2010 Annual ReportIndex
The Group

5

Presentation
PRADA Group structure
Corporate Information
Corporate GovernanceDirectors’ Report

7
9
25
26
27

Consolidated Financial Statements

43

Notes to the Consolidated Financial Statements

49

Independent Auditors’ Report103Patrizio Bertelli

Miuccia PradaThe GroupTHE GROUP – 2010 ANNUAL REPORTPRADA Group 5The structure of Terranuova Bracciolini (AR)The first Prada store,
Galleria Vittorio Emanuele II, Milan

6 PRADA GroupTHE GROUP – 2010 ANNUAL REPORT

Presentation“For Prada, fashion, luxury and style have always been core aspects of a projectthat goes beyond production of clothes, footwear and handbags.
Careful observation and interest in the world, society, and culture are at the core of
Prada’s creativity and modernity. This has pushed Prada beyond the physicallimitations of boutiques and showrooms, leading us to interact with diverse,
seemingly distant worlds, and introducing, very naturally, a new way of creatingfashion”. Miuccia Prada and Patrizio Bertelli.
These values have transformed a family business into a major player in the luxury
market worldwide.
The PRADA Group is one of the world’s leaders in the design, production anddistribution of luxury handbags, leather goods, footwear, ready-to-wear apparel,
accessories, eyewear and fragrances. The Group owns some of the mostprestigious international brands: Prada, Miu Miu, Car Shoe and Church’s .
The Group operates in 70 countries through 319 directly operated stores, 35
franchise stores and a network of selected high-end multi-brand stores and luxury
department stores.
Prada’s distinctive features and prestige derive from its particular industrial process
management which allows the Group to offer its customers products of unequalled
quality, creativity and exclusivity.
A focus on quality permeates every aspect of the Group’s business. The individual
heritage and identity of each brand is rigorously defended with the Group’s
designers and craftsmen being constantly challenged to keep tradition alive
through a continuous process of re-invention and innovation. Each step of theprocess, both inside and outside the company, is carefully monitored in order toguarantee uncompromised quality.
The result is an exclusive relationship between each customer and the PRADA
Group brands, its products, its communications and its stores. This is why
customers recognize in Prada’s products a personal and important part of their
desire for self-expression and communication with the world around them.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 7

8 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTPRADA Group structure

THE GROUP – 2010 ANNUAL REPORTPRADA Group 9The first Prada Epicenter Concept Store, Broadway, New Yorkby architect Rem Koolhaas and Studio OMA

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

10 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTThe third Prada Epicenter Concept Store, Los Angeles, Beverly Hills
by architect Rem Koolhaas and Studio OMA

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

THE GROUP – 2010 ANNUAL REPORTPRADA Group 11

Fall/Winter 2011
Advertising campaign for Prada

Fall/Winter 2011
Advertising campaign for Prada

12 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTHistory of PRADA Group
The Prada brand dates back to the beginning of the last century. In 1913, Mario
Prada opened a luxury store in the Galleria Vittorio Emanuele II in Milan, selling
leather handbags, travelling trunks, leather accessories and beauty cases, luxury
accessories and articles of value. Thanks to its exclusively designed goods,
handcrafted using fine materials and sophisticated techniques, Prada rapidly
became a reference point for European aristocracy and the most elegant membersof the haute-bourgeoisie in Europe.
In 1919, PRADA became an official supplier to the Italian Royal Family. Over theyears, the Prada name gained increasing renown and prestige.
The Group saw a turning point in the development of its activities at the end of theSeventies, when Miuccia Prada, Mario’s grand-daughter, launched a partnershipwith Patrizio Bertelli, a Tuscan businessman already involved in the leather goods
sector with Granello and Sir Robert. This partnership combined creativity andbusiness ideas to commence a new era.
In 1977, Patrizio Bertelli set up I.P.I. spa to consolidate the production resources that
he had built up over the previous ten years, including those of Sir Robert andGranello. In the same year, I.P.I. spa obtained an exclusive license from Miuccia
Prada to produce and distribute leather goods bearing the Prada brand name. In thefollowing years, the activities of the two families were gradually brought together
within a single Group and, in 2003, IPI spa was merged into PRADA spa.
In 1983, the Prada family opened a second store in the prestigious Via della Spigain Milan. The new store showcased the new brand image as it blended traditional
elements with a modern architectural setting and would represent a revolution anda benchmark for luxury retail. In response to the growing demand for andappreciation of Prada products, the range was extended from leather goods (suchas bags, luggage and accessories) to include footwear, as well as men’s andwomen’s ready-to-wear apparel.
A new brand, Miu Miu, was launched in 1993.
In 1999 PRADA acquired full control of Church’s Group, a prestigious brand of
English shoes.
In 2001 PRADA, acquired control of Car Shoe, an historical Italian brand famous for
exclusive driving shoes.
In 2003, Prada entered into a ten-year licensing agreement with Italian eyewear
manufacturer Luxottica, one of the world leaders in the eyewear industry. The
Luxottica Group currently produces eyewear for the Prada and Miu Miu brands.
In 2003 a joint-venture with Spanish cosmetic manufacturer PUIG Beauty & Fashion
Group was set up and it launched its new Prada women's fragrance at the end of
2004.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 13

Fall/Winter 2011
Advertising campaign for Miu Miu

Fall/Winter 2011
Advertising campaign for Miu Miu

14 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTThe main stages in the recent development of the Prada and Miu Miu brands wereas follows:
1979:

launch of Prada women’s footwear collection

1983:

opening of a second store in Via della Spiga, Milan

1986:

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

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

1993:

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

1997:

launch of Prada Linea Rossa products

2000:

launch of Prada eyewear collection

2001:

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

2003:

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

2004:

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

2006:

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

2007:

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

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

2009:launch of exclusive new “Made to measure” (customized and made tomeasure men’s shirts) and “Made to order” (possibility to customize
clothes, accessories and shoes) services available as part of a newconcept at the store in Corso Venezia, Milan
launch of new Prada women’s fragrances Eau Ambrée and Infusion deFleur d’Oranger

2010:

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

THE GROUP – 2010 ANNUAL REPORTPRADA Group 15

Fall/Winter 2011
Advertising campaign for Prada Eyewear

Fall/Winter 2011
Advertising campaign for Prada Eyewear

16 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTThe Group Brands
Prada spa owns and operates some of the most prestigious luxury brands in theworld. These brands, together with the Group’s know-how and expertise, represent
a key asset for the company.
 PRADA: an historic brand that represents the best of Italian culture and tradition
with unmistakable style, sophisticated elegance and uncompromising quality. At
the same time, this is one of the most innovative fashion brands, able to redefine the norm and set new trends. Prada tends to go beyond conventional
solutions to anticipate and satisfy consumer tastes.
 MIU MIU: Miuccia Prada’s other soul, a brand with a very strong andautonomous identity, characterized by an avant-garde, sensual, sometimes
provocative, style aimed at a clientele particularly focused on experimentationand the pursuit of originality.
 Church’s: founded in Northampton (England) in 1873, is a world renowned
symbol of a century-old tradition in luxury, handcrafted footwear production,
characterized by classic style and sophisticated English elegance. In 2009 thebrand proposed a new range of lifestyle items.
 Car Shoe: a long established Italian brand, identified for decades with the most
exclusive driving shoes with black rubber studded soles that give better grip on
the car pedals. More recently, the brand has developed new models and offers acomplementary line of accessories.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 17

2011
Advertising campaign for Church's

2011
Advertising campaign for Car Shoe

18 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTStrategic processes
DesignCreativity is the first step of the quality process.
Miuccia Prada has the ability to combine intellectual curiosity, the pursuit of new
and unconventional ideas, cultural and social interests with a strong sense of
fashion and close attention to detail.
This unique approach enables Prada to anticipate and set trends, continuallyexperimenting with shapes, 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” andthe in the “fitting room” represents research and stylistic development for thebrands and is fundamental in defining each collection so that each ready-to-wear
apparel, footwear and accessories complement one another and create a welldefined, consistent brand image.
Miuccia Prada and Patrizio Bertelli’s flair, coupled with their extraordinary
personalities, continue to attract other internationally renowned talents who want
to work with them in many different creative fields. This results in formidable teams
in all aspects of the creative process: from design, to architecture, to photography
and the interior design of the stores. Prada products have even been presented andinterpreted as works of art.
Production
The second step of the value chain involves the choice and selection of fabrics,
leathers and other raw materials. These are always carefully chosen and often
exclusively made for Prada based on very detailed specifications. With an annual
consumption of some 4 million meters of fabric and a similarly impressive amountof leathers, Prada enjoys the priority attention of the best fabric makers and tanners
in the world.
Prada products are made at 11 state-of-the-art facilities in Italy and England andthrough a network of external sub-contractors, all of them selected for theircraftsmanship skills. This system enables close control of the overall production
process and maximizes the individual capacities of each facility. Furthermore, itguarantees the utmost quality and the highest level of flexibility.
The core of Prada’s production employees has been working with the company for
an average of 20 years. This leads to the highest level of specialization anddedication to the brand while ensuring that know-how is handed on smoothly toyounger 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-famous architects such as Rem Koolhaas and Herzog & deMeuron, to re-invent and re-visit the concept of shopping. PRADA Epicenters blend
shopping and interaction with space, creating synergies with new technologies anddifferent cultural influences. This offers customers a multitude of uniqueexperiences and exclusive services.
In terms of distribution channels, the Group has developed a strong network of
Directly Operated Stores which is accompanied by franchise stores and a significant
presence in selected high-end multi-brand stores and luxury department stores.
Directly Operated Stores provide a direct relationship with customers and offer realtime information on the performance of each product category. The retail networkis also an effective platform to showcase the product range and project a strong
and consistent brand image.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 19

2011
Advertising campaign for Prada Parfums

2011
Advertising campaign for Prada Parfums

20 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTThe wholesale channel (department and multi-brand stores) guarantees a numberof points of sale in prestigious locations in key markets and provides a direct andimmediate comparison with the competition. The sales performance in thewholesale channel is a very useful indicator of consumer tastes and the brand’s
relative strength.
71% of PRADA Group’s consolidated sales are generated by the retail channel,
while the remaining 29% comes from wholesale.
Image and communications
Effective communication is key to building and maintaining a unique and powerfulbrand image. From impeccably executed fashion shows to award-winning
advertising campaigns, PRADA continues to successfully create an appealing andcutting-edge image that attracts an international customer base.
Strong editorial coverage of Prada and Miu Miu, featured prominently on hundredsof covers of the most important fashion magazines worldwide, contributes to thevisibility of both brands’ products.
Cultural and commercial in-store events (such as fashion and trunk shows as wellas the highly-acclaimed "Waist Down" skirt exhibition) help raise the brands’ profile
and increase awareness of the most recent collections in local markets, from Tokyo
to New York, from Hong Kong to London.
Special projects carried out in fields other than Prada’s core business form an
important part of the Company’s communications strategy, highlighting the manydifferent facets that identify the brand.
Prada took part in the America’s Cup in 2000, 2003 and 2007. This experience,
which led also to the development of a sports clothing and accessories line, helped
further spread the image of Prada in the world, associating the brand with one ofthe oldest and most prestigious international sports competitions.
Art and culture
Miuccia Prada and Patrizio Bertelli’s interest in contemporary art led them to thedecision, in 1993, to create a space to hold exhibitions dedicated to acclaimed
international artists. The Fondazione Prada was born with the purpose of receiving
and communicating what Miuccia Prada calls “the most powerful mental andcultural provocations”.
Organized with the full collaboration of the artists themselves, the exhibitions
presented by the Fondazione Prada in Milan have so far included artists ofinternational fame such as Anish Kapoor, Mariko Mori, Louise Bourgeois, Laurie
Anderson, Walter De Maria, Marc Quinn, Carsten Hoeller, Steve McQueen, Giulio
Paolini, Francesco Vezzoli, Tom Sachs, Thomas Demand, Tobias Rehberger, Natalie
Djurberg and John Wesley.
The flexible nature of the Fondazione Prada has also developed along a number ofdifferent routes, in a variety of fields of cultural research including art, architecture,philosophy, science, design and cinema.
Brand recognition and valuation
According to the Interbrand ranking for 2009, Prada is one of the 100 most valuable
brands in the world.
This gives strength to the Group’s “brand equity” as a fashion brand’s desirability
must be accompanied by equally strong appeal and recognition.
Prada has managed to gain such a high level of international renown that it haseven captured the attention of literature and the movie industry (the best sellingnovel “The Devil Wears Prada” was published in 2003, followed by a movie ofsame name in 2006), to testify the fact that this brand is now synonymous withelegance and style.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 21

Luna Rossa
Valencia 2007

Luna Rossa
Valencia 2007

22 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTPRADA Group’s Human Resources
Human Resources are considered a fundamental asset for the development of theGroup, which builds its competitive advantage on the skills and commitment of its
employees, promoting and rewarding pro-activity, goal orientation and teamwork.
The Human Resources Department operates in an international environment,cooperating closely with the business areas in order to verticalize processes anddevelop local competencies and specificities.
In 2010 the Human Resources Department continued its activities aimed at thereorganization of business processes with a view on efficiency and effectiveness,
integration between headquarters and subsidiaries and focus on the business.
Through a structured and transparent selection process which is also based oncooperation with the most prestigious universities and fashion schools, the Group
constantly seeks and attracts the best talents in the international employment
market.
The training and development policies implemented were mainly aimed atstrengthening the Retail Stores Area fully in line with the development of thischannel.
The Group’s presence in the international market through its four brands offers it
employees the chance to grow both inside their areas of competence as well as ona horizontal and international level.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 23

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

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

24 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTCorporate Information
Board of Directors
Miuccia Prada Bianchi (Chairwoman)
Patrizio Bertelli (Chief Executive Officer)
Carlo Mazzi (Deputy Chairman)
Donatello Galli (Managing Director)
Marco Salomoni (Director)
Marco Cerrina Feroni (Director)
Gian Franco Oliviero Mattei (Independent Director)
Giancarlo Forestieri (Independent Director)
Davide Mereghetti (Director, appointed on April 28, 2010)
Internal Control Committee
Gian Franco Oliviero Mattei (Chairman)
Marco Salomoni
Giancarlo Forestieri
Remuneration Committee
Carlo Mazzi (Chairman)
Giancarlo Forestieri
Gian Franco Oliviero Mattei
Board of Statutory Auditors
Antonino Parisi (Chairman)
Riccardo Perotta (Standing member)
Gianandrea Toffoloni (Standing member)Supervisory Board (Law 231/2001)
David Terracina (Chairman)
Franco Bertoli
Marco Salomoni
Listing Committee
Gian Franco Oliviero Mattei (Chairman, appointed on March 26, 2010)
Carlo Mazzi
Marco Cerrina Feroni
Majority Shareholder
PRADA Holding bv
Dam 3-71012 JS Amsterdam - The Netherlands
Corporate Headquarters
Via A. Fogazzaro, 28
20135 Milan
Italy
Auditor
Deloitte & Touche Spa
Via Tortona 25
20144 Milan
Italy

THE GROUP – 2010 ANNUAL REPORTPRADA Group 25

Corporate Governance
The Corporate governance model adopted by the PRADA Group since 2007,
consists of a set of legal rules and standards able to grant an efficient andtransparent operation of corporate bodies and control systems. The structure, incompliance with applicable regulations and with the guidelines of the “Corporate
Governance Code” for Listed Companies, is in line with the models adopted in themost advanced financial markets.
This structure, based on the traditional system of Governance, provides for thefollowing Corporate bodies at the Prada spa:
 Board of Directors (two of whose members meet independence requirements);
 Board of Statutory auditors;
 Internal Control Committee Remuneration Committee
Related parties transactions are regulated by a formal procedure adopted by the
Board of Directors on December 18, 2007.
Finally, the organizational, management and control model introduced by theCompany in terms of Legislative Decree 231/2001, together with the Supervisory
Board, as resolved by the Board of Directors on December 18, 2007, was updated totake account of legislative change.

26 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTDirectors’ report
The report of the Board of Directors refers to the Group of companies controlled by
PRADA spa (the "Company"), holding company of the PRADA Group (the "Group")and is based on the Consolidated Financial Statements of the Group at January 31,
2011 (year 2010), prepared in accordance with IAS/IFRS. The Report must be read
together with the Financial Statements and the Notes to the Financial Statements
which are an integral part of the Consolidated Financial Statements.
Consolidated income statement(amounts in thousands of Euro)

January 31
2011%

January 31
2010%

RetailWholesaleRoyalties
Net revenues

1,427,356
69.8%
589,708
28.8%
29,5871.4%
2,046,651 100.0%

991,493 63.5%
539,084 34.5%
30,6612.0%
1,561,238 100.0%

Cost of goods sold(658,763)-32.2%(586,582)-37.6%

Gross margin

1,387,888

67.8%

974,656

62.4%

Operating expenses(969,501)-47.4%(787,624)-50.4%

EBIT

418.38720,4%

187.03212,0%Interest and other financial expenses, net(30,158)-1.5%(31,882)

2.0%

Income before taxation

388,22919.0%

155,150

9.9%

Taxation(134,678)-6.6%(52,503)-3.4%

Net income from continuing operations

253,551

12.4%

102,647

6.6%

2,732

0.1%

177

0.0%

250,81912.3%

102,470

6.6%

-

-

(2,306)

0.1%

Total Group net income

250,81912.3%

100,163

6.4%

Amortization, Depreciation and Impairment

117,543

5.7%

103,187

6.6%

EBITDA

535,93026.2%

290,219

18.6%

Net income from continuing operations pertaining to minority interests
Group net income from continuing operations
Net loss from discontinued operations

The “Cheaney” business unit (owned by the Church's Group) was sold in 2009.
Therefore, pursuant to IFRS 5, it was classified as a “discontinued operation” in theincome statement of the prior year.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 27

Key financial information
Key income statement information(amounts in thousands of Euro)

January 31
2009(adjusted)
1,643,629
282,642
190,954
153,818
98,806

January 31
2010

January 31
2011% change on
January 2010

1,561,238
290,219
187,032
155,150
100,1632,046,651
535,930
418,387
388,229
250,819

31.1%
84.7%
123.7%
150.2%
150.4%EBITDA %

17.2%

18.6%

EBIT %

11.6%

12.0%

26.2%
20.4%

Key balance sheet information(amounts in thousands of Euro)

January 31
2009

January 31
2010

January 31
2011% change on
January 2010

Non-current assets
Net operating working capital

1,429,837
271,2021,549,651
554,776
1,003,107
159,204
165,9121,460,521
259,278
1,490,812
485,338
1,047,903
134,516
279,886

1,595,990
320,718
1,585,559
408,604
1,204,350
206,860
367,712

9.3%
23.7%
6.4%
-15.8%
14.9%
53.8%
31.4%

6,694

6,764

7,199

6.4%

Net revenues
Total EBITDA
Total EBIT
Income before tax
Net income of the GroupNet invested capital
Net financial position (third party)
Group shareholders’ equity
Investments
Net operating cash flows
Average headcount (persons)2010 highlights
In 2010, the world luxury goods market confirmed an ability to respond to theeconomic and financial crisis that both more rapid, as already apparent from signs
seen in the last few months of prior year, but also more solid, considering thehealthy rates of growth recorded in 2010.
In this macroeconomic context, the Group’s decision to invest in the expansion of its
retail network proved to be a winning one. Investment in new stores, the appeal of
the products offered and decisive action taken in terms of efficiency, whilesafeguarding the prestige of the brands, made it possible to achieve volumes ofsales and income not previously seen in the century long history of the Group. The
growth rates achieved were among the highest recorded in the worldwide luxury
goods market.
Consolidated net revenues, amounting to Euro 2,047 million, increased by 31.1%(+24.2% at constant exchange rates), mainly thanks to the expansion of the retailchannel which recorded growth of 44% compared to 2009 (+34.6% at constantexchange rates). The wholesale channel also performed well with a 9.4% increase in
net revenues (+6.5% at constant exchange rates).
EBITDA for the year totaled Euro 535.9 million (Euro 290.2 million in 2009) with anincrease of 84.7% that took it from 18.6% of Group net revenues in 2009 to 26.2% in
2010. This large increase benefited mainly from the significant improvement ingross margin which rose from 62.4% to 67.8%.
EBIT increased by 123.7% in absolute terms to stand at Euro 418.4 million (Euro 187
million in 2009).
The consolidated income statement for the year ended January 31, 2011 reports
Group net income of Euro 250.8 million, more than twice that recorded in 2009 (Euro100.2 million).
Strong cash flow generation despite a major capex program enabled the Group to
reduce its net financial indebtedness from Euro 485.3 million to Euro 408.6 million.
After distribution of dividends totaling Euro 111 million, Group Shareholders’ Equity
increased further to stand at Euro 1,204.4 million at January 31, 2011 (Euro 1,047.9
million at January 31, 2010).

