Albano, who is qualiﬁed as a lawyer admitted to the Bar Association ofRome (Ordine degli Avvocati di Roma) has attended continuous professional training
sessions in Italy and Hong Kong for approximately 88 hours in the past three years,
on a range of topics including directors’ duties and responsibilities and other corporate
activities, liabilities and damages, compliance on safety at work, administrative
sanctions, professional ethics and the board and shareholders in European listedcompanies, to update her skills and knowledge. During the Reviewed Period Ms. Yuen
Ying Kwai undertook over 15 hours of relevant professional training to update her skills
and knowledge. In addition, both Ms. Albano and Ms. Yuen have attended a training
session held by the Company’s legal advisors (Slaughter and May) relating to the Listing
Rules and Securities and Futures Ordinance of Hong Kong (Cap.571) for three hours.
Their biographies are set out in the Directors and Senior Management section.
Shareholders’ Rights
a. Convening shareholders’ general meeting by shareholders
Pursuant to Article 14.2 of the Company’s By-Laws, a shareholders’ general meetinghas to be called by the Board when requested by shareholders representing at least
one-twentieth of the Company’s share capital, provided that the request mentions theitem(s) to be discussed at the meeting. If there is an unjustiﬁed delay in calling themeeting by the Board, action will be taken by the board of statutory auditors.
b. Putting forward proposals at shareholders’ general meeting
Pursuant to Articles 14.4 and 14.5 of the Company’s By-Laws, shareholders who,
individually or jointly, own or control at least one-fortieth of the Company’s sharecapital may request in writing for additions to be made to the list of items on theagenda, within ten days as of the notice of call of a shareholders’ general meeting,by setting out the proposed additions (ﬁve days in the circumstances indicatedunder the second paragraph of Article 14.4). The proposals should be directed to
the Group Corporate Affairs Director and Joint Company Secretary by email at
corporateaffairs@pradagroup.com or at the Company’s address: Via A. Fogazzaro n.
28, Milan 20135, Italy.
c. Making enquiry to the Board
Enquiries about matters to be put forward to the Board should be directed to
the Group Corporate Affairs Director and Joint Company Secretary by email at
corporateaffairs@pradagroup.com or at the Company’s address: Via A. Fogazzaro n.
28, Milan 20135, Italy. The Company will not normally deal with verbal or anonymous
enquiries.

PRADA Group

Annual Report 2013 - Corporate Governance87

d. Procedures for a shareholders to propose a person for election as Director
The procedures for a shareholder to propose a person for election as Director of theCompany are set out in Articles 19.3 and 19.4 of the Company’s By-Laws, details of
which have been disclosed in the Company’s announcement dated March 30, 2012.
Constitutional Documents
During the Reviewed Period, there was no change in the Company’s constitutional
documents.
Communication with Shareholdersa. Investor relations and communications
The Company endeavors to maintain a high level of transparency in communication withshareholders and the ﬁnancial community in general. The Company has maintained
regular dialogue and fair disclosure with institutional shareholders, fund managers,
research analysts and the ﬁnance media. Investor/analysts brieﬁngs and one-onone meetings, roadshows (both domestic and international), investor conferences,site visits, results brieﬁng are conducted on a regular basis in order to facilitatecommunication between the Company, shareholders and the investment community.
The Company strives to ensure effective and timely dissemination of information toshareholders and the investment community at all times and will review regularly thearrangements to ensure its effectiveness.
The Company’s corporate website (www.pradagroup.com) facilitates effective
communications with shareholders, investors and other stakeholders, making
corporate information and other relevant ﬁnancial and non-ﬁnancial information
available electronically and on a timely basis. This includes extensive information
about the Group’s performance and activities via the annual report, interim report,press releases, presentations, announcements, circulars to shareholders and noticesof general meetings, etc.
b. Shareholders’ Meetings
The Company strives to maintain an on-going dialogue with its shareholders.
Shareholders are encouraged to participate in general meetings or to appoint proxies
to attend and vote at meetings for and on their behalf if they are unable to attend suchmeetings. The process of the Company’s general meeting is monitored and reviewed
on a regular basis.
The Company uses shareholders’ general meeting as one of the principal channels
for communicating with the shareholders and to ensure that shareholders’ views arecommunicated to the Board. At the shareholders’ general meeting, each substantiallyseparate issue is proposed and considered by a separate resolution (including theelection of individual directors).
The last shareholders’ general meeting of the Company was held on May 23, 2013 at
the Company’s registered ofﬁce at Via A. Fogazzaro n. 28, Milan, Italy with the videoconference system located at the registered ofﬁce of Prada Asia Paciﬁc Limited at
36/F, Gloucester Tower, The Landmark, 11 Pedder Street, Central, Hong Kong (the“2013 Shareholders’ General Meeting”). The Directors, including the Chairperson of
the Board, the Chairman of the Board Committees and the auditor of the Company,
Deloitte & Touche S.p.A., attended the 2013 Shareholders’ General Meeting.

88

PRADA Group

Annual Report 2013 - Corporate GovernanceSeparate resolutions were proposed at the 2013 Shareholders’ General Meeting on eachissue and the voting results of such resolutions were disclosed in the announcementof the Company dated May 23, 2013. The numbers of votes cast in favour of eachresolution (and the corresponding percentage level) are set out below:
Ordinary Resolutions proposed at the 2013 Shareholders’ General Meeting

Number of Votes
cast in favour (%)

1. (a) To approve the Audited Separate Financial Statements, which show a
net income of Euro 288,296,583, and the Audited Consolidated financial
statements of the Company for the year ended January 31, 2013

2,412,926,752(99.969855%)

1. (b) To approve the allocation of the net income for the year ended January 31,
2013 as follows: (i) Euro 4,786,769 to the legal reserve of the Company; (ii)Euro 230,294,160 to Shareholders as a final dividend, in particular to declareand distribute a final dividend of Euro/cents 9 per share to be paid on or
about Thursday, June 20, 2013; (iii) Euro 53,215,654 to retained earnings

2,412,926,852(99.969859%)

2.

To appoint Deloitte & Touche S.p.A. as the auditor (“revisore legale dei
conti”) of the Company for a term of three financial years (financial year
ending January 31, 2014 to financial year ending January 31, 2016), endingon the date of the shareholders’ general meeting called to approve thefinancial statements for the last year of the auditor’s appointment and to
approve its remuneration of Euro 472,000, for each financial year of its threeyear term, for the provision to the Company of the audit of the Separate
Financial Statements and the Consolidated financial statements, which isincluded in the overall annual remuneration of Euro 1,605,000 for Deloitte& Touche S.p.A. and its network in respect of provision of audit services
to the Prada Group as a whole. The auditor’s annual remuneration shall be
subject to adjustment in accordance with changes in relevant applicablelaws or additional requirements for the audit services as well as the annual
upward adjustment linked to index of ISTAT – the Italian National Institutefor Statistics

2,412,926,752(99.969855%)

All resolutions put to the shareholders at the 2013 Shareholders’ General Meetingwere duly passed. Computershare Hong Kong Investor Services Limited, theCompany’s Hong Kong share registrar, acted as scrutineer for the vote taking at the2013 Shareholders’ General Meeting.
c. Corporate Communications
In order to increase efﬁciency in communication with shareholders and tocontribute to environmental protection, the Company has made arrangements
since September 2011 to ascertain how its shareholders wish to receive corporate
communications. Shareholders have the right to choose the language, either inEnglish or Chinese, or both, and means of receipt of the corporate communications,in printed form or by electronic means through the Company’s website atwww.pradagroup.com.

PRADA Group

Annual Report 2013 - Corporate Governance

89

90

PRADA Group

Annual Report 2013 - Corporate GovernanceConsolidated Financial Statements

PRADA Group

Annual Report 2013 - Consolidated Financial Statements

91Consolidated statement of financial position(amounts in thousands of Euro)

Note

January 31
2014

January 31
2013

AssetsCurrent assets
Cash and cash equivalents

9568,414571,746

Trade receivables, net

10308,405

304,525

Inventories

11449,903343,802

Derivative financial instruments - current

12

13,98443,060Receivables from, and prepayments to, parent company
and other related parties - current

13

5,993

19,493

Other current assets

14

Total current assets

114,897

104,823

1,461,596

1,387,449

Non-current assets
Property, plant and equipment

15

1,230,192

857,299

Intangible assets

16

901,289

878,750

Associated undertakings

17

21,18623,024

Deferred tax assets

36

201,245

176,057

Other non-current assets

18

69,86761,569Derivative financial instruments - non current

12

1,430

1,018

Receivables from, and prepayments to, parent company
and other related parties – non current

13

1,487

113

Total non-current assets

2,426,696

1,997,830

Total Assets

3,888,292

3,385,279

175,570

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

19

61,909

Payables to parent company and other related parties - current

20

4,894

5,599

Trade payables

21

348,534

330,613
97,148Current tax liabilities

22

132,145

Derivative financial instruments - current

12

3,803

912

Obligations under finance leases - current

23

524

575

Other current liabilities

24

Total current liabilities

154,666

131,645

706,475

742,062

78,830Non-current liabilities
Long-term financial payables

25

207,950

Obligations under finance leases non-current

23

19

518

Long-term employee benefits

26

63,27945,538Provision for contingencies and commitments

27

52,66046,914

Deferred tax liabilities

36

42,671

55,636

Other non-current liabilities

28

98,982

84,905Derivative financial instruments non-current

12

1,469

384

Payables to parent company and other related parties – non current

20

13,247-480,277

312,725

1,186,752

1,054,787

Total non-current liabilities

Total Liabilities

Share capital

255,882

255,882

Other reserves

1,853,325

1,480,747

Translation reserve(49,438)(42,288)

Net profit for the year

627,785625,681

Total Shareholders’ Equity – Group29

2,687,554

2,320,022

Shareholders’ Equity – Non-controlling interests30

13,986

10,4703,888,292

3,385,279

Total Liabilities and Shareholders’ Equity

Net current assets
Total assets less current liabilities

92

PRADA Group

Annual Report 2013 - Consolidated Financial Statements

755,121645,387

3,181,817

2,643,217

Consolidated income statement

Note

twelvemonthsended
January 31
2014%

twelvemonthsended
January 31
2013%

Net revenues

31

3,587,347

100.0%

3,297,219

100.0%

Cost of goods sold32

(938,698)-26.2%(920,678)-27.9%

2,648,649

73.8%

2,376,541

72.1%(1,709,412)-47.7%(1,486,760)-45.1%

939,23726.2%

889,78127.0%(amounts in thousands of Euro)

Gross margin

Operating expenses

33

EBIT

Interest and other financial income/(expenses), net

34(17,357)-0.5%(7,131)-0.2%

Dividends from investments

35

1,016

-

966

-

922,89625.7%

883,61626.8%(285,091)-7.9%(250,339)-7.6%

Net income for the year from continuing operations

637,805

17.8%

633,277

19.2%

Net income for the year

637,805

17.8%

633,277

19.2%

10,020

0.3%

7,596

0.2%

627,78517.5%

625,68119.0%

Income before taxes

Taxation

36

Net income – Non-controlling interests30

Net income – Group

Basic and diluted earnings per share (in Euro pershare)PRADA Group

37

0.245

Annual Report 2013 - Consolidated Financial Statements

0.245

93

Consolidated statement of cash flows(amounts in thousands of Euro)

Income before taxation

twelve months
ended
January31
2014

twelve months
ended
January 31
2013

922,896883,616

198,857

154,839

Income Statement adjustments
Depreciation and amortization from continuing operations
Impairment of property, plant and equipment and intangible assets

5,093

7,849

Non-monetary financial (income) expenses

22,015(15,327)

Other non-monetary charges

36,9182,226

Other non-current assets and liabilities(16,285)(18,206)

Trade receivables, net(5,857)(44,511)Inventories, net(103,550)

18,317

Trade payables

20,44356,130

Other current assets and liabilities(17,934)

30,920Cash flows from operating activities

1,062,596

1,075,852(10,740)(10,417)

Balance Sheet changes

Interest paid, net – third parties
Interest paid, net – related parties

-

(154)

Taxes paid

(282,419)(306,009)

Net cash flows from operating activities

769,437

759,272

Purchases of property, plant and equipment and intangible assets(549,364)(350,243)

Disposals of property, plant and equipment and intangible assets-

17,632

Dividends from investments

1,016

966

Net cash flows utilized by investing activities(548,348)(331,645)

Dividends paid to shareholders of PRADA spa(230,294)(127,941)

Dividends paid to non-controlling shareholders(6,634)(5,576)

Repayment of loans to related companies

(899)

(546)

Repayment of loans by related companies

1,397

-

-

2,276

New loans from related companies
New loans to related companies(2,000)-

Repayment of short term portion of long term borrowings - third parties(162,479)(128,762)

Arrangement of long-term borrowings – third parties

176,773

70,627

4,299(9,209)Change in short-term borrowings – third parties
Share capital increases by subsidiaries
Cash flows generated / (utilized) by financing activities

1,166(197,965)

Change in cash and cash equivalents, net of bank overdrafts

1,292

229,662

Foreign exchange differences(4,714)(11,494)

Opening cash and cash equivalents, net of bank overdraft

571,722353,554

Closing cash and cash equivalents, net of bank overdraft

568,300

571,722

Cash and cash equivalents

568,414571,746

Bank overdraft
Closing cash and cash equivalents, net of bank overdraft finale

94

40(219,797)

PRADA Group

Annual Report 2013 - Consolidated Financial Statements

(114)

(24)

568,300

571,722

Statement of changes in consolidated shareholders’ equity(amounts in thousands of Euro, except for number of shares)
Fair
value
reserve

Other
reserves

EquityNet
Nonattributable
incomecontrollingto owners offor yearinterests
the Group(1,192)(58)

747,548

431,929

1,822,744---

431,929 (431,929)

-

-

-

-

- (127,941)-(127,941)

-

-

-

-

-

-

-

-

1,166

1,166

-

-

(25,049)

24,321

-

5,544

-

625,681

630,497

6,656

637,153

-

-

-

-

-

(5,278)---(5,278)-(5,278)

Balance atJanuary 31, 2013

2,558,824,000

255,882

410,047(42,288)

20,148(6,470)5,486 1,051,536

625,6812,320,022

Allocation of 2012
net income

-

-

-

-

-

-

-

625,681 (625,681)-

Dividends

-

-

-

-

-

-

- (230,294)-(230,294)

Capital injection in
subsidiaries

-

-

-

-

-

-

-

-

-

-

40

40

Comprehensive
income for the year
(recycled to P&L)

-

-

-

(7,150)(16,449)-(1,378)-627,785

602,808

10,110612,918

Comprehensive
income for the year
(not recycled to
P&L)

-

-

-

-

-

(4,982)---(4,982)-(4,982)

2,558,824,000

255,882

410,047(49,438)

3,699(11,452)

4,108 1,446,923

627,785

2,687,554(amounts inthousands ofEuro)

Cash flow
Share
Actuarial
Translation
premium
hedge
reserve
reserve
reserve
reserve

Number ofsharesShare
CapitalBalance atJanuary 31, 2012

2,558,824,000

255,882

410,047(17,239)(4,173)

Allocation of 2011
net income

-

-

-

-

Dividends---

Capital injection in
subsidiaries--

Comprehensive
income for the year
(recycled to P&L)-

Comprehensive
income for the year
(not recycled to
P&L)

Balance atJanuary 31, 2014

Total
Equity8,224 1,830,968--(5,576) (133,517)

10,470 2,330,492--(6,634) (236,928)

13,986 2,701,540

Under Italian law, the Company is required to allocate a portion of its net proﬁt to
non-distributable reserves and to provide additional information on the distribution of
earnings for the period, Note 38.

PRADA Group

Annual Report 2013 - Consolidated Financial Statements

95

Statement of consolidated comprehensive income(amounts in thousands of Euro)Net income for the period – Consolidated

twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

637,805

633,277(7,057)(25,989)A) Items recycled to P&L:

Change in Translation reserve
Tax impact--

Change in Translation reserve less tax impact(7,057)(25,989)

Change in Cash Flow Hedge reserve(22,755)

33,5306,306(9,209)Change in Cash Flow Hedge reserve less tax impact(16,449)

24,321

Change in Fair Value reserve(1,837)

7,391

459

(1,847)(1,378)5,544

Change in Actuarial reserve(6,403)(6,369)Tax impact

1,418

1,091

Change in Actuarial reserve less tax impact(4,985)(5,278)

Consolidated comprehensive income for the period

607,936

631,875

Comprehensive income for the period – Non-controlling Interests

10,1106,656

Comprehensive income for the period – Group

597,826

625,219

Tax impact

Tax impact
Change in Fair Value reserve less tax impactB) Item not recycled to P&L:

The accounting policies and the following notes constitute an integral part of theConsolidated ﬁnancial statements.

96

PRADA Group

Annual Report 2013 - Consolidated Financial Statements

Financial Statements of PRADA spa

PRADA Group

Annual Report 2013 - Financial Statements of PRADA spa

97

PRADA spa Statement of financial position
January 31
2014

January 31
2013

Cash and cash equivalents

126,124

140,414

Trade receivables, net

621,096

488,559

Inventories

187,067

153,640

Derivative financial instruments

12,10534,503

Receivables from parent company, subsidiaries, associates and related parties

258,226

224,111

Other current assets

60,89357,653

Total current assets

1,265,511

1,098,880

Property, plant and equipment

317,996

279,164

Intangible assets

114,188

93,547

Associated undertakings

908,287

884,909

Deferred tax assets

33,00933,815

Other non-current assets

5,988

4,589

Derivative financial instruments - non current

1,430

1,018

(amounts in thousands of Euro)
AssetsCurrent assets

Non-current assets

Total non-current assets

18,853-

Non-current assets

1,399,750

1,297,042

Total assets

2,665,262

2,395,922

Bank overdrafts and short-term loans

14,483

118,410

Payables to parent company, subsidiaries, associates and related parties

349,100

317,871

Trade payables

436,357

393,545

Current tax liabilities

20,086

15,894

Derivative financial instruments

3,312

903

Obligations under financial leases

498

571

Liabilities and Shareholders' equity
Current liabilities

Other current liabilities

75,20871,039Total current liabilities

899,044918,232

134,799

18,277

Non-current liabilities
Long-term debt, net of current portion
Obligations under financial leases

98

-

503

Long-term employee benefits

40,11425,760

Provisions

23,26623,726

Deferred tax liabilities

8,027

15,476

Other non-current liabilities

3,134

681

Derivative financial instruments - non current

2,490

32

Financial payables and other payables to parent company, subsidiaries,
associates and related parties

13,247-

Total non-current liabilities

225,077

84,456

Total Liabilities

1,124,121

1,002,688

Share capital

255,882

255,882

Other reserves

889,685

849,055

Net income of the year

395,574

288,297

Shareholders' equity

1,541,141

1,393,234

Total Liabilities & Shareholders’ Equity

2,665,262

2,395,922

PRADA Group

Annual Report 2013 - Financial Statements of PRADA spa

PRADA spa Income statement
twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

Net revenues

2,004,115

1,732,111

Cost of goods sold(898,150)(836,417)

Gross Margin

1,105,965

895,694

Selling, general and administrative expenses(amounts in thousands of Euro)(541,635)(488,765)Interest and other financial income (expenses), net

27,60549,219

Income before tax

591,935

456,148

Income taxes(196,361)(167,851)

Net income for the year

395,574

288,297

twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

395,574

288,297

PRADA spa Statement of comprehensive income(amounts in thousands of Euro)Net income for the year

Items recycled to P&L:

Change in cash flow hedge reserve(22,930)

33,651

6,305(9,254)(16,625)

24,397

Gains/ (losses) recognized in actuarial gains/(losses) reserve(894)(4,208)Tax effect

146

440

Change in actuarial reserve after tax effect(748)(3,768)Net gains (losses) recognized directly in equity(17,373)

20,628

Total comprehensive income

378,201

308,925

Tax effectChange in Cash Flow Hedge reserve after tax effectItems not recycled to P&L:

PRADA Group

Annual Report 2013 - Financial Statements of PRADA spa

99

PRADA spa Statement of cash flows(amounts in thousands of Euro)

Income before taxation

twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

591,935

456,147

25,911

22,494

-

3,475

(69)

336

Adjustments for:
Depreciation and amortization
Impairment of fixed assets
Losses/(gains) on disposal of fixed assets
Impairment of investments-

536

Non-monetary financial (income) expenses(44,367)(40,151)

Provisions and other non-monetary expenses

21,321

1,358

Balance sheet adjustments for:
Trade receivables, net(157,831)

41,793Inventories, net(33,423)

32,194

Trade payables

42,81749,175

Other current assets and liabilities

3,097(2,911)Other non-current assets and liabilities(3,474)(6,021)

Cash flows generated from operations

445,917558,425

Interest paid

(4,482)(5,273)

Income taxes paid

(189,909)(207,215)

Net cash flows generated from operations

251,526

345,937

Purchase of property, plant and equipment(60,375)(82,968)

Disposal of property, plant and equipment

142

3,968

(11,757)(5,280)Purchase of intangible assets
Disposal of intangible assets-

80

Investments in subsidiaries(20,336)(39,262)

Dividends received

46,51546,002

Cash flows generated (used) by investing activities(45,811)(77,460)

Dividends paid

(230,294)(127,941)

Change in short term intercompany loans

18,951(2,179)Change in long term intercompany loans(19,529)-

Repayment of current portion of long term borrowings(119,136)(100,722)

New long term borrowings

130,000

1,617

Cash flows generated (used) by financing activities(220,008)(229,225)

Change in cash and cash equivalents net of bank overdraft(14,293)

39,251

Exchange differences

(2)

(3)

Opening cash and cash equivalents, net of bank overdraft

140,411

101,163

Closing cash and cash equivalents, net of bank overdraft

126,115

140,411

Cash and bank balances

126,124

140,414

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

100

PRADA Group

Annual Report 2013 - Financial Statements of PRADA spa

(8)

(3)

126,115

140,411

Statement of changes in shareholders’ equity - PRADA spa(amounts in thousands of Euro, except for number of shares)(amounts in thousandsof Euro)Number ofsharesSharecapitalSharepremium
reserve

Legal
reserve

Other Retained
reserves earnings

Cash
flow
hedge
reserveNet
incomeBalance at January 31
2012

2,558,824,000

255,882

410,047

34,440182,899

94,076(4,093)238,999 1,212,250

Allocation of 2011 net
income---11,950-227,049

Dividends paid

-

-

-

-

- (127,941)

Comprehensive income
for the year
(recycled to P&L)

-

-

-

-

-

Comprehensive income
for the year
(not recycled to P&L)

-

-

-

-

Balance at January 31
2013

2,558,824,000

255,882

410,047

Allocation of 2012 net
income--Dividends paid-

Comprehensive income
for the year
(recycled to P&L)
Comprehensive income
for the year
(not recycled to P&L)

- (238,999)---

24,397288,297-(3,768)--46,390182,899

189,416

20,304

-

4,787

-

283,510---- (230,294)

-

-

-

-

-

-

-

-

-

-

(749)

-

Balance at January 31
2014

2,558,824,000

255,882

410,047

51,177

182,899

241,883

3,679

PRADA Group

Annual Report 2013 - Financial Statements of PRADA spa

Shareholders’equity(127,941)

312,694(3,768)288,297 1,393,235- (288,297)

-

-

-

(230,294)- (16,625)

395,574

378,949-(749)

395,574 1,541,141

101

102

PRADA Group

Annual Report 2013 - Financial Statements of PRADA spa

Notes to the Consolidated Financial Statements

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

103

1.