28 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTNet revenues analysis
January 31
2011

January 31
2010%changeNet sales by geographical area
Italy

393,285

19.5%

330,005

21.6%

19.2%

EuropeNorth America
Asia PacificJapan

450,463
294,903645,680
220,924

22.3%
14.6%
32.0%
11.0%

372,992
227,783
396,123
189,447

24.4%
14.9%
25.9%
12.4%

20.8%
29.5%
63.0%
16.6%

11,8090.6%
2,017,064 100.0%

14,2270.8%
1,530,577 100.0%-17.0%
31.8%

Prada
Miu Miu
Church's
Car shoe

1,586,840
353,038
53,02817,935

1,209,465
252,304
43,604
18,461

79.0%
16.5%
2.8%
1.2%

31.2%
39.9%
21.6%
-2.8%

Other
Total

6,223
0.3%
2,017,064 100.0%

6,743
0.5%
1,530,577 100.0%

-7.7%
31.8%

(amounts in thousands of Euro)

Other countries
Total
Net sales by brand

78.7%
17.5%
2.6%
0.9%

Net sales by product line
Clothing
Leather goods
FootwearOther483,564
1,013,626
503,120
16,754

Total

2,017,064 100.0%

Net sales by distribution channel
DOS (including outlet stores)

1,427,356

64.8%

44.0%

Independent customers, franchises and related parties
Total

589,708 29.2%
2,017,064 100.0%

539,084 35.2%
1,530,577 100.0%

9.4%
31.8%

Net sales

2,017,064

98.6%

1,530,577

98.0%

31.8%

Royalties

29,587

1.4%

30,661

2.0%

-3.5%

1,561,238 100.0%

31.1%

Total net revenues

24.0%
50.3%
24.9%
0.8%

70.8%

2,046,651 100.0%

396,399
711,642
410,493
12,043

25.9%
46.5%
26.8%
0.8%

22.0%
42.4%
22.6%
39.1%

1,530,577 100.0%

31.8%

991,493

Consolidated net revenues for the period ended January 31, 2011 amounted to Euro
2,046.7 million, significantly higher than for 2009 (+31.1%). At constant exchange
rates, there was a 24.2% increase.
Distribution channels
Net sales generated by the retail network of directly operated stores (DOS) totaled
Euro 1,427.4 million, up by 44% (+34.6% at constant exchange rates) on the Euro
991.5 million recorded in 2009. Organic growth was significant, amounting to +22%
on a like-for-like basis, while sales by the 59 stores opened during the year
accounted for the remaining growth.
The Group’s commitment to improving its DOS network was confirmed by thesignificant refurbishment and expansion work carried out on 24 more stores.
As a result of the retail development strategy, retail sales through the DOS network
have risen from 64.8% of consolidated net sales in 2009 to 70.8% in 2010.
The wholesale channel achieved net sales growth of +9.4% (+6.5% at constantexchange rates), a healthy recovery compared to prior year thanks to the better
situation on the market.
Markets
The Asia Pacific area was confirmed as the leading market in terms of net sales andrecorded the highest rate of growth of all the geographical areas in which theGroup operates. Net sales in the Asia Pacific area rose from Euro 396.1 million in2009 to Euro 645.7 million, an increase of 63% (+48.7% at constant exchange rates),
and increased from 25.9% to 32% of consolidated net sales.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 29

Net sales growth in the Asia Pacific area benefited from exceptional organic growthof 35%, on a like-for-like basis, the opening of 17 new stores and major
refurbishment and expansion work on existing stores. As of January 31, 2011, theGroup had 104 DOS in the Asia Pacific area (87 at January 31, 2010), one third of
the Group’s entire retail network. The most important new initiatives included theopening of two stores (1 Prada and 1 Miu Miu) at the IFC mall in Shanghai, a Prada
store at the Yanlord Landmark mall in Chengdu, two stores (1 Prada and 1 Miu Miu)at the Marina Bay Sands mall in Singapore and two stores (1 Prada and 1 Miu Miu)at the Chadstone mall in Melbourne. In the area, we highlight the excellent
performances achieved by “Greater China” (China, Hong Kong and Macau) – which
contributed more than 58% of net sales in the Asia Pacific area and recorded
growth of 69.1% (+58.7% at constant exchange rates) – and also by South Korea(+68.2% on 2009) and Singapore (+79.1% on 2009).
The European market recorded net sales of Euro 450.5 million, representing 20.8%
growth (+19.3% at constant exchange rates) but with different trends in the two
distribution channels. The retail channel, sustained by organic sales growth of 20%
and 15 new stores, recorded a 41.9% increase in net sales (+39.1% at constantexchange rates). Meanwhile, the wholesale channel recorded a decrease of 1%(almost no change at constant exchange rates), mainly as a result of the selective
distribution policy that has, for several years, been implemented alongside theretail expansion strategy. The most important new initiatives included the openingof a first Prada store in Lisbon and the opening of a second Prada store in Istanbul.
Retail expansion also saw the opening of a new Miu Miu store on New Bond Street,
London.
The Italian market has recorded 19.2% growth compared to 2009. Its performance
was similar to the European market in the retail sector where net sales increasedby 39.6% on 2009 while it saw a trend reversal in the wholesale sector. In fact, sales
to independent customers began to grow once more, albeit to a limited degree(+6% on 2009).
After two years in decline, the North American began to grow at a health rate once
again, recording an overall net sales increase of 29.5% (+21.1% at constantexchange rates) thanks to positive growth in both distribution channels. The retailchannel, driven by organic growth of 15% and 13 newly opened stores, grew by
36.7% compared to 2009 (+28.3% at constant exchange rates), while the wholesalechannel, boosted, above all, by the recovery in department store business, enjoyed
21.3% growth (+13.1% at constant exchange rates). The most important new
initiatives during the period included the opening of new Prada and Miu Miu storesat the City Center mall in Las Vegas and the opening of a Prada store in the South
Coast Plaza mall, Costa Mesa.
On the Japanese market, where the Group only operates in the retail channel, net
sales accelerated in the second half of 2010 resulting in a net sales increase
compared to 2009 – the increase was 2.5% at constant exchange rates and 16.6% if
the benefit of the stronger Yen is included.
The decrease in net sales in “Other countries” is mainly due to the ongoingrationalization of the distribution network in the Middle East with the first directly
operated stores scheduled for opening in the near future.
Products
The increase in net sales was achieved in relation to all product segments. Leather
goods contributed 50.3% of total net sales (46.5% in 2009) and recorded a 42.4%
increase (+33% at constant exchange rates). Meanwhile, Clothing and Footwear,
which make almost equal contributions together accounting for 48.9% of theGroup’s net sales (52.7% in 2009), recorded net sales growth of 22% (+16.2% atconstant exchange rates) and 22.6% (18.3% at constant exchange rates),
respectively.

30 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTBrands
The sales performance for the Prada brand, which accounts for 78.7% of net sales(79% in 2009), was broadly in line with the comments made above which are valid
for the entire Group.
In evidence of the value of the business development activities undertaken inrecent years, Miu Miu has achieved strong growth with a 39.9% increase in net
sales (+31.5% at constant exchange rates). Its performance stands out, in particular,
in the Asia Pacific where it achieved an 86.1% increase (+70.1% at constantexchange rates) and in North America where it recorded 45.7% growth (36.7% atconstant exchange rates).
The Church’s brand has recovered well: in 2010, its net sales increased by 21.6% on2009 (+18.3% at constant exchange rates). It performed well in both its traditional
European markets and in Asia Pacific as well as in both distribution channels with a+23.2% increase in net sales in the retail channel (+19.3% at constant exchange
rates) and an +18.7% increase in the wholesale channel (+16.4% at constantexchange rates).
Despite the increase in the retail channel, mainly as a result of the recent openingof new stores (Singapore and Hong Kong in 2010), Car Shoe continues to record aslight fall in consolidated revenues (-2.8%) essentially because of its limited
presence in countries with the highest rates of growth.
Royalties
The licensed products business contributed net revenues of Euro 29.6 million (Euro30.7 million in 2009), including royalties of Euro 24 million on sales of eyewear(Euro 23.2 million in 2009) and Euro 3.6 million on sales of perfume (Euro 3.8
million in 2009). Overall royalties income has fallen compared to prior year as thelicensing agreement for sales of cell phones expired in December 2009.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 31

Prada brand revenues(amounts in thousands of Euro)Net sales by geographical area
Italy
EuropeNorth America
Asia PacificJapan
Other countries
Total
Net sales by product line
Clothing
Leather goods
Footwear
Other

January 31
2011

January 31
2010%change302,025

248,993

20.6%

21.3%

284,285 23.5%
203,267 16.8%
326,939 27.0%
135,176 11.2%
10,8050.9%
1,209,465 100.0%

20.1%
28.1%
58.1%
16.2%
-17.9%
31.2%

19.0%

341,544 21.5%
260,310 16.4%
517,024 32.6%
157,061
9.9%
8,876
0.6%
1,586,840 100.0%

419,464
785,993366,392
14,991

26.4%
49.6%
23.1%
0.9%

347,658
553,665
297,139
11,003

28.7%
45.8%
24.6%
0.9%

20.7%
42.0%
23.3%
36.2%

Total

1,586,840 100.0%

1,209,465 100.0%

31.2%

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

1,119,962 70.6%
466,878 29.4%
1,586,840 100.0%

779,181 64.4%
430,284 35.6%
1,209,465 100.0%

43.7%
8.5%
31.2%

Royalties

1,586,840
27,914

1,209,465
28,621

97.7%
2.3%

31.2%
-2.5%

Total net revenues

1,614,754 100.0%

1,238,086 100.0%

30.4%

Net sales

98.3%
1.7%

Miu Miu brand revenues
January 31
2011

January 31
2010%changeItaly

61,33717.4%

51,782

20.5%

18.5%

Europe70,13719.9%

55,772

22.1%

25.8%

North America

32,181

9.1%

22,092

8.8%

45.7%

Asia Pacific

123,73135.0%

66,474

26.3%

86.1%

Japan

63,341

17.9%

53,692

21.3%

18.0%

Other countries

2,311

0.7%

2,492

1.0%

-7.3%

252,304 100.0%

39.9%(amounts in thousands of Euro)Net sales by geographical area

Total

353,038 100.0%

Net sales by product line
Clothing

63,25817.9%

46,497

18.4%

36.1%

Leather goods

224,337

63.6%

154,570

61.3%

45.1%

Footwear

63,68118.0%

50,198

19.9%

26.9%

Other

1,762

0.5%

1,039

0.4%

69.6%

353,038 100.0%

252,304 100.0%

39.9%

DOS (including outlet stores)

264,375

74.9%

177,278

70.3%

49.1%

Independent customers, franchises and related parties

88,66325.1%

75,026

29.7%

18.2%

Total

353,038 100.0%

252,304 100.0%

39.9%

Net sales

353,03899.6%

252,304

99.3%

39.9%

Royalties

1,458

0.4%

1,688

0.7%

-13.6%

253,992 100.0%

39.6%

Total
Net sales by distribution channel

Total net revenues

32 PRADA Group

354,496 100.0%

THE GROUP – 2010 ANNUAL REPORTChurch’s brand revenues
January 31
2011

January 31
2010

Net sales by geographical area
Italy
EuropeNorth America
Asia PacificJapan
Other countries
Total

15,307 28.9%
31,435 59.3%
1,966
3.7%
3,622
6.8%
511
0.9%
187
0.4%
53,028 100.0%

13,176 30.2% 16.2%
25,910 59.4% 21.3%
1,849
4.2%
6.3%
2,137
4.9% 69.5%
245
0.6% 108.6%
287
0.7% -34.8%
43,604 100.0% 21.6%

Net sales by product line
Clothing
Leather goods
Footwear
Other
Total

551
1.0%
1,432
2.7%
51,045 96.3%
53,028 100.0%

422
1.0%
1,206
2.8%
41,976 96.2%
43,604 100.0%

30.6%
18.7%
21.6%
21.6%

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

34,683 65.4%
18,345 34.6%
53,028 100.0%

28,153 64.6%
15,451 35.4%
43,604 100.0%

23.2%
18.7%
21.6%

Net sales
Royalties

53,028101

43,604
209

99.5%
0.5%

21.6%
-51.7%

Total net revenues

53,129 100.0%

43,813 100.0%

21.3%

January 31
2011

January 31
2010%changeNet sales by geographical area
Italy
EuropeNorth America
Asia PacificJapan
Other countries
Total

12,509 69.7%
3,353 18.7%
353
2.0%
1,275
7.1%
11
0.1%
434
2.4%
17,935 100.0%

13,709 74.3%-8.7%
3,536 19.2%
-5.2%
385
2.1%
-8.3%
175
0.9% 628.6%
23
0.1% -52.2%
633
3.4% -31.4%
18,461 100.0%-2.8%

Net sales by product line
Clothing
Leather goods
Footwear
Other
Total

1,760
9.8%
16,175 90.2%
17,935 100.0%

2,010 10.9%
16,451 89.1%
18,461 100.0%-12.4%-1.7%-2.8%

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

6,027 33.6%
11,908 66.4%
17,935 100.0%

4,550 24.6%
13,911 75.4%
18,461 100.0%-32.5%-14.4%-2.8%

Net sales
Royalties

17,935 100.0%-

18,461 100.0%
-

-2.8%
-

Total net revenues

17,935 100.0%

18,461 100.0%-2.8%(amounts in thousands of Euro)

99.8%
0.2%

%
changeCar Shoe brand revenues(amounts in thousands of Euro)THE GROUP – 2010 ANNUAL REPORTPRADA Group 33

Number of stores
January 31, 2011
Owned
Franchises

January 31, 2010
Owned
Franchises

Prada
Miu Miu
Car Shoe
Church’s

207
71
5
36

27
6
-

177
51
3
34

29
6
-

Total

319

33

265

35

January 31, 2011
Owned
Franchises

January 31, 2010
Owned
Franchises

ItalyEuropeNorth America
Asia Pacific

37
88
34
104

5
13
13

31
73
21
87

5
13
15

Japan
Middle East
Total

56
319

2
33

53
265

2
35

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

DOS

OpenedBologna (Italy)
Chengdu Yanlord Lendmark (China)
Costa Mesa (United States)
Lotte Centum, Busan (South Korea)
Lisbon (Portugal)
Selfridges footwear, London (United Kingdom)
Chadstone, Melbourne (Australia)
Raermond (Netherlands)
Cannes (France)
IFC, Shanghai (China)
Peninsula, Shanghai (China)
Le Bon Marché women’s footwear, Paris (France)
Le Bon Marché men’s footwear, Paris (France)
Saks bags&access., Beverly Hills (United States)
Neiman Marcus women, Las Vegas (United States)
Neiman Marcus men, Las Vegas (United States)
Neiman Marcus handbags&access., Las Vegas (United States)
Saks bags&access., San Francisco (United States)
Ginza Mitsukoshi handbags (Japan)
Ginza Mitsukoshi footwear (Japan)
City Center, Las Vegas (United States)
Saks, Chicago (United States)
Beverly Center (United States)
Sano (Japan)
Bloomingdale’s (United States)
Sawgrass Mill (United States)
IlsanKintex Hyunda (South Korea)
El Corte Ingles, Barcelona (Spain)
House of Fraser, Glasgow (United Kingdom)
Bicester Village (United Kingdom)
Istinye, Istanbul (Turkey)
Perth (Australia)
Marina Bay Sands (Singapore)
Noventa di Piave (Italy)

34 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTMiu Miu

DOS

OpenedChadstone, Melbourne (Australia)
Daimaru, Kyoto (Japan)
City Center, Las Vegas (United States)
Changi Airport (Singapore)
Shinsaebashi Daimaru, Osaka (Japan)
Le Bon Marchè footwear, Paris (France)
Lotte Main, Seoul (South Korea)
IFC, Shanghai (China)
Shanghai Center (China)
Cannes (France)
Bologna (Italy)
Forte dei Marmi (Italy)
Porto Cervo (Italy)
Marina Bay Sands (Singapore)
Elements (Hong Kong)
Sloane Street, London (United Kingdom)Frankfurt (Germany)
Venezia (Italy)
Bloomingdale’s (United States)
The Mix-C, Hangzhou (China)
House of Fraser, Glasgow (United Kingdom)

Church’s

DOS

OpenedION (Singapore)
Torino (Italy)

Car Shoe

DOS

OpenedElements (Hong Kong)
ION, Singapore

Prada

DOS

ClosedCapri Vitt. Emanuele (Italy)
Galleria DFS, Cairns (Australia)
Izutsuya, Kokura (Japan)
La Perle, Guangzhou (China)

Miu MiuDOS

ClosedYurakucho, Tokyo (Japan)

Operating results
EBITDA for the period ended January 31, 2011 amounted to Euro 535.9 million,
84.7% more than in 2009, while rising from 18.6% to 26.2% of net revenues. As
already stated, the marked increase in profitability was due to the improvement ingross margin (from 62.4% in 2009 to 67.8% in 2010) which benefited from thehigher incidence of retail channel sales, the increase in unit margins and the morefavorable ratio of full price sales to sales at promotional prices.
Despite an increase in absolute terms mainly because of the expansion of the retail
network, operating expenses actually fell by more than two percentage points on
net revenues as the remaining fixed costs and overheads remained broadly
unchanged.
As already stated in the net revenue analysis, the trend of foreign currencies against
the Euro had a positive income statement impact of around Euro 47 million at
EBITDA level, after the negative effect of foreign exchange hedging.
EBIT amounted to Euro 418.4 million in 2010, more than twice that recorded in 2009
(Euro 187 million), rising from 12% of net revenues in 2009 to 20.4%, despite higher
depreciation and amortization charges because of the major capex program
undertaken in the last two years.
The tax charge for the year increased from 33.8% in 2009 to 34.7% in 2010,
essentially because of provision made in relation to ongoing tax disputes andinspections at the reporting date.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 35

The Group’s net income recorded a significant increase to stand at Euro 250.8
million or 12.3% of net revenues (in 2009, Euro 100.2 million and 6.4% of net
revenue).
Analysis of the statement of financial position
Net invested capital
The following table contains the statement of financial position, reclassified inorder to provide a better picture of the composition of net invested capital.
January 31
2009

January 31
2010

January 31
2011

1,429,837
637,237

1,460,521
532,446

1,595,990
634,462

379,541
257,696
1,413
89,072

361,403
171,043
1,413
92,195459,047
175,415
4,948
103,236

Post employment benefits
Provisions for risks
Net invested capital
Shareholders’ equity – Group

36,103
14,1201,549,651
1,003,107

36,831
13,1391,490,812
1,047,903

34,83352,725
1,585,559
1,204,350

Shareholders’ equity – Minority interests
Total consolidated shareholders’ equity
Long term financial payables
Short term financial payables (net of cash and cash equivalents)

9,192
1,012,299
271,695
265,657

8,756
1,056,659
119,107
315,046

5,788
1,210,138
305,91769,504

Net financial payables
Shareholders’ equity and net financial payables

537,352
1,549,651

434,153
1,490,812

375,421
1,585,559(amounts in thousands of Euro)

Non current assets
Current assets excluding financial assets
Current liabilities excluding financial liabilities
Net working capital
Assets held for saleLong-term liabilities, including deferred taxation

The higher level of net invested capital at January 31, 2001 is largely due to capex
incurred during the year and, to a lesser extent, to increases in the net assets ofsubsidiary companies denominated in foreign currency.
After dividends of Euro 111 million distributed to the shareholders of PRADA spa,
the Group’s Shareholders’ Equity has been strengthened mainly as a result of net
income for the period.
Analysis of non current assets(amounts in thousands of Euro)

Property, plant and equipment
Intangible assets
Investments in associated undertakings
Deferred tax assets
Other non current assets
Derivative financial instruments-non-current
Total non current assets
Percentage of tangible assets already depreciatedJanuary 31
2009

January 31
2010

January 31
2011

379,191
901,116
9,912
106,185
33,433-417,965
893,319
9,509
111,373
28,355-536,717869,119
1,753
141,378
44,8832,140

1,429,837
0.53

1,460,521
0.53

1,595,990
0.50

Property, plant and equipment and Intangible assets show a net increase of Euro
94.6 million. The capex of Euro 206.9 million incurred by the Group during theperiod was distributed as follows: Euro 153.7 million in the retail area, Euro 28.4
million in the industrial and logistics area and Euro 24.8 million in the corporate
area. Depreciation charges for the period totaled Euro 111.5 million and writedowns
amounted to Euro 6.1 million.
The decrease in Investments in associated undertakings follows the reclassification
to current assets of the investment in the Fragrance and Skincare sl which was soldin February 2011.
Deferred tax assets of Euro 141.4 million largely relate to deductible temporary
differences regarding the realizable value of inventories and the residual useful lifeof fixed assets.

36 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTAnalysis of net operating working capital
January 31
2009

January 31
2010

January 31
2011

Trade receivables
Inventories
Trade payables

250,512251,197(230,507)

224,198
231,476(196,396)

274,175
280,409(233,866)

Net operating working capital

271,202259,278

320,718(amounts in thousands of Euro)

The increase in net operating working capital compared to January 31, 2010 is dueto the higher volumes of production and distribution, in line with the strong increasein sales activities and to the one-off effect of the expiry during the year of asecuritization program entered into with Credit Agricole in 2005.
Analysis of net financial indebtedness
The following table summarizes the items included in net financial indebtedness.
(amounts in thousands of Euro)

January 31
2009

January 31
2010

January 31
2011Long term debt
Obligations under finance leases

264,032
7,663

111,439
7,668

303,4082,509

Long term financial payables

271,695

119,107305,917

Short term financial payables and bank overdrafts
Payables to parent company and related parties
Receivables from parent company and related parties
Obligations under finance leases
Payables to other shareholders
Cash and cash equivalents

366,538
2,751(20,696)
3,414
521(86,871)459,283
2,806(54,537)
5,513
545(98,564)

194,240
281(34,044)5,019
581(96,572)

Short term financial payables

265,657

315,046

69,504

Total financial payables

537,352

434,153

375,421

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

554,776

485,339

408,604

1.97
7.60

1.68
9.05

0.76
17.77

NFP/EBITDA ratio
EBITDA/ net financial charges ratio

At January 31, 2011, the Group’s net financial position showed net financial
indebtedness of Euro 408.6 million, with a Euro 76.7 million reduction in net
financial indebtedness compared to January 31, 2010.
As shown in the Statement of Cash Flows included in the Consolidated Financial
Statements, net operating cash flow amounted to Euro 367.7 million and wholly
funded capital expenditure for the period (Euro 191.6 million) as well as
remunerating the shareholders of PRADA spa through dividend distribution andenabling the marked reduction in the Group’s net financial indebtedness as
described above.
The dividends totaling Euro 111 million were settled as follows: Euro 52.1 million
offset against receivables from parent company PRADA Holding bv and Euro 58.9
million paid in cash.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 37

Risk factors regarding the Group and the Company
Risk factors related to the sector where the Group operates
Risks connected to the general state of the economy and the Group’s international
operations
The international environment in which PRADA operates exposes the Group to
several macroeconomic factors whose impact on consumer spending and thevolume of tourist travel can affect its income statement, equity and cash flows. As
already stated, the year 2010 saw a general recovery in the luxury goods sector.
Group strategy, focusing on international growth in the retail channel has alreadyproven its worth as a means of combating the effects of the worldwide downturn in
2008-2009 and has led to highly satisfactory results in 2010 when markets
recovered.
Risks connected to the protection of intellectual property rights
Trademarks and other intellectual property rights are extremely important in the
fashion and luxury market.
Prada’s success also depends on its capacity to protect and promote its own
trademarks and intellectual property rights and to prevent counterfeiting. For thispurpose, the Group invests in worldwide trademark protection and in monitoring
the market in order to take tough measures against counterfeiters of trademarks
and designs.
Risks connected to brand image and recognition
The success of the Group in the international luxury market is linked to the image
and distinctiveness of its trademarks. 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 communications andmarketing activities.
The preservation of the image and prestige acquired by the Group’s brands andtrademarks in the fashion and luxury goods industry is an objective that the PRADA
Group pursues by closely monitoring each step of the process, both inside andoutside the company, in order to guarantee uncompromised quality. It also
engages in the a constant search for innovation in terms of style, product andcommunications in order to ensure that its message is always consistent with thestrong identity of the brands.
Risks factors specific to the Group
Risks connected to exchange rate fluctuations
The exchange rate risk to which the Group is exposed depends on foreign currency
fluctuations against the Euro. In order to hedge this risk, which is mainly
concentrated in the parent company PRADA spa as worldwide distributor, theGroup enters into option and forward sale and purchase agreements so as toguarantee the counter value in Euro of identified financial and commercial cash
flows.
Exchange rate risk management is described in more detail in the “Notes to theconsolidated financial statements” (Note 12).
Risks connected to interest rate fluctuations
The interest rate risk is the risk that cash outflows can might vary as a result ofinterest rate fluctuation. In order to hedge this risk, which is mainly concentrated in
the parent company PRADA spa, the Group uses interest rate swaps and collars.
These instruments convert variable rate loans into fixed rate loans or loans at rates

38 PRADA GroupTHE GROUP – 2010 ANNUAL REPORT

within a negotiated range of rates. Interest rate risk management is described in
more detail in “Notes to the consolidated financial statements” (Note 12).
Risks connected to the importance of key personnel
The Group’s results depend both on the contribution of certain key figures who
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 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.
Risks connected to the implementation of strategy
The Group’s ability to increase revenues and improve profitability depends on the
successful implementation of its strategy for each brand. As already stated, thisstrategy is based on the international development of the retail channel.
The Group is pursuing its objectives through gradual expansion in newgeographical areas where its presence is not yet strong enough. It seizes theopportunities thrown up by the market when selecting new retail locations andpays the utmost attention to design and fitting out of the stores themselves.
Risks connected to the outsourcing of manufacturing activities
The Group outsources some manufacturing activities and production of somefinished products to external sub-contractors.
In order to ensure a continued line of supply, the Group uses a large number ofexternal sub-contractors and constantly monitors their work using a network oftechnicians and inspectors. This ensures that outsourced production meets thesame high quality standards as in-house production.
Finally, external sub-contractors are contractually required to comply with laborand social security rules and regulations provided for by law and by national
collective agreements, as well as with laws and regulations on the health and safety
in the workplace.
Credit risk
Credit risk is defined as the risk that a counterparty in a transaction causes afinancial 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 the financial statements. The Directors essentiallybelieve that the Group’s credit risk mainly regards trade receivables generated in
the wholesale channel. The Group manages the credit risk and reduces is negative
effects through its commercial and financial strategy. Credit risk management isperformed by controlling and monitoring the reliability and solvency of customers
and is carried out by the Group’s Commercial Department. At the same time, thefact that the total receivables balance is not highly concentrated on individual
customers and the fact that net sales are evenly spread around the world lead to a
reduced risk of financial losses.
Liquidity risk
The liquidity risk relates to the difficulty the Group may have in fulfilling its
obligations with regard to financial liabilities. The Directors are responsible formanaging the liquidity risk while the Group Treasury Department, reporting to the
C.F.O, is responsible for managing financial resources as well as possible. The
Directors believe that the funds and lines of credit currently available, in addition to
those that will be generated by operating and financing activities, will allow theGroup to meet its needs resulting from investing activities, working capitalmanagement and repayment of loans as they fall due. This can be achieved

THE GROUP – 2010 ANNUAL REPORTPRADA Group 39

without using all available fund and surplus resources can thus be used to pay
dividends.
Legal and regulatory risks
The PRADA Group operates in a complex regulatory environment and is exposed tolegal risks and risks regarding compliance with applicable laws, including: the risks associated with health and safety at work in compliance with Italian
Legislative Decree 81/08 and equivalent regulations in other countries; the possible legal sanctions for wrongful acts pursuant to Law 231/2001, as
subsequently amended; the risks associated with antitrust rules in the areas where the Group operates;
 the possibility of events that adversely affect the reliability of annual financial
reporting and the safeguarding of Group assets; changes in international tax laws that could expose the Group to noncompliance risks; possible industrial compliance risks regarding the conformity of the finishedgoods distributed and the raw materials and consumables used with Italian andinternational laws and regulations.
The Group involves the various divisions of the business to monitor legislative andregulatory change, deploying the services of external specialist advisors asnecessary, in order to ensure that its processes and procedures are updated andrisks kept down to an acceptable level. These monitoring activities are guaranteedby Divisional Managers and by normal audit activities as well as by specific bodies
and committees such as the Supervisory Board, the Internal Control Committee andthe Industrial Compliance Committee.
Risks connected with data processing
Data is processed using information systems subject to a governance model that
ensures that: data is adequately protected against the risk of unauthorized access, loss
(including accidental loss) and utilization inconsistent with assigned duties;
 data is processed in accordance with applicable laws and regulations.
Unusual and atypical operations
During the year the Group did not carry out any unusual and/or atypicaltransactions with a significant impact on the financial statements.
Information on relationships and transactions with relatedparties
Information on the Group’s relationships and transactions with related parties isprovided in the Notes to the Consolidated Financial Statements (Note 39).

40 PRADA GroupTHE GROUP – 2010 ANNUAL REPORTOutlook for 2011
In 2011, the Group will accelerate its drive for growth centered on the retail channel
with major investment in the opening of new stores and the refurbishment ofseveral existing ones, in both emerging and traditional markets.
This process will be able to draw on the Group’s recognized capacity for stylistic
innovation and on the international prestige of the brands. Investment in thebrands will continue with carefully designed communications activity with a view tostrengthening further their image and positioning on all markets.
Therefore, the Group is confident that it can confirm the growth seen in 2010 interms of revenues, profit and cash flows.
With reference to the recent events in Japan, the Group deems that the short time
elapsed and the situation still uncertain do not allow to express a reliable estimate
on the extent of the effects on revenues and profitability of the country.

Chief Executive Officier
Patrizio Bertelli

Milan, March 28, 2011

The PRADA spa Consolidated Financial Statements will be made public after theirpresentation to the General Meeting convened for March 28, 2011.

THE GROUP – 2010 ANNUAL REPORTPRADA Group 41

42 PRADA GroupTHE GROUP – 2010 ANNUAL REPORT

Consolidated Financial Statements

CONSOLIDATED FINANCIAL STATEMENTS - 2010 ANNUAL REPORTPRADA Group 43

44 PRADA GroupCONSOLIDATED FINANCIAL STATEMENTS - 2010 ANNUAL REPORT

Consolidated Statement of Financial Position(amounts in thousands of Euro)

Note

January 31
2011

January 31
2010

AssetsCurrent assets
Cash and cash equivalents

996,572

98,564

Trade receivables, net

10274,175

224,198

Inventories

11

280,409

231,476

Derivative financial instruments - current

12

7,379

180

Receivables from parent company and relatedparties

13

36,31756,421Other current assets

14

70,22574,708Assets held for sale

15

4,948

1,413

770,025

686,960

Total current assets
Non current assets
Property, plant and equipment

16536,717417,965

Intangible assets

17

869,119

893,319

Associated undertakings

18

1,753

9,509

Deferred tax assets

37

141,378

111,373

Other non current assets

19

44,88328,355Derivative financial instruments - non current

2,140

Total non current assets

1,595,990

1,460,521

Total Assets

2,366,015

2,147,481

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

20

194,240459,283

Payables to parent company and related parties

21

1,107

5,620

Other shareholders’ loans

22

581

545

Trade payables

23

233,866

196,396

Current tax liabilities

24

107,592

62,189Derivative financial instruments - current

12

5,279

9,278

Obligations under finance leases - current

25

5,019

5,513

Other current liabilities

26

111,482

90,726659,166

829,550
111,439

Total current liabilities
Non-current liabilities
Long-term debt

27

303,408

Obligations under finance leases - non current

25

2,509

7,668

Long term employee benefits

28

34,83336,831

Provisions for risks and charges

29

52,725

13,139Deferred tax liabilities

37

52,711

59,404

Other non-current liabilities

30

50,20732,633

Derivative financial instruments - non current

12

318

158

496,711261,272

1,155,877

1,090,822

Share capital

250,000

250,000

Other reserves

743,543

743,411

Translation reserve(40,012)(45,671)

Total non current liabilities
Total Liabilities
Shareholders’ equity

Net profit for the period

250,819

100,163

Total Shareholders’ Equity – Group31

1,204,350

1,047,903

Shareholders’ Equity – Minority Interests

32

5,788

8,756

2,366,015

2,147,481

Total Liabilities and Shareholders’ Equity

CONSOLIDATED FINANCIAL STATEMENTS - 2010 ANNUAL REPORTPRADA Group 45

Consolidated Income Statement(amounts in thousands of Euro)Net revenues
Cost of goods sold

Note

January 31
2011%

January 31
2010

%

33
34

2,046,651(658,763)

100.0%-32.2%

1,561,238(586,582)

100.0%-37.6%

1,387,888

67.8%

974,65662.4%(969,501)-47.4%(787,624)-50.4%

418.38720,4%

187.032

12,0%(30,158)-1.5%(31,882)-2.0%

388,22919.0%

155,1509.9%(134,678)-6.6%(52,503)-3.4%

253,551

12.4%

102,647

6.6%

2,732

0.1%

177

0.0%

250,81912.3%

102,470

6.6%

-

0%

(2,307)-0.1%

250,81912.3%

100,163

6.4%

Gross margin
Operating expenses

35

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

36

Income before taxes
Taxation

37

Net income for the year from continuing operations
Net income of minority interests from continuing
operations
Group net income from continuing operations
Net income for the year from discontinued
operations
Total net income of the Group32

The “Cheaney” business unit (owned by the Church's Group) was sold in 2009.
Therefore, pursuant to IFRS 5, it was classified as a “discontinued operation” in theincome statement for prior year as shown for comparative purposes.

46 PRADA GroupCONSOLIDATED FINANCIAL STATEMENTS - 2010 ANNUAL REPORT

Consolidated Statement of Cash Flows
January 31
2011

January 31
2010

388,229
388,229

155,150(2,307)
152,843

111,455
6,089
23,52826,83793,804497
9,383
30,020
4,757

Other current assets and liabilities
Cash flows from operating activities
Interest paid, net
Taxes paid, net
Net cash flows from operating activities(9,950)(46,052)(46,377)
36,909(9,976)
480,690(22,811)(90,167)
367,7123,846
24,44515,048(33,519)
39,417
340,541(21,208)(39,447)
279,886

Purchases of assets
Acquisition of consolidated investments from third parties (note 7)
Cash flows generated (utilized) by investing activities(187,606)(4,000)(191,606)(132,791)(9,310)(142,101)

Dividends paid to shareholders of PRADA spa
Dividends paid to minority shareholders
Repayment of short term portion of long term borrowings - third parties
Repayment of loans to other shareholders
Proceeds from long term borrowings – third parties
Change in short term borrowings – third parties
Net change in short term borrowings – related parties
Cash flows generated (utilized) by financing activities(58,852)(530)(179,702)(74)
307,293(201,806)(35,591)(169,265)(47,750)(343)(114,624)
23,00738,547(23,960)(125,123)

Change in cash and cash equivalents net of bank overdrafts
Foreign exchange differences
Opening cash and cash equivalents, net of bank overdraft
Closing cash and cash equivalents, net of bank overdraft
Cash and cash equivalents
Bank overdraft
Closing cash and cash equivalents, net of bank overdraft

6,840
3,463
69,19579,49896,572(17,074)
79,49812,662(3,329)59,862
69,19598,564(29,369)
69,195(amounts in thousands of Euro)

Income before taxation from continuing operations
Income / (Loss) before taxation from discontinued operations
Total income before taxation
Income Statement adjustments
Depreciation and amortization from continuing operations
Depreciation, amortization & impairment adj. from discontinued operations
Impairment of property, plant and equipment and intangible assets
Financial (income) expenses
Other non monetary charges
Balance Sheet changes
Other non current assets and liabilities
Trade receivables, net
Inventories, net
Trade payables

CONSOLIDATED FINANCIAL STATEMENTS - 2010 ANNUAL REPORTPRADA Group 47

Statement of changes in Consolidated Shareholders’ Equity(amounts in thousands of Euro, except for number of shares)(Amounts in thousands ofEuro)

Number ofsharesShare
CapitalSharepremium
reserve

Translation
reserve

Balance at February 1, 2009

250,000,000

250,000

209,298(27,672)472,675

98,806

1,003,107

Allocation of 2008 net profit
Dividends
Other movements
Comprehensive income forthe year

-

-

-

-

98,806(47,750)(135)(98,806)-(47,750)
(135)

-

-

(17,999)

10,517100,163

92,681

Balance at January 31, 2010

250,000,000

250,000(45,671)534,113100,163

1,047,903

Allocation of 2009 net profit

-

-

-

100,163 (100,163)

Other movements
Dividends
Transactions with minority
shareholders
Comprehensive income forthe year

-

-

-

(4)
(111,000)-(4)(111,000)

-

-

-

1,134

-

1,134

-

-

5,659

9,839

250,819

266,317

Balance at January 31, 2011

250,000,000

250,000(40,012)534,245

250,819

1,204,350

January 31
2011

January 31
2010

Net income for the period - GroupNet income for the period – Minority Interests
Net income for the period – Consolidated

250,819
2,732
253,551

100,163
177
100,340

Profits/(losses) recognized in cash flow hedge reserve
Profits/(losses) recognized in actuarial gain/(losses) reserve
Profits/(losses) recognized in translation reserve
Profits/(losses) recognized in shareholders’ equity (Group + Minority Interests)

6,357
3,496
5,608
15,461

11,332(817)(18,273)(7,758)

Consolidated comprehensive income for the period - Group
Consolidated comprehensive income for the period – Minority Interests
Consolidated comprehensive income for the period - Total

266,317
2,695
269,01292,681(100)
92,581

209,298

209,298

Other
Net profit
reserves

Share-holders’Equity of Group-Statement of consolidated comprehensive income(amounts in thousands of Euro)

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

48 PRADA GroupCONSOLIDATED FINANCIAL STATEMENTS - 2010 ANNUAL REPORTNotes to the Consolidated Financial Statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 49

50 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT1.

General information
PRADA spa (the “Company”), together with its subsidiaries (jointly the “Group”), isa world leader in the design, production and distribution of luxury handbags,
leather goods, footwear, apparel, accessories, eyewear and fragrances.
Through its directly-operated–stores network (DOS) and a select number ofwholesalers, the Group operates on all major international markets.
The Company is a joint-stock company, incorporated and domiciled in Italy. Its
registered office is in via Fogazzaro 28, Milan, Italy. At the balance sheet date,
94.89% of the share capital was owned by PRADA Holding bv, a company domiciledin The Netherlands, and 5.11% by Intesa SanPaolo, a major banking group
domiciled in Italy.
The ultimate shareholders’ of PRADA Holding bv are Mr. Patrizio Bertelli and thePrada family.
In terms of Art. 2497 et seq. of the Italian Civil Code, the Company is not subject tothe management and control of any company or entity.

2

Basis of preparation
The Consolidated Financial Statements of the PRADA Group as of January 31 2011,
including the “Consolidated Statement of Financial Position”, the “Consolidated
Income Statement”, the “Consolidated Comprehensive Income Statement”, the“Consolidated Statement of cash flows“, the “Statement of changes in
consolidated shareholders’ equity” and the “Notes to the Consolidated Financial
Statements” have been prepared in accordance with the International Financial
Reporting Standards (“IFRS”) issued by the International Accounting Standards
Board (“IASB”).
The Group has opted to prepare its Consolidated Financial Statements on the basis
of IFRS, pursuant to Art. 3(2) of Legislative Decree n. 38 of February 28, 2005.
The Consolidated Financial Statements have been prepared in accordance with theInternational Financial Reporting Standards (“IFRS”) issued by the International
Accounting Standards Board (“IASB”) and approved by the European Union andwith the orders issued in implementation of Art. 9 of Legislative Decree n. 38/2005.
In this document, “IFRS” also refers to all revised International AccountingStandards (“IAS”) and all interpretations of the International Financial Reporting
Interpretations Committee (“IFRIC”), previously called the Standing Interpretations
Committee (“SIC”).
The Group has prepared the Consolidated Statement of Financial Position
classifying separately current and non current assets and liabilities. All the details
needed for more complete information are provided in the Notes.
The Consolidated Income Statement is classified by destination.
Cash flow information is reported in the Consolidated Statement of Cash Flows
which forms an integral part of the Consolidated Financial Statements and has been
performed under the indirect method.
A reconciliation between shareholders’ equity and net profit per the consolidated
financial statements and the figures reported in the PRADA spa separate financial
statements has also been prepared.
Every item in the Consolidated Statement of Financial Position, Consolidated
Income Statement, Consolidated Statement of Cash Flows and Statement of
Changes in Consolidated Shareholder’s Equity is detailed in the Notes to theConsolidated Financial Statements.
The Consolidated Financial Statements have been prepared on a going concern
basis.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 51

3.

Amendments to Accounting Standards
Amendments to IFRS/IAS applicable to the Prada Group from February 1, 2010
The following amendments to IFRS/IAS and their interpretation documents (SIC,
IFRIC) have been adopted by the European Union and are applicable to the PRADA
Group effective from February 1, 2010. The matters in question are not applicable to
the Group as of the date of these financial statements but they could have futureaccounting effects.
 Improvement to IFRS 5 “Non current assets held for sale and discontinued
operations”
 Improvements to IAS/IFRS (2009) Amendment to IFRS 2 “Share based payment: Group cash-settled shared based
payment transactions”
 IFRIC 17 “Distribution of non-cash assets to owners”
 IFRIC 18 “Transfers of assets from customers”
 Amendment to IAS 39 “Financial instruments: recognition and measurement –instruments qualifying for hedging”
 Amendment to IAS 32 “Financial instruments: presentation”.
Note that the Group adopted the new versions of IAS 27 “Consolidated andseparate financial statements” and IFRS 3 “Business combinations” early, effectivefrom the financial statements as of January 31, 2009.
The main changes to IFRS 3 regard the removal of the obligation to measure every
asset and liability at fair value at each stage of a step acquisition of subsidiaries. In
such cases, goodwill is only to be measured on acquiring control, as the differenceat acquisition date between the value of any investment in the business held before
the acquisition, the consideration transferred and the net assets acquired.
Moreover, for a business combination in which the acquirer achieves control
without purchasing all of the acquiree, the remaining (non-controlling) equity
interests are measured either at fair value or by using the method already provided
previously in IFRS 3.
The revised IFRS 3 also requires acquisition-related costs to be recognized as
expenses and the acquirer to recognize the obligation to make an additional
payment as part of the business combination (contingent consideration). In theamended version of IAS 27, the IASB has added a requirement specifying thatchanges in a parent’s interest in a subsidiary that do not result in the loss of control,
as well as of additional shares in companies already controlled, must be accounted
for as equity transactions and recognized within equity. Moreover, the amendment
to IAS 27 requires losses pertaining to non-controlling interests to be allocated to
non-controlling interest equity, even if this results in the non-controlling interest
having a deficit balance. Finally, when a parent loses control of a subsidiary but
retains an ownership interest it must initially measure any retained investment at
fair value and recognize any gain or losses following to the loss of control to theincome statement.
Amendments to IFRS/IAS and Interpretations not yet applicable and not adopted
early by the Group Amendment to IAS 32 “Financial instruments - presentation” to regulate theaccounting treatment of the issue rights/instruments in a currency other than theissuer’s functional currency.
 New version of IAS 24 “Related party disclosures” intended to clarify thedefinition of related parties and simplify disclosure requirements in the case oftransactions with related parties controlled by a State.

52 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT IFRS 9 “Financial instruments” has been published. It constitutes the first part of
the gradual process leading to the full replacement of IAS 39. The firstpublication introduces new criteria for the classification and measurement offinancial assets and liabilities and the derecognition of financial assets.
 Amendment to IFRIC 14 Advance payments in relation to a minimum funding
clause that enables the company making the minimum contribution in advanceto recognize it as an asset.
 Interpretation of IFRIC 19 Extinguishing financial liabilities by issuing equity
instruments in order to clarify the accounting treatment of the extinction of afinancial liability through the issue of equity instruments.
 Improvements to IAS.
4.

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

5.