General information
PRADA spa (the “Company”), together with its subsidiaries (jointly the “Group”), islisted on the Hong Kong Stock Exchange (HKSE code: 1913). It is one of the world
leaders in the luxury goods sector where it operates with the Prada, Miu Miu, Church’s
and Car Shoe brands in the design, production and distribution of luxury handbags,
leather goods, footwear, apparel and accessories. The Group also operates, underlicensing agreements, in the eyewear, fragrances and mobile telephone sectors. Its
products are sold in 70 countries worldwide through a network that included 540
Directly Operated Stores (DOS) at January 31, 2014, and a select network of luxury
department stores, independent retailers and franchise stores.
The Company is a joint-stock company, registered and domiciled in Italy. Its registeredofﬁce is in via Fogazzaro 28, Milan, Italy. At January 31, 2014, 79.98% of the sharecapital was owned by PRADA Holding bv, a company domiciled in The Netherlands,
while the remaining shares were ﬂoating on the Main Board of the Hong Kong Stock
Exchange.
The Consolidated ﬁnancial statements were approved and authorized for issue by the
Board of Directors of PRADA spa on April 2, 2014.

2.

Basis of preparation
The Consolidated ﬁnancial statements of the PRADA Group as at January 31, 2014,
including the “Consolidated statement of ﬁnancial position”, the “Consolidated
income statement”, the “Statement of consolidated comprehensive income”, the“Consolidated statement of cash ﬂows”, the “Statement of changes in consolidated
shareholders’ equity” and the “Notes to the consolidated ﬁnancial statements” havebeen prepared in accordance with the International Financial Reporting Standards(“IFRS”) issued by the International Accounting Standards Board (“IASB”) and asendorsed by the European Union.
At the date of presentation of these Consolidated ﬁnancial statements, there were nodifferences between IFRS as endorsed by the European Union and applicable to the
PRADA Group and those issued by the IASB.
IFRS also refers to all International Accounting Standards (“IAS”) and all interpretationsof the International Financial Reporting Interpretations Committee (“IFRIC”), previously
called the Standing Interpretations Committee (“SIC”).
The Group has prepared the Consolidated statement of ﬁnancial position presenting
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 classiﬁed by destination. The cash
ﬂow information is provided in the Consolidated Statement of cash ﬂows which has
been prepared under the indirect method.
The Consolidated ﬁnancial statements have been prepared on a going concern basis
and are presented in Euro which is also the functional currency of PRADA spa.

104

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

3.

Amendments to IFRS
New standards and amendments issued by the IASB, endorsed by the European
Union and applicable to the PRADA Group from February 1, 2013
The following amendments to IFRS have been endorsed by the European Union andare applicable to the PRADA Group effective from February 1, 2013. These changes
do not have any signiﬁcant impact to the Group as of the date of these Consolidated
ﬁnancial statements:–“IAS 1 Presentation of ﬁnancial statements”. The objectives of the amendments
made to this Standard, effective from annual periods beginning July 1, 2012,
are to make the presentation of the increasing number of items of “Other
comprehensive income/(losses)” clearer and to assist users of the ﬁnancial
statements in distinguishing between the items of other comprehensive incomethat can be reclassiﬁed subsequently to proﬁt or loss, and those that will never bereclassiﬁed to proﬁt or loss.

–“IAS 19 Employee beneﬁts”. The amendments made to this Standard, effectivefrom annual periods beginning on or after January 1, 2013, should help users ofﬁnancial statements to better understand how deﬁned beneﬁt plan affect entity’s
ﬁnancial position, ﬁnancial performance and cash ﬂows.

–“IFRS 13 Fair Value measurement”. This new Standard, effective from annual
periods beginning on or after January 1, 2013, deﬁnes the fair value, sets out ina single IFRS a framework for measuring the fair value and requires disclosuresabout fair value measurements. This IFRS applies to IFRS that require or permit
fair value measurements or disclosures about fair value measurements. It does
not require fair value measurements in addition to those already required or
permitted by other IFRS and is not intended to establish valuation standards oraffect valuation practices outside ﬁnancial reporting.

–“IAS 12 Income Taxes”. The amendments made to this Standard, effective fromannual period beginning on or after January 1, 2013, provide a practical approachfor measuring deferred tax assets and deferred tax liabilities when an investment
property is measured using the fair value model in “IAS 40 Investment property”.
These amendments have to be applied retrospectively.

–“IFRS 7 Financial Instruments: Disclosures”. The amendments made to thisStandard, effective from annual periods beginning on or after January 1, 2013,
require additional disclosures to enable users of its ﬁnancial statements toevaluate the effect, or potential effect, of netting arrangements on the entity’s
ﬁnancial position. The disclosures required by these amendments have to be
applied retrospectively.

–

Annual improvements to IFRS (2009-2011 Cycle). The improvements adopted
related to:UÊ º-Ê £Ê *ÀiÃiÌ>ÌÊ vÊ >V>Ê -Ì>ÌiiÌÃ»°Ê iÜÊ VÀÌiÀ>Ê >ÛiÊ LiiÊ
introduced when reporting comparative information are provided in addition
to the minimum comparative ﬁnancial statements and when a change inaccounting policy, a retrospective restatement or a reclassiﬁcation occur;UÊ º-Ê £ÈÊ *À«iÀÌÞ]Ê *>ÌÊ >`Ê µÕ«iÌ»°Ê / iÊ >i`iÌÊ iÃÌ>LÃ iÃÊ Ì >ÌÊ
items such as spare parts, stand-by equipment and servicing equipment arerecognized with this IFRS when they meet the deﬁnition of IAS 16. Otherwise,
such items are classiﬁed as inventory;

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements105UÊ º-Ê ÎÓÊ >V>Ê ÃÌÀÕiÌÃ\Ê *ÀiÃiÌ>Ì»°Ê / iÊ >i`iÌÊ V>Àwi`Ê Ì >ÌÊ
income tax relating to distributions to holders of an equity instrument and totransaction costs of an equity transaction shall be accounted for in accordancewith IAS 12 “Income taxes”.
New standards and amendments issued by the IASB, endorsed by the European
Union, but not yet applicable to the PRADA Group as effective from annual
periods beginning on or after January 1, 2014106–

Amendments to “IAS 39 Financial Instruments: Recognition and Measurement”.
Such amendments provides relief from discontinuing hedge accounting whennovation to a central counterparty following the introduction of a new law or
regulation of a derivative designated as a hedging instrument meets certain
criteria. Such amendments are required to apply for annual periods beginning on
or after January 1, 2014.

–

Amendments to “IAS 36 Impairment of Assets”. The objective of the amendments
made to this standard, effective from annual periods beginning on or after January
1, 2014, is to clarify that the scope of the disclosures of information about therecoverable amount of assets, where that amount is based on fair value less costsof disposal, is limited to impaired assets.

–“Investment Entities”, meant as a group of amendments to IFRS 10, IFRS 12
and IAS 27. “IFRS 10 Consolidated Financial Statements” has been amended
in order to better reﬂect the business model of investment entities. It requiresthat investment entities measure their subsidiaries at fair value through proﬁt orloss account rather than consolidate them. “IFRS 12 Disclosure of Interests in
Other Entities” has been amended in order to require speciﬁc disclosure aboutsuch subsidiaries of investment entities. The amendments to IAS 27 Separate
Financial Statements also removed the option for investment entities to measureinvestments in certain subsidiaries either at cost or at fair value in their separateﬁnancial statements. The Amendments are effective from annual period beginningon or after January 1, 2014.

–

Transition Guidance (amendments to IFRS 10, IFRS 11 and IFRS 12). The objectiveof the amendments is to clarify the IASB’s intention when ﬁrst issuing the transition
guidance in “IFRS 10 Consolidated Financial Statements”. The amendments also
provide additional transition relief in IFRS 10, “IFRS 11 Joint Arrangements” and“IFRS 12 Disclosure of Interests in Other Entities”, limiting the requirement toprovide adjusted comparative information to only the preceding comparative
period. Furthermore, for disclosures related to unconsolidated structured entities,
the amendments remove the requirement to present comparative information for
periods before IFRS 12 is ﬁrst applied.

–“IFRS 10 Consolidated Financial Statements”. This new Standard, applicable to
the PRADA Group at the latest as from the commencement date of a ﬁnancial
year starting on January 1, 2014, grounds on previous version of “IAS 27
Consolidated and Separate Financial Statements” and provide more guidance
for the presentation and preparation of consolidated ﬁnancial statements. It
enforces the deﬁnition of control as basis for determining which entities have to
be consolidated. It also supersedes “IAS 27 Consolidated and Separate Financial
Statements” and “SIC 12 Consolidation – Special Purpose Entities”.

–“IFRS 11 Joint Arrangements”. This new Standard, applicable to the PRADA Groupat the latest as from the commencement date of a ﬁnancial year starting on January
1, 2014, establishes principles for ﬁnancial reporting to entities that are parties to a
joint arrangement and supersedes “IAS 31 Interests in Joint Ventures” and “SIC
13 Jointly Controlled Entities - Non-monetary Contributions by Ventures’”. The

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

IFRS provides guidelines to determine the type of joint arrangement in which
an entity is involved (joint operation or joint venture) by assessing its rights andobligations and to account for those rights and obligations in accordance with thattype of joint arrangement.
–“IFRS 12 Disclosure of Interests in Other Entities”. This new standard, applicableto the PRADA Group at the latest as from the commencement date of a ﬁnancial
year starting on January 1, 2014, applies to entities that have an interest in a
subsidiary, a joint arrangement, an associate or an unconsolidated structured
entity. It requires the entity to disclose information that enable users of its ﬁnancial
statements to evaluate the nature of, and risks associated with, its interests inother entities as well as the effects of those interests on its ﬁnancial position,ﬁnancial performance and cash ﬂows.

–

Amendments to “IAS 28 Investment in Associates and Joint Ventures”. The
amendments to this Standard, effective at the latest as from the commencement
date of a ﬁnancial year starting on January 1, 2014, have to be read together with“IFRS 11 Joint Arrangements” and “IAS 27 Separate Financial Statements”. The
standard (as amended in 2011) is to be applied by all entities that are investors withjoint control of, or signiﬁcant inﬂuence over, an investee and deﬁnes the equity
method as a method of accounting whereby the investment is initially recognizedat cost and adjusted thereafter for the post-acquisition change in the investor’sshare of net assets of the investee.

–

Amendments to “IAS 27 Separate Financial Statements”. The amendments tothis standard followed the issue of “IFRS 10 Consolidated Financial Statements”,“IFRS 11 Joint Arrangements”, “IFRS 12 Disclosure of Interests in Other Entities”
and the amendments to “IAS 28 Investment in Associates and Joint Ventures”
and prescribe the accounting and disclosure requirements for investments in
subsidiaries, joint ventures and associates when an entity prepares separateﬁnancial statements. Such amendments are applicable to the PRADA Group at
the latest as from the commencement date of a ﬁnancial year starting on January
1, 2014.

–

Amendments to “IAS 32 Financial Instruments: Presentation”. The amendments
made to this Standard, effective from annual periods beginning on or after January
1, 2014, and to be applied retrospectively, clarify the criterion to be followed whenan entity currently has legally enforceable right to set off the ﬁnancial assets andﬁnancial liabilities.

As requested by the Hong Kong Stock exchange the Group assessed the ﬁnancial
effects of IFRS 10 on its consolidated ﬁnancial statement and did not raise any detailed
disclosure to be provided as the application of this new standard would not have any
impact on the PRADA Group Consolidated ﬁnancial statements at January 31, 2014. As
far as all of the others new IFRS and amendments above mentioned concern (i.e. the
IFRS and amendments endorsed by the European Union and applicable from periods
commencing on or after January 1, 2014), the Group doesn’t expect any signiﬁcant
impact from their adoption.
New standards and amendments issued by the IASB, but not yet endorsed by
the European Union–“IFRS 9 Financial instruments”. This Standard will replace “IAS 39 Financial
Instruments: Recognition and Measurement” in its entirety and currently, there isno mandatory effective date to adopt IFRS 9, but entities may however still choose
to early apply it. Such replacement project has been divided into three main phases.
The ﬁrst phase relates to the classiﬁcation and the measurement of ﬁnancial

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

107

assets and ﬁnancial liabilities. In November 2009 the IASB issued the chapters of
IFRS 9 relating to the classiﬁcation and measurement of ﬁnancial assets requiring
all ﬁnancial assets to be classiﬁed on the basis of the entity’s business model for
managing the ﬁnancial assets and of the contractual cash ﬂow characteristics of the
ﬁnancial asset. Financial asset are initially measured at fair value plus, in the caseof a ﬁnancial asset not at fair value through proﬁt and loss, particular transaction
costs. Financial assets are subsequently measured at amortized cost or fair value. In
October 2010 the IASB added to IFRS 9 the requirements related to the classiﬁcationand measurement of ﬁnancial liabilities whereas most of the requirements in IAS 39
for the classiﬁcation and measurement of ﬁnancial liabilities were carried forward
unchanged to IFRS 9. In November 2011 the IASB decided to consider limited
modiﬁcations to the classiﬁcation and measurement requirements. The IASB
published in November 2012 the “Exposure Draft Classiﬁcation and Measurement:
Limited Amendments to IFRS 9” (Proposed amendments to IFRS 9 (2010)).
With respect to the second phase, the impairment methodology, the IASB
published in 2009 a Request for Information on the feasibility of an expected
loss model for the impairment of ﬁnancial assets. This formed the basis of
the “Exposure Draft Financial Instruments: Amortized Cost and Impairment”,
published in November 2009 and the supplement to the “Exposure Draft, Financial
Instruments: Impairment”, published in January 2011. As the result of considering
the feedback received on those documents, the IASB published in March 2013 the“Exposure Draft Financial Instruments: Expected Credit Losses”. The IASB is redeliberating the proposals in that Exposure Draft to address the comments received
from respondents and the suggestions received from other outreach activities.
With the third phase, hedge accounting, the IASB added to IFRS 9 requirements
related to hedge accounting: i) the IASB comprehensively reviewed the hedge
accounting requirements in IAS 39 and replaced them with the requirements in
IFRS 9; ii) the hedge accounting requirements in IFRS 9 align hedge accounting
more closely with risk management, resulting in more useful information to users
of ﬁnancial statements. The requirements also establish a more principle-based
approach to hedge accounting and address inconsistencies and weaknesses
in the hedge accounting model in IAS 39; iii) the IASB did not address speciﬁc
accounting for open portfolios or macro hedging as part of the general hedge
accounting requirements in IFRS 9.

108–“IFRIC Interpretation 21 Levies”. This interpretation, effective from annual periods
beginning on or after January 1, 2014, provides guidance on when to recognize
a liability for a levy imposed by a government, both for levies that are accounted
for in accordance with “IAS37 Provisions, Contingent Liabilities and Contingent
Assets” and those where the timing and amount of the levy is certain.

–

Recoverable amount disclosures for non-ﬁnancial assets (amendments to “IAS
36 Impairment of Assets”). The amendment requires more disclosure about therecoverable amount of any cash-generating unit for which the carrying amountof goodwill or intangible assets with indeﬁnite useful lives allocated to that unit
is signiﬁcant in comparison with the entity’s total carrying amount of goodwill or
intangible assets with indeﬁnite useful lives. Such amendments are required toapply for annual periods beginning on or after January 1, 2014. Earlier applicationis permitted. An entity shall not apply those amendments in periods (including
comparative periods) in which it does not also apply IFRS 13.

–

Amendments to “IAS 19 Employee Beneﬁts”. IASB has amended the requirementsin IAS 19 for contributions from employees or third parties that are linked to aservice. If the amount of the contributions is independent of the number of yearsof service, an entity is permitted to recognize such contributions as a reduction

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

in the service cost in the period in which the related service is rendered, insteadof attributing the contributions to the periods of service. If the amount of thecontributions is dependent on the number of years of service, an entity is required
to attribute those contributions to periods of service using the same attribution
method required by paragraph 70 of IAS 19 for the gross beneﬁt (ie either using theplan’s contribution formula or on a straight-line basis). An entity shall apply thoseamendments for annual periods beginning on or after 1 July 2014 retrospectively
in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimatesand Errors. Earlier application is permitted. If an entity applies those amendments
for an earlier period, it shall disclose that fact.
–

Annual improvements to IFRS (2010–2012 Cycle). Such improvements impacted:“IFRS 2 Share-based Payment”, amending the deﬁnition of vesting condition;“IFRS 3 Business Combinations”, amending the accounting for contingent
consideration in a business combination;“IFRS 8 Operating Segments”, requesting more disclosure when aggregating
operating segments and requiring the reconciliation of the total of the reportablesegments’ assets to the entity’s assets;“IFRS 13 Fair Value Measurement”, clarifying the impact of the standard on themeasurement of short-term receivables and payables;“IAS 16 Property, Plant and Equipment”, amending the revaluation method;“IAS 24 Related Party Disclosure”, amending the deﬁnition of key management
personnel;“IAS 38 Intangible Assets”, amending the revaluation method.

–

Annual improvements to IFRS (2011–2013 Cycle). Such improvements impacted:“IFRS 1 First-time Adoption of IFRS”, meaning of “effective IFRS”;“IFRS 3 Business Combinations”, clarifying that the IFRS does not apply to theaccounting for the formation of a joint arrangement;“IFRS 13 Fair Value Measurement”, clarifying the application of the IFRS toﬁnancial assets and ﬁnancial liabilities with offsetting positions in market risks orcounterparty credit risk;“IAS 40 Investment Property”, clarifying the interrelationship between IFRS 3
and IAS 40 when classifying property as investment property or owner-occupied
property.

–“IFRS 14 Regulatory Deferral Accounts”. This new IFRS describes regulatorydeferral account balances as amounts of expense or income that would not berecognized as assets or liabilities in accordance with other Standards, but that
qualify to be deferred in accordance with this Standard because the amount isincluded, or is expected to be included, by the rate regulator in establishing theprice(s) that an entity can charge to customers for rate-regulated goods or services.

As at the date these Consolidated ﬁnancial statements were prepared, the European
Union has not completed yet the endorsement of the new standards and amendments
as described above.
4.

Scope of consolidation
The consolidated ﬁnancial information comprises the accounts of PRADA spa and the
Italian and foreign companies over which the Company directly or indirectly exercises
control, determining their ﬁnancial and operating decisions and obtaining beneﬁts fromtheir activities.
The companies in which the Group has more than 50% of the voting rights or that arecontrolled by the Group in some other way are consolidated on a line by line basis asfrom the date the Group acquired control and are no longer consolidated from the date
control ceases.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

109

Joint ventures and associated undertakings are consolidated using the equity method.
Associated undertakings 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% and 50%of the company’s rights vote or when signiﬁcant inﬂuence can be exercised throughexisting agreements.
A list of the companies included in the Consolidated ﬁnancial statements is provided
in Note 43.
5.

Basis of consolidation
The main consolidation criteria applied when preparing the consolidated ﬁnancial
statements for the years ended January 31, 2014, and January 31, 2013, in accordancewith IFRS, are as follows:110–

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 thereporting date;–assets and liabilities, costs and revenues of companies consolidated on a line-byline 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 the corresponding portion ofshareholders’ equity of the companies in which the interest is held;–

for companies consolidated on a line-by-line basis that are not 100% owned byshareholders of the holding company, the share of the net equity and net results
for the year of non-controlling interests are disclosed as “Shareholders’ equity Non-controlling interests” in the consolidated statement of ﬁnancial position and“Net income - Non-controlling interests” in the consolidated income statement.
When the equity pertaining to non-controlling interests is negative, it is shown
under other receivables whereas the Non-controlling shareholder has made abinding commitment towards the Group to cover the losses;–

the difference between the acquisition cost of investments acquired after thedate of ﬁrst-time application of IFRS (January 1, 2004) and the corresponding
share of shareholders’ equity at the date of acquisition is allocated, if positive, toassets, liabilities and contingent liabilities based on their fair value at the date ofacquisition. Any residual positive amount is accounted for as goodwill while any
negative amount is charged to the income statement immediately. The positive
difference between the acquisition cost of 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 cost less any
impairment losses. Deemed cost was calculated based on the difference between
the amount paid for the investment and the relevant net equity. Goodwill arisingfrom various acquisitions is not amortized but tested annually for impairment. Any
impairment in the value of goodwill is charged to the income 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 interest of the shareholders of the

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

holding company are recorded only if the Group has undertaken an obligation tocover them. The excess of the acquisition cost of the investment over the interestof the holding company shareholders in the net fair value of identiﬁable assets
and liabilities acquired and contingent liabilities is recorded as goodwill. Goodwill
is included in the book value of the investment and tested for impairment. If thecost is lower than the holding company shareholders’ interest in the fair value ofidentiﬁable assets, liabilities and contingent liabilities, the difference is recorded in
the income statement for the year of acquisition;

6.

–

during the consolidation process, receivables and payables, costs and revenues
arising from transactions between entities included in the scope of consolidation
are fully eliminated. Any unrealized gains or losses generated by transactions
between the Group’s consolidated companies and included in inventories andﬁxed 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, the transferred asset is adjusted for impairment;–

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 theyear end exchange rate, whereas the income statement is translated using the
average exchange rate for the year. Translation differences arising on conversionof the statement of ﬁnancial position, using the exchange rate at the start of theperiod and the exchange rate at the end of the period, and translation differences
arising on conversion of the income statement using the average rate for theperiod and the rate at the end of the period are recorded as a translation reservein the consolidated shareholder’s equity until disposal of the investment. The
translation reserve in consolidated shareholder’s equity represents translationdifferences 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 isthe Euro. All amounts are stated in thousands of Euro unless otherwise stated.