Basis of consolidation
The main consolidation criteria applied when preparing the consolidated financial
statements for the years ended January 31, 2011 and January 31, 2010 inaccordance with IFRS, are as follows: the financial statements of PRADA spa are prepared under IFRS and those of its
subsidiaries are adjusted, as necessary, to comply with IFRS accounting
standards and with the standards applied throughout the Group. The financial
statements used to prepare the consolidated financial information are those
closed at the reporting date; assets and liabilities, costs and revenues of companies consolidated on a lineby-line basis are fully included in the consolidated financial statements
irrespective of the percentage held. The book value of equity investments,
directly or indirectly owned by the holding company, is eliminated against thecorresponding portion of shareholders’ equity of the companies in which theinterest is held;
 for companies consolidated on a line by line basis that are not 100% owned by
the Group, the share of net equity and results for the year of minority interests
are disclosed as “Minority interests” in the consolidated statement of financial
position and consolidated income statement. When the net equity pertaining tominority interests is negative, it is shown under other receivables where theminority shareholder has made a binding agreement to cover the losses;

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 53

 the difference between the acquisition cost of investments in subsidiaries
acquired after the date of first-time application of IFRS (January 1, 2004) and thecorresponding share of shareholders’ equity at the date of acquisition isallocated, if positive, to assets, liabilities and contingent liabilities based on theirfair value at the date of acquisition. 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 anadditional 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 lessany impairment losses. Deemed cost is calculated based on the difference
between the amount paid for the investment and the relevant net equity.
Goodwill arising from various acquisitions is not amortized but tested annuallyfor impairment. Any impairment in the value of goodwill is charged to theincome statement;
 profits and losses, assets and liabilities of joint ventures and associatedundertakings are accounted for using the equity method. According to thismethod, investments in joint ventures and associated undertakings are recordedin the statement of financial position at cost, and adjusted to account for any
changes in the companies’ net equity post acquisition, less any impairment of
the investment value. Losses exceeding the Group’s interest are recorded only if
the Group has undertaken an obligation to cover them. The excess of theacquisition cost of the investment over the Group’s interest in the net fair valueof 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 the cost is lower than the Group’s interest in the fair value ofidentifiable assets, liabilities and contingent liabilities, the difference is recordedin the income statement for the year of acquisition;
 during the consolidation process, receivables and payables, costs and revenues
arising from inter-company transactions are fully eliminated. Any unrealized
gains or losses generated by transactions between the Group’s consolidated
companies and included in inventories and fixed assets at the balance sheet dateare also eliminated. Unrealized losses are eliminated unless the transaction
provides evidence of an impairment of the asset transferred. In this case, thetransferred asset is impaired; dividends paid by consolidated companies are also eliminated from the income
statement and added to prior year retained earnings if, and to the extent that,they have been drawn from the latter; the financial statements of subsidiary companies are prepared in their respective
local currency. The statement of financial position is translated into Euro using
the year end exchange rate, whereas the income statement is translated using
the average exchange rate for the year. Translation differences arising onconversion of the statement of financial position, using the exchange rate at thestart of the period and the exchange rate at the end of the period and translationdifferences arising on conversion of the income statement using the averagerate for the period and the rate at the end of the period are recorded as atranslation reserve in the consolidated shareholder’s equity. The translation
reserve in consolidated shareholder’s equity represents translation differences
recorded as from first time application on January 1, 2004. When preparing theconsolidated statement of cash flows, the cash flows of subsidiary companies
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.

54 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT

6.

Main accounting policies
Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position atnominal value. Cash equivalents include all highly liquid investments with an
original maturity of three months or less.
For the purposes of the cash flow statement only, cash and cash equivalents
comprise cash on hand, bank accounts, deposit accounts and bank overdrafts. In
the statement of financial position, bank overdrafts and current portions ofpayables to banks for medium and long-term loans are included in “Bankoverdrafts and short-term loans”.
Trade receivables and payables
Trade account receivables are carried at nominal value less the provision for
doubtful accounts, estimated based on an assessment of all disputed and doubtful
balances at year-end. Bad debts are written off when identified.
Trade account payables are recorded at nominal value.
Transactions denominated in foreign currencies are recorded at the exchange rate
as at the date of the transaction. At the reporting date, transactions denominated inforeign currencies are translated using the exchange rate as at the reporting date.
Gains and losses arising from the translation are reflected in the income statement.
The transfer of a financial asset to third parties implies its derecognition from thestatement of financial position only if all risks and rewards connected with thefinancial asset are substantially transferred. Risks and rewards are consideredtransferred when exposure to variability in the present value of future net cash
flows associated with the asset changes significantly as a result of the transfer.
Inventories
Raw materials, work in progress and finished products are recorded at the lower ofacquisition cost, production cost and net realizable value. Cost comprises direct
production costs and those overheads that have been incurred in bringing theinventories to their present location and condition. Acquisition or production cost isdetermined on a weighted average basis. Provisions, adjusting the value of theinventory, are made for slow moving and obsolete inventories and if estimatedselling prices are lower than cost.
Assets held for sale
A non-current asset is classified as held for sale if its carrying amount will bemainly 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. Allother 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
useful life of the related asset.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 55

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

Depreciation rate

Buildings
Production plant and equipment
Leasehold improvements
Furniture and fittings
Other equipment

3% - 10%
7.5% - 25%
Shorter of lease term and 10%
10% - 20%
6% - 33%

When assets are disposed of, their cost and accumulated depreciation are
eliminated from the financial statements and any gains or losses are recognized in
the income statement.
The value of land is stated separately from the value of buildings. Depreciation is
only charged on the value of buildings.
Every year, a test is performed for indications that the value of property, plant andequipment has been impaired. If any such indications are found, an impairment test
is used to estimate the recoverable amount of the asset. The impairment loss isdetermined by comparing the carrying value of the asset with its recoverable valuei.e. the higher of the fair value of the asset less costs to sell and its value in use.
Fair value is determined based on the best information available to reflect theamount that could be obtained, at the reporting date, from the disposal of the asset.
Value in use is an estimate of the present value of future cash flows expected toderive from the asset tested for impairment.
Impairment losses are recorded immediately in the Income Statement.
At every reporting date, the Group will assess whether there is any indication thatan impairment loss recognized in prior periods may no longer apply and should bedecreased. If any such indication exists, the Group will estimate the recoverable
amount of that asset. The recoverable value of the asset shall not exceed thecarrying amount that would have been determined had no impairment loss beenrecognized for the asset in prior years.
Reversal of an impairment loss for an asset will be recorded in the income
statement.
Intangible assets
Only identifiable assets, controlled by the company and capable of producing future
economic benefits are included in intangible assets.
Intangible assets include trademarks, licenses, store lease acquisition costs,
software, development costs and goodwill.
Trademarks are recorded at cost or at the value attributed upon acquisition andinclude the cost of trademark registration in the various countries in which theGroup operates.
The Directors estimate a useful life from 20 to 40 years for trademarks. This
assumes there are no risks or limitations on control over their use. Every trademark
is tested for impairment whenever indicators of impairment emerge.
The useful life of trademark registration costs is estimated to be 10 years.

56 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT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 the cost of development andinstallation. Software is capitalized on condition that it is identifiable, reliably
measurable and if it is probable that the asset will generate future economic
benefits.
Store lease acquisition costs represent expenditures incurred to enter into or takeover retail store lease agreements. These costs are capitalized and amortized overthe shorter period of the lease term or 10 years.
Development costs include expenses incurred to strengthen the brand image
through the implementation of retail projects with a high technological or stylistic
content, e.g.
“In-Store Technology” project, or through projects aimed atdeveloping the store “concept” . The relevant useful life is estimated based on the
Directors’ understanding and amounts to between three and ten years.
Intangible assets with a determinate useful life are amortized on a straight-line
basis at the following rates:
Category of intangible assets
Trademarks
Store lease acquisition costs
Software
Other intangible assets

Amortization rate
2.5% - 10%
Shorter of lease term and 10%
10% - 33%
10% - 33%

All business combinations included within the scope of IFRS 3 are recorded using
the acquisition method whereby identifiable assets, liabilities and potential
liabilities of the acquired business are measured at their acquisition-date fair value.
The difference between the cost of the business combination and the interest
acquired in the net fair value of identifiable assets, liabilities and potential liabilities
is recorded as goodwill. If additional interests in subsidiaries already controlled are
acquired, the positive difference between the acquisition cost and the value of theinterest acquired is recognized in equity.
Goodwill, as an asset that produces future economic benefits but which is notindividually identified and separately measured, is initially recognized at cost.
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 thepossibility that goodwill has been impaired, the impairment test is performed more
frequently. If goodwill is initially recorded during the current year, the impairment
test is performed before the end of the year.
For impairment test purposes, goodwill acquired in a business combination shall,from the acquisition date, be allocated to each of the acquirer’s cash generating
units that are expected to benefit from the synergies of the combination. Cash
Generating Units are determined based on the organizational structure of theGroup and represent groups of assets that generate independent cash inflows fromcontinuing use of the relevant assets. The PRADA Group’s Cash Generating Units
include trademarks, sales channels and geographical areas.
The cash generating units to which goodwill has been allocated are tested for
impairment annually and, whenever there is an indication of impairment, thecarrying value of the cash generating units is compared with their recoverable
amount.
Recoverable value is the higher of fair value less costs to sell and value in use, ascalculated based on an estimate of the future cash flows expected to derive fromthe cash generating unit tested for impairment. Cash flow projections are based onbudget and forecast and on long-term business plans (generally five years)
approved by the management of the relevant business units.
An impairment loss is recorded in the Income Statement for the period whenever
the recoverable value of the cash generating unit is lower than its book value.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 57

An impairment loss recorded for goodwill is never reversed in subsequent years.
Investments
Investments in associated undertakings and joint ventures – companies in which
the Group generally holds between 20% and 50% of the voting rights or on which
the Group has significant influence – are accounted for under the equity method of
accounting.
Under the equity method of accounting, investments are initially recognized at cost.
The carrying amount is later increased or decreased to reflect the parent company’s
share of the profits or losses of the investee after the date of acquisition. Any
goodwill included in the historical cost of the investment is tested annually for
impairment.
The parent company’s share of the profit or loss of the investee is recorded in its
income statement.
Dividends received from the investee company reduce the carrying amount of theinvestment.
The parent company’s share in an associated undertaking’s profits and losses
resulting from inter-company transactions is eliminated.
The reporting date of associated undertakings is the same as the parent company’s.
If a subsidiary or associated undertaking uses accounting policies other than IFRS,
adjustments are made to bring its accounting policies into line with those of theparent company.
If the parent company’s share of the losses made by an associated undertaking or
joint venture exceeds the carrying amount of the investment in the associate or
joint venture, the parent company will recognize a liability for additional losses only
to the extent that it has incurred legal or constructive obligations on behalf of theassociate undertaking or joint venture.
Other investments and marketable securities
Investments that are acquired principally for the purpose of generating a profit fromshort-term fluctuations in price are classified as held for trading. 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
at fair value through shareholders’ equity. These assets are included in non-current
assets unless the Directors intend to hold them for less than twelve months fromthe reporting date, in which case they are included in current assets.
All purchases and sales of investments are recognized on the trade date i.e. thedate that the Group commits to purchase or sell the asset. Purchase cost includes
all transaction costs. Realized and unrealized gains and losses arising from changes
in the fair value of trading investments are included in the income statement, while
those regarding investments available-for-sale are included in shareholders’ equity
in the period in which they arise.
Deferred tax assets
Deferred tax assets are amounts of income taxes recoverable in future periods inrelation to deductible temporary differences and carryforward of unused tax losses.
Deductible temporary differences are differences between the carrying amount ofan asset or liability in the statement of finacial position and its tax value which, in
determining taxable income for future years, will result in deductible amounts
when the carrying amount of the asset or liability is realized or settled.
Deferred tax assets are recognized for all deductible timing differences, tax losses
carried-forward and unused tax credits only to the extent that is probable thattaxable profit will be available in future years against which the deductible timing

58 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT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.
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 used if derivative financial instruments is designated as a hedge of the
exposure to changes in future cash flows of a recognized asset or liability or ahighly probable transaction and which could affect profit or loss. In this case, theeffective portion of the gain or loss on the hedging instrument is recognized inshareholders’ 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 ahedging instrument or a hedging relationship has expired but the hedgedtransaction has not yet occurred, any accumulated gains or losses, recognized inshareholders’ equity until then, is recorded in the income statement when thetransaction takes place.
If the hedge transaction is no longer expected to take place, any related cumulative
gain or loss outstanding in equity will be recognized in the income statement.
Obligations under finance leases
Fixed assets acquired under finance leases are recorded at the lower of market
value and the present value of future payments due under the lease agreement on
the date of the transaction and are depreciated based on their useful life.
Short-term portions of obligations related to discounted future lease payments arerecorded among current liabilities under “Obligations under finance leases,
current”, while medium and long- term portions are recorded among non-current
liabilities under “Obligations under finance leases, non-current”.
Non-current financial liabilities
Non-current financial liabilities include payables to banks for medium and longterm loans. Bank borrowing includes principal amounts, interest and additionalarrangement costs accruing and due at the balance sheet date even when they arecharged at a later date.
Non-current financial liabilities are initially recorded at fair value on the transaction
date less transaction costs which are directly attributable to the acquisition.
After initial recognition, non-current financial liabilities are valued at amortized costi.e. at the initial amount less principal repayments already made plus or minus theamortization (using the effective interest method) of any difference between that
initial amount and the maturity amount.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 59

Post-employment benefits
Post-employment benefits mainly consist of Italian Staff Leaving Indemnities(hereinafter TFR) which are classed as defined-benefit plans.
Defined benefit plans are recognized, using actuarial techniques to estimate theamount of the obligations resulting from employee service in the current and past
periods and discounting it to determine the present value of the Group’s
obligations.
The actuarial valuation is carried out by an independent actuary using the Projected
Unit Credit Method.
This method considers each period of service provided by the employee as anadditional unit right and measures the actuarial liability on the basis of the matured
years of service only at the date of measurement. This actuarial liability is then remeasured taking into account the relationship between the service years provided
by the employee at the date of measurement and the total years of service expected
at the forecast date of settlement of the benefit. Moreover, this method takes
account of future salary increases, for whatever reason (inflation, career
progression and new employment agreements) until the estimated termination
date of the employment relationship.
The cost of defined-benefit plans, accruing during the year and recorded in theincome statement under labor costs, is equal to the average present value of rights
accruing in favor of employees service during the current period, plus the annualinterest accruing on the present value of the Group’s obligation at the beginning of
the year. The interest cost is calculated adopting the previous year discount rate of
future outflows used to estimate the liability at the reporting date.
Actuarial gains and losses are recognized directly in equity, net of the tax effect.
Other long-term employee benefits are recorded among non-current liabilities andtheir value corresponds to the present value of the defined benefit obligation at thereporting date, adjusted according to the period of the underlying agreement. Like
defined benefit plans, other long term benefits are also valued using the Projected
Unit Credit Method.
Provisions for risks and charges
Provisions for risks and charges cover costs of a determinate nature, that werecertain or probable but whose amount or due date was uncertain at year end.
Provisions are only recorded when the Group has a legal or constructive obligation
as a result of past events, it is probable that an outflow of resources will be required
to settle the obligation and a reliable estimate of the amount can be made 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 respectof taxable temporary differences.
Taxable temporary differences are differences between the carrying amount of anasset or liability in the statement of financial position and its tax base which, in
determining the taxable income for future years, will result in taxable amounts
when the carrying amount of the asset or liability is recovered or settled.

60 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTDeferred tax liabilities are recognized for all taxable timing differences except whenliability is generated by: the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction other than abusiness combination that does not affect the accounting result or the tax resultat 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 havebeen enacted or substantively enacted by the balance sheet date.
Deferred tax liabilities are not discounted.
Taxation for deferred tax liabilities relating to items credited or debited directly toshareholders’ equity is also credited or debited directly to shareholders’ equity.
The deferred tax provision is only offset against deferred tax assets o 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 risks and rewards of ownership are transferred to the buyer; the value of the revenues can be reliably measured; the company’s control over the goods sold has ceased; the economic benefits generated by the transaction will probably be enjoyed by
the Company;
 the costs pertaining to the transaction can be measured reliably.
Royalties are accounted for based on sales made by the licensees and the terms ofthe contracts. Cash discounts are recognized as financial charges.
Costs are recorded on an accrual basis. In particular, a cost is immediately
recognized in the income statement when: an expense does not generate any future economic benefit;
 the future economic benefits do not qualify or cease to qualify as assets forrecognition in the statement of financial position;
 a liability is incurred and no asset has been recorded.
Operating leases
Operating leases are recorded in the income statement on a straight-line basis forthe whole lease term.
When calculating the lease term, renewal periods are also considered if provided
for by the agreement and the amount due is known or can be estimated.
Store opening costs
Costs incurred during the pre-opening period of new or refurbished retail stores arecharged to the consolidated income statement when incurred, except for thosecapitalized as leasehold improvements. Upon closure of a store, the net book valueof the leasehold improvements, less the expected recoverable amount, is charged
to the income statement.
Financial charges
Financial charges include interest on bank overdrafts, on short and long term loans,financial charges on finance leases and securitization operations, amortization of
initial costs of loan operations, changes in the fair value of derivatives – insofar as
chargeable to the income statement – and annual interest maturing on the present
value of post-employment benefits.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 61

Income taxes
The provision for income taxes is determined based on a realistic estimate of thetax charge of each consolidated entity, in accordance with the tax rates and tax
laws in force or substantially approved in each country at the reporting date.
Current taxes are recorded in the income statement as an expense. This is except
for taxes deriving from transactions or events directly recognized throughshareholders’ equity which are directly charged to equity.
Earnings per share
Basic earnings per share are calculated by dividing Group net profit by theweighted average number of ordinary shares.
Changes of accounting policy, errors and changes in accounting estimates
The accounting policies adopted are only modified from one year to another if thechange is required by an accounting standard or if it provides more reliable andmore relevant information on the effects of operations on the entity’s statement offinancial position, income statement or cash flows.
Changes of accounting policy are applied retrospectively, adjusting the opening
balance of each affected component of equity for the earliest prior period
presented. Other comparative amounts, disclosed for each prior period presented,
are also adjusted as if the new accounting policy had always been applied. A
prospective approach is applied only when it is not possible to restate thecomparative information.
The adoption of a new or amended accounting standard is implemented inaccordance with the requirements of the standard itself. If the new standard does
not include specific transition provisions, the change of accounting policy is applied
retrospectively or, if this is not feasible, prospectively.
In the case of material errors, the same approach adopted for changes inaccounting standards described in the previous paragraph shall be followed. Non
material errors are recognized in the income statement in the period in which theerror 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’s international activities expose it to a variety of financial risks including
the risk of exchange rate and interest rate fluctuation. The Group’s overall risk
management policy takes account of the volatility of financial markets and seeks tominimize uncertainty regarding cash flow and the resulting potential adverse
effects on its results.
The Group enters into hedging contracts to manage risks arising from exposure to
the exchange rate and interest rate risks.
Financial instruments are accounted for based on hedge accounting rules. At the
inception of the hedge contract, the Group formally documents the hedging
relationship assuming that the hedging is effective during the different accounting
periods it is designated for.

62 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTExchange rate risk
The Group’s has a multinational structure and sells its products in 70 different
countries. It is exposed to an exchange rate risk due to fluctuations in the exchange
rate of the Euro against the US Dollar, Hong Kong Dollar, Japanese Yen and, to alesser extent, other currencies. The Corporate Finance Department is responsible
for foreign currency hedges by entering into derivative contracts (forward sale andpurchase, options) with third parties.
In accordance with IAS 39, these hedging contracts are classed as cash flow
hedges. The fair value of the hedging contracts designated as cash flow hedges isrecorded under shareholders’ equity net of the tax effect.
Interest rate risk
The debt taken on by the Group exposes it to the interest rate risk. The Group
Treasury department hedges this risk by arranging Interest Rate Swap and Collar
agreements.
In accordance with IAS 39, these hedging contracts are classed as cash flow
hedges. The fair value of the hedging contracts qualified as cash flow hedges isrecorded under shareholders’ equity net of the tax effect.
Use of estimates
In accordance with IAS/IFRS, the preparation of these consolidated financial
statements requires the use of estimates and assumptions regarding certain typesof assets, liabilities, revenues and expenses and when valuing contingent assets
and liabilities.
Such assumptions relate primarily to transactions and events not settled as of theyear-end. Accordingly, upon settlement, the actual results may differ from theestimated amounts. Estimates and assumptions are periodically reviewed and theeffects of any differences are immediately charged to the Income Statement.
Estimates have been used when performing impairment tests, in determining
provisions for risks and charges, the allowance for doubtful accounts, the allowancefor obsolete and slow moving inventories, derivative instruments, postemployment benefits and when calculating taxes.
7.

Significant acquisitions and disinvestments
In June 2010, the Group acquired the remaining 45% of the stock capital of Car
Shoe sa, the Luxembourg company that heads the Car Shoe Group, for Euro 4
million. In accordance with the above mentioned new versions of IFRS 3 and IAS
27 (note 1 “Basis of presentation”), as this involved the acquisition of a further
interest in a company already controlled, the difference between the acquisition
price and the portion of shareholders’ equity acquired was recognized directly in
the Group’s shareholders’ equity (Euro 1.1 million).

8.