Main accounting policies
Cash and cash equivalents
Cash and cash equivalents are carried in the statement of ﬁnancial position at nominal
amount. 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 and deposit accounts. In the statement of ﬁnancial
position, bank overdrafts and current portions of payables to banks for medium andlong-term loans are included in Bank overdrafts and short-term loans.
Trade receivables and payables
Trade accounts receivable are carried at nominal amount less the provision for doubtful
accounts, estimated based on an assessment of all disputed and doubtful balances at
the reporting date. Bad debts are written off when identiﬁed.
Trade accounts payable are recorded at nominal amount.
Transactions denominated in foreign currency are recorded at the exchange rate as at
PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

111

the date of the transaction. At the reporting date, transactions denominated in foreign
currencies are translated using the exchange rate as at the reporting date. Gains andlosses 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 the ﬁnancial
asset are substantially transferred. Risks and rewards are considered transferred when
exposure to variability in the present value of future net cash ﬂows associated with theasset changes signiﬁcantly as a result of the transfer.
Inventories
Raw materials, work in progress and ﬁnished products are recorded at the lowerof acquisition cost, production cost and net realizable value. Cost comprises direct
production costs and those overheads that have been incurred in bringing the inventories
to their present location and condition. Acquisition or production cost is determined ona weighted average basis. Provisions, adjusting the value of the inventory, are made forslow moving, obsolete inventories and if the estimated selling price is 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 less any 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. All other borrowing costs are charged
to the income statement.
Ordinary maintenance expenses are charged in full to the income statement for theyear they are incurred.
Extraordinary maintenance expenses are capitalized if they increase the value or usefullife of the related asset.
The costs included under leasehold improvements relate to refurbishment work carriedout on assets not owned by the Group.
All costs incurred during the period between the start of refurbishment work and theopening of the store are capitalized as leasehold improvements, as they are deemednecessary to bring the related assets to their working condition in accordance withcompany guidelines. The relevant construction or refurbishment period ranges fromsix 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 or period

Buildings

3% - 10%

Production plant and equipment
Improvements to leasehold retail properties

112

7.5% - 25%
shorter of lease term and 10 years

Improvements to leasehold industrial properties

lease term

Furniture and fittings

10% - 20%

Other equipment

6% - 33%PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

When assets are sold or disposed of, their cost and accumulated depreciation are
eliminated from the ﬁnancial statements and any gains or losses are recognized in theincome 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 isdetermined by comparing the carrying value of the asset with its recoverable value,
which means 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 from the disposal of the asset at the reporting date.
Value in use is an estimate of the present value of future cash ﬂows expected to derivefrom 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 value of the asset shall not exceed the carrying
amount that would have been determined if no impairment loss had been recognized
for the asset in prior years. Reversal of an impairment loss for an asset will be recordedin the income statement.
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 andgoodwill.
Trademarks are recorded at cost or at the value attributed upon acquisition and include
the cost of trademark registration in the various countries in which the Group operates.
The Directors estimate a useful life of between 20 and 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 as costs of development and installation.
Software is capitalized on condition that it is identiﬁable, reliably measurable and if it isprobable 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 over the
shorter period of the lease term or 10 years.
Development costs include expenses incurred to strengthen the brand image throughthe implementation of retail projects with a high technological or stylistic content.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

113

Intangible assets with a determinate useful life are amortized on a straight-line basis
at the following rates:
Category of intangible assets

Amortization rate or period

Trademarks

2.5% - 10%

Store lease acquisition costs

Shorter of lease term and 10 years

Software

10% - 33%

Development costs

10% - 33%

All business combinations included within the scope of IFRS 3 are recorded using theacquisition method whereby identiﬁable assets, liabilities and potential liabilities of theacquired business are measured at their acquisition-date fair value.
The difference between the cost of the business combination and the interest acquiredin the net fair value of identiﬁable assets, liabilities and potential liabilities is recorded
as goodwill. If additional interests in subsidiaries already controlled are acquired, thepositive difference between the acquisition cost and the value of the interest 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.
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.
For impairment test purposes, goodwill acquired in a business combination shall be,from the acquisition date, 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 Group and represent
groups of assets that generate independent cash inﬂows from continuing use of therelevant 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 amount 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, forecast and on long-term business plans (generally ﬁve years) prepared by the
management of the relevant business units.
An impairment loss is recorded in the income statement for the period whenever therecoverable amount 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 theGroup generally holds between 20% and 50% of the voting rights or in 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 net assets of the investee. The proﬁt or loss of the investor includes the114

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

investor’s share of the proﬁt or loss of the investee. Any goodwill included in thehistorical cost of the investment is tested annually for impairment.
Dividends received from the investee company reduce the carrying amount of theinvestment.
The reporting date of associated undertakings is the same as the parent company.
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 the parent
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 theextent that it has incurred legal or constructive obligations on behalf of the associateundertaking or joint venture.
Other investments and marketable securities
Investments that are acquired principally for the purpose of generating a proﬁt fromshort-term ﬂuctuations in price are classiﬁed as trading investments. They are includedin 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 atfair value recognized through other comprehensive income. These assets are included
in non-current assets unless the Directors intend to hold them for less than twelve
months from the reporting date, in which case they are included in current assets.
All purchases and sales of investments are recognized on the trade date, which means
the date 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 inthe 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 temporary differences, tax
losses carried-forward and unused tax credits only to the extent that is probable thattaxable income will be available in future years against which the deductible temporary
differences can be used. Recoverability is reviewed at every year end. Deferred tax
assets are measured at the tax rates which are expected to apply to the period when
the asset is realized based on tax rates (and tax laws) in force at the reporting date.
Deferred tax assets are not discounted.
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.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

115

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 rate risk
exposure are recorded based on hedge accounting rules.
Hedging contracts are designated as cash ﬂow hedges. Hedge accounting treatment
is allowed if derivative ﬁnancial instruments are 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 portion of
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 thehedged 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 thehedged transaction is no longer expected to take place, any related cumulative gain orloss 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 dateof 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, while
medium and long-term portions are recorded among non-current liabilities under
Obligations under ﬁnance leases.
Non-current financial liabilities
Non-current ﬁnancial liabilities include payables to banks for medium and long-termloans. Bank borrowing includes principal amounts, interest and additional arrangement
costs accrued and due at the balance sheet date even when they are charged at a later
date.
Non-current ﬁnancial liabilities are initially recorded at fair value on the transaction dateless transaction costs which are directly attributable to the acquisition.
After initial recognition, non-current ﬁnancial liabilities are valued at amortized cost,which means at the initial amount less principal repayments already made plus orminus the amortization (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 Trattamento Fine Rapporto, a staff
leaving indemnity qualiﬁed as deﬁned beneﬁt plan.
Deﬁned beneﬁt plans are recognized using actuarial techniques to estimate the amountof the obligations resulting from employee service in the current and past periods anddiscounting it to determine the present value of the Group’s obligations.
The present value of the obligations is determined by an independent actuary using the
Projected Unit Credit Method.

116

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

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 accountof future salary increases, for whatever reason (inﬂation, career progression and new
employment agreements), until the estimated termination date of the employment
relationship.
The cost of deﬁned beneﬁt plans, accrued during the year and recorded in the income
statement under labor costs, is equal to the average present value of rights accruedin favor of employees for service during the current period. The annual interest
accrued on the present value of the Group’s obligation at the beginning of the year, as
calculated adopting the previous year discount rate of future outﬂows used to estimate
the liability at the reporting date, is recorded under interest and other ﬁnancial income/(expenses).
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. Likedeﬁned beneﬁt plans, other long-term beneﬁts are also valued using the Projected Unit
Credit Method.
Provisions for risks and charges
Provisions for risks and charges cover costs of a known nature, that were certainor 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 resultof 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 based on 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 respect oftaxable temporary differences.
Taxable temporary differences are differences between the carrying amount of an asset
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 anasset or liability in a transaction other than a business combination that does not affectthe accounting result or the tax result at the transaction 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 have beenenacted or substantively enacted at the reporting date.
Deferred tax liabilities are not discounted.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

117

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 or when the twoitems refer to the same tax and the same period.
Revenue recognition
Revenues from the sale of goods are recognized in the income statement when:–

the signiﬁcant risks and rewards of ownership are transferred to the buyer;–

the value of the revenues can be reliably measured;–

all control over the goods sold has ceased;–

the economic beneﬁts generated by the transaction will probably be enjoyed by
the Company;–

the costs pertaining to the transaction can be reliably measured.

Royalties are accounted for based on sales made by the licensees and the terms of thecontracts. 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 recognized.

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 stores arecharged to the income statement when incurred, except for those capitalized asleasehold improvements. Upon closure of a store, the net book value of the leasehold
improvements, less the expected recoverable amount, is charged to the income
statement.
Interest expenses
Interest expenses include interest on bank overdrafts, on short and long term loans,ﬁnancial charges on ﬁnance leases and securitization operations, amortization of initialcosts 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 postemployment beneﬁts.
Income taxes
The provision for income taxes is determined based on a realistic estimate of the tax
charge of each consolidated entity, in accordance with the tax rates (and tax laws) thathave been enacted or substantially enacted at the reporting date.

118

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Current taxes are recorded in the income statement as an expense. This is except fortaxes deriving from transactions or events directly recognized through shareholders’equity which are directly charged to equity.
Earnings per share
Basic earnings per share are calculated by dividing net proﬁt pertaining to the holding
company shareholders 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 and more
relevant information on the effects of operations on the entity’s statement of ﬁnancial
position, income statement or cash ﬂows.
Changes of accounting policy are applied retrospectively, adjusting the opening balanceof 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 in accordancewith 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 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.
Financial risk management
The Group is exposed to ﬁnancial risks such as interest rate risk and exchange raterisk as a result of the international scale of its operations. The Group’s overall risk
management policy takes account of the volatility of ﬁnancial markets and seeks tominimize uncertainty regarding cash ﬂows and the resulting potential adverse effects
on its results.
The Group enters into hedging contracts to manage risks arising from the exposure to
the exchange rates and interest rates ﬂuctuations.
Financial instruments are accounted for based on hedge accounting rules set by “IAS
39 Financial instruments: recognition and measurement”. At the inception of thehedge contract, the Group formally documents the hedging relationship assuming thatthe hedging is effective during the different accounting periods it is designated for.
Use of estimates
In accordance with IFRS, the preparation of these consolidated ﬁnancial statements
requires the use of estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses as well as contingent assets and liabilities.
Such assumptions relate primarily to transactions and events not settled as of the yearend. Accordingly, upon settlement, the actual results may differ from the estimatedamounts. Estimates and assumptions are periodically reviewed and the effects of any

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

119differences is immediately charged to the income statement.
Estimates have been used when performing the impairment tests, in determining
provisions for risks and charges, the allowance for doubtful accounts, the allowancefor obsolete and slow moving inventories, post-employment beneﬁts and whencalculating taxes and valuing securities available for sale.
The fair value of derivatives and securities available for sale is based on market prices
at the reporting date. The fair value of derivative instruments used to hedge interest
rate risks (IRS) and those used to hedge the exchange rate risk (forward contracts andoptions) is determined using one of the valuation platforms most widely accepted on
the market and is based on interest rate curves and on spot and forward exchange
rates at the reporting date.
7.

Acquisitions, disinvestments and incorporation of companies
On February 3, 2013, the Group incorporated PRADA Retail spc in Doha to develop theretail business in Qatar.
On February 7, 2013, the Group incorporated Kenon ltd, a real estate company with its
registered office in London.
On June 24, 2013, the Group incorporated PRADA Kazakhstan llp in Almaty to develop
the retail business in Kazakhstan.
On July 5, 2013, the Group incorporated PRADA New Zealand Limited in Wellington todevelop the retail business in New Zealand.
On July 10, 2013, PRADA spa and third party company Fin-Reta srl incorporated
Pellettieri d’Italia srl in Italy – with respective interests of 60% and 40% - to develop
manufacturing activities.
On September 1, 2013, the Group acquired Epoca srl from third parties to develop
the retail business in Italy. On December 31, 2013, Epoca srl was merged throughincorporation into PRADA Stores srl.
On September 30, 2013, the Group became the sole owner of India Fashion Private
Limited of Mumbai with the objective of developing the retail business in India.
On January 1, 2014, Erfico sa was merged through incorporation into PRADA
Switzerland sa.

120

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Epoca srl
On September 1, 2013, the Group acquired from third parties 100% of the quota capitalof Epoca srl for a total amount of Euro 4.6 million. The acquisition enabled the Groupto take over a lease agreement for prestigious commercial property in Florence, Italy.
For IFRS purposes, the acquisition of this company was treated as an asset notconstituting a business. In fact, the retail business conducted by the company until
the date of acquisition was immediately terminated. As a result of the acquisition of anasset rather than a business, the allocation of the acquisition cost led to recognition,at the date of acquisition, of Euro 4.9 million recorded under intangible assets as key
money paid to take over the lease agreements. The following table summarizes how
the consideration paid (Euro 4.6 million) was allocated to the fair value of the net assets
acquired.
(amounts in thousands of Euro)

fair value of net assets acquired

Cash and cash equivalents

8.

57

Net working capital(310)

Key money

4, 892

Consideration paid

4, 639Operating segments“IFRS 8 Operating Segments” requires that detailed information be provided for each
operating segment that makes up the business. An operating segment is intended asa 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 geographicalareas, together with the complementary nature of the production processes of thevarious brands and the many relationships between the different business segments– means that operating segments that meet the IFRS 8 definition cannot be identified,
as top management is only provided with income statement results on a Group-widelevel. For this reason, the business has been considered as a single operating segment
as this better represents the specific characteristics of the PRADA Group businessmodel.
Detailed information on net revenues by brand, geographical area, product anddistribution channel, as well as EBITDA by brand and non-current assets by geographicalarea are provided below. Information on net revenues is also reported in the Financial
review where it is accompanied by further comments.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

121

Net sales analysis(amounts in thousands of Euro)

twelve months
ended January 31, 2014

twelve months
ended January 31, 2013

% change

Net sales by geographical area
Italy

552,89715.6%

528,302

16.2%

Europe776,49421.9%

739,634

22.7%

4.7%
5.0%

Americas487,99013.8%

440,035

13.5%

10.9%

Asia Pacific

11.4%

1,292,753

36.4%

1,160,166

35.6%

Japan (including Hawaii)

340,784

9.6%

337,313

10.4%

1.0%

Middle East

91,1142.6%

44,803

1.4%

103.4%

Other countries

6,175

0.1%

6,175

0.2%

0.0%

3,548,207

100.0%

3,256,428

100.0%

9.0%

Prada

2,943,633

83.0%

2,649,559

81.4%

11.1%

Miu Miu

519,14214.6%

512,762

15.7%

1.2%

Church's

68,6091.9%68,4472.1%

0.2%

Car Shoe

13,4270.4%

19,6600.6%-31.7%Total

Net sales by brand

Other

3,396

0.1%

6,000

0.2%

-43.4%

Total

3,548,207

100.0%

3,256,428

100.0%

9.0%

Net sales by product line
Clothing

581,59416.4%

563,322

17.3%

3.2%

2,332,518

65.7%

2,038,043

62.6%

14.4%

Footwear594,58616.8%

625,390

19.2%

-4.9%

Other

39,5091.1%

29,673

0.9%

33.1%

Total

3,548,207

100.0%

3,256,428

100.0%

9.0%

2,996,637

84.5%

2,664,238

81.8%

12.5%

551,570

15.5%

592,190

18.2%

-6.9%

Total

3,548,207

100.0%

3,256,428

100.0%

9.0%

Net sales

3,548,207

98.9%

3,256,428

98.8%

9.0%

Royalties

39,1401.1%

40,791

1.2%

-4.0%

3,587,347

100.0%

3,297,219

100.0%

8.8%

Leather goods

Net sales by distribution channelDOS
Independent customers and franchises

Total net revenues

122

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

EBITDA by brandtwelve months
ended January 31, 2014
(amounts in thousands of Euro)

Group

Prada

Miu Miu

Church’s

Car Shoe

Other

Net sales

3,548,207

2,943,633

519,142

68,60913,427

3,396Royalties

39,14037,127

1,997

16

-

-

Net revenues

3,587,347

2,980,760

521,139

68,625

13,427

3,396

EBITDA

1,143,186

1,054,126

89,322

4,368(4,795)165

EBITDA %

31.9%

35.4%

17.1%

6.4%

-

-

twelve months
ended January 31, 2013
(amounts in thousands of Euro)

Group

Prada

Miu Miu

Church’s

Car Shoe

Other

Net sales

3,256,428

2,649,559

512,762

68,447

19,6606,000

Royalties

40,79139,453

1,248

90

-

-

Net revenues

3,297,219

2,689,012

514,010

68,537

19,6606,000

EBITDA

1,052,469

948,729

100,270

7,099(2,707)

(922)

31.9%

35.3%

19.5%

10.4%

-

-

Change in Net revenues

290,128

291,7487,129

88(6,233)(2,604)

Percentage change in
Net Revenues

8.8%

10.8%

1.4%

0.1%

-31.7%-43.4%

Change in EBITDA

90,717

105,397(10,948)(2,731)(2,088)1,087% change in EBITDA

8.6%

11.1%

-10.9%-38.5%-77.1%-EBITDA %The PRADA brand generated EBITDA of Euro 1,054.1 million (35.4% of net revenues)
for the twelve months ended January 31, 2014, 11.1% more than the Euro 948.7
million recorded in 2012 (35.3% of net revenues). Excluding the aforementioned
penalty for termination of the property lease in Ginza, Tokyo, the brand’s EBITDA
margin would have been 35.8%, confirming a positive operating trend. The additional
expenses resulting from retail network expansion only partially absorbed the additional
profits created through sales growth. Sales growth was achieved thanks to the 59 net
new stores opened in 2013, the full year contribution of DOS opened in 2012 and,above all, the SSSG performance which was the main driver of sales growth for theyear. In line with Group strategy, the retail expansion was accompanied by increased
communications activity to strengthen the global brand image.
Miu Miu generated EBITDA of Euro 89.3 million, 10.9% less than the Euro 100.3
million reported for 2012. Meanwhile, EBITDA margin decreased from 19.5% to 17.1%
essentially because of the increase in operating expenses triggered by rapid expansionof the DOS network (up from 71 at January 31, 2011, a few months before the listing,to 150 at January 31, 2014, with a net of 24 new openings in the last year alone).
Another factor was investment in DOS restyling and in communications, also in orderto strengthen international brand awareness. Beyond the short-term impact, the GroupManagement believes that these measures are necessary with a view to achieving
long-term sustainable growth for the brand.
Church’s recorded EBITDA of Euro 4.4 million, 38.5% down on the Euro 7.1 million
reported in 2012. The lower profitability is partly due to a less impressive performanceby several traditional markets and partly to the greater burden of selling costs, again as

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements123

a result of retail network expansion in new countries. During the year, Church’s opened
7 new DOS including its first ever stores in China, Japan, Sweden and the Netherlands.
The Car Shoe brand reported negative EBITDA of Euro 4.8 million, a deterioration onprior year because of the decline in wholesale sales.
Geographical information
The following table reports the carrying amount of most of the Group’s non-current
assets by geographical area, as requested by “IFRS 8 Operating Segments” forentities, like the PRADA Group, that have a single reportable segment.
January 31
2014

January 31
2013

Italy

569,176484,945

Europe1,054,397

842,289

Americas198,453

185,688

Asia Pacific

260,175

175,674Japan

102,628

93,156

Middle East

33,87328,715

Other countries

5,319

6,137

2,224,021

1,816,604(amounts in thousands of Euro)Total

The total amount of Euro 2,224 million (Euro 1,816.6 million at January 31, 2013) relates
to the Group’s non-current assets excluding, as requested by IFRS 8, those relating tofinancial instruments, deferred tax assets and, at January 31, 2013 only, surplus arisingfrom a pension benefit scheme (at January 31, 2014, said surplus was zero).
9.

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

January 31
2014

January 31
2013

Cash on hand

35,541

24,188Bank deposit accounts

342,399

306,898

Bank current accounts

190,474

240,660

Total

568,414571,746

At January 31, 2014, bank current accounts and deposit accounts generated interest
income of between 0.0% and 2.50% per annum (between 0.0% and 2.83% at January
31, 2013).
10. Trade receivables, net
Trade receivables are detailed as follows:(amounts in thousands of Euro)

January 31
2014

January 31
2013

Trade receivables – third parties

288,504

286,390

Allowance for bad and doubtful debts(10,432)(11,547)

Trade receivables – related parties

30,33329,682

Total

308,405

304,525

Trade receivables from third parties did not vary signiﬁcantly compared to January 31,

124

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

2013, as the value of shipments to independent retail customers for Spring/Summer
collections remained almost unchanged between 2012 and 2013.
Trade receivables from related parties includes an amount of Euro 25.5 million (Euro28.4 million at January 31, 2013) essentially arising from sales of ﬁnished products
and royalties, as provided by the franchising agreement with Fratelli Prada spa, a retailcompany owned by the majority shareholders of parent company PRADA Holding bv.
Trade receivables from related parties also includes a total of Euro 2.2 million due from
Fratelli Prada spa and Progetto Prada Arte srl in respect of their utilization of premises
in Galleria Vittoria Emanuele II which PRADA spa holds under a concession agreementwith the Municipality of Milan. More details of related party transactions are provided
in Note 40.
The allowance for doubtful debts was determined on a speciﬁc basis considering all
information available at the date the ﬁnancial statements were prepared. It is revised
periodically to bring receivables as close as possible to the fair value.
Movements during the period were as follows:
January 31
2014

January 31
2013

11,547

11,681

Exchange differences

55

(67)

Increase

830

805(1,922)

(754)

(78)

(118)

10,432

11,547January 31
2014

January 31
2013

Raw materials

85,33379,559Work in progress

28,424

24,620Finished products

403,473314,244

Allowance for obsolete and slow moving inventories(67,327)(74,621)

Total

449,903343,802(amounts in thousands of Euro)

Opening balance

Uses
Reversals

Closing balance

11. Inventories, net
Inventories are analyzed as follows:(amounts in thousands of Euro)

The increase in ﬁnished products is mainly due to the greater value of retail stock as aresult of the number of stores opened during 2013.
Materials being worked upon by third parties are included in raw materials. Work inprogress includes materials at the production stage with PRADA spa, subsidiaries
Artisans Shoes srl and Church & Co ltd and third party sub-contractors.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

125

Movements on the allowance for obsolete and slow moving inventories are analyzed
as follows:Rawmaterials

Finished
Products

Total

29,75444,86774,621

Exchange differences

2

14

16

Increases

24

83

107

Reversals-(7,000)(7,000)Decrease for use

-

(417)

(417)

29,78037,54767,327(amounts in thousands of Euro)

Balance at January 31, 2013

Balance at January 31, 2014

The allowance for obsolete and slow moving inventories has been adjusted to bring thevalue of inventories into line with their realizable amount.
12. Derivative financial instruments: assets and liabilities
Derivative financial instruments: assets and liabilities, current portion
January 31
2014

January 31
2013

Financial assets regarding derivative instruments

13,98443,060Financial liabilities regarding derivative instruments(3,803)(912)

Net carrying amount – current

10,18142,148(amounts in thousands of Euro)

Derivative financial instruments: assets and liabilities, non-current portion
January 31
2014

January 31
2013

Financial assets regarding derivative instruments

1,430

1,018

Financial liabilities regarding derivative instruments(1,469)

(384)

(39)

634

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

The net carrying amount of derivative financial instruments, current and non-current
taken together, consists of the following:
January 31
2014

January 31
2013

IFRS7
Category

Forward contracts

8,582

20,983

Level II

Options

5,402

23,095

Level IIInterest rate swaps

1,430

-

Level II

Positive fair value

15,41444,078Forward contracts(1,990)(138)

Options(1,364)-

Level IIInterest rate swaps(1,918)(1,158)