Operating segment
IFRS 8 requires that detailed information be provided for each “operating
segment” that makes up the business. An operating segment is intended as abusiness division whose operating results are regularly reviewed by top
management so that they can make decisions about the resources to be allocatedto the segment and assess its performance.
The Group’s matrix-based organizational structure - whereby responsibility is
assigned cross-functionally in relation to brands, products, distribution channels
and geographical areas, together with the complementary nature of the production
processes of the various brands and the many relationships between the different
business segments – means that operating segments compliant with IFRS8 cannot
be identified also considering that solely economic results at Group level areprovided to the highest decision maker. For this reason, the business has been

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 63

considered as a single operating segment as this better represents the specificcharacteristics of the PRADA Group business model.
Detailed information on net revenues by brand, geographical area, product anddistribution channel is provided below. It is also reported in the Directors’ Report
where it is accompanied by further information on the Group’s operating results.
Net sales analysis(amounts in thousands of Euro)Net sales by geographical area
Italy
EuropeNorth America
Asia PacificJapan
Other countries
Total

31 January 201131 January 2010

% change393,285
450,463

19.5%
22.3%

330,005
372,992

21.6%
24.4%

19.2%
20.8%

294,903645,680
220,924
11,809

14.6%
32.0%
11.0%
0.6%

227,783
396,123
189,447
14,227

14.9%
25.9%
12.4%
0.8%

29.5%
63.0%
16.6%
-17.0%

2,017,064

100.0%

1,530,577

100.0%

31.8%

Net sales by brand
Prada
Miu Miu
Church's
Car shoe
OthersTotal

1,586,840
353,038
53,02817,935
6,223
2,017,064

78.7%
17.5%
2.6%
0.9%
0.3%
100.0%

1,209,465
252,304
43,604
18,4616,743
1,530,577

79.0%
16.5%
2.8%
1.2%
0.5%
100.0%

31.2%
39.9%
21.6%
-2.8%
-7.7%
31.8%

Net sales by product line
Clothing
Leather goods
Footwear
Other
Total

483,564
1,013,626
503,120
16,7542,017,064

24.0%
50.3%
24.9%
0.8%
100.0%

396,399
711,642
410,493
12,043
1,530,577

25.9%
46.5%
26.8%
0.8%
100.0%

22.0%
42.4%
22.6%
39.1%
31.8%

1,427,356
589,708

70.8%
29.2%

991,493539,084

64.8%
35.2%

44.0%
9.4%

2,017,064

100.0%

1,530,577

100.0%

31.8%

Royalties

2,017,064
29,58798.6%
1.4%

1,530,577
30,661

98.0%
2.0%

31.8%
-3.5%

Total net revenues

2,046,651

100.0%

1,561,238

100.0%

31.1%

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

64 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPrada brand sales(amounts in thousands of Euro)

January 31, 2011

January 31, 2010

Net sales by geographical area
Italy
EuropeNorth America
Asia PacificJapan

302,025
341,544
260,310517,024
157,061

19.0%
21.5%
16.4%
32.6%
9.9%

248,993284,285
203,267
326,939
135,176

20.6%
23.5%
16.8%
27.0%
11.2%

21.3%
20.1%
28.1%
58.1%
16.2%

8,876
1,586,840

0.6%
100.0%

10,805
1,209,465

0.9%
100.0%-17.9%
31.2%

419,464
785,993366,392
14,991

26.4%
49.6%
23.1%
0.9%

347,658
553,665
297,139
11,003

28.7%
45.8%
24.6%
0.9%

20.7%
42.0%
23.3%
36.2%

1,586,840

100.0%

1,209,465

100.0%

31.2%

1,119,962

70.6%

779,181

64.4%

43.7%

466,87829.4%

430,284

35.6%

8.5%

1,586,840

100.0%

1,209,465

100.0%

31.2%

Royalties

1,586,840
27,91498.3%
1.7%

1,209,465
28,621

97.7%
2.3%

31.2%
-2.5%

Total net revenues

1,614,754

100.0%

1,238,086

100.0%

30.4%

January 31, 2011

January 31, 2010

% changeItaly

61,33717.4%

51,782

20.5%

18.5%

Europe70,13719.9%

55,772

22.1%

25.8%

North America

32,181

9.1%

22,092

8.8%

45.7%

Asia Pacific

123,73135.0%

66,474

26.3%

86.1%

Japan

63,341

17.9%

53,692

21.3%

18.0%

Other countries

2,311

0.7%

2,492

1.0%

-7.3%

353,038

100.0%

252,304

100.0%

39.9%

Clothing

63,25817.9%

46,497

18.4%

36.1%

Leather goods

224,337

63.6%

154,570

61.3%

45.1%

Footwear

63,68118.0%

50,198

19.9%

26.9%

Other

1,762

0.5%

1,039

0.4%

69.6%

Total

353,038

100.0%

252,304

100.0%

39.9%

DOS (including outlet stores)
Independent customers, franchises and relatedparties
Total

264,375

74.9%

177,278

70.3%

49.1%

88,66325.1%

75,026

29.7%

18.2%

353,038

100.0%

252,304

100.0%

39.9%

Net sales

353,03899.6%

252,304

99.3%

39.9%

Royalties

1,458

0.4%

1,688

0.7%

-13.6%

354,496

100.0%

253,992

100.0%

39.6%

Other countries
Total
Net sales by product line
Clothing
Leather goods
Footwear
Other
Total
Net sales by distribution channel
DOS (including outlet stores)
Independent customers, franchises and relatedparties
Total
Net sales% change

Miu Miu brand sales(amounts in thousands of Euro)Net sales by geographical area

Total
Net sales by product line

Net sales by distribution channel

Total net revenues

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 65

Church’s brand sales(amounts in thousands of Euro)

January 31, 2011

January 31, 2010

Net sales by geographical area
Italy

15,30728.9%

13,176

30.2%

16.2%

EuropeNorth America
Asia PacificJapan

31,435
1,966
3,622
511

59.3%
3.7%
6.8%
0.9%

25,910
1,849
2,137
245

59.4%
4.2%
4.9%
0.6%

21.3%
6.3%
69.5%
108.6%

Other countries
Total

187
53,0280.4%
100.0%

287
43,6040.7%
100.0%-34.8%
21.6%

Net sales by product line
Clothing
Leather goods
Footwear
Other
Total

551
1,432
51,04553,028

1.0%
2.7%
96.3%
100.0%

422
1,206
41,976
43,604

1.0%
2.8%
96.2%
100.0%

30.6%
18.7%
21.6%
21.6%

34,68365.4%

28,153

64.6%

23.2%

18,345

34.6%

15,451

35.4%

18.7%

53,028100.0%

43,604100.0%

21.6%

Net sales
Royalties

53,028
101

99.8%
0.2%

43,604
209

99.5%
0.5%

21.6%
-51.7%

Total net revenues

53,129100.0%

43,813100.0%

21.3%% change

Net sales by distribution channel
DOS (including outlet stores)
Independent customers, franchises and relatedpartiesTotal% change

Car Shoe brand sales(amounts in thousands of Euro)

January 31, 2011

January 31, 2010

Net sales by geographical area
Italy
EuropeNorth America
Asia PacificJapan
Other countries
Total

12,509
3,353
353
1,275
11
434
17,935

69.7%
18.7%
2.0%
7.1%
0.1%
2.4%
100.0%

13,709
3,536
385
175
23
633
18,461

74.3%
19.2%
2.1%
0.9%
0.1%
3.4%
100.0%

-8.7%
-5.2%
-8.3%
628.6%-52.2%-31.4%-2.8%

Net sales by product line
Clothing
Leather goods
Footwear
Other
Total

1,760
16,175
17,9359.8%
90.2%
100.0%

2,010
16,451
18,46110.9%
89.1%
100.0%-12.4%-1.7%-2.8%

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

6,027

33.6%

4,550

24.6%

-32.5%

11,90866.4%

13,911

75.4%-14.4%

17,935100.0%

18,461100.0%-2.8%

Royalties

17,935-100.0%-

18,461-100.0%--2.8%-

Total net revenues

17,935100.0%

18,461100.0%-2.8%

Net sales

66 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTAnalysis of EBITDA by brand
Group

Prada

Miu Miu

Church’s

Car Shoe

Other

Net sales
Royalties

2,017,064
29,587

1,586,840
27,914353,038
1,458

53,028101

17,935
-

6,223
114

Net revenues

2,046,651

1,614,754

354,496

53,12917,935

6,337

EBITDA

535,930

453,565

77,443

6,764(1,996)

154

EBITDA %

26.2%

28.1%

21.8%

12.7%

-

2.4%

January 31 2010

Group

Prada

Miu Miu

Church’s

Car Shoe

Other

Net sales

1,530,577

1,209,465

252,304

43,604

18,461

6,743

Royalties

30,661

28,621

1,688

209

-

143

1,561,238

1,238,086

253,992

43,813

18,461

6,886

EBITDA

290,219

249,814

41,971

1,045(1,921)(690)

EBITDA %

18.6%

20.2%

16.5%

2.4%

-

-

January 31 2011

Net revenues

Consolidated statement of financial position
9.

Cash and cash equivalents
Cash and cash equivalents are detailed as follows.
January 31
2011

January 31
2010

Cash on handBank deposit accounts
Bank current accounts

17,794
6,222
72,556

17,273277
81,014

Total

96,572

98,564January 31
2011

January 31
2010

Trade receivables – third parties
Trade receivables – associated companies
Trade receivables – other related parties

255,839
1,924
16,412204,997
1,430
17,771

Total

274,175

224,198(amounts in thousands of Euro)

10. Trade receivables, net
Trade receivables are detailed as follows:(amounts in thousands of Euro)Net trade receivables increased at January 31, 2011 because of the higher volume
of sales and the one-off impact of the expiry during the period of the tradereceivables securitization program agreed with Credit Agricole in 2005.
Trade receivables from other related parties refer to the sale of finished products(Euro 15.4 million), royalties under franchise agreements (Euro 0.7 million) withretail companies owned by the main shareholders of PRADA Holding bv and otherreceivables (Euro 0.3 million). A detailed breakdown of these receivables by debtor
is provided in Note 39.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 67

Trade receivables from associated companies mainly regard royalties accruing
from Fragrance & Skincare sl in relation to the sale of fragrances bearing the Pradabrand.
January 31
2011

January 31
2010

Third party trade receivables, grossAllowance for bad and doubtful debts

266,376(10,537)

216,305(11,308)

Total third party trade receivables, net

255,839

204,997(amounts in thousands of Euro)

The allowance for doubtful debts was determined on a specific basis considering all
information available at the date the financial statements were prepared. It isrevised periodically to bring receivables as close as possible to their fair value.
Movements during the period may be analyzed as follows:
January 31
2011

January 31
2010

Opening balance

11,308

9,424

Exchange differences
Increase
Utilized

204
1,345(2,069)(1,013)
3,670
(766)

(251)

(7)

10,537

11,308January 31
2011

January 31
2010

63,672
17,186263,341

70,06912,565
214,620(63,790)(65,778)

280,409

231,476(amounts in thousands of Euro)

Reversals
Closing balance

11. Inventories
Inventories may be analyzed as follows:(amounts in thousands of Euro)
Raw materials
Work in progress
Finished products
Allowance for obsolete and slow moving
inventories
Total

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

Finished
Products

Total

Opening balance

38,52827,25065,778Exchange differences
Increase
Decrease

94(7.000)

139
5.059
(280)

139
5.153
(7.280)

Closing balance

31,622

32,16863,790(amounts in thousands of Euro)The net change has been recorded in the Income Statement in order to bringinventories into line with their estimated realizable value.

68 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT12. Derivative financial instruments: assets and liabilities
Derivative financial instruments: assets and liabilities, current portion
January 31
2011

January 31
2010

Financial assets regarding derivative instruments
Financial liabilities regarding derivative instruments

7,379(5,279)180(9,278)Net carrying amount - current

2,100(9,098)(amounts in thousands of Euro)

Derivative financial instruments: assets and liabilities, non-current portion
January 31
2011

January 31
2010

Financial assets regarding derivative instruments
Financial liabilities regarding derivative instruments

2,140
(318)

(158)

Net carrying amount – non current

1,822

(158)

(amounts in thousands of Euro)

The difference between assets and liabilities under derivative financial instruments(current and non-current) is detailed as follows:
January 31
2011

January 31
2010

IFRS7
category

Forward contracts
Options
Interest rate swaps

607
6,561
2,351

5
175
-

Level II
Level II
Level II

Positive fair value

9,519

180

Forward contracts
Options
Interest rate swaps(469)(4,217)(911)(1,271)(4,211)(3,954)

Negative fair value(5,597)(9,436)

Net carrying amount

3,922(9,256)(amounts in thousands of Euro)Level II
Level II
Level II

All of the derivative instruments reported in the financial statements at January 31,
2011 can be qualified as Level II of the fair value hierarchy proposed by IFRS 7. So,
the Group did not enter into any derivative financial contract qualified as I or III
level according to said hierarchyl.
The Group entered into the financial derivative contracts in the course of its risk
management activities in order to hedge financial risks connected with exchange
rate and interest rate fluctuations.
Foreign exchange rate transactions
The international nature of the Group’s activities expose its cash flows to exchange
rate volatility. In order to hedge this risk, the Group enters into options and forward
sale and purchase agreements so as to guarantee the value in Euro (or in othercurrencies of the various Group companies) of identified cash flows.
Expected future cash flows mainly regard the collection of trade receivables andsettlement of trade payables.
The most important currencies in terms of hedged amounts are: U.S. Dollar, Hong
Kong Dollar and Japanese Yen.
The notional amounts of the derivative contracts, designated as foreign exchange
risk hedges (as translated at the European Central Bank exchange rate at January
31, 2011), are stated below.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 69

Contracts in place at January 31, 2011 to hedge projected future trade cash flows(Amounts in thousands of Euro)

Options

Forward sale
contracts

Forwardpurchase
contracts

January 31
2011

Currency
US Dollar

93,872GB Pound

38,241

18,989,(29,214)-

Japanese Yen

76,518

6,978(19,557)

63,939Hong Kong Dollar

116,226

14,612-130,838

Swiss Franc

19,490,-19,490Singapore Dollar
Other

15,761
18,380285
29,640(6,159)-9,887
48,020

Total

378,488

70,504(54,930)

394,062

83,647
38,241All contracts in place as at the reporting date will expire by January 31, 2012.
Contracts in place at January 31, 2010 to hedge projected future trade cash flows
Options

Forwardcontracts

January 31
2010

Currency
US Dollar

49,595

1,432

51,027

GB Pound

19,364288

19,652

Japanese Yen

15,9491,189

17,138Hong Kong Dollar

37,660922

38,582

Swiss Franc

6,875

1,136

8,011

Other

8,110

5,937

14,047

Total

137,553

10,904148,457(Amounts in thousands of Euro)

Contracts in place as at January 31, 2011 to hedge projected future financial cashflows
(Amounts in thousands of Euro)
Currency
Japanese Yen
Hong Kong Dollar
GB Pound
Total

Options

Forwardcontracts

January 31
2011-

28,891
31,6594,646
65,19628,891
31,6594,646
65,196

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

70 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTInterest rate transactions
The Group enters into Interest Rate Swaps agreements (IRS) in order to hedge therisk of interest rate fluctuations regarding several loans payable.
The key features of the IRS agreements in place as at January 31, 2011 and January
31, 2010 are summarized as follows:
Contract Currency

Notional
amountInterest
rate

Maturity
date

January 31
2011

IRS
IRS
IRS
IRS
IRS
IRS

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

260,000
26,25024,0005,400
8,750
20,9881.511%
1.5450%1.7450%
2.21%
3.5%
5.7%

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

Fair value
2.027
249
(33)
6
(136)
(673)

Contract Currency

Notional
amountInterest
rate

Maturity
date

January 31
2010

Hedged loan –lending
institution

AmountExpiryPool loan
Intesa-Sanpaolo
Unicredit
MPS
Carilucca, Pisa e Livorno
Sovereign Bank

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

Hedged loan –lending
institution

AmountExpiryFair value
IRS

Euro/000

64,500

IRS
IRS
IRS
IRS
IRS

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

64,50030,00030,00010,00022,0002.62% 4.00%
2.62%
4.7475%4.7490%
3.5%
5.7%

27/07/2010(534)

27/07/2010
01/12/2010
29/11/2010
01/08/2012
01/05/2014(534)(1,060)(1,058)
(419)
(349)

Syndicated loan
Intesa-Sanpaolo
Unicredit
Carilucca, Pisa e Livorno
Sovereign Bank

129.000 07/2010
30.00030.00010.00022.00006/201405/201208/201205/2014The IRS convert the variable interest rates applying to a series of loans into fixedinterest rates. These agreements have been arranged with leading financial
institutions and the Group does not expect them to default.
Under applicable regulations, all of the derivatives in place at the reporting datemeet the requirements for designation as cash flow hedges.
Movements on the cash flow hedge reserve included in Group shareholders’equity, before tax effects, since February 1, 2009, may be analyzed as follows.
(Amounts in thousands of Euro)

Opening balance as at February 1, 2009
Change in the translation reserve(19,805)(4)

Change in fair value, recognized in Equity

10,679Change in fair value, charged to Income Statement

5,084

Closing balance at January 31, 2010

(4,046)

Change in the translation reserve

12

Change in fair value, recognized in Equity(17,836)

Change in fair value, charged to Income Statement

26,650

Closing balance at January 31, 2011

4,780

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 71

Information on financial risks
Capital Management
The Group’s capital management strategy is intended to ensure it is able toguarantee a return to shareholders, while protecting the interests of otherstakeholders, to ensure that loan covenants are respected and to maintain an
adequate and well-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
Trade receivables
Derivative financial instruments
Financial receivables

96,572
274,175
34,044

9,519-

96,572
274,175
9,519
34,0449
10
12
13

Total at January 31, 2011

404,791

9,519

414,310(amounts in thousands of Euro)

Loans andreceivables

Derivative financial
instruments

Total

Note

Cash and cash equivalents
Trade receivables
Derivative financial instruments
Financial receivables

98,564
224,198
54,537

180-

98,564
224,198
180
54,5369
10
12
13

Total at January 31, 2010

377,299180

377,478

Loans andpayablesDerivative financial
instruments

Total

Note

Financial payables

498,510-498,51020, 21, 22, 27

Trade payables

233,866-

234,261

23

Financial liabilities(amounts in thousands of Euro)

Obligations under financeleasesDerivative financial instruments

7,528

7,528

-

5,597

5,597

Total at January 31, 2011

739,904

5,597

745,896(amounts in thousands ofEuro)

Loans andpayablesDerivative financial
instruments

Total

Note

Financial payables
Trade payables
Financial obligations underleasesDerivative financial instruments

574,073
196,396-574,073
196,396

20, 21, 22, 27
23

-

9,436

9,436

Total at January 31, 2010

783,650

9,436

793,086

13,181

12

13,181
12

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 towhich an entity is potentially exposed is represented by all financial assets recordedin the financial statements.
The Directors essentially believe that the Group’s credit risk mainly regards tradereceivables generated in the wholesale channel.
The Group manages the credit risk and reduces its negative effects through its
commercial and financial strategy. Credit risk management is performed bycontrolling and monitoring the reliability and solvency of customers and is carriedout by the Group’s Commercial Department.

72 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTAt the same time, the fact that the total receivables balance is not highly
concentrated on individual customers and the fact that net sales are evenly spreadaround the world lead to a reduced risk of financial losses.
The following table contains a summary of total receivables before the allowancefor doubtful debts at the reporting date:
January 31
2011

0 < 3031 < 60

Days overdue
61 < 90

01 < 120> 120

Trade receivables

284,713

18,543

7,438

4,176

342

15,966

Total

284,713

18,543

7,438

4,176

342

15,966

January 31
2011

0 < 3031 < 60

Days overdue
61 < 90

01 < 120> 120

Trade receivables

235,506

18,491

3,949

3,351

2,021

21,711

Total

235,506

18,491

3,949

3,351

2,021

21,711(amounts in thousands of Euro)(amounts in thousands of Euro)At the reporting date, the expected loss on doubtful receivables was fully coveredby the allowance for doubtful receivables.
Movements on the allowance for doubtful receivables are shown in Note 10 “Trade
receivables, net”.
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 formanaging the liquidity risk while the Group Treasury Department, reporting to the
C.F.O, is responsible for managing financial resources as well as possible.
The Directors believe that the funds and lines of credit currently available, in
addition to those that will be generated by operating and financing activities, willallow the Group to meet its needs resulting from investing activities, working
capital management and repayment of loans as they fall due. This can be achieved
without using all available fund and surplus resources can thus be used to pay
dividends.
As at January 31, 2011, the Group had unsued and available bank borrowing
facilities totaling Euro 440.6. million (Euro 254.3 million as at January 31, 2010).
Financial liabilities associated with trade payables (Euro 233.9 million as at January
31, 2011 and Euro 196.4 million as at January 31, 2010) are due within 12 months.
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).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 73

Financial liabilities under derivative financial instruments
Future contractual
cash flows at
January 31, 2011

6 mthsor less

6 to
12 mths

1 to
2 years

2 to
3 years

3 to
4 years

4 to
5 years

Cash outflows(11,986)(11,477)

(509)

-

-

-

-

Cash inflows

11,432

11,092

340

-

-

-

-

Other contracts designated as cash
flow hedges
Cash outflows
Cash inflows(21,771)
18,767(20,196)
17,345(1,575)
1,423

-

-

-

-

Interest rate swaps - cash flow hedges(1,106)

(305)

(249)

(404)

(145)

(3)

-

Net value(4,664)(3,541)

(570)

(404)

(145)

Future contractual
cash flows at
January 31, 2010

6 mthsor less

6 to
12 mths

1 to
2 years

2 to
3 years

3 to
4 years

4 to
5 years

Cash outflows(3,641)(1,055)(2,586)

-

-

-

-

Cash inflows

2,375

329

2,046

-

-

-

-

Other contracts designated as cash
flow hedges
Cash outflows
Cash inflows(1,570)865(1,184)
865

(386)
-

-

-

-

-

Interest rate swaps - cash flow hedges(4,097)(2,590)(1,324)

(425)

(25)

185

82

Net value(6,068)(3,635)(2,250)

(425)

(25)

185

82

3 to
4 to
4 years 5 years(amounts in thousands of Euro)

Forward contracts designated as cash
flow hedges(amounts in thousands of Euro)(3)-

Forward contracts designated as cash
flow hedges

Non derivative financial liabilities(amounts in thousands ofEuro)
Obligations under financeleasesFinancial liabilities – third
parties
Financial liabilities – toother shareholders, toparent company and othercompanies controlled by
PRADA Holding bv
Total(amounts in thousands ofEuro)
Obligations under financeleasesFinancial liabilities – third
parties
Financial liabilities – toother shareholders, to parent
company and othercompanies controlled by
PRADA Holding bv
Total

Futurecontractual
Carrying cash flows
amount at
at Jan 31,
Jan 31, 20112011

on
demand6 mthsor less

6 to
12 mths

1 to
2 years

2 to
3 years

7,528

7,878

-

2,317

2,925

1,487

616

529

4

501,952

530,676

17,186115,21176,537

137,738

156,789

24,196

3,019

862

862

862

-

-

-

-

-

-

510,342

539,416

18,048

117,528

79,462

139,225

157,405

24,725

3,023

FutureCarrying
contractual
amount cash flows at
at Jan 31,
Jan 31,
2011
2010

on
demand6 mthsor less

after
6 to
1 to
2 to
3 to
4 to
5
12 mths 2 years 3 years 4 years 5 years years

13,181

13,979

-

2,961

3,004

5,443

1,437

610

572,403593,720

29,357

406,931

36,111

36,71940,91818,200

3,351

3,351

3,351

-

-

-

-

-

588,935

611,050

32,708409,892

39,11542,16242,355

18,810524

22,881 2,603--

23,405 2,603

Some financial liabilities are subject to financial parameters that have to be met bycertain Group companies. These covenants are described in Note 27 “Long-term
financial payables” and Note 20 “Short-term financial payables and bankoverdrafts”.