Level II

Negative fair value(5,272)(1,296)

Net carrying amount – current and non-current

10,142

42,782(amounts in thousands of Euro)126

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Level IIAll of the above derivative instruments are qualified as Level II of the fair value hierarchy
proposed by IFRS 7. Except as reported under commitments in Note 41 in relation
to the call and put options on shares in subsidiary Prada Middle East fzco and theimpossibility of determining their fair value at the reporting date, the Group has notentered into any derivative contracts that may be qualified as Level I or III.
The fair values of derivatives arranged to hedge interest rate risks (IRS) and ofderivatives arranged to hedge exchange rate risks (forward contracts and options) havebeen determined utilizing one of the valuation platforms in most widespread use on
the financial market and are based on the interest rate curves and on spot and forward
exchange rates at the reporting date.
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 andinterest rate fluctuations.
Foreign exchange rate transactions
The cash flows resulting from the Group’s international activities are exposed to
exchange rate volatility. In order to hedge this risk, the Group enters into options andforward sale and purchase agreements so as to guarantee the value in Euro (or inother currencies of the various Group companies) of identified cash flows. Expected
future cash flows mainly regard the collection of trade receivables, settlement of trade
payables and financial cash flows. The most important currencies in terms of hedged
amounts are: Hong Kong Dollar, US Dollar, Japanese Yen, GB Pound, Korean Won andChinese Renminbi.
At the reporting date, the notional amounts of the derivative contracts designated as
foreign exchange risk hedges (as translated at the European Central Bank exchange
rate at January 31, 2014) were as stated below.
Contracts in place at January 31, 2014, to hedge projected future trade cash flows.
(amounts in thousands of Euro)

Options

Forward sale
contracts (*)

Forward purchase
contracts (*)

January 31
2014

Currency
US Dollar

115,789

37,733(51,050)

102,472

Hong Kong Dollar

59,541111,938-

171,479

Japanese Yen

40,976

43,799(18,099)

66,676

GB Pound

58,90336,282-

95,185

Korean Won-

60,346-60,346Chinese Renminbi

39,672

9,533-

49,205

Other

4,167

84,642(4,920)83,889Total

319,048384,273(74,069)

629,252(*) Positive figures represent forward sales, negative figures represent forward purchases of currency

Contracts in place as at January 31, 2014, to hedge projected future financial cash flows.
Options

Forward sale
contracts

Forward purchase
contracts

January 31
2014

GB Pound-

79,138-79,138US Dollar-

48,387-

48,387

Japanese Yen-

29,248-29,248Other-

15,989-15,989

Total-

172,762-

172,762(amounts in thousands of Euro)

Currency

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

127

All of the contracts in place as at January 31, 2014, will mature within twelve months.
Contracts in place at January 31, 2013, to hedge projected future trade cash flow.
Options

Forward sale
contracts

Forward purchase
contracts (*)

January 31
2013

US Dollar

154,539

7,380(32,472)

129,447

GB Pound

70,5252,684(1,167)72,042

Japanese Yen

52,96032,663(32,436)

53,187

Hong Kong Dollar

109,033

76,114(4,757)

180,390(amounts in thousands of Euro)

Currency

Korean Won-

49,249(577)

48,672Chinese Renminbi-

56,962-56,962

Other

41,23634,185(4,924)70,497

Total

428,293259,237(76,333)

611,197(*) Positive figures represent forward sales, negative figures represent forward purchases of currency

Contracts in place as at January 31, 2013, to hedge projected future ﬁnancial cash
ﬂows.
Options

Forward sale
contracts

Forward purchase
contracts

January 31
2013Japanese Yen-

47,356-47,356Other-

15,256-

15,256(amounts in thousands of Euro)

Currency

Total

62,61262,612The contracts in place at January 31, 2013, expired during the year, except for forward
sale contracts and options with a maturity date after January 31, 2014, whose notionalamount was Euro 15.5 million at the reporting date of these ﬁnancial statements.
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 institution. A liquidity
analysis on the maturity dates of these derivative contracts is included in these Notes
in the Information on ﬁnancial risks section.

128

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Interest rate transactions
The Group enters into Interest Rate Swaps agreements (IRS) in order to hedge therisk of interest rate ﬂuctuations in relation to several bank loans. The key featuresof the IRS agreements in place as at January 31, 2014, and January 31, 2013, aresummarized as follows:
Contract

Currency

Notional
amountInterest
rate

Maturity January 31
date
2014

Hedged loan –lending
institution

AmountExpiryEuro/000

MPS

1,800

07/20153,750

06/2014

Currency

fair value
.000
IRS

Euro/000

1,800

2.210%

01/07/2015

(33)

3,750

1.545%

02/06/2014(23)

Euro/000IntesaSanpaolo

GBP/000

60,0002.778%

31/01/2029(198)

GBP/000

Unicredit

60,00001/2029

Yen/000

1,750,000

1.875%

31/03/2017(194)

Yen/000

Mizuho1,750,000

03/2017

Currency

Notional
amountInterest
rate

Maturity January 31
date
2013

Currency

Hedged loan –lending
institution

AmountExpiryEuro/000

Pool loan

100,000

07/2013IRS

Euro/000IRS
IRS

Contract

fair value
.000
IRS

Euro/000

100,000

1.511%

26/07/2013

(588)

IRS

Euro/000

11,2501.545%

02/06/2014(141)

Euro/000IntesaSanpaolo

11,25006/2014IRS

Euro/000

3,000

2.210%

01/07/2015(77)

Euro/000

MPS

3,000

07/2015

IRS

Yen/000

2,000,000

1.875%

31/03/2017(352)

Yen/000

Mizuho2,000,000

03/2017The IRS agreements 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.
The loan of GBP 60 million from Unicredit is not reported in the ﬁnancial statements
at January 31, 2014 as it was arranged after the reporting date (February 26, 2014).
Nonetheless, in accordance with IAS 39, hedge accounting has been used to show
the fair value of the related derivative instrument given that the loan transaction wasa highly probable forecasted transaction at the reporting date, as conﬁrmed by events
after the reporting date.
Movements on the cash ﬂow hedge reserve included in Group shareholders’ equity,
before tax effects, since February 1, 2012, may be analyzed as follows:(amounts in thousands of Euro)

Opening balance at February 1, 2012

Change in the translation reserve(5,645)19

Change in fair value, recognized in Equity

24,840Change in fair value, charged to Income Statement

8,690

Closing balance at January 31, 2013

27,904

Change in the translation reserve
Change in fair value, recognized in Equity
Change in fair value, charged to Income Statement

Closing balance at January 31, 2014

5
9,148
(31,902)

5,155

Changes in the reserve that are charged to the Income Statement are recorded underInterest and other ﬁnancial income/(expense), net or as operating income and expenses

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

129

depending on the nature of the underlying.
Information on financial risks
Capital management
The Group’s capital management strategy is intended to safeguard its ability to continue
to guarantee a return to shareholders, protect the interests of other stakeholders andrespect covenants, while maintaining an adequate, balanced capital structure.
Categories of financial assets and liabilities according to IAS 39
Financial assets(amounts in thousands of Euro)

Loans andreceivables

Derivative financial
instruments

Total

Note

Cash and cash equivalents

568,414-

568,4149

Trade receivables, net

308,405-

308,405

10

Derivative financial instruments
Financial receivables

Total at January 31, 2014

(amounts in thousands of Euro)-

15,414

15,414

12

2,008

-

2,008

13

878,827

15,414894,241

Loans andreceivables

Derivative financial
instruments

Total

Note

Cash and cash equivalents

571,746-

571,7469

Trade receivables, net

304,525-

304,525

10

Derivative financial instruments
Financial receivables

Total at January 31, 2013-

44,07844,078

12

1,413

-

1,413

13

877,684

44,078921,762

Loans andpayablesDerivative financial
instruments

Total

Note

19, 20, 25

Financial liabilities(amounts in thousands of Euro)

Financial payables

143,992-

143,992

Trade payables

348,534-

348,534

21

Obligations under finance leases

543

-

543

23

Derivative financial instruments

-

5,272

5,272

12

493,069

5,272

498,341

Loans andpayablesDerivative financial
instruments

Total

Note

19, 20, 25

Total at January 31, 2014

(amounts in thousands of Euro)

Financial payables

259,418-

259,418

Trade payables

330,613-

330,613

21

Obligations under finance leases

1,093

-

1,093

23

Derivative financial instruments

-

1,296

1,296

12

591,124

1,296

592,420

Total at January 31, 2013

130

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Fair Value
The reported amount of derivative instruments, whether they are assets or liabilities,
reﬂects their fair value, as explained in Note 12.
The carrying amount of ﬁnancial assets is a reasonable approximation of their fairvalue, as detailed below.
The carrying amount of ﬁnancial liabilities, except for the bond issued in 2013 andlisted on the Irish Stock Exchange, is a reasonable approximation of fair value.
The Bond, reported at an amount of Euro 129 million (nominal amount of Euro 130
million as adjusted by Euro 1 million following application of the amortized cost
method), is included in the ﬁnancial liabilities reported above at nominal amount i.e.
Euro 130 million. Its fair value, as determined based on the ofﬁcial listed price on the
Irish Stock Exchange at January 31, 2014, is Euro 131.3 million.
Credit risk
Credit risk is deﬁned as the risk that a counterparty in a transaction, by not fulﬁlling
its obligations, causes a ﬁnancial loss for another entity. The maximum risk to which
an entity is potentially exposed is represented by all ﬁnancial assets recorded in theﬁnancial statements. However, the Group essentially believes that its credit risk
mainly regards trade receivables generated in the wholesale channel and in the cash
equivalents. The Group manages the credit risk and reduces its negative effects
through its commercial and ﬁnancial strategy, as also explained under the Information
on Risk factors included in the Financial review of this 2013 Annual Report.
Trade receivables
The following table contains a summary of total receivables before the allowance for
doubtful debts at the reporting date:
January 31
2014

Current

Trade receivables

318,837

Total(amounts in thousands of Euro)

Overdue (days)
1 < 3031 < 60

61 < 90

91 < 120120

262,213

20,331

9,817

6,446

3,633

16,397

318,837

262,213

20,331

9,817

6,446

3,633

16,397January 31
2013

Current

1 < 3031 < 60

61 < 90

91 < 120120

Trade receivables

316,072

263,079

27,328

7,708

5,852

1,607

10,498

Total

316,072

263,079

27,328

7,708

5,852

1,607

10,498(amounts in thousands of Euro)PRADA Group

Overdue (days)

Annual Report 2013 - Notes to the Consolidated Financial Statements

131

The following table contains a summary, by due date, of trade receivables less theallowance for doubtful accounts at the reporting date:(amounts in thousands of Euro)

January 31
2014

Current

Trade receivables less allowancefor doubtful accounts

308,405

Total

Overdue (days)
1 < 3031 < 60

61 < 90

91 < 120

120

261,862

20,331

9,817

6,213

3,633

6,549

308,405

261,862

20,331

9,817

6,213

3,633

6,549

(amounts in thousands of Euro)

January 31
2013

Current

1 < 3031 < 60

61 < 90

91 < 120120

Trade receivables less allowancefor doubtful accounts

304,525

262,799

27,141

7,708

5,804

634

439

Total

304,525

262,799

27,141

7,708

5,804

634

439

Overdue (days)

At the reporting date, the expected loss on doubtful receivables was fully coveredby the allowance for doubtful receivables. Movements on the allowance for doubtfulreceivables are shown in Note 10.
Bank deposit accounts and bank current accounts
Bank deposit accounts are broken down by currency as follows:
January 31
2014

January 31
2013

Euro

40,000110,300

US Dollar

31,992

23,793

Korean Won

50,88036,003

Hong Kong Dollar

190,458

90,798Other currencies

29,06946,004

Total bank deposit accounts

342,399

306,898(amounts in thousands of Euro)The Group seeks to mitigate the default risk on bank deposit accounts by allocating
available funds to several accounts that differ in terms of currency, country and bank;these investments are always short-term in nature.
Bank current accounts
January 31
2014

January 31
2013

Euro

93,69042,755US Dollar

46,53275,690

Korean Won

3,083

1,994

Hong Kong Dollar

5,112

10,751(amounts in thousands of Euro)GB Pound

5,934

59,369Other currencies

36,12350,101

Total bank current accounts

190,474

240,660

The Group maintains that there is no signiﬁcant risk regarding bank current accounts astheir use is strictly connected with the business operations and corporate processes
and, as result, the number of parties involved is fragmented.

132

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

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 Corporate ﬁnance department, reporting to the CFO, is
responsible for managing ﬁnancial resources as well as possible. The Directors believethat the funds and lines of credit currently available, in addition to those that will be
generated by operating and ﬁnancing activities, will allow the Group to meet its needs
resulting from investing activities, working capital management and repayment ofloans as they fall due. At January 31, 2014, the Group had a total of Euro 454.3 millionof available unused credit facilities (Euro 473.1 million at January 31, 2013).
The following table summarizes trade payables by maturity date:
January 31
2014

Current

Trade payables

348,534

Total(amounts in thousands of Euro)

Overdue (days)
1 < 3031 < 60

61 < 90

91 < 120120

314,375

17,261

8,524

2,099

1,086

5,189

348,534

314,375

17,261

8,524

2,099

1,086

5,189

January 31
2013

Current

1 < 3031 < 60

61 < 90

91 < 120120

Trade payables

330,613

301,940

14,991

3,859

3,119

1,180

5,524

Total

330,613

301,940

14,991

3,859

3,119

1,180

5,524

(amounts in thousands of Euro)

Overdue (days)

The following table details the maturity of derivative and non-derivative ﬁnancial
liabilities showing earliest date on which the Group could be called upon to makepayment (worst-case scenario).

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

133

Financial liabilities under derivative financial instruments
Futurecontractual
cash flows
at Jan. 31,
2014

6 mthsor less

6 to 12mths

Cash outflows(138,507)(98,211)(40,296)

-

-

-

-

Cash inflows

135,754

96,43739,317----(amounts in thousands of Euro)

1 to 2years

2 to 3years

3 to 4years

more than
4 years

Forward contracts designatedas cash flow hedges

Other contracts designatedas cash flow hedges
Cash outflows(6,235)(1,795)(4,440)

-

-

-

-

Cash inflows(5,740)(1,649)(4,091)

-

-

-

-

66

(953)

(842)

(1,275)

(603)

(150)

3,889

(14,662)(6,171)(10,352)(1,275)

(603)

(150)

3,889

Futurecontractual
cash flows
at Jan. 31,
2013

6 mthsor less

6 to 12mths

1 to 2years

2 to 3years

3 to 4years

more than
4 years

Cash outflows(5,422)(5,387)

(35)

-

-

-

-

Cash inflows

5,340

5,340

-

-

-

-

-

Interest rate swap cash flowhedge

Net value(amounts in thousands of Euro)

Forward contracts designatedas cash flow hedges

Other contracts designatedas cash flow hedges

134

Cash outflows

-

-

-

-

-

-

-

Cash inflows

-

-

-

-

-

-

-

Interest rate swap cash flowhedge

(1,125)

(671)

(130)

(183)

(80)

(52)

(9)

Net value(1,207)

(718)

(165)

(183)

(80)

(52)

(9)

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Financial liabilities(amounts in thousands of Euro)

Carrying
Futureamount at
contractualJan. 31, cash flows at
2014 Jan. 31, 2014

on 6 mths 6 to 12
demand or lessmths

1 to 2years

2 to 3years

3 to 4years

more
than 4years--

Obligations under financeleases

543

551

-

103

429

19

-

Financial liabilities – third
parties272,180

292,566

103

44,69021,441

40,101

23,156

Financial liabilities – relatedparties

4,130

4,130

-

-

4,130

-

-

276,853

297,247103

44,79326,00040,12023,156

26,519 136,556

on 6 mths 6 to 12
demand or lessmths

1 to 2years

2 to 3years

3 to 4years

more
than 4
years

Total

(amounts in thousands of Euro)

Carrying
Futureamount at
contractualJan. 31, cash flows at
2013 Jan. 31, 2013

Obligations under financeleases

1,093

1,105

Financial liabilities – third
parties

255,054

262,690

Financial liabilities – relatedparties

5,018

5,018

261,165

268,813

Total-

26,519 136,556
-

-

488

95

510

4

8

-

21 161,286

19,03537,027

29,664

13,620

2,037

-

-

-

-

-

-

5,039 161,774

19,13037,537

29,668

13,628

2,037

5,018

Some ﬁnancial liabilities are subject to compliance with covenants as described in
Note 25.
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.
For PRADA spa, the exchange rate risk mainly involves the risk that the cash ﬂows
from retail and distribution activities will ﬂuctuate as a result of changes in exchange
rates. According to the Group’s exposition, the most important currencies are: the U.S.
Dollar, Hong Kong Dollar, Japanese Yen, GB Pound and Chinese Renminbi. Exchange
rate risk exposure for subsidiary companies is generated by cash ﬂows in currencies
other than their reporting currency.
The following table shows the sensitivity of the consolidated Net income and theconsolidated Shareholders’ equity to a range of hypothetical ﬂuctuation in the main
foreign currencies against Euro, based on the Group statement of ﬁnancial position at
January 31, 2014.
Euro strengthens by 10%(amounts in thousands of Euro)

Effect on
net income

Euro weakens by 10%

Effect on
shareholders’equityEffect on
net income

Effect on
shareholders’equityGB Pound

(348)

4,913

1,555

(7,145)Hong Kong Dollar

750

13,502(483)(16,423)(5,151)

Japanese Yen

4,654

9,531

(454)

US Dollar(9,103)331

12,83687

Chinese Renminbi(8,067)(5,745)

9,664

6,724

Other currencies(3,542)

8,265

4,473

(9,383)

Total(15,656)

30,797

27,591(31,291)

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

135

The total impact on shareholders’ equity (Euro 30.8 million positive and Euro 31.3
million negative ) is the sum of the theoretical effect on the income statement and on
the cash ﬂow hedge reserve of an hypothetical strengthening/weakening of the Euroagainst other currencies.
The effects on the above-mentioned items are recorded before the tax effect. The
sensitivity analysis is based on the period end exposure which might not reﬂect theeffects actually generated during the year and for this reason it must be consideredmerely indicative.
Interest rate risk
The PRADA Group is exposed to the risk of interest rate ﬂuctuations mainly with regard
to the interest expenses 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 Corporate Finance department.
The following table shows the sensitivity of the Group’s net result and Shareholders’ equity
to a hypothetical shift in the interest rate curve in relation to the Group companies’ ﬁnancial
position as at January 31, 2014.
(amounts in thousands of Euro)

Shift ininterest rate
curve

Effect on net
Effect on
income for shareholders’
the period
equityShift ininterest rate
curve

Effect on net
Effect on
income for shareholders’
the period
equityEuro+ 0.50%

(71)

(66)

- 0.50%

71

69

GB Pound+ 0.50%24

3,704- 0.50%(24)(3,699)Hong Kong Dollar+ 0.50%978978- 0.50%

(978)

(978)

Japanese Yen+ 0.50%

(381)

(287)

- 0.50%381

344

US Dollar+ 0.50%326

326- 0.50%

(326)

(326)

Other currencies+ 0.50%448

448- 0.50%

(448)

(448)

1,324

5,103

(1,324)(5,038)Total

The total impact on Shareholders’ equity (positive impact of Euro 5.1 million andnegative impact of Euro 5 million) should be considered as the sum of the theoreticaleffect of an hypothetical shift in the interest rate curve on the income statement andon 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, thisanalysis should be considered as merely indicative.
13. Receivables from, and advance payments to, parent company and other relatedparties – current and non current
Receivables from, and advance payments to, parent company and other related partiesare detailed below:(amounts in thousands of Euro)

Financial receivables – other related parties

136

January 31
2014

January 31
2013

2,008

1,413

Other receivables – PRADA Holding bv

356

249

Other receivables – other companies controlled by PRADA Holding bv

36

3

Other receivables – other related parties

2,159

2,652

Advance payments – other related companies

1,434

15,176

Receivables from, and advance payments to, parent company and other relatedparties - current

5,993

19,493PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

The ﬁnancial receivables from other related parties reported at January 31, 2013,
were collected during the year and were due from PAC srl (in liquidation). The newreceivables reported at January 31, 2014, are due from Luna Rossa Challenge 2013 srl
and regard a loan made during the year which is repayable not later than July 30, 2014.
At January 31, 2013, advance payments to other related companies included Euro 12.3
million paid to Luna Rossa Challenge NZ ltd and Luna Rossa Challenge srl in accordancewith the contracts signed with subsidiary PRADA sa for sponsorship of the Luna Rossa
yacht in relation to its participation on the XXXIV edition of the America’s Cup. The
competition was held in San Francisco in 2013 and the full amount of the advance wasreleased to the income statement for the year. Advances to other related companies
at January 31, 2014, amounted to Euro 1.4 million (Euro 2.9 million at January 31,2013) and mainly regard advances paid to Progetto Prada Arte srl for cultural initiatives
to be held during the following year. Details of receivables and advances with parent
company and other related parties are provided in Note 40.
(amounts in thousands of Euro)Deferred rental income – long term

January 31
2014

1,487

-

-

113

1,487

113

Other

Receivables from, and advance payments to, parent company and other relatedparties – non current

January 31
2013

Deferred rental income – long term - was recorded in relation to Fratelli Prada spa andProgetto Prada Arte srl in application of “IAS 17 Leases” which requires rental income
to be recognized on a constant basis. Further information on related party transactions
is provided in Note 40.
14. Other current assets
Other current assets are detailed as follows:(amounts in thousands of Euro)

January 31
2014

January 31
2013

VAT

39,25025,072

Income tax and other tax receivables

14,062

20,540

Other assets

13,47016,731

Prepayments and accrued income

42,37541,266

Deposits

5,740

1,214

114,897

104,823January 31
2014

January 31
2013

Total

Other assets
Other assets are detailed as follows:(amounts in thousands of Euro)

Advertising contributions under license agreements

1,293

5,258

Advances to suppliers

3,184

1,478

Incentives for retail investments

3,645

1,318

695

1,392

Other receivables

4,653

7,285

Total

13,47016,731

Advances to employees

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements137Prepayments and accrued income
Prepayments and accrued income are detailed as follows:
January 31
2014

January 31
2013

Rental charges

15,875

17,116

Insurance

1,931

1,472

Design costs

13,997

11,970Fashion shows and advertising campaigns

2,585

4,021

(amounts in thousands of Euro)

Sponsorship

142-

Consulting

498

1,233

Amortized costs on loans

973

197

Other

6,374

5,257

Total

42,37541,266

Design costs mainly include costs incurred for the conception and realization ofcollections that will generate revenue the following year.
Deposits
Deposits mainly include guarantee deposits paid under commercial lease agreements.
15. Property, plant and equipment
Changes in the historical cost of Property, plant and equipment during the year ended
January 31, 2014, and in prior year are as follows:
Land andbuildings

Production
plant andmachinery

Leaseholdimprovements

Furniture& fittings

Othertangibles

AssetsTotal
under historicalconstruction
cost

Balance at January 31, 2012

215,587

104,023

641,136

210,796

103,076

82,620 1,357,238

Additions

35,371

8,977

136,368

48,65524,34773,617327,335

Disposals

(3)

(810)

(823)

(1,633)(32,347)(1)(35,617)

Exchange differences(1,346)(214)(37,710)(8,207)(1,225)(5,448)(54,150)

Other movements

3,308

122

37,324

3,544

1,223

(44,583)

938

-

-

(13,458)(2,574)(1,242)(700)(17,974)

Balance at January 31, 2013

252,917

112,098

762,837

250,581

93,832

105,505 1,577,770

Additions

175,197

10,710215,784

70,42732,17955,499

Disposals

(15)

(789)

(1,060)

(789)

(857)

(130)

(3,640)Exchange differences

4,574

346

(21,741)(4,419)(649)(1,759)(23,648)

Other movements

7,884

48

25,951

8,384

6,071

(49,113)

(775)

-

(18)

(31,370)(9,072)(1,086)(644)(42,190)

440,557

122,395

950,401

315,112

129,490(amounts in thousands of Euro)

Impairment

Impairment

Balance at January 31, 2014

138

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

559,796

109,358 2,067,313

Changes in accumulated depreciation of Property, plant and equipment during the year
ended January 31, 2014, and in prior year are as follows:
Land andbuildings

Production
plant andmachinery

Leaseholdimprovements

Furniture& fittings

Othertangibles

Total accum.
Deprec.

Balance at January 31, 2012

32,50388,547

336,812

122,41263,094643,368

Depreciation

5,977

7,087

84,272

25,324

6,932

129,592

-

(793)

(115)

(777)

(14,693)(16,378)

Exchange differences

(448)

(191)

(19,463)(4,710)(874)(25,686)

Other movements

(26)

-

(446)

292

-

(180)

Impairment

3,331

-

(11,266)(2,270)(40)(10,245)

Balance at January 31, 2013

41,337

94,650389,794140,271

54,419720,471

Depreciation

168,753(amounts in thousands of Euro)

Disposals

7,931

7,926

112,932

31,9008,064

Disposals

(10)

(754)

(977)

(231)

(775)

(2,747)

Exchange differences

100

312

(8,623)(2,535)(409)(11,155)

Other movements

522

-

(846)

(41)

(6)

(371)

-

(18)

(29,106)(7,680)(1,026)(37,830)

49,880102,116

463,174

161,684

60,267

837,121

Impairment

Balance at January 31, 2014

Changes in the net book value of Property, plant and equipment in the year ended
January 31, 2014, and in prior year are as follows:(amounts in thousands of Euro)

Balance at January 31, 2012Land andbuildings

Production
plant andmachinery

Leaseholdimprovements

Furniture& fittings

Othertangibles

Assetsunderconstruction

Total net
book
value

183,084

15,476304,324

88,38439,982

82,620713,870

73,617327,335

Additions

35,371

8,977

136,368

48,65524,347

Depreciation(5,977)(7,087)(84,272)(25,324)(6,932)

Disposals- (129,592)

(3)

(17)

(708)

(856)

(17,654)(1)(19,239)

(898)

(23)

(18,247)(3,497)(351)(5,448)(28,464)

Other movements

3,334

122

37,770

3,252

1,223

(44,583)

1,118

Impairment(3,331)-(2,192)(304)(1,202)(700)(7,729)Balance at January 31, 2013

211,580

17,448373,043

110,310

39,413

105,505

857,299

Additions

175,197

10,710215,784

70,42732,17955,499559,796

Depreciation(7,931)(7,926)(112,932)(31,900)(8,064)

Exchange differences

Disposals- (168,753)

(5)

(35)

(83)

(558)

(82)

(130)

(893)

Exchange differences

4,474

34

(13,118)(1,884)(240)(1,759)(12,493)

Other movements

7,362

48

26,797

8,425

6,077

(49,113)

(404)

-

-

(2,264)(1,392)

(60)

(644)

(4,360)390,677

20,279487,227

153,428

69,223

Impairment

Balance at January 31, 2014

109,358 1,230,192

Additions to land and buildings mainly regard the purchase of two commercial properties
in prestigious locations: Old Bond Street in London and Bolshaya Konyushennaya
Street in St Petersburg. Both properties were paid for during the year.
The additions to Production plant and machinery mainly relate to purchases ofequipment for use in manufacturing processes.
The increases in leasehold improvements, furniture and ﬁxture and Assets underconstruction were mostly explained by the Group’s strategy of retail network expansion
PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

139

and renovation.
Total capital expenditure in the retail channel for the twelve months ended January
31, 2014, amounted to some Euro 522 million. This amount included Euro 242 million
invested in newly opened stores (Euro 191 million for stores opened during the year
and Euro 51 million for stores opening shortly) while Euro 280 million was invested in
the purchase, refurbishment and relocation of existing stores.
The impairment adjustments recorded in 2013 essentially relate to some projects forthe relocation and renewal of retail premises.
At January 31, 2014, and January 31, 2013, all of the Group’s land outside Hong Kong
was owned on a freehold basis.
Land and buildings includes capitalized interest expenses as follows:(amounts in thousands of Euro)

Opening net
book value

Increases
during year

Exchangedifferences

Depreciation

Closing net
book value

7,116

35

(430)

(228)

6,493

Land and buildings

16. Intangible assets
Changes in the historical cost of Intangible assets during the year ended January 31,
2014, and in prior year are as follows:(amounts in thousands of Euro)

Balance at January 31, 2012

392,598

534,003

123,139

Change in scope of consolidation

Development
costs andSoftwareother
intangible
assets

66,206

Assets inprogressTotal
historical
cost

1,476

1,163,003

45,581--

15,694---

15,694

Additions286-

17,476

1,909

9

7,740

27,420

Disposals

-

-

-

(84)

-

-

(84)

(1,995)

(712)

(864)

(314)

-

(57)

(3,942)Other movements

-

-

-

576

86

(819)

(157)

Impairment

-

-

-

27

(96)

(110)

(179)

390,889533,291

155,445

68,32045,5808,230

1,201,755

51,431

Exchange differences

Balance at January 31, 2013

Additions616-

21,816

3,927

20,1294,943

Disposals

-

-

(380)

-

-

(14)

(394)

Exchange differences

3,301

1,179

(133)

(58)

-

(113)

4,176

Other movements

(121)

-

4,400

2,622

288

(7,386)

(197)

-

-

(693)

(566)

(1,113)(317)(2,689)394,685

534,470

180,455

74,24564,884

5,343

1,254,082

Impairment

Balance at January 31, 2014

140

Store Lease
Goodwill
Acquisitions

Trademarks

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Changes in the accumulated amortization of Intangible assets during the year ended
January 31, 2014, and in prior year are as follows:(amounts in thousands of Euro)

Balance at January 31, 2012

Trade-marks

Goodwill

Store Lease
Acquisitions

Software89,29029,78380,46557,628Change in scope of consolidation
Additions

42,311

299,477

-

-

-

-

-

-

11,137

-

9,471

2,963

1,677

25,248

Disposals
Exchange differences

Development
costs and
Total
other accumulated
intangible amortization
assets

-

-

-

(3)

-

(3)

(643)

(479)

(364)

(288)

-

(1,774)

Other movements

-

-

110

5

-

115

Impairment

-

-

-

27

(85)

(58)

Balance at January 31, 2013

99,78429,304

89,68260,332

43,903

323,005

Additions

11,060-12,614

3,505

2,925

30,104

Disposals

-

-

(291)

-

-

(291)

Exchange differences

1,031

793

40

(15)

-

1,849

Other movements

(103)

-

110

(28)

103

82

-

-

(694)

(186)

(1,076)(1,956)

111,772

30,097

101,461

63,60845,855352,793

Impairment

Balance at January 31, 2014

Changes in the net book value of Intangible assets during the year ended January 31,
2014, and in prior year are as follows:(amounts in thousands of Euro)

Trademarks

Balance at January 31, 2012

303,308504,220

42,674

Change in scope of consolidation
Additions
Amortization
Disposals

Store Lease
Goodwill
Acquisitions

Development
costs andSoftwareother
intangible
assets8,578

Assets in
Total netprogress book value

3,270

1,476

863,526

15,694--

15,694

-

-

-

286

-

17,476

1,909

9

7,740

27,420(11,137)-(9,471)(2,963)(1,677)-(25,248)

-

-

-

(81)

-

-

(81)

(1,352)

(233)

(500)

(26)

-

(57)

(2,168)Other movements

-

-

(110)

571

86

(819)

(272)

Impairment

-

-

-

-

(11)

(110)

(121)

291,105

503,987

65,763

7,988

1,677

8,230

878,750

Exchange differences

Balance at January 31, 2013

Additions
Amortization
Disposals
Exchange differences
Other movements
Impairment

Balance at January 31, 2014

PRADA Group

616-

21,816

3,927

20,1294,943

51,431(11,060)-(12,614)(3,505)(2,925)-(30,104)

-

-

(89)

-

-

(14)

(103)

2,270

386

(173)

(43)

-

(113)

2,327

(18)

-

4,290

2,650

185

(7,386)

(279)

-

-

1

(380)

(37)

(317)

(733)

282,913504,373

78,994

10,63719,0295,343

901,289

Annual Report 2013 - Notes to the Consolidated Financial Statements

141

The net book value of Trademarks at January 31, 2014, and January 31, 2013, is broken
down as follows:
January 31
2014

January 31
2013

Miu Miu

165,386

170,961

Church's

101,480

103,087

Luna Rossa

5,150

6,132

Car Shoe

5,437

5,770

Prada

4,148

4,311

Other

1,313

844

Total

282,914291,105(amounts in thousands of Euro)No impairment losses were recorded in relation to the Group’s trademarks in the year
ended January 31, 2014. Trademark registration costs are included in Other.
Additions to development costs and other intangible assets essentially relate to costs
capitalized following the establishment of a ten year right of usufruct to a real estate
property in Tuscany, Italy, and in relation to the business that was party to rental
agreements for said property; the property is now used by the Group as part of its
retail network.
Store lease acquisition costs (key-money) includes 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
increases recorded during the period regard lease agreements signed in Europe (asdescribed in Note 7).
Impairment adjustments recorded in 2013 essentially relate to a number of IT projects
that were not completed.
The total capital expenditure on Property, plant and equipment and Intangible assets
for the twelve months ended January 31, 2014, amounted to Euro 611.2 million.
The following table contains a summary of total additions to Property, plant andequipment and Intangible assets for each business area.
January 31
2014

January 31
2013

Retail521,545

265,356

Production and logistics

33,482

42,767

Corporate

56,20046,632

Total

611,227

354,755(amounts in thousands of Euro)142

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Impairment test
As required by “IAS 36 Impairment of assets”, goodwill with an indeﬁnite useful life is
not amortized. Instead, it is tested for impairment at least once a year. As at January
31, 2014, Goodwill amounted to Euro 504.4 million, detailed by Cash Generating Unit
(CGU) as follows:(amounts in thousands of Euro)

January 31
2014

January 31
2013

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

48,00048,000

Production division

3,492

3,492

Church’s

9,276

8,890

504,373

503,987

Total

The Group does not recognize other intangible assets with an indeﬁnite useful life otherthan goodwill. At the same time, IAS 36 requires an entity to assess at each reporting
date whether there is any indication that an asset may be impaired. At January 31,
2014, the Group performed an impairment test on the net book value of the Car Shoe
trademark in light of the sales performance of said brand.
The method used to identify the recoverable value (value in use) is based on the
Discounted expected free Cash-Flow (hereafter “DCF”) generated by the assets
directly attributable to the business to which the goodwill or the trademark subject toimpairment have been allocated (Cash Generating Unit). Value in use is calculated as
the sum of the present value of future free cash-ﬂows expected from the business plan
projections prepared for each CGU and the present value of the operating activities ofthe sector at the end of the business plan period (terminal value).
The business plans cover a period of ﬁve years and have been constructed on thebasis of the 2014 budget, as prepared by the management. Prudently, no businessdevelopment has been forecasted after 2014. This means that no new store openings
have been included in the period from 2015 to 2018 and prudent trends in the wholesalechannel have been applied.
The discount rate used to discount cash ﬂows was calculated using the weighted
average cost of capital approach (WACC). For the year ended January 31, 2014, the
WACC used for discounting purposes was in a range between 6.0% and 14.3%(between 6.4% and 20.9% at January 31, 2013). The WACC has been calculated
ad hoc for each CGU subject to impairment taking into account the country speciﬁcparameters: market risk premium and sovereign bond yield. A “g” growth rate equal
to 1.5% has been used in the calculation of the WACC except in speciﬁc cases wherea higher rate of 4% or a lower rate of 0% was used in light of the different inﬂationand growth outlooks in the relevant countries. In any case, a growth rate of 1.5% canstill be considered prudent given the general average rate of growth expected for the
luxury goods market and the speciﬁc rate of growth expected for PRADA Group at thereporting date.
Sensitivity analyses were carried out to ensure that changes in the main assumptions(WACC and “g” growth rate) did not signiﬁcantly affect the coverage results. The
outcome of these simulations did no highlight any indication that values in use could

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements143

have been lower than the carrying amounts.
When the calculation of value in use through the DCF method did not lead to meaningful
results, it was deemed appropriate to run the impairment test through the application ofvaluations methods based on the fair value (e.g. market multiples method or royalties
method). The results of these valuations were anyway double-checked with sensitivity
analyses so as to strengthen further the validity of the tests.
None of the impairment tests performed as at January 31, 2014, identiﬁed any
impairment losses for the Group CGUs and other intangible assets for which the Grouphighlighted indicators of impairment. However, as value in use is measured based on
estimates, the Group cannot guarantee that the value of goodwill or other intangible
assets will not be impaired in future.
17. Investments(amounts in thousands of Euro)

January 31
2014

January 31
2013

Investment in associated undertaking

1,738

1,739

Investment available for sale

19,434

21,27014

15

21,18623,024

Other investments

Total

Investment in associated undertaking regards a 49% interest in Pac srl (in liquidation)
which has been recorded under the equity method.
Investment available for sale regards the 4.88% stake in the share capital of Sitoy
Group Holdings ltd, a company listed on Hong Kong Stock Exchange that operates on
the Asian market in the production of leather bags and other products. In accordancewith IAS 39 “Financial instruments: recognition and measurement”, the investment
was initially recognized at cost and subsequently restated at fair value in line with theofﬁcial quoted share price on the Hong Kong Stock Exchange as at January 31, 2014
(Level I of the fair value hierarchy per “IFRS 7 Financial Instruments: Disclosures”).
Changes to fair value compared to January 31, 2013 – negative by Euro 1.8 million –have been recognized in a speciﬁc equity reserve net of the taxation effect. In 2013,
the Group received net dividends from Sitoy Group Holdings ltd totaling Hong Kong
Dollar 10.6 million (Euro 1 million).
18. Other non-current assets
Other non-current assets are detailed as follows:
January 31
2014

January 31
2013

Guarantee deposits

57,15850,785

Deferred rental income

6,923

2,410

Other receivables

5,786

8,374

Total

69,86761,569(amounts in thousands of Euro)At January 31, 2013, Other receivables included Euro 4.2 million representing theactuarial valuation of the pension plans the Group had in the United Kingdom (Note 26).

144

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Guarantee deposits are analyzed below by nature and maturity:
January 31
2014

January 31
2013

Stores54,14048,719

Offices

2,080

1,450

Warehouses

163

161

Other

775

455

Total

57,15850,785(amounts in thousands of Euro)Nature:January 31
2014(amounts in thousands of Euro)

Maturity:
By 31.01.2016

15,492

By 31.01.2017

3,143

By 31.01.2018

3,896

By 31.01.2019

3,701

After 31.01.2020

30,926

Total

57,158

19. Short-term financial payables and bank overdrafts(amounts in thousands of Euro)

January 31
2014

Bank overdrafts and commercial lines of credit

January 31
2013

114

24

Short-term bank loans

21,845

16,218Current portion of long term loans

40,416

159,867

(466)

(539)

61,909175,570

Deferred costs on loans

Total

At January 31, 2013, the current portion of long-term loans amounting to Euro 159.9
million included, among others, the final instalments of loans payable by PRADA spa
and PRADA Japan co ltd; repayments made during the year totaled Euro 100 million forthe pool loan arranged in Italy and Japanese Yen 3,500 million (Euro 25.2 million at the
average exchange rate for the year) for the loan arranged with Mizuho Bank in Japan.
The current portion of long-term loans at January 31, 2014, essentially includes loans
arranged in Italy, China and Japan.
Short-term bank loans and the current portion of long-term borrowings by currency are
analyzed as follows:
January 31
2014

January 31
2013

Euro

14,484

118,722

Japanese Yen

30,37544,528Chinese Renminbi

13,391

11,951Other currencies

4,011

884

Total

62,261

176,085(amounts in thousands of Euro)The Group generally borrows at variable rates of interest and manages the risk ofinterest rate fluctuation by entering into hedging agreements as described in Note 12.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

145

Considering hedges in place at the reporting date, some 23% of the current portion of
medium/long-term loans consisted of fixed rate loans (70% at January 31, 2013) withvariable rate loans making up the remaining 77% (30% at January 31, 2013).
Bank borrowings are stated net of amortized costs incurred to arrange the loans (Euro
0.5 million short-term and Euro 1.9 million medium/long term).
20. Payables to parent company and other related parties – current and non current
The current portion of payables to parent company and other related parties are detailed
as follows:(amounts in thousands of Euro)

January 31
2014

Other payables – PRADA Holding bv and other companies controlledby PRADA Holding bv
Financial payables – other related companies

136

123

4,130

5,018

628

458

4,894

5,599

Other payables – other related companies

Payables to parent company and other related parties – current

January 31
2013

Financial payables towards other related parties, totaling Euro 4.1 million at January
31, 2014, include an interest-free loan contributed by Al Tayer, the non-controllingshareholder of PRADA Middle East fzco, according to its share in the said company.
The loan was partially repaid during the year. Details of payables to parent company
and other related parties are provided in Note 40.
The non current portion of payables to parent company and other related parties aredetailed as follows:
January 31
2014

January 31
2013

Other payables – other related companies

13,247-

Payables to parent company and other related parties – non current

13,247-(amounts in thousands of Euro)

Other payables to other related companies includes the amount due to Fin-Reta srl in
relation to the establishment of a ten year right of usufruct to a real estate property in
Tuscany, Italy, and to a business party to the rental agreement for said property which
the Group is using as part of its retail network expansion. The payable reported at
January 31, 2014, represents the present value of future payments due after January
31, 2015. Details of payables to parent company and other related parties – non current
are provided in Note 40.
21. Trade payables
Trade payables are detailed as follows:
January 31
2014

January 31
2013

Trade payables – third parties

337,807323,894

Trade payables – related parties

10,727

6,719

Total

348,534

330,613(amounts in thousands of Euro)

The increase in Trade payables is due to the growth of the business in general. Detailsof trade payables to related parties are provided in Note 40.

146

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

22. Tax payables
Tax payables are detailed as follows:
January 31
2014

January 31
2013

Current income taxes

101,018

68,505

VAT and other taxes

31,12728,643

Total

132,145

97,148(amounts in thousands of Euro)Net of current income tax receivables, current income tax payables total Euro 87 million
at January 31, 2014 (Euro 48 million at January 31, 2013).
23. Obligations under finance leases
At January 31, 2014, Obligations under ﬁnance leases included short-term payables ofEuro 524 thousand (Euro 575 thousand at January 31, 2013) and long-term payablesof Euro 19 thousand (Euro 518 thousand at January 31, 2013). They mainly related toleases of properties situated in Italy. Further information is provided in Note 41. The
Group’s obligations under ﬁnance leases are secured on the leased assets.
24. Other current liabilities
Other current liabilities are detailed as follows:
January 31
2014

January 31
2013

Payables for capital expenditure

70,84857,969Accrued expenses and deferred income

10,842

9,810

Other payables

72,97663,866

Total

154,666

131,645January 31
2014

January 31
2013

Short term benefits for employees and other personnel

57,81752,018Customer advances

5,298

3,340

Returns from customers

8,300

7,364

Other

1,561

1,144

Total

72,97663,866

January 31
2014

January 31
2013Long-term bank borrowings

79,80578,945

Bond

130,000-

Deferred costs on loans(1,855)

(115)

Total

207,950

78,830(amounts in thousands of Euro)

Other payables are detailed below:(amounts in thousands of Euro)

25. Long-term bank borrowings and bondLong-term ﬁnancial payables are analyzed below:(amounts in thousands of Euro)PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

147

Long-term bank borrowings have remained almost unchanged in absolute terms
compared to January 31, 2013, but the January 31, 2014, balance compares a lower
amount of Euro borrowings and a higher amount of Japanese Yen borrowings.
The Group generally borrows at variable rates of interest and manages the risk ofinterest rate ﬂuctuation by entering into hedging agreements as described in Note 12.
At the reporting date, some 67% of long-term loans consisted of ﬁxed rate loans (7%at January 31, 2013) with variable rate loans making up the remaining 33% (93% at
January 31, 2013).
Details of long-term borrowings at January 31, 2014, are provided below.
Amount inthousandsof EuroBorrower

Loan currency

LenderExpiry date

Interest rate
(1)

PRADA spa

130,000

Euro

Bonds

08/20182.750%PRADA spa

600

Euro

Monte dei Paschi di Siena

07/2015

3.310%PRADA spa

5,202

Euro

Cariparma

08/20151.290%PRADA Middle East FZCO

9,254

US Dollar

ENBD

09/2016

3.811%PRADA Japan. Co. Ltd

9,049

Japanese Yen

Mizhuo Bank

03/20171.875%PRADA Japan Co. Ltd

5,068

Japanese Yen

Sumitomo Mitsui Trust

08/20160.708%PRADA Japan Co. Ltd

12,162

Japanese Yen

Syndicated loan

07/2018

1.117%PRADA Japan Co. Ltd

26,063

Japanese Yen

Syndicated loan

01/2018

1.117%PRADA Fashion Commerce(Shanghai) co limited

9,155

ChineseRenminbi

Mizuho Bank

11/2015

6.150%PRADA Fashion Commerce(Shanghai) co limited

2,034

ChineseRenminbi

Intesa SanPaolo

06/2015

6.027%

Church and co. ltd

1,218

GB Pound

HSBC

05/2018

2.020%

Total

209.805(1) the interest rates include the effect of any interest rate risk hedging transactions

Details of long-term borrowing at January 31, 2013, are provided below:
Amount inthousandsof EuroBorrower

Loan currency

LenderExpiry date

Interest rate
(1)