74 PRADA Group-NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTExchange rate risk
The exchange rate risk to which the Group is exposed depends on foreign currency
fluctuation, mainly against the Euro. It is largely concentrated in PRADA spa.
The exchange rate risk mainly involves the risk that the cash flows of the Group’s
distribution company will fluctuate as a result of changes in exchange rates. The
most important currencies for the Group are: the U.S. Dollar, Hong Kong Dollar,
Japanese Yen and British Pound.
In addition to the worldwide distribution company, other Group companies also
have cash flows in currencies other than their own and are exposed to theexchange rate risk as well.
The following table shows the sensitivity of the Group’s net income andshareholders’ equity to a range of fluctuation in the main foreign currencies against
Euro, based on Group statement of financial position at January 31, 2011.
(amounts in thousands of Euro)Euro --> + 5%
Effect on net
Effect on
income shareholders’ equity

Euro --> - 5%
Effect on net
Effect on
income shareholders’ equity

GreatBritain PoundHong Kong Dollar

(479)
4,595

(323)
8,664

472
(7,651)453(8,992)

Japanese Yen

1,087

2,881

(1,699)(3,298)US Dollar
Other currencies

1,000(2,196)3,565
99(2,199)2,181(3,539)
(257)

Total

4,007

14,886(8,896)(15,633)

The total impact on shareholders’ equity (Euro 14.9 million positive and Euro 15.6
million negative ) is the sum of the effect on the income statement and on the cash
flow hedge reserve of an hypothetical strengthening/weakening of the Euro against
other currencies.
The effects on the above-mentioned items are recorded before the tax effect.
Management believes that this sensitivity analysis is purely indicative, as it is basedon the period end exposure which might not reflect the effects actually generated
during the year.
Interest rate risk
The PRADA Group is exposed to interest rate fluctuations mainly with regard to theinterest charges on the debt carried by parent company PRADA spa and some of its
subsidiaries.
Management of this risk falls within the scope of the risk management activities theGroup carries out through its centralized Treasury Department.
The following table shows the sensitivity of the Group’s net result andshareholders’ equity to a shift in the interest rate curve in relation to the Group
companies’ financial position as at January 31, 2011.
(amounts inthousands ofEuro)

Shift ininterest rate
curve

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

Other currencies+ 0.50%Total

Effect on
shareholders’equityShift ininterest rate
curve

Effect on net
income for theperiodEffect on
shareholders’equity(1,597)52- 0.50%

1,708

(87)

(335)

(335)

- 0.50%

335

335

(3)

228

- 0.50%

3

(209)

125

125

- 0.50%

(125)

(125)

(1,810)

70

1,921

(86)

The total impact on shareholders’ equity (positive impact of Euro 70 thousand andnegative impact of Euro 86 thousand, respectively) should be considered as thesum of the effect of an hypothetical shift in the interest rate curve on the income
statement and on the cash flow hedge reserve.
The effects on the above-mentioned items are stated before the tax effect.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 75

The sensitivity analysis was based on the period end net financial position so it
might not reflect the actual exposure to the interest rate risk during the year.
Therefore, this analysis should be considered as indicative only.
13. Receivables from parent companies and related parties
Receivables from parent companies and related companies are detailed below:(amounts in thousands of Euro)
Financial receivables – PRADA Holding bv

January 31
2011

January 31
2010

32,55854,462Financial receivables – other companies controlled by PRADA Holding
bv
Financial receivables – other related parties
Other receivables – PRADA Holding bv
Other receivables – other related parties
Other receivables – other companies controlled by PRADA Holding bv
Other receivables – associated companies

77

75

1,409
767
1,329
172
5

623
1,095
166
-

Total

36,31756,421

Financial receivables from PRADA Holding bv stood at Euro 32.6 million at January
31, 2011. The decrease was due to offsetting against the liability that arose upon
approval of distribution of dividends totaling Euro 52.1 million, new loans madeavailable totaling Euro 35.6 million, the collection of interest income of Euro 3.5
million, new interest income of Euro 0.4 million accruing and offsetting against
Euro 2.3 million of payables towards the said parent company. The receivable will
be entirely settled in 2011 using financial resources from the dividend distribution
currently under approval by PRADA spa.
Financial receivables are repayable on demand within 15 days of notice andgenerate interest income at the Euribor rate plus a 1% spread.
Details of financial and non-financial other receivables are provided in Note 39“Transactions with related parties”.
14. Other current assets
Other current assets are detailed as follows:
January 31
2011

January 31
2010

VAT, income tax and other tax receivables
Other current assets
Prepayments and accrued income
Deposits

29,043
7,783
31,842
1,557

18,612
20,14230,514
5,440

Total

70,22574,708(amounts in thousands of Euro)

VAT, income tax and other tax receivables
The increase in “VAT, income tax and other tax receivables” is mainly due to higher
indirect tax receivables.
Other current assets
January 31
2011

January 31
2010

Advertising contributions under license agreements
Advances to suppliers

1,952
566

10,505
1,151

Incentives for retail investments

2,222

4,487

Advances to employees
Other receivables

647
2,396

527
3,472

Total

7,783

20,142(amounts in thousands of Euro)“Advertising contributions under license agreements” is related to Prada sa
receivables from licensees that manufacture and distribute PRADA and MIU MIU
eyewear. They relate to contributions towards costs incurred for advertising
campaigns during the period ended January 31, 2011.

76 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPrepayments and accrued income
January 31
2011

January 31
2010

Rental charges
Insurance
Design costs
Fashion shows and advertising campaigns
Sponsorship
Consulting
Amortized costs on loans
Other11,357873
10,620
2,133
236
2,762
985
2,876

9,962
822
11,903
1,732
595
3,032
2,468

Total

31,84230,514(amounts in thousands of Euro)“Design costs” mainly include costs incurred for the conception and realization ofcollections that will revenues the following year.
“Sponsorship” mainly refers to sponsorship paid to related parties as detailed in
Note 39.
Deposits“Deposits” mainly includes guarantee deposits paid under commercial leaseagreements.
15. Assets held for sale
The increase in assets held for sale relates to Fragrance & Skincare sl, a jointventure set up in 2003 with Spanish fragrance manufacturer Puig and sold on
February 23, 2011 as described in Note 42 “Events after the reporting period”. The
remainder of this balance relates to the Genny brand which was also sold on March
16, 2011.
16. Property, plant and equipment
Changes in the historical cost of “Property, plant and equipment” during the year
ended January 31, 2011 and in prior year are as follows:(amounts in thousands of
Euro)

Land
and
buildingsBalance at January 31, 2009

129,818

85,104

337,957

Additions
Disposals
Exchange differences
Other movements
Impairment

2,201
448
(2,259)
(518)
-

5,874
1,042
259
268
344

Balance at January 31, 2010

128,794

Additions
Disposals
Exchange differences
Other movements
Impairment
Balance at January 31, 2011

Production Leasehold
Furniture
plant and
improve& fittingsmachinery
ments

Other
equipment

Assetsunderconstruction

Total
historicalcost

125,904

74,221

50,385803,389

65,686
1,024(16,548)
7,780
11,327

19,254589(2,230)
3,098
1,374

3,549
4,625
(424)
638
511

23,58512(466)(11,876)-

120,149
7,740(21,668)(610)
13,556

90,119382,524

144,063

72,84861,616879,964

10,4790
1,257
31,995
-

7,609
1,057
46
346
15

83,165110
12,78823,766
14,92526,437
416
4,086
3,857
1,515

11,930
434
579
(54)
376

58,446309
2,195(60,710)2,081

198,066
2,326
20,951(800)
18,912

172,525

97,048487,208

176,51284,49359,157

1,076,943

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 77

Changes in accumulated depreciation of property, plant and equipment during theyear ended January 31, 2011 and in prior year are as follows:
Land andbuildings

Production
plant andmachinery

Balance at January 31, 2009

19,411

71,328203,561

78,17551,723424,198

Depreciation
Disposals
Exchange differences
Other movements
Impairment

3,290
109
(174)
(81)
-

6,099
987
223
(21)
43

37,186310(9,954)
(727)
7,980

12,787512(1,286)
(163)
1,142

6,891
4,517
(294)
109
484

66,253
6,435(11,485)
(883)
9,649

Balance at January 31, 2010

22,33776,599221,776

87,85953,428461,999

Depreciation
Disposals
Exchange differences
Other movements
Impairment

4,295
0
134
157
-

6,319
929
39
(7)
15

49,923
25
6,975
(349)
11,204

15,861
247
2,206
(32)
1,244

6,646
378
435
38
371

83,044
1,579
9,789
(193)
12,834

Balance at January 31, 2011

26,92382,006

267,096

104,403

59,798540,226(amounts in thousands of Euro)Leasehold
Furniture &improvefittings
ments

Other
equipment

Total accum.
depreciation

Changes in the net book value of property, plant and equipment in the year ended
January 31, 2011 and in prior year are as follows:
Production
plant andmachinery

Balance at January 31, 2009

110,407

13,776

134,396

47,72922,49850,385379,191

Additions
Depreciation
Disposals
Exchange differences
Other movements
Impairment

2,201
3,290
339
(2,085)
(437)
-

5,874
6,099
55
36
289
301

65,68637,186714(6,594)
8,507
3,347

19,254
12,787
77
(944)
3,261
232

3,549
6,891
108
(130)
529
27

23,58512(466)(11,876)-

120,149
66,253
1,305(10,183)273
3,907

Balance at January 31, 2010

106,459

13,520160,747

56,204

19,42061,616417,965

Additions
Depreciation
Disposals
Exchange differences
Other movements
Impairment

10,479
4,295
0
1,123
31,838
-

7,609
6,319
128
7
353
-

83,16549,923
85
5,813
24,115
3,721

26,437
15,861
169
1,880
3,889
271

11,930
6,646
56
144
(92)
5

58,446309
2,195(60,710)2,081

198,066
83,044747
11,162(607)
6,078

Balance at January 31, 2011

145,602

15,042

220,112

72,10924,69559,157536,717(amounts in thousands ofEuro)

Leasehold
Furniture
improve& fittings
ments

AssetsOther
underequipment constructionLand andbuildings

Total
historical
cost

Additions to “Land and buildings”, amounting to Euro 10.5 million, mainly regard
the purchase and refurbishment cost of a property in Tuscany for footwear
production and already used by the Group under a rental agreement.
Some Euro 32 million has also been transferred from “Assets under construction”
to “Land and buildings” in relation to a property in Tuscany that came partially intouse during the year. The logistics activities of the footwear and leather goods
divisions are located in this building.
The increases in “Production plant and machinery” mainly relate to purchases ofequipment for use in the production of footwear.
In line with the Group’s strategy for growth, most of the investment made during
the year was concentrated, as in prior years, in building up the retail network. In
2010, the increase in “Property, plant and equipment” and intabgible assets
relating to this sales channel amounted to Euro 153.7 million and was mainly split
between “Leasehold improvements”, “Furniture and fittings” and “Assets underconstruction”. Some Euro 117.2 million was invested in opening new stores (Euro81.8 million for stores that opened in 2010 and Euro 35.4 million for stores opening

78 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT

shortly) with Euro 36.5 million invested in the expansion and refurbishment ofexisting stores.
The additions leading to the increase in “Other equipment” mainly regarded
purchases of hardware.
“Assets under construction” amounting to Euro 59.2 million at January 31, 2011,
include Euro 4.5 million regarding a property under finance lease in Milan and Euro
45.4 million relating to stores opening shortly (mainly in the Far East, Europe andJapan).
“Land and buildings” included capitalized interest charges as follows:(Amounts in thousands of Euro)Land and buildings

Opening net
book value
7,460

Exchangedifferences
147
540

Increases

Amortization(326)

Closing net book
value
7,821

17. Intangible assets
Changes in the historical cost of “Intangible assets” during the year ended January
31, 2011 and in prior year are as follows:
Trade
Goodwillmarks

Balance January 31, 2009

383,698

529,996

97,581

56,417

41,126672

1,109,490

9,311
168
1,937
-

2,060
936
-

7,517
(16)
428

1,226
153
(175)
(236)

2,871
(16)
52

525
(4)
(325)

9,311
14,367
153
2,662
(81)

-

-

-

65

-

52

117

395,114532,992

105,51057,01444,033816

1,135,479

Change in consolidation area
Additions
Disposals
Exchange differences
Other movements
Impairment
Balance at January 31, 2010
Change in consolidation area

Store Lease
Development Assets in
SoftwareAcquisitions
costs progressTotal
historicalcost(amounts in thousands of Euro)

-

-

-

-

-

-

-

Additions
Disposals
Exchange differences
Other movements
Impairment

184
0(5,208)
1
-

176
-

1,529
340
381
-

3,339
2
185
216
24

1,599
1
21
189

2,143
3
19
(603)
-

8,794
5
(4,487)
16
213

Balance at January 31, 2011

390,091

533,168

107,760

60,72845,4652,372

1,139,584

Changes in the accumulated amortization of “Intangible assets” during the year
ended January 31, 2011 and in prior year are as follows:(amounts in thousands of Euro)

Trade
Goodwillmarks

Balance at January 31, 2009

55,99822,70155,74947,282

26,644

208,374

Change in consolidation area
Amortization
Disposals
Exchange differences
Other movements
Impairment

10,487475-

567(5,835)

7,446
(247)
110
-

4,539
143
(159)
(213)
56

5,156
(2)
(9)
-

27,628
143
634
(112)
5,779

Balance at January 31, 2010

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

Change in consolidation area
Amortization
Disposals
Exchange differences
Other movements
Impairment

11,110
(439)
-

119
-

8,358
157
100
-

2,955
162
24

5,987
1
(2)
179

28,41098
203

Balance at January 31, 2011

77,631

29,222

71,67354,34337,596

270,465

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTStore Lease
Development
SoftwareAcquisitions
costs

Accumulated
amortization

PRADA Group 79

Changes in the net book value of “Intangible assets” during the year ended January
31, 2011 and in prior year are as follows:(amounts in thousands of Euro)

TradeGoodwill
marks

Store Lease
Development Assets in
Total net
SoftwareAcquisitions
costs progress book value

Balance at January 31, 2009

327,700

507,295

41,832

9,135

14,482

672

901,116

Change in consolidation area
Additions
Amortization
Disposals
Exchange differences
Other movements
Impairment

9,311
168
(10,487)
1,462
-

2,060
369
5,835

7,517
(7,446)
231
318
-

1,226
(4,539)
10
(16)
(23)
9

2,871
(5,156)
(14)
61
-

525
(4)
(325)
52

9,311
14,367(27,628)
10
2,028
31
5,896

Balance at January 31, 2010

328,154503,889

42,452

5,764

12,244816

893,319

Change in consolidation area
Additions
Amortization
Disposals
Exchange differences
Other movements
Impairment

184
11,110(4,769)
1
-

57
-

1,529
8,358
183
281
-

3,339
2,955
2
23
216
-

1,599
5,987
23
10

2,143
3
19
(603)
-

8,794
28,410
5(4,487)(82)
10

Balance at January 31, 2011

312,460

503,946

36,087

6,385

7,869

2,372

869,119

The net book value of Trademarks at January 31, 2011 and January 31, 2010 isbroken down in the following table:
January 31
2011

January 31
2010

Miu Miu
Church’s
Luna Rossa

182,112110,546
8,093

187,687
119,188
9,074

Car Shoe

6,177

6,363

Prada

4,637

4,800

Other

895

1,042

Total

312,460

328,154(amounts in thousands of Euro)No impairment losses were recorded in relation to the Group’s trademarks in theyear ended January 31, 2011. The caption “Other” includes trademark registration
expenses.
“Store lease acquisition costs” (Key Money) include intangible assets recognized in
respect of costs incurred by the Group to enter into, take over or extend leaseagreements for retail premises in the most prestigious retail locations worldwide.
The increase recorded during the period regards lease agreements in Italy andSpain.
The following table contains a summary of total additions to “Property, plant andequipment” and “Intangible assets” for each business area.
January 31
2011

January 31
2010

RetailIndustrial and logistics
Corporate

153,684
28,385
24,792

109,601
15,759
9,156

Total

206,861

134,516(amounts in thousands of Euro)80 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTGoodwill
As at January 31, 2011, “Goodwill” amounted to Euro 503.9 million. A breakdownof goodwill by Cash Generating Unit is provided below:
January 31
2011

January 31
2010

Italy Wholesale
Asia Pacific and Japan Retail
Italy Retail
Germany and Austria Retail
United Kingdom Retail
Spain RetailFrance and Monte Carlo RetailNorth America Retail and Wholesale
Industrial division
Church’s

78,355
311,936
25,850
5,064
9,300
1,400
11,70048,0003,492
8,849

78,355
311,936
25,850
5,064
9,300
1,400
11,70048,000
3,492
8,792

Total

503,946

503,889(Amounts in thousands of Euro)As required by IAS 36 the goodwill with an indefinite useful life is not amortized.
Instead, it is tested for impairment at least once a year.
The method used to identify the recoverable value (value in use) is based on the
discounted expected free cash-flow (hereinafter DCF) generated by the assets
directly attributable to the business to which the goodwill has been allocated (CashGenerating Units, hereinafter CGUs).
The value in use is calculated as the sum of the present value of future free cashflows expected from the business plan projections prepared for each CGU and thepresent value of the operating activities of the sector at the end of the business plan
period (terminal value).
Business plans cover a period of five years and the discount rate used to discountcash flows is calculated using the weighted average cost of capital approach(W.A.C.C.). For the year ended January 31, 2011 the W.A.C.C. used for discounting
purposes was in a range between 5.55% and 9.6% (5.66% and 8.84% for the year
ended January 31, 2010).
The impairment test performed as at January 31, 2011 did not identify any
impairment losses. However as the recoverable amount is determined on the basisof estimates, the Group cannot guarantee that the value of goodwill will not be
impaired in future years.
18. Associated undertakings(amounts in thousands of Euro)
Investments in associated undertakings and jointventures
Other investments
Total

January 31
2011

January 31
2010

1,739

9,495

14

14

1,753

9,509

Investments in associated undertakings and joint ventures are recorded under theequity method.
Details of investments in associated undertakings and joint ventures are provided
below:
January 31
2011

January 31
2010

Pac Srl
Fragrance & Skincare sl

1,739
-

1,738
7,757

Total

1,739

9,495

(amounts in thousands of Euro)The Fragrance & Skincare joint venture has been reclassified to “Assets held forsale” as reported in Note 15.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 81

19. Other non current assets
Other non-current assets may be analyzed as follows:
January 31
2011

January 31
2010

Guarantee deposits
Deferred rental income
Other receivables

37,945
1,981
4,957

24,347
1,650
2,358

Total

44,88328,355(amounts in thousands of Euro)

The increase in “Guarantee deposits” is due to expansion of the retail network.
“Other receivables” include Euro 3.6 million representing the actuarial valuation of
the Group’s pension plans in the United Kingdom, as described in Note 28 “Postemployment benefits”.
Guarantee deposits are analyzed below by nature and maturity:
January 31
2011

January 31
2010

Nature:Stores
Offices
Warehouses
Other

34,639
1,268
152
1,886

22,194
1,055
125
973

Total

37,94524,347(amounts in thousands of Euro)

January 31
2011(amounts in thousands of Euro)
Maturity:
By 31.01.2013
By 31.01.2014
By 31.01.2015
By 31.01.2016
After 31.01.2016

6,156
2,891
6,583
3,679
18,636

Total

37,945

20. Bank overdrafts and short term loans
January 31
2011

January 31
2010

Bank overdrafts
Short term financial payables
Deferred costs on loans

17,074
179,389(2,223)29.369430.912
(998)

Total

194,240459.283

January 31
2011

January 31
2010

62,304
117,085

260,039

Current portion of long term loans
Total

179,389

430,912(amounts in thousands of Euro)

Short term loans can be analyzed as follows:(amounts in thousands of Euro)
Short term bank loans

170,873

The reduction in short term financial payables from Euro 430.9 million to Euro
179.4 million should be looked at together with the increase in medium/long term
debt. It is essentially due to repayment of a syndicated loan arranged in 2005 inpart using also the proceeds of a new pool loan negotiated in 2010. During theperiod ended January 31, 2011, repayments of Euro 209 million and 3,832 million
Japanese Yen were made on the former syndicated loan (disclosed at January 31,
2010 partly under current portion of long term loans and partly under short termloans) while the new pool loan of Euro 260 million that was arranged was statedunder long term financial payables, except for the first two repayments due in 2011
(Euro 80 million).