PRADA spa

1,800

Euro

Monte dei Paschi di Siena

07/2015

3.310%PRADA spa

3,750

Euro

Intesa SanPaolo

06/20142.145%PRADA spa

2,400

Euro

Unicredit

05/20140.953%PRADA spa

10,338Euro

Cariparma

08/2015

1.575%PRADA Middle East FZCO

15,433

US Dollar

ENBD

09/2016

3.811%PRADA Japan. Co. Ltd

7,298

Japanese Yen

Sumitomo Mitsui Trust

08/20160.810%PRADA Japan Co. Ltd

14,191

Japanese Yen

Mizhuo Bank

03/20171.055%PRADA Fashion Commerce(Shanghai) co limited

17,801ChineseRenminbi

Mizuho Bank

11/2015

6.150%PRADA Fashion Commerce(Shanghai) co limited

5,934

ChineseRenminbi

Intesa SanPaolo

06/2015

6.027%

Total

78,945(1) the interest rates include the effect of any interest rate risk hedging transactions

On March 29, 2013, PRADA Japan co ltd signed a syndicated loan agreement witha pool of Japanese banks for a total amount of Japanese Yen 9 billion, including: a)a ﬁve-year loan of Japanese Yen 2.4 billion repayable in 10 six-monthly instalments
over ﬁve years, b) a Japanese Yen 3.6 billion loan, available for utilization until January
2015 and due after ﬁve years in ﬁve equal instalments of 1/12 of the amount utilized,
commencing in July 2015, plus a ﬁnal instalment for the remaining amount, c) a
working capital loan of Japanese Yen 3 billion expiring in July 2014. The syndicated148

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

loan is subject to compliance with a number of parameters based on the Statutory
ﬁnancial statements of PRADA Japan co ltd – the parameters were respected in fullat January 31, 2014. As at January 31, 2014, a total of Japanese Yen 8.76 billion ofthis loan facility had been utilized, including Japanese Yen 3.48 billion short-term andJapanese Yen 5.28 billion long-term.
On May 6, 2013, PRADA spa signed a contract with a pool of foreign banks for arevolving line of credit for a total amount of Euro 170 million. The loan will expire in
May 2016. The line of credit is subject to compliance with a number of covenants
calculated based on the Consolidated ﬁnancial statements which were fully respected
at January 31, 2014, albeit the line of credit was entirely unutilized.
On July 11, 2013, Church & co ltd signed a ﬁve year revolving loan with HSBC for an
amount of GBP 3 million. The loan is repayable in six six-monthly installments from2015. At January 31, 2014, the loan had been utilized to the amount of GBP 1 million.
On July 29, 2013, PRADA spa issued a bond totaling Euro 130 million which werelisted on the Irish Stock Exchange and settled on August 1, 2013. The issue price was
99.641%. The bond matures in 2018 and the coupon rate has been set at 2.75% perannum. At January 31, 2014, the bond was disclosed entirely under long-term ﬁnancial
payables.
The loan from Sumitomo Mitsui Trust Bank is subject to compliance with certain
covenants based on the Statutory ﬁnancial statements of PRADA Japan co ltd.
At January 31, 2014, the covenants were fully respected.
The long-term loan made by Banca Monte dei Paschi di Siena to PRADA spa in 2008 –outstanding amount of Euro 1.8 million reported at January 31, 2014 (including current
portion of Euro 1.2 million) - is secured by a mortgage on a building in Tuscany thathouses ofﬁces and research and development workshops.
The long-term loan made by Cassa di Risparmio Parma e Piacenza to PRADA spa in2008 – outstanding amount of Euro 10.3 million reported at January 31, 2014 (including
current portion of Euro 5.1 million) - is secured by a mortgage on a building in Tuscany
where the Group has been concentrating the logistics activities of the leather goods
division.
All bank borrowings are analyzed by security proﬁle as follows:(amounts in thousands of Euro)

January 31
2014

January 31
2013

Secured12,137

18,396

Unsecured

260,043

236,658

Total

272,180

255,054

All of the loans are analyzed by maturity date in the section of Note 12 on Liquidity risk.
Other than PRADA spa, no Group company had issued any debt securities at the endof the current year or previous year.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements149

26. Long-term employee benefits
January 31
2014

January 31
2013

Post-employment benefits

39,56838,665

Other long term employee benefits

23,711

6,873

Total liabilities for long term benefits

63,27945,538-(4,150)63,27941,388(amounts in thousands of Euro)

Post-employment benefit (pension plan surplus)

Net liabilities for long term benefits

Post-employment benefits
Liabilities and assets for post-employment beneﬁts reported at January 31, 2014,
totaled a net amount of Euro 39.6 million (Euro 34.5 million at January 31, 2013) andall were qualiﬁed as deﬁned beneﬁt plans. The pension plan surplus relates to Group
companies operating in the United Kingdom. It amounted to zero at January 31, 2014,
against Euro 4.2 million at January 31, 2013. This item is included in Other non-current
assets, Note 18.
The balance includes Euro 23.9 million of liabilities recorded in the ﬁnancial statementsof Italian companies and Euro 15.7 million reported by non-Italian companies. The Italianliabilities for post-employment beneﬁts regard the “Trattamento di Fine Rapporto”(hereinafter “TFR” i.e. staff leaving indemnity), a deferred employee beneﬁt that mustbe paid by Italian businesses and is linked to length of working life and remuneration
received. The fair value of the liability as reported was determined projecting the
beneﬁt, accruing under Italian law at the reporting date, to the future date when theemployment relationship will be terminated and discounting it at the reporting dateusing the actuarial “Projected Unit Credit Method (PUCM)”.
The following table shows movements on liabilities for post-employment beneﬁts inthe year ended January 31, 2014.

Balance at January 31, 2013

DefinedBenefit Plans
in Italy (TFR)

DefinedBenefit Plans
abroad(including
Japan)

PensionFunds in UK

Other
long-term
employeebenefits

Total

23,794

14,871(4,150)6,873

41,388Acquisitions

171

-

-

-

171

Current service cost

200

3,042

457

17,616

21,315Interest expenses (income)

110

61

(246)

76

1

1,035

515

4,855

911

7,316

(a) Changes in financial assumptions

1,109(1,584)

1,896

-

1,421

(b) Changes in other assumptions(e.g. demographic assumptions,
remuneration increases)

29

2,247

1,477

-

3,753

Actuarial (gains)/losses
Actuarial adjustments due to(c) Other

(103)

(148)

1,482

-

1,231

Benefits paid

(1,418)(1,145)-(1,679)(4,242)Contributions

-

-

(875)

-

(875)

Exchange differences-(1,668)

(41)

(86)

(1,795)23,892

15,676-23,711

63,279Balance at January 31, 2014150

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

The current service cost and the interest cost/(revenue) were recognized throughincome statement. For Other long-term employee beneﬁts only, actuarial differenceswere also recognized through the income statement. The TFR liability was determinedbased on an independent appraisal by Federica Zappari, an Italian registered actuary(no 1134) of Ordine Nazionale degli Attuari. The technical part of the computation was
based on an historical analysis of the data. For the demographic assumptions, variables
such as the likelihood of death, early retirement and resignation, dismissal, expiry of
employment contract, advance payment on leaving indemnities and supplementary
pension schemes were considered.
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. As at January 31, 2014, these pension
plans had a fair value of zero (a positive fair value of Euro 4.2 million as at January 31,2013). The fair value of the assets was determined based on the appraisal provided byindependent actuary Scottish Widows. They are analyzed as follows:
January 31
2014(amounts in thousands of Euro)

January 31
2013

Fair value of plan assets

54,06052,987

Fair value of plan liabilities(50,454)(46,844)Pension plan surplus

3,606

6,143

Restrictions on recognition of surplus applied during actuarial valuation of the plan

(3,606)(1,993)-

4,150

January 31
2014
AssetsJanuary 31
2013
AssetsEquities

24,17914,221

Alternatives

5,406

13,550

Bonds

21,714

21,588

Cash

2,761

3,628

Total

54,06052,987

Net surplus

At the reporting date pension plan assets were as follows:(amounts in thousands of Euro)

The main actuarial assumptions utilized at January 31, 2014, are as follows:(amounts in thousands of Euro)Defined Benefit
Plans in Italy(TFR)

PensionFunds in UK

Defined Benefit
Plans in Japan

Average duration of plan (years)

11.23

16.0

15.8

Discount rate

2.50%

4.50%

1.39%

Average increase in remuneration

1.86%

2.40%

3.01%

Rate of inflation

1.50%

2.20%

N/A

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

151

The main actuarial assumptions utilized at January 31, 2013, are as follows:
Defined Benefit
Plans in Italy(TFR)(amounts in thousands of Euro)

PensionFunds in UK

Defined Benefit
Plans in Japan

Average duration of plan (years)

11.94

17.0

9.54

Discount rate

2.80%

4.80%

0.45%

Average increase in remuneration

1.83%

2.50%

2.00%

Rate of inflation

1.50%

2.30%

N/A

The discount rate used to value the deﬁned beneﬁt plans was determined on the basisof the yield on bonds with an AA rating and a maturity date similar to that of the plansin question.
The sensitivity analysis performed on the main actuarial assumptions applied at January
31, 2014, highlighted that an increase or decrease of 50 basis points would have an
impact of less than 5% on the total amount of the obligations. Consequently, the resultof the test was considered not material in terms of possible impact on the ﬁnancial
statements.
Payments expected in relation to the above plans in the years following these ﬁnancial
statements are shown below:
January 31
2015

January 31
2016

January 31
2017

January 31
2018

After
January 31
2018

Defined Benefit Plans in Italy (TFR)

1,876

1,157

1,207

1,138

27,975Pension Funds in UK

2,224

2,286

2,317

2,358

15,770Defined Benefit Plans in Japan

1,542

1,538

1,561

1,641

18,929

5,642

4,981

5,085

5,137

62,674The contributions expected for the 2014 ﬁscal year are as follows:
Twelve months
ending January 31, 2015

Defined Benefit Plans in Italy (TFR)
Pension Funds in UK

583

Defined Benefit Plans in Japan

2,602

3,185

Other long-term employee benefits
Other long-term employee beneﬁts come under the IAS 19 category “Other longterm employee beneﬁts” and relate to long-term retention and performance plans
recognized in favor of Group employees. As at January 31, 2014, their actuarial
valuation, obtained using the Projected Unit Cost Method, was Euro 23.7 million (Euro
6.9 million as at January 31, 2013), as determined based on an independent actuarial
appraisal. The increase in 2013 regards new beneﬁts granted. Some Euro 8.3 millionof the long-term beneﬁts at January 31, 2014, is recognized in favor of related parties.

152

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

27. Provisions for risks and charges
Movements on provisions for risks and charges are summarized as follows:(amounts in thousands of Euro)

Balance at January 31, 2013

Exchange differences
Reclassifications

Provision
for litigation

Provision fortax disputes

Other
provisions

Total

1,775

27,467

17,672

46,914

(1)

(580)

(873)

(1,454)-(3,642)

11(3,631)

Reversals

(373)

(386)

(74)

(833)

Uses

(39)

(365)

(544)

(948)

Increases

38

230

12,344

12,612

1,400

22,72428,536

52,660

Balance at January 31, 2014

Provisions 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 forrisks and charges is reasonable considering the contingent liabilities that might arise.
Provision for tax disputes
The Group’s main tax disputes are reported below.
On December 30, 2005, PRADA spa (for companies incorporated into PRADA spa,
Genny spa and Byblos spa, the respective sellers of the “Genny” and “Byblos”
businesses) received two notices of tax assessment for VAT purposes for the 2002
ﬁscal year. The assessments regarded the sales of the “Genny” and “Byblos”
businesses which the authorities sought to treat as sales of the respective brands.
The amount assessed was about Euro 21 million. The Company successfully appealed
at the ﬁrst and second levels of appeal. The Tax Authority then announced its appeal
to the Supreme Court of Cassation against which the Company submitted a counterappeal. No further developments took place in 2013.
On August 4, 2006, PRADA spa (for IPI Italia spa, a company incorporated into it andthe seller 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 “self-invoice”
for the value of the “Genny” brand. Even though it submitted its defensive arguments
against this claim, on October 9, 2007, the Company received a request for penalties
against which it ﬁled appeals at two levels but was unsuccessful with both. Finally,
the Company then made a further appeal to the Supreme Court of Cassation against
which the Tax Authority ﬁled its own counter appeal. No further developments took
place in 2013.
On October 18, 2010, a tax inspection of PRADA Germany GmbH got underway for
Direct Taxation and VAT purposes in relation to the 2005, 2006, 2007 and 2008 tax
years. The inspection continued into 2011 and 2012 and regarded transfer pricing
in particular. The German tax authorities made an initial proposal to settle end theinspection into the 2007 and 2008 tax years with no adjustment to taxable income
while making an adjustment to the taxable income for the 2005 and 2006 tax years;
the company did not accept this proposal. In 2013, Prada Germany GmbH submitted
new documentation after which the inspection came to an end with no adjustments
to taxable income for 2007 and 2008 and an adjustment to taxable income for the2005 tax year only. As a result, the company was required to pay additional taxes plus
interest for a total amount of Euro 0.6 million, all of which was recognized and paid at
January 31, 2014.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

153

In October 2012 and October 2013, the Italian Tax Authorities rejected PRADA spa’s
request not to apply the Italian Controlled Foreign Companies rules (CFC) to its Dutch
sub-holding company PRADA Far East bv for the 2010 to 2012 tax years. In order toreduce the risk of application of additional penalties in case of assessment, PRADA
spa paid some Euro 64 million, including Euro 42 million recorded in the 2012 income
statement and Euro 22 million in the 2013 income statement. The amounts paid,
followed the “ravvedimento operoso” procedure (or voluntary settlement of dispute)and represented the taxes due in Italy by PRADA spa on the taxable income of PRADA
Far East bv – a total of Euro 42 million for 2010 and 2011 and a total of Euro 22 million
for 2012. In October 2012 and October 2013, the Italian tax authorities also declared
inadmissible the requests ﬁled by PRADA spa for 2010 to 2012 not to apply CFC rules
to other Group countries operating in countries on the ﬁscal black list. In January 2013
and January 2014, PRADA spa ﬁled appeals to the Rome Provincial Tax Commission in
relation to the rejection of its requests regarding PRADA Far East bv and the declarationof inadmissibility of its petitions regarding the other “black list” companies; it also
requested the reimbursement of the amounts paid in relation to PRADA Far East bv.
In September 2009, the Japanese Tax Authorities began a tax inspection of PRADA
Japan co ltd with regard to the transfer prices applied in the 2005, 2006, 2007 and 2008
tax years; subsequently the audit was extended to 2009 tax year. At the end of 2011,
the Japanese Tax Authorities issued a “position paper” and made a formal request to
adjust income for the assessed tax years. Between November and December 2011,
requests to commence the amicable settlement procedure were made to the Italian,
Swiss and Japanese Tax Authorities in order to avoid double taxation. In the meantime,in 2012, upon completion of their inspection, the Japanese Tax Authorities issued
notices of assessment for the 2005 and 2006 tax years (with regard to transactions
with the Swiss counterparty of Prada Japan co ltd) and announced they would not
be seeking to make any adjustment to taxable income for the 2007, 2008 and 2009
tax years without any adjustment of taxable income. Early in November 2013, anagreement was reached between the Swiss and Japanese tax authorities over theamicable settlement procedure for 2005 and 2006. Consequently, the provision forrisks created at January 31, 2013, was reclassiﬁed during the year to current tax
payables.
In May 2012, the Italian Customs Authority began an audit of PRADA spa on the 20072011 and with reference to the method used to value imported products in speciﬁc
circumstances. This audit led to the detection of customs irregularities subject toadministrative and criminal penalties; PRADA spa provided all of the documentation
requested. It is worth noting that, in March 2012 the Company applied to the Central
Italian Customs Authority in Rome for a ruling on the same issue and, in 2013, it
submitted two explanatory statements to the Public Prosecutor and the Customs
Head Ofﬁce. The customs authorities have suspended their judgment until the criminal
proceedings have been completed. At January 31, 2014, no provision was made forthis matter as the possible cost could not be quantiﬁed and the Directors did not
believe there was any concrete tax risk.
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 22.7 million carried at January 31, 2014, in respect of the tax disputes
described above represents the best estimate of the obligations that the Group could
be called upon to fulﬁll.
Provision for litigation
The provision for litigation amounted to Euro 1.4 million at January 31, 2014, and mainly
regarded disputes with suppliers, former employees of the Group and government
authorities in relation to social contributions.

154

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Other provisions for risks
Other provisions for risks amounted to Euro 28.5 million as at January 31, 2014, andrelated to lease agreements deﬁned as onerous – in terms of “IAS 37 Provisions,Contingent liabilities and Contingent assets” - and obligations to return premises held
under lease agreements in their original state.
28. Other non-current liabilities
Other non-current liabilities amounted to Euro 99 million (Euro 84.9 million as atJanuary 31, 2013). They mainly regarded liabilities to be recognized on a straight-line
basis in relation to commercial lease costs. The increase is due to expansion of theretail network.
29. Shareholders’ equity - GroupThe Group’s shareholders’ equity is as follows:
January 31
2014

January 31
2013

Share Capital

255,882

255,882

Share premium reserve

410,047410,047

Other reserves

1,446,923

1,051,536

Actuarial reserve(11,452)(6,470)Fair value reserve

4,108

5,486

Cash flow hedge reserve

3,699

20,148Translation reserve(49,438)(42,288)

Net income for the period

627,785625,6812,687,554

2,320,022(amounts in thousands of Euro)

Total

Share capital
At January 31, 2014, some 80% of the share capital of PRADA spa was held by PRADA
Holding bv while the remainder was ﬂoating on the Main Board of the Hong Kong
Stock Exchange.
Share premium reserve
The share premium reserve is unchanged compared to January 31, 2013.
Translation reserve
Movements on this reserve relate to the translation of foreign currency ﬁnancial
statements of consolidated companies. The reserve has increased from negative Euro
42.3 million at January 31, 2013 to negative Euro 49.4 million. This is due to the lower
value of equity contributed by subsidiaries outside the Euro zone as a result of theweakening of leading foreign currencies against the Euro.
Other reserves
At January 31, 2014, other reserves amounted to Euro 1,446.9 million. They increasedby Euro 395.4 million compared to January 31, 2013, due to allocation of net income
for the previous year (Euro 625.7 million) and the distribution of dividends (Euro 230.3
million).
Net income for the year
The Group’s net income for the year amounted to Euro 627.8 million (Euro 625.7 million
as at January 31, 2013).

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

155

Capital gain tax in Italy
Capital gains realized on disposals of shares in the Company may be subject to tax
in Italy. Further details of Italian capital gains taxation are provided in the Tax Booklet
available on the Company’s website (www.pradagroup.com).
30. Shareholders’ equity – non-controlling interests
The following table shows movements on the Shareholders’ equity of Non-controlling
Interests during the years ended January 31, 2014, and January 31, 2013.
(amounts in thousands of Euro)

Opening balance

January 31
2014

January 31
2013

10,4708,224Translation differences

93

(940)

Dividends(6,634)(5,576)

Net income for the year

10,0207,596Actuarial reserve(3)-

Capital injection in subsidiaries

40

1,166

13,986

10,470

Closing balance

The capital injection into subsidiaries regards the incorporation of Pellettieri d’Italia on
July 10, 2013, by PRADA spa and third party company Fin-Reta srl; owned 60% and40%, respectively.
Dividends paid in the twelve months ended January 31, 2014, totaled Euro 6.6 million
and were distributed by subsidiaries TRS Hong Kong ltd, TRS Guam, TRS Macau, TRS
Saipan and Artisan Shoes srl.
31. Net revenues
Consolidated net revenues are mainly generated by sales of products and are stated
net of returns and discounts.
twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

Net sales

3,548,207

3,256,428

Royalties

39,14040,791

3,587,347

3,297,219(amounts in thousands of Euro)

Total

Breakdowns and comments of net revenues by brand, distribution channel, geographicalarea and product are provided in the Financial review.
In the twelve months ended January 31, 2014, licensing agreements generated royalties
income of Euro 39.1 million, 4% less than the Euro 40.8 million recorded in 2012. In
the previous year, the launch of the Prada phone LG 3.0 cellphone generated royalties
of Euro 5.4 million, essentially concentrated in the ﬁrst half of the year. Excluding
this effect, licensed products, essentially eyewear and cosmetics, generated a 9.3%
increase in royalties compared to the twelve months ended January 31, 2013.

156

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

32. Cost of goods soldCost of goods sold is analyzed as follows:
twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

Purchases of raw materials and production costs

848,675

731,805

Logistics costs, duties and insurance

193,095

162,396

Change in inventories(103,072)

26,477

Total

938,698

920,678(amounts in thousands of Euro)In absolute terms, cost of goods sold increased from Euro 920.7 million in 2012 to Euro
938.7 million in 2013. As a percentage of net revenues it decreased from 27.9% in 2012
to 26.2% because of an improved margin contribution – almost evenly distributed – ofthe usual drivers: product, sales channel and market.
33. Operating costs
Operating costs are analyzed as follows:(amounts in thousands of Euro)

twelve months
ended
January 31
2014% of netrevenues

twelve months
ended
January 31
2013% of netrevenues

3.4%

Product design and development costs

129,807

3.6%

111,370

Advertising and communications costs

171,9664.8%

150,574

4.6%

1,212,065

33.8%

1,040,133

31.5%

195,574

5.5%

184,683

5.6%

1,709,412

47.7%

1,486,760

45.1%

Selling costs
General and administrative costs

Total

Operating costs increased from Euro 1,486.8 million in 2012 to Euro 1,709.4 million
in 2013, a 15% increase (20.3% at constant exchange rates). As a percentage of net
revenues, they rose from 45.1% in 2012 to 47.7%.
Product design and development costs increased from Euro 111.4 million in the
twelve months ended January 31, 2013, to Euro 129.8 million, primarily because of
the introduction of new long-term benefits for some key personnel working in thisbusiness area.
Advertising and communications costs increased from Euro 150.6 million to Euro 172
million and from 4.6% of net revenues in 2012 to 4.8%.
Selling costs increased from Euro 1,040.1 million in 2012 to Euro 1,212.1 million in2013 mainly as a result of the constant expansion and renewal of the DOS network. As
a percentage of net revenues, these costs rose from 31.5% to 33.8%.
The business expansion led to higher general expenses and, consequently, general andadministrative costs increased from Euro 184.7 million in 2012 (5.6% of net revenues)
to Euro 195.5 million in 2013 (5.5% in net revenues).

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements157

As requested by “IAS 1 Presentation of Financial Statements” the following table
reports the total of depreciation, amortization and impairment, labor cost and rent
included under the operating costs.
twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

Depreciation, amortization and impairment

192,681152,271

Labor cost

493,602439,693

Variable rent

297,550

259,409

Fixed rent

245,498

204,777

1,229,331

1,056,150(amounts in thousands of Euro)Total

34. Interest and other financial income/(expenses), net
Interest and other financial income/(expenses), net are analyzed as follows:(amounts in thousands of Euro)

twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

Interest expenses on borrowings(9,548)(12,956)

Interest expenses IAS 19

(12)

(144)

Interest income

3,576

4,804

Exchange gains/(losses) – realized(9,128)4,314

Exchange gains/(losses) – unrealized

1,448

1,551

Other financial income/(expenses)(3,693)(4,700)

Total(17,357)(7,131)

Interest expenses have decreased primarily because of lower average indebtedness
and the different composition of financial payables. In both periods, interest income
was earned by investing the increased liquidity across a number of currencies, countries
and banks, in compliance with the Group’s corporate strategy which permits only lowrisk investments.
35. Dividends received
In 2013, the Group received Euro 1 million of dividends (Euro 1 million in 2012) from
Sitoy Group Holdings ltd, a company listed on the Hong Kong Stock Exchange (HK:1023) in which the Group held a 4.88% interest at January 31, 2014.
36. Income taxes
Income taxes are analyzed as follows:
twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

Current taxation

320,176

258,613

Deferred taxation(35,085)(8,274)

Income taxes

285,091

250,339(amounts in thousands of Euro)

The increase in income taxes in absolute terms is essentially due to growth of theGroup business in general. Both periods include taxes relating to prior years: current

158

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

taxation for 2013 includes Euro 22 million relating to 2012 while current taxation for2012 includes Euro 44 million relating to 2011 and 2010. As analyzed in detail in Note27, both amounts relate to the rejection by the Italian Tax Authorities of PRADA spa’s
request not to apply the Italian Controlled Foreign Companies rules (CFC) to its Dutch
subsidiary PRADA Far East bv.
The following table shows a reconciliation between the effective tax rate of the Groupand the theoretical tax rate of the parent company PRADA spa:
twelve months
ended January 31
2014

Italian theoretical tax rate

31.40%Tax effect of expenses/income that are not deductible/taxable in determining taxable profit

3.18%

Tax effect of utilization of tax losses carried forward-0.04%

Effect of different tax rates of subsidiaries operating in other jurisdictions-3.65%

Group effective tax rate

30.89%

Movements on net deferred tax assets and deferred tax liabilities are shown in thefollowing table:
twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

Opening balance

120,421

128,071

Exchange differences(4,763)(7,910)

Deferred taxes on derivative instruments recorded in equity (cash flow hedges)

6,303(9,209)Deferred taxes on post-employment benefits recorded in equity (reserve for actuarial
differences)

1,418

1,091

(amounts in thousands of Euro)

Other movements

110

104

Deferred taxes for the period in income statement

35,085

8,274

Closing balance

158,574

120,421

The following table shows deferred tax assets and liabilities classiﬁed by nature:
January 31, 2014
(amounts in thousands of Euro)Inventories

Deferred tax
assetsJanuary 31, 2013

Deferred tax
liabilities

Deferred tax
assetsDeferred tax
liabilities

95,24013078,572-

Receivables and other assets

451

1,582

452

1,551

Useful life of non-current assets

46,197

13,24950,563

15,447-

22,666-25,112

Provision for risks / accrued expenses

37,4562,151

26,4542,257

Non-deductible / taxable charges / income

6,752

370

4,964

1,515

Tax loss carryforwards

6,945

-

7,611

-

Derivative financial instruments

81

1,396

89

7,702

Long term employee benefits

Deferred taxes due to acquisitions

7,364

151

6,796

1,312

Other

759

976

555

740

Total

201,245

42,671

176,057

55,636PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

159

Tax loss carryforwards at January 31, 2014, are analyzed below:
January 31
2014(amounts in thousands of Euro)

Expiring within 5 years

5,766

Expiring after 5 years

41,089Available for carry forward with no time limit

50,954

Total tax loss carryforwards

97,809The Directors have updated their assessment of the tax losses carry-forwards taking
account of the general macroeconomic environment and developments regarding thebusiness activities of each Group company.
37. Earnings and Dividends per share
Earnings per share
Earnings per share are calculated by dividing the net income attributable to shareholders
by the weighted average number of ordinary shares in issue.
twelve months
ended
January 31
2014Group net income in Euro
Weighted average number of ordinary shares in issue

Earnings per share in Euro, calculated on weighted average number of shares

twelve months
ended
January 31
2013

627,784,659

625,681,459

2,558,824,000

2,558,824,000

0.245

0.245

Dividends per share
The Board of Directors of PRADA spa has proposed a ﬁnal dividend of Euro 281,470,640(or Euro 11 cents per share) for the twelve months ended January 31, 2014.
During the year ended January 31, 2014, the Company distributed dividends of Euro
230,294,160, as approved by the Shareholders’ Meeting held on May 23, 2013, toapprove the ﬁnancial statements for the year ended January 31, 2013. The payment of
the dividends and the related Italian withholding tax payable (Euro 9.2 million), arisingfrom the application of the Italian ordinary withholding tax rate to the whole amountof dividends paid to beneﬁcial owners of the Company shares held through the Hong
Kong Central Clearing and Settlement System, was completed by January 31, 2014.
During the previous year ended, the Company distributed dividends of Euro
127,941,200, as approved by the Annual General Meeting held on May 22, 2012, toapprove the ﬁnancial statements for the year ended January 31, 2012.

160

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

38. Additional information
The average headcount by functional area in the years ended January 31, 2014 and2013 was as follows:(no of employees)

Production

twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

1,897

1,777

Product design and development

903

838

Advertising and Communications

113

109

7,000

5,894

903

809

10,816

9,427

Selling
General and administrative services

Total

Employee remuneration
Employee remuneration by functional area for the twelve months ended January 31,
2014, and January 31, 2013, is analyzed below:(amounts in thousands of Euro)

twelvemonthsended
January 31
2014

twelvemonthsended
January 31
2013

Production

90,343

83,294

Product design and development

61,35055,833Advertising and Communications

12,274

11,174

Selling338,239296,274

General and administrative services

81,73976,412

Total

583,945522,987

Employee remuneration by nature for the twelve months ended January 31, 2014, andJanuary 31, 2013, is analyzed below:
twelvemonthsended
January 31
2014

twelvemonthsended
January 31
2013

Wages and salaries

440,254394,855

Post-employment benefits

27,991

23,265Social security

94,54385,680Other

21,157

19,187

Total

583,945522,987(amounts in thousands of Euro)PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

161

Distributable reserves of parent company PRADA spa(amounts in thousands of Euro)

Amount at
January 31, 2014

Possibleutilization

Distributableamount410,047

Share Capital

255,882

Share premium reserve

410,047

A,B,C

Legal reserve

51,176B

Other reserves

182,899

A,B,C

182,899

Retained earnings

241,883

A,B,C

221,367

Fair Value Reserve

3,679

Distributable amount

Summary of utilizationin last three years
Coverage oflossesDistribution ofdividends

273,941

814,313

A share capital increase
B coverage of losses
C distributable to shareholders

Pursuant to Article 2431 of the Italian Civil Code, the share premium reserve is fully
distributable as the legal reserve has reached an amount equal to 20% of share capital.
The non-distributable portion of Retained earnings, Euro 20,516 million, refers to
restricted reserves under Article 7 of Legislative Decree 38/2005.
Exchange rates
The exchange rates against the Euro used to consolidate statements of ﬁnancial
position and income statements prepared in other currencies as at January 31, 2014,
and January 31, 2013, are shown below.
Currency

Average ratein prior year

Closing rate

Opening rate

US Dollar

1.331

1.289

1.352

1.355

Canadian Dollar

1.382

1.285

1.513

1.358

GB Pound

0.849

0.811

0.821

0.857

Swiss Franc

1.231

1.207

1.222

1.234

Australian Dollar

162

Average rate

1.399

1.243

1.552

1.301

Korean Won

1,457.043

1,443.102

1,464.230

1,472.100

Japanese Yen

131.593104.108

138.130

123.320Hong Kong Dollar

10.3259.994

10.49710.511

Singapore Dollar

1.670

1.604

1.728

1.677

Thai Baht

41.22539.87344.59940.420

Taiwan Dollar

39.62337.99240.94540.066

Russian Ruble

42.80239.89247.74840.777

Czech Koruna

26.14825.14927.50025.619Macau Pataca

10.63510.29310.812

10.826Chinese Renminbi

8.165

8.118

8.192

8.427

New Zealand Dollar

1.625

1.585

1.668

1.616

Malaysian Ringgit

4.223

3.970

4.525

4.209

Turkish Lira

2.587

2.312

3.074

2.388

Brazilian Real

2.911

2.541

3.283

2.689

Mexican Peso

17.05616.86818.16117.217

UAE Dirham

4.889

4.709

4.964

4.977

Ukrainian Hryvna

10.63910.29810.877

10.823

Moroccan Dirham

11.182

11.11411.21411.220

Kuwait Dinar

0.378

0.361

0.382

0.381

Danish Kronor

7.458

-

7.462

-

Swedish Kronor

8.669

-

8.851

-

Kazakhstani Tenge

203.031-210.750-

Qatari Riyal

4.846

-

4.923

-

Indian Rupee

78.946-84.688-PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Independent auditors’ compensation
The total fees and expenses accrued in favor of Deloitte & Touche spa and its network
for the audit of the ﬁnancial statements ending January 31, 2014, together with nonaudit services, are illustrated below:
Type of service

Audit Firm

Provided toFees in thousandsof EuroAudit services

Deloitte & Touche spa

PRADA spa

473

Audit services

Deloitte & Touche spa

Subsidiaries

209

Audit services

Deloitte Network

Subsidiaries

1,047

Total audit fees accruing for the twelve months ended January 31, 2014

1,729

Comfort letter on Euro
130 million Notes

Deloitte & Touche spa/
Deloitte Network

PRADA spa

175

Tax advisory

Deloitte & Touche spa/
Deloitte Network

PRADA spa and Subsidiaries

26

Certificates of sale

Deloitte & Touche spa/
Deloitte Network

Subsidiaries

9

Tax advisory

Deloitte Network

Subsidiaries

235

Other

Deloitte Network

PRADA spa and Subsidiaries

30

Total non-audit fees accruing for the twelve months ended January 31, 2014475

Out of pocket expenses

74

Total independent auditors’ compensation accruing for twelve months ended January 31, 2014

2,278

39. Remuneration of Board of Directors, five highest paid individuals and Senior
Managers
Remuneration of the PRADA spa Board of Directors for the year ended January
31, 2014
Pension,healthcare
and TFR
contributions

Directors’fees

Remunerationand otherbenefits

Bonusesand other
incentives

Patrizio Bertelli

1,000

6,000

7,991 (*)-

20

15,011

Miuccia Prada Bianchi

1,000

9,700

4,057 (*)-

20

14,777(amounts in thousands of Euro)

Benefits in
kind

Total

Carlo Mazzi

302

-

-

82

13

397

Donatello Galli

40

306

205

38

175

764
391

Alessandra Cozzani

3

170

108

13

97

Gaetano Micciché

40

-

-

-

-

40

Gian Franco Oliviero Mattei

140

-

-

-

12

152

Giancarlo Forestieri

60

-

-

-

9

69

Sing Cheong Liu

60

-

-

-

11

71

Marco Salomoni

55

-

-

-

-

55

2,700

16,176

12,361

133

357

31,727

Total(*) Bonuses and other incentives includes Other long-term benefits in favor of Patrizio Bertelli and Miuccia Prada Bianchi for an
amount of Euro 3,991 thousand and Euro 4,057 thousand, respectively. As required by IAS 19, the amounts shown reflect theeffects of an actuarial valuation. Further information on Other long-term benefits is provided in Note 26.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

163

Remuneration of the PRADA spa Board of Directors for the year ended January
31, 2013(amounts in thousands of Euro)

Directors’fees

Remuneration
Bonusesand otherand otherbenefits incentives (*)

Benefits inkind

Pension,healthcare
and TFR
contributions

Total

Miuccia Prada Bianchi

1,000

9,700

-

-

18

10,718Patrizio Bertelli

1,000

6,000

4,000

-

18

11,018

Carlo Mazzi

300

-

-

85

13

398

Donatello Galli

40

304

156

33

160

693

Marco Salomoni

60

-

-

-

16

76

Gian Franco Oliviero Mattei

140

-

-

-

9

149

Giancarlo Forestieri

60

-

-

-

8

68

Gaetano Micciché

40

-

-

-

-

40

Sing Cheong Liu

60

-

-

-

18

78

2,700

16,004

4,156

118

260

23,238Total

The Remuneration and other beneﬁts and the Bonuses and other incentives of the
Chief Executive Ofﬁcer Miuccia Prada Bianchi for the twelve months ended January
31, 2014, falls within the scope of application of Chapter 14A of the Hong Kong Stock
Exchange Listing Rules as it has been qualiﬁed as a continuing connected transaction
subject to reporting and disclosure but exempted from independent shareholders’approval requirements. As requested by the Listing Rules, comprehensive disclosureof this continuing connected transaction was communicated to the market through theAnnouncements published by PRADA spa on April 27, 2012, and April 5, 2013. Within
the Corporate Governance section of this 2013 Annual Report is anyway reported asummary informative report.
The Remuneration and other beneﬁts and the Bonuses and other incentives of the
Chief Executive Ofﬁcer Patrizio Bertelli for the twelve months ended January 31, 2014,
falls within the scope of application of Chapter 14A of the Hong Kong Stock Exchange
Listing Rules as it has been qualiﬁed as a continuing connected transaction subject
to reporting and disclosure but exempted from independent shareholders’ approvalrequirements. As requested by the Listing Rules, comprehensive disclosure of thiscontinuing connected transaction was communicated to the market through theAnnouncements published by PRADA spa on April 27, 2012, and April 5, 2013. Within
the Corporate Governance section of this 2013 Annual Report is anyway reported asummary informative report.

164

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Remuneration of the five highest paid individuals
The Group’s ﬁve highest paid individuals include two Directors for the twelve months
ended January 31, 2014, and two Directors for the twelve months ended January 31,
2013. The total remuneration of the remaining three of the ﬁve highest paid individuals
in the twelve months ended January 31, 2014, and the remaining three of the ﬁve
highest paid individuals in the period ended January 31, 2013, was as follows.
twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

Remuneration and other benefits

8,311

5,046

Bonuses and other incentives

3,625

4,135

(amounts in thousands of Euro)

Non monetary benefits

147

156

Pension/social security, healthcare and TFR contributions

343

245

12,426

9,582

Total

The remuneration of the ﬁve highest paid individuals fell into the following ranges:(amounts in Hong Kong Dollars)

twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

Less than HKD 12,500,000-

1

Between HKD 12,500,000 and HKD 20,000,000

21More than HKD 50,000,000

1

1Total individuals

33

twelve months
ended
January 31
2014

twelve months
ended
January 31
2013

Remuneration and other benefits

15,5298,917

Bonuses and other incentives

7,573

5,997

Non monetary benefits

2,197

1,262

Pension/social security, healthcare and TFR contributions

3,329

1,829

Total

28,62818,005

Remuneration of Senior Managers
The remuneration of Senior Managers was as follows:(amounts in thousands of Euro)

There was a total of 36 Senior Managers at January 31, 2014, 16 more than the totalof 20 at January 31, 2013.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

165

The remuneration of the Senior Managers fell into the following ranges:
twelve months
ended
January 31
2014(amounts in Hong Kong Dollars)

twelve months
ended
January 31
2013

Less than HKD 4,000,000

85Between HKD 4,000,000 and HKD 8,000,000

23

11

Between HKD 8,000,000 and HKD 16,000,000

43

Between HKD 16,000,000 and HKD 50,000,000--

More than HKD 50,000,000

1

1Total number of individuals

36

20

40. Transactions with related parties
The Group enters into transactions with parties that can be qualiﬁed as related
according to “IAS 24 Related Party Disclosures”. These transactions mainly refer tothe sale and purchase of goods, supply of services, the granting and receipt of loans
as well as sponsorship, lease and franchise agreements. These transactions take place
on an arm’s length basis.
The following tables show details of related party transactions for each item in theStatement of ﬁnancial position and in the Income statement. They show amounts
relating to each related party and the total amount relating to each line item.
Statement of financial position amounts at January 31, 2014

Tradereceivables

Receivablesfrom andadvancesto parent
companies
and relatedparties –current

Receivablesfrom andadvancesto parent
companies
and relatedparties –non current

Tradepayables

PRADA Holding bv

-

356

-

-

136

-

Other payables – other companies
controlled by PRADA Holding bv

-

36

-

-

-

-

Prapar Corporation

-

-

-

-

-

-

EXHL Italia srl

-

36

-

-

-

-

30,333

5,601

1,487

10,727

4,758

13,247DFS Hawaii

-

-

-

775

-

-

DFS Venture Singapore pte ltd

-

-

-

81

-

-

25

-

-

1,766

-

-

-

-

-

63

-

-

F.lli Prada spa

25,457

1

-

2,379

323

-

F.lli Prada spa (Galleria) (*) (***)

1,335

-

851

-

-

-

-

-

-

11

-

-

Al Tayer Insignia llc

18

-

-

32

4,130

-

Al Tayer Logistics

-

-

-

-

-

-

Al Tayer Motors

-

-

-

2

-

-

Al Tayer Trends

11

-

-

-

-

-

Al Tayer Group llc

-

3

-

32

-

-

Danzas llc UAE

-

-

-

-

127

-

1,299

-

-

-

-

-

164

2,008

-

154

21

-

(amounts in thousands of Euro)

Other related partiesDFS Cotai ltd
DFS New Zealand ltd

Al Tayer Travels

Luna Rossa Challenge 2013 NZ ltd
Luna Rossa Challenge 2013 srl

166

PayablesPayablesto parent
to parent
companies
companies
and related
and relatedparties - parties – noncurrent
current

Aati Contracs

-

-

-

-

-

-

Stiching Fondazione Prada

-

625

-

-

61

-

Stiching Prada

-

206

-

-

-

-

Progetto Prada Arte srl

-

2,492

-

-

81

-

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements(amounts in thousands of Euro)

Trade
receivables

Progetto Prada Arte srl (Galleria)(**) (****)

Receivablesfrom andadvancesto parent
companies
and relatedparties –current

Receivablesfrom andadvancesto parent
companies
and relatedparties –non current

TradepayablesPayablesPayablesto parent
to parent
companies
companies
and related
and relatedparties - parties – noncurrent
current

876

-

637

-

-

-

Gipafin sarl

-

6

-

-

-

-

Granello sa

-

166

-

-

-

-

HMP srl

-

8

-

-

-

-

Prada America’s Cup srl

-

-

-

-

-

-

PRA 1 srl

983

-

-

-

-

-

Premiatasrl

94

-

-

1,951

-

-

La Mazza srl

71

-

-

511

-

-

Calzaturificio Mazza Graziano

-

-

-

61

-

-

Peschiera Immobiliare srl

-

81

-

-

-

-

Secva srl

-

-

-

2,707

-

-

PRADA Arte bv

-

-

-

-

-

-

FinReta srl

-

-

-

140

-

13,247

Pelletteria Reta srl

-

-

-

61

13

-

Other

-

5

-

1

2

-

Members of the Board of Directorsof PRADA spa

-

-

-

143

-

-

Relatives of members of the Boardof Directorsof PRADA spa

-

-

-

341

-

-

30,333

5,993

1,487

11,211

4,894

13,247

Total at January 31, 2014(*) the accrual non-current amounting to Euro 851 thousand represents the deferred rental income recognized in relation to
Fratelli Prada spa in application of “IAS 17 Leases” to the business management agreement between PRADA spa and Fratelli
Prada spa.
(**) The accrual non-current amounting to Euro 637 thousand represents the deferred rental income recognized in relation toProgetto Prada Arte srl in application of “IAS 17 Leases” to the business combination agreement between PRADA spa andProgetto Prada Arte srl.
(***) the receivable of Euro 1,335 thousand represents the business management fee to be paid by Fratelli Prada spa for the
management of the retail business in Galleria Vittorio Emanuele II in Milan in accordance with the business managementagreement between PRADA spa and Fratelli Prada spa.
(****) the receivable of Euro 876 thousand represents the recharged portion of rental costs for premises occupied by Progetto
Prada Arte srl at Galleria Vittorio Emanuele II property in Milan in accordance with the business combination agreement
between PRADA spa and Progetto Prada Arte srl.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

167

Statement of financial position amounts at January 31, 2013

Tradereceivables

Receivablesfrom andadvancesto parent
companies
and relatedparties –current

Receivablesfrom andadvancesto parent
companies
and relatedparties –non current

Tradepayables

PRADA Holding bv

-

249

-

-

120

-

Other payables – other companies
controlled by PRADA Holding bv

-

3

-

-

3

-

Prapar Corporation

-

-

-

-

3

-

EXHL Italia srl

-

3

-

-

-

-

29,682

19,241

113

6,719

5,476

-

DFS Hawaii

-

-

-

293

-

-

DFS Venture Singapore pte ltd

-

-

-

88

-

-

17

-

-

1,243

-

-

-

-

-

45

-

-

28,432

3

-

1,568

320

-

Al Tayer Travels

-

-

-

58

Al Tayer Insignia llc

-

-

-

44

5,085

-

Al Tayer Logistics

-

-

-

8

-

-

Al Tayer Motors

-

-

-

1

-

-

Al Tayer Trends

319

-

-

148

-

-

Al Tayer Group llc

-

-

-

13

-

-

Danzas llc UAE

-

-

-

284

-

-

Luna Rossa Challenge 2013 NZ ltd

592

11,263----

Luna Rossa Challenge 2013 srl

117

1,070

-

-

-

-

Aati Contracs

-

-

-

49

-

-

Stiching Fondazione Prada

-

671

-

-

33

-

Progetto Prada Arte srl

-

3,464

-

-

37

-

Progetto Prada Arte srl (Galleria)

-

6

-

-

-

-

Gipafin sarl

-

6

-

-

-

-

Granello sa

-

148

-

-

-

-

HMP srl

-

86

113

-

-

-

Prada America’s Cup srl

-

1,397

-

-

-

-

PRA 1 srl

39

1,041

-

-

-

-

Premiatasrl

124

-

-

1,386

-

-

La Mazza srl

42

-

-

37

-

-

Calzaturificio Mazza Graziano

-

-

-

61

-

-

Peschiera Immobiliare srl

-

81

-

-

-

-

Secva srl

-

-

-

1,393

-

-

PRADA Arte bv

-

4

-

-

-

-

Other

-

1

-

-

1

-

Members of the Board of Directorsof PRADA spa

-

-

-

88

-

-

Relative of a Director of PRADA spa

-

-

-

131

-

-

29,682

19,493

113

6,939

5,599

-

(amounts in thousands of Euro)

Other related partiesDFS Cotai ltd
DFS New Zealand ltd
F.lli Prada spa

Total at January 31, 2013

168

PRADA Group

PayablesPayablesto parent
to parent
companies
companies
and related
and relatedparties - parties – noncurrent
current

Annual Report 2013 - Notes to the Consolidated Financial Statements-

Income statement for the twelve months ended January 31, 2014
Net
revenues

Cost ofgoods soldGeneral,admin.
& sellingcosts(income)Royalties
incomeInterest
incomeInterest
expensePRADA Holding bv

-

-

(70)

-

-

-

Other companies controlled by
PRADA Holding bv

-

-

(6)

-

-

-

(amounts in thousands of Euro)

EXHL Italia(6)

Other related parties

47,872

10,60753,410

1,424

10

78

F.lli Prada spa (Franchising)