82 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT

Short-term bank loans and the current position of long-term debt may be analyzed
by currency as follows:
January 31
2011

January 31
2010

Euro
Japanese Yen
Other currencies

136,451
36,163
6,775

352,415
61,426
17,071

Total

179,389

430,912(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 that convert thevariable rates applied on medium/long term debt into fixed rates or rates within a
specific range.
Considering hedges in place at the reporting date, some 96% of the current portionof medium/long term loans consisted of fixed rate loans (84% at January 31, 2010)
with variable rate loans making up the remaining 4% (16% at January 31, 2010).
Financial payables are stated net of amortized costs totaling Euro 4 million incurred
to arrange the loans (Euro 2.2 million deducted from Short-term loans and Euro 2.1
million deducted from Long-term loans).
21. Payables to parent companies and related parties
Payables to parent companies and related parties may be detailed as follows:(amounts in thousands of Euro)
Financial payables – PRADA Holding bv
Financial payables – other companies controlled by
Prada Holding bv
Other payables – PRADA Holding bv

January 31
2011

January 31
2010

40

2,573

241

233

30

1,796

Other payables – other related parties

786

1,013

Other payables – other companies controlled by
Prada Holding bv

10

5

1,107

5,620

Total

The financial payables to PRADA Holding as at January 31, 2010 were offset against
some of the receivables due from the said parent company.
A detailed breakdown of the balance is provided in Note 39 “Transactions withrelated parties”.
22. Other shareholders’ loans(amounts in thousands of Euro)

January 31
2011

January 31
2010

Payables to other shareholders

581

545

Total

581

545

At the reporting date, payables to other shareholders included loans received fromthe minority shareholders of companies called “TRS” (Travel Retail Shop).
23. Trade payables
Trade payables can be summarized as follows:
January 31
2011

January 31
2010

Trade payables – third party
Trade payables – related parties
Trade payables – associated companies

232,143
1,701
22

195,577
819
-

Total

233,866

196,396(amounts in thousands of Euro)

The increase in Trade payables is due to higher production volumes as a result of
the Group’s revenue growth.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 83

A detailed breakdown of trade payables to related parties is provided in Note 39“Transactions with related parties”. They mainly regard purchases of finishedproducts by retail companies owned by the main shareholders of PRADA Holdingbv.
24. Current Tax liabilities
Current tax payables can be summarized as follows:
January 31
2011

January 31
2010

Current income tax
VAT and other taxes

89,19718,45545,19916,990

Total

107,592

62,189(amounts in thousands of Euro)

The increase is due to the higher level of income generated during the period.
25. Obligations under finance leases
The change compared to January 31, 2010 should be considered together with thedecrease in non-current obligations under finance leases. It regards capital repaid
in accordance with the said lease agreements.
26. Other current liabilities“Other current liabilities” can be analyzed as follows:
January 31
2011

January 31
2010

Payables for capital expenditure
Accrued expenses and deferred income
Other payables

41,134
23,42346,92628,24723,65938,820Total

111,483

90,726(amounts in thousands of Euro)“Accrued expenses and deferred income” can be analyzed as follows:
January 31
2011

January 31
2010

Deferred income
Advertising contributions
Commercial lease charges
Consulting
Maintenance, security, utilities and insuranceCommission

1,208
76
9,845
1,774
1,258
888

1,837
1,319
10,388
855
3,261
687

Personnel costs

1,499

1,227

Logistics costs and customs charges
Other

2,364
4,511

1,837
2,248

Total

23,42323,659January 31
2011

January 31
2010

32,76826,524

2,473
2,099
4,491
5,095

834
2,723
1,516
4,651
2,572

46,92638,820(amounts in thousands of Euro)“Other payables” are analyzed as follows:(amounts in thousands of Euro)
Short term benefits for employees and otherpersonnel
Securitized receivables collected by the Group
Customer advances
Customs duties
Returns from customers
Other
Total

84 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT27. Long term debt
Long term debts are detailed below.
January 31
2011

January 31
2010

Bank borrowing
Deferred costs on loans

305,489(2,081)112.121
(682)

Total

303,408

111.439(amounts in thousands of Euro)

The increase in long term bank borrowing is mainly due to the arrangement of anew pool loan for Euro 260 million (including Euro 180 million classified as longterm bank borrowing and Euro 80 million classified as short term). The said loan
was obtained in July 2010 and is repayable by July 2013.
Some 80% of long term borrowing consists of fixed rate loans (81% at January 31,2010) with variable rate loans accounting for the remaining 20% (19% at January 31,2010).
The financial instruments used to hedge the interest rate risk – interest rate swaps
and collars – convert the variable rates of interest due on loans into fixed rates orrates within a certain range.
Details of long term borrowing at January 31, 2011 are provided below.
Borrower

Post Development Corp
PRADA Fashion Commerce(Shanghai) co limited
PRADA spa
PRADA spa
PRADA spa
PRADA spa
PRADA spa
PRADA spa
PRADA Japan Co. ltd
Church & Co plc
PRADA Japan Co. ltd
PRADA Fashion Commerce(Shanghai) co limited

Amount inthousandsof EuroLoan currency

LenderExpirydate

Interest
rate(1)

14,844
3,322

US Dollar

Sovereign Bank

05/2014

5.70%

Chinese Renminbi

Bank of China

09/20125.40%

180,000
4,200
18,75012,000
3,750

Euro
Euro
Euro
Euro

Pool loanMonte dei Paschi di Siena
IntesaSanPaolo
Unicredit

07/201307/2015
06/201405/2012

3.01%
3.31%
2.145%
2.345%

Euro
Euro
Japanese Yen
GB PoundJapanese Yen

C.R. Lucca. Pisa. Livorno
Cariparma
Mizhuo Bank
HSBC
Mizhuo Bank

08/201206/2015
07/201307/201307/2013

4.40%
2.19%
2.09%
1.20%
1.55%

Chinese Renminbi

Mizuho Bank

09/2013

5.57%

16,2438,872
1,660
32,003
9,845

Total
305,489(1) the interest rates include the effect of interest rate risk hedging transactions

On July 12, 2010, as already stated in the note on “Short term financial payables
and bank borrowing”, PRADA spa signed a loan agreement with a pool of sevenbanks for a total amount of Euro 360 million. The agreement includes a term loan ofEuro 260 million repayable from July 2011 and a revolving line of credit of Euro 100
million. The lending banks are: Banca Monte dei Paschi di Siena, Credit Agricole,
HSBC, IntesaSanPaolo, Mizhuo, Natixis and Unicredit. The loan expires on July 27,
2013.
The term loan is subject to interest at the Euribor 6 month rate plus a spread of 150
basis points while the revolving line of credit is subject to the Euribor rate for theperiod plus a spread of 115 basis points. Both spreads are variable in relation to theratio between consolidated net bank borrowing and EBITDA.
This loan is subject to compliance with certain covenants based on the Consolidated
Financial Statements of the Group. Specifically, the ratio of total net bank borrowing
and EBITDA cannot exceed 2.5 at year end (3 at the six-monthly reporting date), theratio of EBITDA to total net interest charges must be greater than 4 and, finally,shareholders’ equity must not be lower than Euro 650 million. At January 31, 2011
the Group fully respected all these covenants.
On September 28, 2010, Prada Fashion Commerce (Shanghai) obtained a three-year
loan totaling Renminbi 170 million from Mizuho Bank. The loan includes Tranche A
of Renminbi 120 million which is repayable in six-monthly installments between
March 2012 and September 2013 and Tranche B of Renminbi 50 million, repayable

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 85

in quarterly installments between December 2012 and September 2013. The
applicable rate of interest is 100% of the rate published by the People’s Bank of
China.
On September 28, 2010, Prada Japan signed a loan agreement for a total amount ofJapanese Yen 6 billion with a pool of banks including Mizuho Bank and Bank ofTokyo. This includes a term loan of Yen 4 billion, repayable in six-monthly
installments from January 2012, and a revolving line of credit of Yen 2 billion that
expires in July 2011. The term loan is subject to interest at the Tibor six month rateplus a spread of 110 basis points while the revolving line of credit is subject tointerest at the Tibor period rate plus a spread of 82.5 basis points. This loan is also
subject to certain covenants based on the statutory financial statements of Prada
Japan from January 31, 2011. At the reporting date, all of the covenants wererespected.
Long-term borrowing is analyzed by currency and maturity date as follows:
January 31
2011

January 31
2010

Euro
Japanese Yen
GB Pound
US Dollar
Chinese Renminbi

234,943
40,875
1,660
14,844
13,167

78,243
13,231
2,472
15,028
3,147

Total

305,489

112,121(amounts in thousands of Euro)

Currency:(amounts in thousands of Euro)

January 31
2011

Maturity:
2012
2013
2014
After 2014

127,176
151,970
23,422
2,920

Total

305,489(amounts in thousands of Euro)

January 31
2010

Maturity:
2011
2012
2013
After 2013

32,32438,183
16,63824,976

Total

112,121

The long term loan made by Banca Monte dei Paschi di Siena to PRADA spa in
2008, - outstanding amount of Euro 4.2 million reported at January 31, 2011 - issecured by a mortgage on a building in Tuscany that houses offices and researchand development workshops.
The long term loan made by Cassa di Risparmio Parma e Piacenza to PRADA spa in2008 – outstanding amount of Euro 16.2 million reported at January 31, 2011 – issecured by a mortgage on a buildingin Tuscany where the Group has concentrated
the logistics activities of the footwear and leather goods divisions.
The US Dollar long term loan made by Sovereign Bank to Post Development Corp
in 2009 – reported at Euro 15.3 million at January 31, 2011 – is secured by amortgage on a building in New York used by the Group for office and logistics
purposes.

86 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT28. Long term employee benefits
January 31
2011

January 31
2010

Post employment benefits
Other long term employee benefits

33,451
1,382

35,786
1,045

Total liabilities for long term benefits

34,83336,831

Pension plan surplus(3,595)-

Net amount of long term benefits

31,23836,831(amounts in thousands of Euro)

Post employment benefits
Liabilities for post employment benefits reported at January 31, 2011 amount a netof Euro 29.9 million (Euro 35.8 million as at January 31, 2010) and are considereddefined benefit plans. The pension plan surplus is included in “Other non current
assets” (Note 19).
The balance includes Euro 22.4 million of liabilities recorded in the financial
statements of Italian companies and Euro 7.5 million reported by foreigncompanies. The Italian liabilities for post employment benefits regard the“Trattamento di Fine Rapporto” (hereinafter “TFR” i.e. staff leaving indemnity) andthe balance - which reflects fair value - 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”.
The following table shows movements on Liabilities for post-employment benefits
in the period ended January 31, 2011:

Opening balance

Post employment benefits – Italiancompanies (TFR)

Post employment benefits – nonItalian companies

Group
Total

25,822

9,964

35,786

103
311
(595)

2,629
268
(3,860)2,732
579(4,455)(3,319)(2,498)(5,817)

-

1,031

1,031

22,322

7,534

29,856

Current service cost
Interest cost
Actuarial (gains)/losses
Benefits paid
Exchange differences
Closing balance

The TFR liability was determined based on an independent appraisal which
considered demographic, economic and financial evidence and assumptions.
The technical part of the computation was based on an historical analysis of thedata. For the demographic assumptions, variables such as mortality, early
retirement and resignation, dismissal, expiry of employment contract, advancepayment on leaving indemnities and supplementary pension schemes wereconsidered. Economic and financial assumptions were made based on variables
such as inflation and discount rates.
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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 87

As at January 31, 2011, these pension plans had a positive fair value of Euro 3.6
million, as determined by an independent actuary using the “Projected Unit Cost
Method”. They are analyzed as follows:
January 31
2011

January 31
2010

44,493(39,185)

39,709(40,284)

Pension plan surplus

5,308

(575)

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

(1,713)(472)

Net surplus

3,595(1,047)(amounts in thousands of Euro)
Fair value of plan assets
Fair value of plan liabilities

At the reporting date pension plan assets, along with the expected rates of return,were as follows:(amounts in thousands of Euro)

January 31 2011 January 31 2011 January 31 2010
assetsrate of returnassetsEquities
Alternatives
Bonds
Other

20,293
4,944
17,986
1,270

Total at January 31 2011

44,493

7.5%
7.5%
4.9% -5.5%
1%

January 31 2010
rate of return

11,954
4,846
17,930
4,979

7.4%
7.4%
5.1%
1%

39,709Other long-term employee benefits
These long-term employee benefits fall into the IAS 19 category “Other long-term
employee benefits”. As at January 31, 2011, their actuarial valuation, obtainedusing the Projected Unit Cost Method, was Euro 1.4 million.
29. Provisions for risks and charges
Movements on provisions for risks and charges are summarized as follows:
Provision
for litigation

Provision for tax
disputes

Other
provisions

Total

Opening balance

1,469

7,253

4,417

13,139Exchange differences
Reversals
Utilized
Increases

(74)
(760)
211

73
0
(569)
33,334

(39)
(310)
(154)
7,874

34
(384)
(1,483)
41,419

Closing balance

846

40,091

11,78852,725(amounts in thousands of Euro)

Provisions for risks and charges represent the Directors’ best estimate of maximum
contingent liabilities. In the Directors’ opinion and based on the information
available to them, as supported by the opinions of independent experts, at thereporting date, the total amount provided for risks and charges was reasonableconsidering the contingent liabilities that might arise.
Provision for litigation
The provision for litigation amounts to Euro 0.8 million and mainly regards disputes
with employees of the Group. The amounts utilized during the year mainly
regarded the settlement of a dispute with a former consultant.
Provision for tax disputes
On December 30, 2005, Genny spa (a company incorporated into PRADA spa)
received two notices of tax assessment for VAT purposes for the 2002 fiscal year.
The assessments regarded the failure to apply VAT to the value of the “Genny” and“Byblos” brands which were sold along with their respective business units. The
amount assessed was about Euro 20 million. The Company appealed to theProvincial Tax Commission of Ancona and a hearing took place on January 16,

88 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT2007. On May 15, 2007, the Provincial Tax Commission issued its decision which
was favorable to the Company.
On June 7, 2008 the Revenue Agency of Ancona filed an appeal against thesedecisions and on September 18, 2008 PRADA spa filed its own counter arguments.
The above appeal hearings were held on December 21, 2010 but the outcome is not
yet known.
On August 4, 2006, IPI Italia spa (a company incorporated into PRADA spa), as
purchaser of the Genny business, received a demand for VAT penalties totaling
Euro 5.7 million for the year 2002 in relation to its alleged failure to issue a “selfinvoice” for the value of the “Genny” brand acquired as part of the business. On
November 14, 2006, the Company submitted defensive arguments against thisclaim. On October 9, 2007 the Company received a request for penalties against
which it filed an appeal with the Milan Provincial Tax Commission on December 14,
2007. On January 19, 2009 the appeal was rejected and the Company filed anotherappeal on May 8, 2009. This appeal was heard before Milan Regional Tax
Commission on December 1, 2009 and it rejected the appeal on January 20, 2010.
The Company then prepared a further appeal to the Supreme Court of Cassation,
against this decision, and filed it on March 3, 2011. Full provision was made for theamount involved in the dispute during prior year. However, it does not appear
under provisions for taxation as it has already been paid in advance to the tax
authorities, in accordance with the applicable tax regulations
The penalty, which was totally accured in 2009, is not included within theprovisions for risks as, according to Italian law, was already paid to the relevant tax
authorities.
On November 30, 2005 PRADA Retail France sas received a notice of assessment
following an inspection by the French Tax Authorities. The assessment regarded
inter-company transfer pricing in 2003 and 2004. The dispute essentially concerned
the adjustment of the tax losses incurred by the French company.
As no agreement was reached with the French Tax Authorities, on May 31, 2007,
PRADA Retail France filed an application to open a mutual agreement procedure interms of the Franco-Swiss Treaty and the outcome is still pending. If the matter isdecided against PRADA Retail France, it will not generate any taxable income andwill only affect tax loss carryforwards on which no deferred tax assets have beenrecognized in any case.
On December 9, 2009 PRADA Retail France SAS has received a notice ofassessment, following an inspection by the French Tax Authorities with regard totransfer pricing in 2005, 2006 and 2007. In the first few months of 2010, PRADA
Retail France commenced mutual agreement procedures in relation to this second
assessment with regard to both the Franco-Swiss and Franco-Italian bilateral tax
conventions. In the meantime, on August 30, 2010, PRADA Retail France hasreceived a notice from the French Tax Authorities stating that they have partiallycancelled part of the initial adjustment to the extent of Euro 1.5 million. The
outcome of the mutual agreement procedure is awaited in relation to theremaining part. Based on their understanding of the risks associated with thisdispute and with the support of a leading French tax firm, the Directors havedecided not to make any provision in the financial statements
On the basis of the risk assessed on this litigation the directors, also supported by arecognized fiscal advisor, deemed reasonable not to accrue any provision.
In 2008, PRADA Germany received a notice of assessment in relation to intercompany transfer pricing in 2001, 2002, 2003 and 2004. In July 2008, the company
started the mutual agreement procedure provided for by the Double Taxation
Agreement between Germany and Switzerland and, on September 10, 2008, theGerman Tax Authorities announced the suspension of the ordinary contestation
procedure and of the payment due. In the meantime, the German Tax Authorities
have commenced an inspection in relation to transfer pricing in the 2005, 2006,
2007 and 2008 tax years; this inspection is still in progress.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 89

In the last few months of 2009, the Japanese tax authorities began an inspection of
PRADA Japan in relation to transfer pricing in the tax years 2004, 2005, 2006, 2007
and 2008; this inspection is still in progress.
In 2007, the Korean tax authorities commenced a tax inspection of PRADA Korea
Ltd, mainly in relation to transfer pricing, in relation to the 2002, 2003, 2004, 2005
and 2006 tax periods. In 2008, the inspection resulted in notices of tax assessmentthat were challenged by PRADA Korea although, in the meantime, as required by
local regulations, it paid the full amount of the assessment in order to avoid thepossibility of heftier penalties. After its initial challenge was thrown out, in
September 2008, PRADA Korea filed an appeal that was heard in August 2010.
During this appeal, the tax tribunal stated that it would make its final decision on
the issue of transfer pricing only after it had been informed of the outcome of a
new inspection being carried out by the tax authorities in order to gain a better
understanding of the methods used to value the company’s intercompany
transactions; this inspection will be completed by March 2011.
During the tax inspection at PRADA Korea, the Korean authorities determined theexistence of a permanent establishment of PRADA Asia Pacific ltd. in Korea. As aresult, in 2008, PRADA Asia Pacific received a notice of tax assessment which it
immediately challenged while paying the full amount demanded in the meantime,in accordance with local regulations. After the initial challenge, a further appeal
was filed (as already mentioned above) but was rejected in relation to this specificissue. PRADA Asia Pacific Ltd has made no further appeals.
In some countries, the Tax Authorities have requested information to assess thereasonableness of the transfer prices of products for the determination of income
taxes and the imposition of customs duties on imports.
Except where there is an express statement that no provision has been made, theDirectors, supported by the opinion of their tax advisors, believe that theprovisions totaling Euro 40.1 million carried at January 31, 2011 in respect of thetax disputes described above represents the best estimate of the obligations that
the Group could be called upon to fulfill.
Other provisions for risks“Other provisions” amounted to Euro 11.8 million as at January 31, 2011. They
mainly included the provisions made in relation to lease agreements which may be
defined as onerous contracts under IAS 37 “Provisions, contingent liabilities andcontingent assets”. The increase for the period mainly regards a new provision
made in relation to a leased commercial property in the United States.
30. Other non-current liabilities“Other non-current liabilities” amount to Euro 50.2 million (Euro 32.6 million as atJanuary 31, 2010). They mainly regard liabilities to be recognized on a straight-line
basis in relation to commercial lease costs. The increase is due to the retail
network.
31. Shareholders’ equity - GroupThe Group’s shareholders’ equity is as follows:
January 31
2011

January 31
2010

Share Capital
Other reserves
Translation reserve

250,000
743,543(40,012)250,000
743,411(45,671)

Net profit for the period

250,819

100,163

1,204,350

1,047,903(amounts in thousands of Euro)Total

90 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTShare capital
As at January 31, 2011, PRADA spa had 250,000,000 ordinary shares (nominal valueof Euro 1 each) for total subscribed and paid share capital of Euro 250 million.
At the reporting date, 94.89% of the share capital was owned by PRADA Holding bv
while 5.11% was held by Intesa Sanpaolo spa.
Other reserves“Other reserves” amount to Euro 743.5 million and mainly consist of prior year
retained earnings. The balance as at January 31, 2011 also includes, before therelated tax impact, negative actuarial differences of Euro 0.8 million resulting fromthe measurement of Post-employment benefits and the fair value of Euro 3.5
million of derivative instruments designated as cash flow hedges.
During the period, on April 28, 2010 and January 27, 2011, the General Meeting
approved the distribution of dividends totaling Euro 80 million and Euro 31 million,
respectively. This represent a total dividend for the year of Euro 0.44 for each of the
250,000,000 shares in issue.
Net income for the period
The Group’s net income for the period amounted to Euro 250.8 million (Euro 100.2
million as at January 31, 2010).
32. Shareholders’ equity – minority interests
The following table shows movements on Shareholders’ equity of minority
interests during the years ended January 31, 2011 and January 31, 2010.
January 31
2011

January 31
2010

Opening balance

8,756

9,192

Translation differences
Dividends
Acquisition of 45% of Car Shoe sa
Other movements
Net income for the period
Gains/Losses recorded in reserves for actuarial
gain&loss

(51)
(530)
(5,134)
1
2,732

(275)
(343)
7
177

14

(2)

Closing balance

5,788

8,756

(amounts in thousands of Euro)On June 30, 2010, the Group acquired 45% of the shares in Car Shoe sa, the holding
company of the Car Shoe Group, at a cost of Euro 4 million. This took its interest in
the company to 100%.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 91

Consolidated income statement
33. Net revenues
Consolidated revenues are mainly generated by sales of products and are stated
net of returns and discounts.
January 31
2011

January 31
2010

Net sales
Royalties

2,017,064
29,5871,530,577
30,661

Total

2,046,651

1,561,238(amounts in thousands of Euro)Royalties are paid by licensees on sales of eyewear, fragrances, mobile phones andunder franchise agreements. Total royalties income may be detailed as follows:
January 31
2011

January 31
2010

Eyewear
Fragrances
Mobile phones
Franchise agreements
Other

24,046
3,603
1,723
215

23,240
3,778
1,674
1,617
352

Total

29,58730,661(amounts in thousands of Euro)The comparison with prior year is affected by the fact that the licensing agreement
for the sale of mobile phones expired at the end of 2009.
This item includes Euro 4.5 million (Euro 4.6 million in 2009) of royalties from
related parties Note 39 “Transactions with related parties”.
A breakdown of net revenues by brand, geographical area and product is provided
in the Directors’ Report and in Note 8 “Operating segments”.
34. Cost of goods soldJanuary 31
2011

January 31
2010

Purchases of raw materials and production costs
Logistics costs, duties and insurance
Change in inventories

589,232
115,331(45,800)

483,627
90,272
12,683

Total

658,763586,582(amounts in thousands of Euro)

Cost of goods sold has decreased by 5.4 percentage points on net revenues
compared to prior year (down from 37.6% to 32.2%). This is due to the greater
contribution made by the retail channel, to an increase in unit margins and to amore favorable ratio of full price sales to sales at promotional prices.
35. Operating expenses
Operating costs can be analyzed as follows:(Amounts in thousands of Euro)

January 31
2011% of net January 31
revenues
2010% of netrevenues

Product design and development costs
Advertising and communications costs
Selling costs
General and administrative costs

97,164
85,119642,507
144,711

4.7%
4.2%
31.4%
7.1%

96,79475,823484,624
130,383

6.2%
4.9%
31.0%
8.4%

Total

969,501

47.4%

787,624

50.4%

Operating expenses increased from Euro 787.6 million in the year ended January
31, 2010 to Euro 969.5 million in the year ended January 31, 2011 despite a 3%
decrease as a percentage of net revenues compared to prior year. At constantexchange rates, the operating expenses would have increased by 17% compared to2009 rather than by 23.1%.