47,986973(3,621)

1,424

-

-

F.lli Prada spa (Galleria) (*)--(2,186)---

Danzas llc

-

1,133

96

-

-

-

DFS Hawaii

(1)

-

4,644

-

-

-

DFS New Zealand ltd

-

-

572

-

-

-

DFS Australia pty ltd

-

-

-

-

-

-

DFS Cotai ltd

-

-

8,533

-

-

-

DFS Venture Singapore pte ltd

-

-

504

-

-

-

Al Tayer Travels

-

3

330

-

-

-

Al Tayer Group llc

-

-

46

-

-

-

Al Tayer Insignia llc

-

78

129

-

-

-

Al Tayer Trends

-

39

146

-

-

-

Al Tayer Logistics

-

-

14

-

-

-

Al Tayer Motors

-

-

5

-

-

-

Al Sanam Rent a Car llc

-

-

13

-

-

-

Secva srl (****)

-

-

2,734

-

-

10

Luna Rossa Challenge 2013 NZ ltd

1

(15)

30,277

-

-

-

(115)

-

2,331

-

-

-

HMP srl

-

-

242

-

2

-

Stiching Fondazione Prada

2

-

3,582

-

-

-

Progetto Prada Arte srl(Sponsorship)

-

(32)

5,056

-

-

-

Progetto Prada Arte srl (Galleria)(**)-

Peschiera Immobiliare srl

-

-

497

-

8

-

Premiata srl

-

6,222

-

-

-

-

Calzaturificio Mazza Graziano

-

-

600

-

-

-

La Mazza srl

-

1,746

3

-

-

-

Gipafin sarl

-

-

(35)

-

-

-

PRADA Arte bv

-

-

(5)

-

-

-

PRA 1 Srl

-

-

354

-

-

-

Fin_Reta srl (***)

-

248

58

-

68

Luna Rossa Challenge 2013 srl

Pelletteria Reta srl
Other
Relative of a Director of PRADA spa

Total at January 31, 2014

(1,510)

-

213

1

-

-

-

(1)

(1)

-

-

-

-

-

-

734

-

-

-

47,872

10,60754,068

1,424

10

78

(*) This amount contains non-monetary income in the form of deferred rental income of Euro 851 thousand recognized inrelation to Fratelli Prada spa in application of “IAS 17 Leases” to the business management agreement between PRADA spa
and Fratelli Prada spa.
(**) This amount includes non-monetary income in the form of deferred rental income of Euro 637 thousand recognized inrelation to Progetto Prada Arte srl in application of “IAS 17 Leases” to the temporary business partnership contract between
PRADA spa and Progetto Prada Arte srl.
(***) The interest expense represents the expense for the year as calculated with the effective interest rate applied to thediscounted long-term liability agreed to establish the right of usufruct.
(****) The interest expense represents the expense for the year resulting from discounting of the liability for deferred fees due
after more than a year.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

169

Income statement for the twelve months ended January 31, 2013
(amounts in thousands of Euro)PRADA Holding bv

Netrevenues-

General,Cost ofadmin. &goods sold selling costs(income)-(108)

Royalties
incomeInterest
incomeInterest
expense---Other companies controlled by
PRADA Holding bv

-

-

(6)

-

-

-

EXHL Italia

-

-

(6)

-

-

-

Other related parties

45,262

8,297

32,798

1,287

(3)

90

F.lli Prada spa (Franchising)

45,261

2,190(2,842)

1,287

-

-

-

765

-

-

-

-

Danzas llc
DFS Hawaii

-

-

3,915

-

-

-

DFS New Zealand ltd

-

-

513

-

-

-

DFS Australia pty ltd

-

-

-

-

14

DFS Cotai ltd

-

-

5,354

-

-

-

DFS Venture Singapore pte ltd

-

-

467

-

-

-

Al Tayer Travels

-

-

269

-

-

-

Al Tayer Group llc

-

-

82

-

-

11

Al Tayer Insignia llc

-

-

371

-

-

65

Al Tayer Trends

-

92

(315)

-

-

-

Secva srl

-

-

2,272

-

-

-

Luna Rossa Challenge 2013
NZ ltd--14,654---

Luna Rossa Challenge 2013 srl

-

-

1,359

-

-

-

HMP srl

-

-

494

-

(3)

-

Stiching Fondazione Prada

-

(2)

2,222

-

-

-

Progetto Prada Arte srl

1

(1)

3,188

-

-

-

Progetto Prada Arte srl(Galleria)

-

-

(6)

-

-

-

Peschiera Immobiliare srl

-

-

165

-

-

-

Premiata srl

-

4,676

1

-

-

-

Calzaturificio Mazza Graziano

-

-

600

-

-

-

La Mazza srl

-

577

36

-

-

-

Gipafin sarl

-

-

(6)

-

-

-

PRADA Arte bv

-

-

(5)

-

-

-

Other

-

-

10

-

-

-

Relative of Director of PRADA spa

-

-

445

-

-

-

45,262

8,297

33,129

1,287

(3)

90

Total at January 31, 2013

The above tables report information on transactions with related parties in accordancewith “IAS 24 Related Party Disclosures”. As stated below, some of these transactions
fall within the application of the Hong Kong Stock Exchange Listing Rules.
The transactions with related party “Fratelli Prada spa – franchising” refer to transactions
between the Company and Fratelli Prada spa in relation to the franchising agreement
regarding the Prada stores in Milan. The transactions reported for the twelve months
ended January 31, 2014, and January 31, 2013, fall within the scope of application ofChapter 14A of the Hong Kong Stock Exchange Listing Rules as they were qualiﬁed ascontinuing connected transactions subject to reporting and disclosure but exemptedfrom independent shareholders’ approval requirements. As requested by the Listing
Rules, comprehensive disclosure of these continuing connected transactions was
included in the PRADA spa Prospectus dated June 13, 2011. Within the Corporate
Governance section of this 2013 Annual Report is anyway reported a summary
informative report.
The transactions with related party “Fratelli Prada spa – Galleria” refer to thetransactions between the Company and Fratelli Prada spa in relation to the business
management agreement over the use by the latter of part of the Galleria Vittorio
170

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Emanuele II property in Milan to conduct retail business. The transactions reported
for the twelve months ended January 31, 2014, fall within the scope of application ofChapter 14A of the Hong Kong Stock Exchange Listing Rules as they were qualiﬁed ascontinuing connected transactions subject to reporting and disclosure but exemptedfrom independent shareholders’ approval requirements. As requested by the Listing
Rules, comprehensive disclosure of these continuing connected transactions was
included in the PRADA spa Announcement dated January 29, 2013. Within the
Corporate Governance section of this 2013 Annual Report is anyway reported asummary informative report.
The transactions with related party “Progetto Prada Arte srl - Galleria” refer to thetransactions between the Company and Progetto Prada Arte srl in relation to thebusiness combination agreement regarding the use by the latter of part of the Galleria
Vittorio Emanuele II property in Milan to carry out cultural activities. The transactions
reported for the twelve months ended January 31, 2014, and January 31, 2013, fallwithin the scope of application of Chapter 14A of the Hong Kong Stock Exchange
Listing Rules as they were qualiﬁed as continuing connected transactions subject
to reporting and disclosure but exempted from independent shareholders’ approvalrequirements. As requested by the Listing Rules, comprehensive disclosure of thesecontinuing connected transactions was included in the PRADA spa Announcement
dated January 29, 2013. Within the Corporate Governance section of this 2013 Annual
Report is anyway reported a summary informative report.
The transactions with related party “Progetto Prada Arte srl - Sponsorship” refer tothe transactions between PRADA sa and Progetto Prada Arte srl in performance ofthe sponsorship agreement for cultural activities to be carried out by the latter. The
transactions reported for the twelve months ended January 31, 2014, fall within thescope of application of Chapter 14A of the Hong Kong Stock Exchange Listing Rules
as they were qualiﬁed as connected transactions subject to reporting and disclosure
but exempted from independent shareholders’ approval requirements. As requestedby the Listing Rules, comprehensive disclosure of these connected transactions was
included in the PRADA spa Announcement dated June 28, 2013. Within the Corporate
Governance section of this 2013 Annual Report is anyway reported a summary
informative report.
The transactions with related parties Luna Rossa Challenge 2013 NZ ltd and Luna
Rossa Challenge 2013 srl reported for the twelve months ended January 31, 2014, andJanuary 31, 2013, fall within the scope of application of Chapter 14A of the Hong Kong
Stock Exchange Listing Rules as they are qualiﬁed as connected transactions subject
to reporting and announcement but exempted from the independent shareholders’approval requirement. As requested by the Listing Rules, comprehensive disclosure ofthese connected transactions was included in the PRADA spa Announcements dated
January 10, 2012, and April 16, 2013. Within the Corporate Governance section of this2013 Annual Report is anyway reported a summary informative report.
Unlike the “non-exempt continuing connected transactions” and “non-exempt
connected transactions” described above, no other transaction reported in theConsolidated ﬁnancial statements falls under the deﬁnition of “connected transaction”
or “continuing connected transaction” provided by Chapter 14A of the Hong Kong Stock
Exchange Listing Rules or, if it does fall under the deﬁnition of “connected transaction”
or “continuing connected transaction” in terms of said Chapter 14A, is exempt from
reporting, disclosure and independent shareholders’ approval requirements again
under Chapter 14A.

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

171

41. Commitments
Operating leases
At January 31, 2014, and January 31, 2013, operating lease commitments, by maturity
date, were as follows:(amounts in thousands of Euro)

January 31
2014

January 31
2013

Within a year

321,342

281,598

After between one year and five years

981,601

847,816After more than five years

874,073

723,323

2,177,016

1,852,737

Total

Operating lease commitments for the 2013 reporting period included Euro 2,095
million regarding lease agreements for retail premises (Euro 1,738 million for 2012).
The increase in operating lease commitments, after the exchange rate effect, is mainly
due to the renewal of existing operating leases in the Americas and to new operatingleases entered into in Asia Paciﬁc.
The amounts recorded in the income statement in relation to lease agreements forthe twelve months ended January 31, 2014, and January 31, 2013, are shown below:(amounts in thousands of Euro)

twelvemonthsended
January 31
2014

twelvemonthsended
January 31
2013

Fixed minimum lease expenses

247,814207,291

Variable lease expenses

297,550

259,409

Total

545,364

466,700

Some Group companies are required to pay lease charges based on a ﬁxed percentageof net sales.
At January 31, 2014, and January 31, 2013, future rental income under current operatingleases for properties owned by the Group was analyzed by maturity as follows:(amounts in thousands of Euro)

January 31
2014

January 31
2013

Within a year

13,303

6,432

After between one year and five years

49,77021,616After more than five years

105,094

8,917

Total

168,167

36,965The increase of Euro 131 million in future rental income is mainly due to signature
with related company Fratelli Prada spa of the business management agreement as
described in Note 40.

172

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Finance leases
Property, plant and equipment includes the following assets held under ﬁnance leases:(amounts in thousands of Euro)Land and buildings

January 31
2014

January 31
2013

7,836

12,284-

12,446

Furniture and fittings
Other tangibles

67

3,007

Accumulated depreciation(1,728)(16,468)

Total

6,175

11,269Other commitments
At January 31, 2014, the Group had commitments to purchase assets for a total
amount of around Euro 41 million, all of it due by January 31, 2015.
The shareholders’ agreement signed by PRADA spa and Al Tayer Insignia llc witha view to developing a Prada and Miu Miu brand DOS network in the Middle East
provides that the parties may opt to exercise an option for PRADA spa to buy back up
to 20% of the share capital of PRADA Middle East fzco. The Directors do not believe
the fair value of the clause can be reasonably measured at present.
Additional information
On December 20, 2013, PRADA spa published on its website an Announcement
titled “Arrangements of Controlling Shareholder with the Italian Tax Authorities”
to communicate the completion by PRADA Holding bv, together with its ultimate
shareholders and other companies in the same chain of control, of a voluntary
disclosure process with the Italian Tax Authorities. The main aim of this process wasto transfer the residency of the companies in the chain of control of PRADA spa from
Luxembourg and the Netherlands to Italy.
As this process did not lead to any burden for the PRADA spa Group, also becauseof an agreement between PRADA Holding bv and the Italian Tax Authorities, thevoluntary disclosure did not have any ﬁnancial impact on the PRADA spa Group nor did
it generate any liabilities for the Group at January 31, 2014.
42. Comparative income statement and statement of financial position information
January 31
2014

January 31
2013

January 31
2012

January 31
2011

January 31
2010

Net revenues

3,587,347

3,297,219

2,555,606

2,046,651

1,561,238

Gross margin

2,648,649

2,376,541

1,828,025

1,387,888

974,656

Operating income (EBIT)

939,237

889,781

628,935

418,387

187,032

Group net income

627,785625,681431,929

250,819

100,163

Total assets

3,888,292

3,385,279

2,943,568

2,366,015

2,147,481

Total liabilities

1,186,752

1,054,787

1,112,601

1,155,877

1,090,822

Total Group shareholders’ equity

2,687,554

2,320,022

1,822,743

1,204,350

1,047,903(amounts in thousands of Euro)PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements173

43. Consolidated companies
The companies included in the scope of consolidation are as follows:
Localcurrency

EntitySharecapital%(000s
interestof localcurrency)

RegisteredofficeDate ofincorporation/ Main businessestablishment

Italy
Production/
Distribution/ Group
Holding company

PRADA spa

EUR

255,882

Milan, Italy

Artisans Shoes srl (*)

EUR

1,000

66.70

Montegranaro,
Italy

09/02/1977

Footwear production

Space Caffè srl (*)

EUR

20

100.00Milan, Italy

06/12/1990

Service company

IPI Logistica srl (*)

EUR

600

100.00Milan, Italy

26/01/1999

Service company

PRADA Stores srl (*)

EUR

520

100.00Milan, Italy

11/04/2001

Retail/sub holding
company

Car Shoe Italia srl (*)

EUR

10

100.00Milan, Italy

16/03/2001

Distribution/Retail

Church Italia srl

EUR

51

100.00Milan, Italy

31/01/1992

Distribution/Retail

Pellettieri d’Italia srl (*)

EUR

100

60.00

Milan, Italy

10/07/2013

Production

PRADA Retail UK ltd

GBP

5,000

100.00London, UK

07/01/1997

RetailPRADA Germany gmbh

EUR

215

100.00

Munich,Germany

20/03/1995

RetailPRADA Austria gmbh

EUR

40

100.00Vienna, Austria

14/03/1996

RetailPRADA Spain sa

EUR

240

100.00Madrid, Spain

14/05/1986

RetailPRADA Retail France sas

EUR

4,000

100.00Paris, France

10/10/1984

RetailPRADA Hellas Single Partner
Limited Liability Company (*)

EUR

2,850

100.00Athens, Greece

19/12/2007

Retail25/05/1999

Retail

29/07/1994

Service company/
Trademark ownerEurope174

PRADA Monte-Carlo sam

EUR

150

100.00Monte-Carlo,
MonacoPRADA sa (*)

EUR

31

100.00

Luxembourg

PRADA Company sa

EUR

3,204

100.00

Luxembourg

12/04/1999

Service company

PRADA Far East bv (*)

EUR

20

100.00Amsterdam,
Netherlands

27/03/2000

Sub-holding company/
Service company/RetailSpace sa

CHF

200

100.00

Lugano,Switzerland

17/07/2008

RetailChurch Holding UK plc (*)

GBP

78,126100.00

Northampton,UK

22/07/1999

Sub-holding company

Church France sa

EUR

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
Switzerland sa

CHF

100

100.00

Lugano,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

EUR

75

100.00Brussels,
Belgium

25/02/1963

RetailPRADA Czech Republic sro (*)

CZK

2,500

100.00Prague, Czech
Rep.

25/06/2008

RetailPRADA Portugal. Unipessoal
lda (*)

EUR

5

100.00Lisbon,Portugal

07/08/2008

RetailPRADA Rus llc (*)

RUB

250

100.00

Moscow,
Russia07/11/2008

RetailChurch Spain sl

EUR

3

100.00Madrid, Spain

06/05/2009

RetailPRADA Bosphorus Deri
Mamuller Ticaret Limited
Sirketi (*)

TRY41,000100.00Istanbul,
Turkey26/02/2009

RetailPRADA Ukraine llc (*)

UAH

30,000100.00Kiev, Ukraine

14/10/2011

Retail07/07/2011

Retail28/10/2011

RetailChurch Netherlands bv

EUR

18

100.00Amsterdam,
Netherlands

Car Shoe UK ltd

GBP

100

100.00London, UK

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Localcurrency

Sharecapital%(000s ofinterest
local
currency)

Church Ireland Retail ltd

EUR

50

100.00Dublin, Ireland

20/11/2011

Church Austria gmbh

EUR

35

100.00Vienna, Austria

17/01/2012

RetailPrada Sweden AB

SEK

500

100.00Stockholm,
Sweden

18/12/2012

RetailChurch Footwear AB

SEK

100

100.00Stockholm,
Sweden

18/12/2012

RetailPrada Switzerland sa (*)

CHF

226

100.00Geneva,Switzerland

28/09/2012

Retail24/06/2013

RetailEntityRegisteredofficeDate ofincorporation/ Main businessestablishment

EuropeRetailPrada Kazakhstan llp (*)

KZT500,000

100.00

Almaty,Kazakhstan

Kenon Limited

GBP

84,000100.00London, UK

07/02/2013

Real estate company

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

RetailTRS Hawaii llc

USD

400

55.00

Honolulu, U.S.A.

17/11/1999

Duty-free stores

01/05/1998

Distribution/Retail

Americas

PRADA Canada Corp. (*)

CAD

300

100.00Toronto,CanadaChurch & Co. (USA) ltd

USD

85

100.00

New York,
U.S.A.

08/09/1930

RetailPost Development corp (*)

USD

45,138100.00

New York,
U.S.A.

18/02/1997

Real estate company

PRADA Retail Mexico, s de
rm de cv

MXN

2,058

100.00

Mexico City,
Mexico12/07/2011

RetailPRADA Brasil Importação e
Comércio de Artigos de Luxo
Ltda. (*)

BRL

47,000100.00

Sao Paolo,
Brazil12/04/2011

RetailAsia-Pacific and Japan
PRADA Asia Pacific ltd

HKD

3,000

100.00Hong Kong

12/09/1997

Retail/Distrib./Services

PRADA Taiwan ltd

TWD

3,800

100.00Hong Kong

16/09/1993

RetailSpace HK ltd

HKD

1,000

100.00Hong Kong

25/02/1993

RetailKuala LumpurMalaysia

23/01/2002

RetailPRADA Retail Malaysia Sdn. Bnd.

MYR

1,000

100.00PRADA China ltd

HKD

115,100

100.00Hong Kong

03/11/1997

Dormant

TRS 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

KRW

8,125,000

100.00Seoul, Korea

27/11/1995

RetailBangkok,Thailand19/06/1997

RetailPRADA (Thailand) Co ltd

THB

172,000

100.00PRADA Japan co ltd

JPY

1,200,000

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

04/11/1999

Duty-free stores
Retail

NZD

100

55.00

Wellington,
New Zealand

PRADA Australia Pty. ltd

AUD

10,500100.00

Sydney, Australia

21/04/1997

PRADA Trading (Shanghai) co ltd

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

174,950

100.00Shanghai,China

31/10/2005

RetailChurch Japan co ltd

JPY

31,525100.00Tokyo, Japan

17/04/1992

RetailChurch Hong Kong Retail ltd

HKD

1,000

100.00Hong Kong

04/06/2004

RetailTRS New Zealand ltd

Church 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

RetailPRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

175

Localcurrency

EntitySharecapital%(000s ofinterest
local
currency)

RegisteredofficeDate ofincorporation/ Main businessestablishment

Asia-Pacific and Japan
PRADA Hong Kong P.D. ltd (*)
Prada Dongguan Trading Co.,
Ltd

HKD
HKD

11,0003,000

100.00Hong Kong

15/12/2011

Service company

100.00

Dongguan,China

28/11/2012

Service company

05/12/2012

RetailChurch Footwear (Shanghai)Co., Ltd

RMB

11,900100.00Shanghai,
China

Prada New Zealand ltd

NZD

500

100.00Wellington,
New Zealand

05/07/2013

Retail

AED

18,00060.00

Jebel Ali Free
Zone, Dubai

25/05/2011

Distribution/Services
RetailMiddle East
PRADA Middle East fzco (*)
PRADA Emirates llc (**)

AED

300

49.00

Dubai

04/08/2011

Prada Kuwait wll (**)

KWD

50

49.00

Kuwait city

18/09/2012

RetailPrada Retail SPC (*)

QAR

15,000100.00Doha

03/02/2013

RetailPRADA Maroc sarlau (*)

MAD

68,000100.00Casablanca,
Morocco

11/11/2011

RetailPRADA India Fashion Private
ltd

INR

100

100.00

Mumbai, India

30/09/2013

RetailOther countries(*) Companies owned directly by PRADA spa(**) Company consolidated based on definition of control per IAS 27

Companies not included in scope of consolidation:
Company

PAC srl (in liquidation)

Percentage directinterest as atJanuary 31, 2014

Percentage directinterest as atJanuary 31, 2013

Note

Consolidation
method

49.00

49.00

Associate

Equity method

44. Events after the reporting period
On February 27, 2014, PRADA spa signed with Luna Rossa Challenge srl, a relatedcompany in terms of IAS 24, a sponsorship agreement for the participation of the Luna
Rossa sailing team in the XXXV edition of the America’s Cup. The contract, effectivefrom February 27, 2014, until October 31, 2017, provides for total sponsorship paymentsof Euro 50 million, payable in variable monthly installments depending on the needs ofthe sailing team. In return, the Group will have the right to be the main sponsor of teamLuna Rossa as well as to promote the Prada brand in association with the Luna Rossa
trademark, for advertising purposes, during the contract and throughout the durationof the contract.
On February 27, 2014, PRADA spa signed a sponsorship agreement with Progetto
Prada Arte srl (PPA), a related company in terms of IAS 24. The agreement regards
the organization and promotion of cultural and artistic activities, including the “Art ofSound” exhibition by Germano Celant, and the renovation of the Ca’ Corner della Regina
building. The contract provides for a maximum contribution of Euro 7.9 million, payable
by January 31, 2015. The Company will be entitled to use images of the sponsored
events, as agreed with PPA.
On March 14, 2014, the Company acquired the 80% of the Angelo Marchesi srl,
owner of the historic Milanese pastry shop founded in 1824. The acquisition is aimed
at enhancing the “Pasticceria Marchesi” brand, a synonym to quality in the Italian foodindustry, joining it with Prada and Miu Miu brands, leaders in the luxury goods market,
within the Group’s development worldwide.

176

PRADA Group

Annual Report 2013 - Notes to the Consolidated Financial Statements

Independent Auditors’ Report

PRADA Group

Annual Report 2013 - Independent Auditors' Report

177

178

PRADA Group

Annual Report 2013 - Independent Auditors' ReportPRADA Group

Annual Report 2013 - Independent Auditors' Report179