92 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTProduct design and development costs, broadly in line with prior year, include both
the design phase – i.e. research and testing of shapes, fabrics, leather andproduction techniques plus definition of the design concept - and the productdevelopment phase, involving planning of products, production of prototypes andmanufacture of the products themselves.
Advertising and communications costs have increased from Euro 75.8 million toEuro 85.1 million. They include expenses incurred to develop advertising
campaigns and organize fashion shows and other events plus sponsorship costs
and overheads attributable to this area of the business. The increase in absoluteterms on prior year is mainly due to higher media advertising costs and to new
events like the first Prada fashion show in Beijing in January 2011. At constantexchange rates, the advertising and communications costs would have increased
by 9% compared to 2009 rather than by 12.3%.
Selling costs increased from Euro 484.6 million in 2009 to Euro 642.5 million in 2010(+32.6% at actual exchange rates and +24% at constant exchange rates) whileremaining almost unchanged as a percentage of net revenues (up slightly from 31%
to 31.4%). The increase in absolute terms is essentially due to the expansion of theretail network which recorded a net increase of 54 stores over the year.
General and administrative costs decreased from 8.4% of net revenues in 2009 to
7.1% in 2010 as overheads relating to this area of the business remained largely
stable while net revenues increased. At constant exchange rates the general andadministrative costs would have increased by 8.1% compared to 2009 rather thanby 11%.
In order to provide further information on the income statement structure, we notethat operating costs include depreciation, amortization and impairment
adjustments for both property, plant and equipment and intangible assets for a
total amount of Euro 109.5 million (Euro 95.8 million at January 31, 2010),
personnel costs of Euro 303.5 million (Euro 258.7 million at January 31, 2010), fixed
rent of Euro 148.8 million (Euro 118 million at January 31, 2010) and variable rent ofEuro 140.5 million (Euro 94 million at January 31, 2010).
36. Interest and other financial income (expenses), net
January 31
2011

January 31
2010

Net interest income / (expenses) with related parties
Net interest income / (expenses) with third parties
Exchange gains / (losses) - realized
Exchange gains/ (losses) – unrealized
Other financial income / (expenses)

510(17,797)(5,380)720(8,211)

334(16,976)(3,277)(4,671)(7,292)

Total(30,158)(31,882)(amounts in thousands of Euro)Net financial expenses have decreased by Euro 1.7 million compared to prior year.
Net interest expenses with third parties have increased slightly. The benefit oflower average bank borrowing than in 2009 was more than offset by an increase in
the cost of raising finance as the debt profile became more long term.
37. Taxation
Income taxes for the periods ended January 31, 2011 and January 31, 2010 are
analyzed below:
January 31
2011

January 31
2010

Current taxation
Deferred taxation

166,810(32,132)

70,558(18,055)

Total

134,678

52,503(amounts in thousands of Euro)

The significant increase in income taxes is mainly due to the higher income
generated and to provisions made for ongoing tax disputes.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 93

The following table shows the reconciliation between the effective tax rate of theGroup and the theoretical tax rate of the parent company PRADA spa.
January 31
2011
Italian theoretical tax rate

31.4%

Tax effect of expenses/income that are not deductible/taxable in determining taxable profit
Tax effect of utilization of tax losses carried forward
Effect of different tax rates of subsidiaries operating in other jurisdictions

9.5%
-0.8%
-5.4%

Group effective tax rate

34.7%

Movements on net deferred tax assets and deferred tax liabilities are shown in thefollowing table:
January 31
2011

January 31
2010

Opening balance

51,96941,660Exchange differences
Deferred taxes on derivative instruments recorded in equity (cash flow hedges)
Deferred taxes on post employment benefits recorded in equity(reserve for actuarial differences)
Other movements
Deferred taxes for the period in income statement

8,345(2,456)(1,068)(3,716)(4,336)239(255)
32,132

67
18,055

Closing balance

88,66751,969(amounts in thousands of Euro)The following table shows deferred tax assets and liabilities classified by nature:(amounts in thousands of Euro)

January 31 2011
DeferredDeferred tax
tax
assetsliabilities

January 31 2010
Deferred tax
assetsDeferred tax
liabilities

Inventories
Receivables and other assets
Depreciation/Useful life of non current assets
Deferred taxes due to acquisitions
Provision for risks / accrued expenses
Non deductible / taxable charges / income
Tax loss carryforwards
Derivative financial instruments
Long term employee benefits
Other

62,284415
53,86910,790
5,893
3,129
303
4,533
162

1,515
6,273
39,548
267
1,134
1,455
1,943
575

44,536473
46,698
6,255
1,977
3,796
1,429
3,533
2,676

1,490
11,95740,920
267
847
883
3,040

Total

141,378

52,711

111,373

59,404

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

January 31,
2011

Expiring within 5 years
Expiring after 5 years
Available for carry forward with no time limit

11,49017,587
77,469Total tax loss carryforwards

106,546

The Directors have updated their assessment of tax loss carryforwards and,considering the current uncertain macroeconomic environment, they haveconcluded that it was reasonable to recognize deferred tax assets in some cases
only.

94 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT38. Additional information
Earning and dividends per share
Basic earnings per share are calculated by dividing the net profit attributable toshareholders by the weighted average number of ordinary shares
January 31,
2011

January 31,
2010

250,818,884
250,000,000

100,163,294
250,000,000

Basic earning per share in Euro

1.003

0.401

Basic earning per share, on the number of ordinary shares at thereporting date

1.003

0.401

Group net result in Euro
Weighted average number of ordinary outstanding shares

Headcount
The average headcount by function in the 2010 and 2009 fiscal years was asfollows:
January 31
2011

January 31
2010

Production
Product design and development
Communications
Sales
General and administrative services

1,765
751
96
3,919
668

1,862
743
98
3,367
694

Total

7,199

6,764

(no of employees)

Employee remuneration
Employee remuneration for the periods ended January 31, 2011 and January 31,
2010, by business area is analyzed below:
January 31
2011

January 31
2010

Production
Product design and development
Communications
Sales
General and administrative services

74,311
48,2308,973
188,488
57,83874,122
48,572
8,134
149,820
52,137

Total

377,840

332,785(amounts in thousands of Euro)

January 31
2011

January 31
2010

Directors’ fees
Compensation and remuneration
Bonuses and other incentives
Non monetary benefits

2,271
15,786
4,070
91

2,505
15,079
6,482
153

Total

22,21824,219(amounts in thousands of Euro)

Remuneration of the PRADA spa Board of Directors

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 95

Reconciliation between Prada spa financial statements and consolidated financial
statements
Net income
January 31
2011

January 31
2010A) Net income for the period of PRADA spa

122,776

59,594

Consolidation adjustments:
Net results of consolidated companies and IAS/IFRS adjustments
Adjustment to value of investments measured under the equity method
Elimination of intragroup operations and other adjustments

227,667(707)(96,185)

103,990(403)
62,841

Consolidated net income

253,551

100,340

2,732

177

250,819

100,163January 31
2011

January 31
2010

809,052

790,176

Consolidation adjustments:
Shareholders’ equity of consolidated companies and IAS/IFRS adjustments
Adjustment to value of investments measured under the equity method
Book value of consolidated investments
Additional value attributed to assets of consolidated companies
Elimination of intragroup operations and other adjustments

1,057,562(1,082,959)
504,445(77,962)

892,209707(1,083,901)
507,936(50,468)

Consolidated shareholders’ equity

1,210,138

1,056,659

5,788

8,756

1,204,350

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

Minority interests
Consolidated net income of the PRADA Group

Shareholders’ equity(amounts in thousands of Euro)B) Shareholders’ equity of PRADA spa

Minority interests
Consolidated shareholders’ equity of the PRADA Group

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

January 31,
2011

Possibleutilization

Distributableamount250,000
209,298
9,884
182,899

A,B,C
B
A,B,C

169,182

20,516
11,272

A,B,C

9,841

Share Capital
Share premium reserve
Legal reserve
Other reserves
Non distributable reserves
Art. 7 of Legislative Decree
38/2005
Retained earnings
Actuarial gain and loss
reserve
Fair Value Reserve
Distributable AmountA
B
C

Summary of last three years’
utilizations
For losses
coverageFor dividends
distribution

15,77447,750182,899(1,431)
3,837
361,922

share capital increase
coverage of losses
distributable to shareholders

Pursuant to Article 2431 of the Italian Civil Code, the share premium reserve is fully
distributable only when the legal reserve reaches an amount equal to the 20% of
share capital The adjustment required to reach this level as at January 31, 2011
would amount to Euro 40,116 thousand.

96 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT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, 2011
and January 31, 2010 are shown below.
Currency
US Dollar
Canadian Dollar
GB PoundSwiss Franc
Australian Dollar
Korean Won
Japanese Yen
Hong Kong Dollar
Singapore Dollar
Thai Baht
Taiwan Dollar
Russian Ruble
Czech Koruna
Macau Pataca
Chinese Renminbi
New Zealand Dollar
Malaysian Ringgit
Turkish Lira

1.319
1.354
0.855
1.367
1.426
1,522.048
114.872

Average ratein prior year
1.402
1.575
0.888
1.509
1.743
1,759.456
131.140

10.252
1.786
41.57141.24340.09325.157
10.559
8.906
1.822
4.215
1.996

10.8702.025
47.87046.10944.16226.372
11.196
9.577
2.180
4.913
2.163

Average rate

Closing rate

Opening rate

1.369
1.368
0.861
1.289
1.376
1,534.050
112.490
10.6761.753
42.29539.75240.79524.22310.996
9.030
1.776
4.189
2.197

1.397
1.492
0.867
1.466
1.564
1,622.000
126.1510.8471.961
46.33244.69842.34
26.22311.169
9.534
1.977
4.764
2.079

Fees to Deloitte & Touche spa
The fees for the independent audit firm Deloitte & Touche spa for the statutory
audit of PRADA spa (audit of the separated and of the consolidated financial
statements and verifications that the accounting records are properly maintained
and operations are correctly reflected in the accounting records) amounted to Euro
0.6 million, while the fees for the statutory and voluntary audit of the subsidiaries of
PRADA amounted to Euro 0.2 million. Deloitte & Touche spa did not provide anyother services to the Prada Group during the period.
39. Transactions with related parties
The Group enters into commercial and financial transactions with companies
owned by entities that directly or indirectly control PRADA spa (“related parties”).
These transactions mainly refer to the sale of goods, the supply of services, thegranting and receipt of loans and sponsorship and franchise agreements. Thesetransactions take place on an arm’s length basis at the same economic terms as
those applied to third parties.
The following tables show details of related party transactions for each item in theStatement of Financial Position and Income Statement. They show amounts
relating to each related party and the amount relating to each line item, in bothabsolute and percentage terms.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTPRADA Group 97

Statement of financial position items at January 31, 2011
(amounts in thousands of Euro)

Trade
receivables

Receivables fromTrade
parent companies
payablesand related parties

Payables to parent
companies andrelated parties

PRADA Holding bv
Other related parties
Venezia 3 srl
F.lli Prada srl
Montenapoleone 6 srl
IPR srl
Spiga 1 srl
PRADA Italia spa
Stellarea
Luna Rossa Challenge 2007
Stiching Fondazione Prada/
Progetto Prada Arte srl
Gipafin sarl
CID USA Corp.
HMP srl
Prada America’s Cup srl
OthersOther companies controlled by PRADA Holding bv
EXHL Design llc
Prapar Corporation
EXHL Retail USA llc
EXHL Italia
OthersOther associated undertakings

16,412
2,182
5,474
2,263
3,763
2,148
264
318

33,325
2,738
28
-

1,701
272
452
257
505
127
2
86

70
786
299
6
2
5

-

1,128

-

472

-

20
75
79
1,397
11
249
127
1
102
6
13

1,924

5

22

1
1
251
2
249
-

Fragrance and Skincare sl

1,924

5

22

-

-

-

-

171
134

18,33636,317

1,723

1,412

Members of the Board of Directors
Other related parties
Total at January 31, 2011

Statement of financial position items at January 31, 2010

(amounts in thousands of Euro)

Receivables
Payablesfrom parent
to parent
Trade
Trade
companies and Prepayments
companies
receivables
payablesrelatedand relatedpartiesparties

PRADA Holding bv
Other related parties
Venezia 3 srl
F.lli Prada srl
Montenapoleone 6 srl
IPR srl
Spiga 1 srl
PRADA Italia spa
Stellarea
Luna Rossa Challenge 2007
Stiching Fondazione Prada/Progetto
Prada Arte srl
Gipafin sarl
CID USA Corp.
HMP srl
OthersOther companies controlled by PRADA Holding bv
EXHL Design llc
Prapar Corporation
EXHL Retail USA llc
EXHL Italia
OthersOther associated undertakings

17,771
3,407
5,128
3,252
3,677
2,014
115
178

55,085
1,095
28
-

-

887

1,430

20
74
75
11
241
125
99
7
10
-

Fragrance and Skincare sl

455
300
155
-

819
64
211
102
231
53
76
82

4,369
1,013
296
2
5
8

-

689

-

1
12
1
238
238
-

-

1,430

-

-

-

Members of the Board of Directors

-

-

-

-

2,040

Other related parties

-

-

-

-

122

Total at January 31, 2010

19,201

56,421

455

819

7,782

98 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT

Income statement items at January 31, 2011
(amounts in thousands ofEuro)
PRADA Holding bv
Other related parties
Venezia 3 srl
F.lli Prada srl
Montenapoleone 6 srl
IPR srl
Spiga 1 srl
PRADA Italia spa
Luna Rossa Challenge 2007
HMP srl
Stitching Fondazione Prada/
Progetto Prada Arte srl
Maestrale Holding
Prada America’s Cup srl
OthersOther companies controlledby PRADA Holding bv
Prapar Corporation
EXHL Retail USA llc
EXHL Italia srl
EXHL Japan Co. ltd
Prada Arte bv
OthersOth associated undertakings
Fragrance and Skincare sl
Total at January 31, 2011

Net
Cost ofrevenues goods soldGeneral, admin.
& selling costs(income)Royalties Royalties
income expense

Interest
incomeInterest
expense34,533
4,454
11,851
5,164
8,283
4,781
-

2.365
419
697
313
692
244
-

(129)
5,815
(1,925)
(218)
(4)
(274)
(111)
(315)
5,350
465

940
118
326
142
222
132
-

-

469
82
60
1

38
-

-

-

1,966

-

-

-

-

-

-

881

-

-

21
-

-

-

-

(14)

-

-

1

3

-

22
22

(6)
(3)
(5)
(245)
(245)

3,603
3,603

-

1
-

3
-

34,533

2,387

5,427

4,543

-

552

41

Royalties Royalties
income expense

Interest
incomeInterest
expense

383
1
1
384

44
4
4
3
3
51

Income Statement items at January 31, 2010
(amounts in thousands of
Euro)

Net
Cost ofrevenues goods sold

PRADA Holding bv
Other related parties
Venezia 3 srl
F.lli Prada srl
Montenapoleone 6 srl
IPR srl
Spiga 1 srl
PRADA Italia spa
Luna Rossa Challenge 2007
HMP srl
Stitching Fondazione Prada/
Progetto
Arte srl
MaestralePrada
Holding

31,471
5,116
10,257
4,705
7,535
3,856
2

OthersOther companies controlled by
PRADACorporation
Holding bv
Prapar31,471

EXHL Retail USA llc
EXHL Italia srl
EXHL Japan Co. ltd
Prada Arte bv
OthersOth associated undertakings
Fragrance and Skincare sl
Total at January 31, 2010

General, admin. &selling costs(income)

3,300
553
970
405
1,104
274
(10)
3
1
-3,300NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT

(253)
7,122
(2,023)
(112)
44
(42)
(112)
(283)
(35)
477
4,838
3,500
870
(14)
(6)
(3)
(5)
(545)
(545)
6,310

822
132
279
123
184
104
3,778
3,778
4,600

1
1
1

PRADA Group 99

40. Commitments
Operating leases
At January 31, 2011 and January 31, 2010, operating lease commitments, by
maturity date, were as follows:
January 31
2011

January 31
2010

Within a year

198,481

175,938

After between one year and five years
After more than five years

660,454535,779

572,981494,964

1,394,714

1,243,883(amounts in thousands of Euro)

January 31
2011

January 31
2010

Fixed minimum lease payments
Variable lease payments

154,582
140,472

124,979
93,992

Total

295,054

218,971(amounts in thousands of Euro)Total

The following table shows the amounts paid in 2010 and 2009:

Some Group companies are required to pay lease charges based on a fixed
percentage of net sales.
Finance leases“Property, plant and equipment” includes the following assets held under financeleases:January 31
2011

January 31
2010

Land and buildings
Furnishings and fittings
Other equipment
Accumulated depreciation

31,362
13,644
3,567(17,092)

34,811
12,1673,215(14,445)

Total

31,48135,748(amounts in thousands of Euro)

The present value of lease payments due after January 31, 2011 is detailed bymaturity date below:(amounts in thousands of Euro)
Payable by the end of the period ending:January 31, 2012

5,019

January 31, 2013

1,414

January 31, 2014
January 31, 2015
January 31, 2016
Periods after January 31, 2016
Total

581
507
10
7,531

Other commitments
On November 16, 2010, PRADA spa signed a preliminary contract with third parties
whereby it undertook to purchase a number of real estate properties in Italy,
already used by PRADA spa in its business activities under rental agreements, at a
total cost of Euro 49.5 million. As at the reporting date, one of the properties had
already been acquired for Euro 7 million while the remainder will be purchased byJune 2011 (Euro 30.2 million) and by February 2012 (Euro 12.3 million).

100 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORTGuarantee
The letters of guarantee issued in favor of Fragrance & Skincare sl, in support oflines of credit and totaling Euro 6.25 million, were withdrawn on february 23, 2011
after PRADA spa sold its interest in the joint venture to the Puig Group of Spain.
41. Consolidated companies
The companies included in the consolidation area are as follows .
Localcurrency

Share capital(000s of local
currency)

PRADA spa

EURO

250,000

Artisans Shoes srl(*)
Space Caffè srl (*)(ex PRADA Advertising srl)
IPI Logistica srl(*)
PRADA Stores srl(*)
Car Shoe Italia srl
Church Italia srl

EURO

1,000

66.73

Montegranaro, Italy

Production/Distribution/ Group
Holding company
Footwear production

EURO

20

100.00Milan, Italy

Service company

EURO
EURO
EURO
EURO

600
520
10
51

100.00100.00100.00100.00Milan, Italy
Milan, Italy
Milan, Italy
Milan, Italy

Service company
Retail/sub holding company
Distribution/Retail
Distribution/Retail

GBP
EURO
EURO
EURO
EURO

5,000
215
40
240
4,000

100.00100.00100.00100.00100.00London, UK
Munich, Germany
Vienna, Austria
Madrid, Spain
Paris, France

RetailRetailRetailRetailRetail

EURO

6,000

100.00Athens, Greece

RetailEURO

150

100.00Monte-Carlo, Monaco

RetailService company/Trademark
ownerService company
Service company/Trademark
ownerSub-holding company/
Service company
RetailSub-holding
RetailRetailEntity%interest

Registered office

Main business

Italy

EuropePRADA Retail UK ltd (**)
PRADA Germany gmbh
PRADA Austria gmbh
PRADA Spain sa
PRADA Retail France sas
PRADA Hellas Single Partner
Limited Liability Company (*)
PRADA Monte-Carlo sam

Milan, Italy

PRADA sa(*)

EURO

31

100.00

Luxembourg

PRADA Company sa

EURO

3,204

100.00

Luxembourg

Car Shoe sa

EURO

2,100

100.00

Luxembourg

PRADA Far East bv(*)

EURO

20

100.00Space sa
Church Holding UK plc (*)
Church France sa
Church UK Retail ltd
Church’s English Shoes Swiss
sa

CHF
GBP
EURO
GBP

200
78,126241
1,021

100.00100.00100.00100.00Amsterdam,
Netherlands
Paradiso, Switzerland
Northampton, UK
Paris, France
Northampton, UK

CHF

100

100.00St. Moritz / Switzerland Retail

Church & Co. Ltd

GBP

2,811

100.00

Northampton, UK

Church & Co. (Footwear) ltd
Church English Shoes sa

GBP
EURO

44
75

100.00100.00PRADA Czech Republic sro(*)

CZK

2,500

100.00

Northampton, UK
Brussels, Belgium
Prague, Czech
Republic

PRADA Portugal. Unipessoal
lda(*)

EUR

5

100.00Lisbon, Portugal

RetailPRADA Rus llc(*)

RUR

278

99.90

Moscow, Russia

RetailChurch Spain, S.L.
PRADA Bosphorus Deri
Mamuller Ticaret Limited
SirketiJCS (2009) ltd

EUR3

100.00MadridRetailTRY

7,630

100.00Istanbul, Turkey

RetailGBP

90

100.00

Northampton, UK

Dormant

PRADA USA Corp.(*)

USD

152,211100.00

New York, U.S.A

PRADA Hawaii Corp.
Space USA Corp.
UPB Corp.
TRS Hawaii llc
PRADA Canada corp.(*)
Church & Co. (USA) ltd
Post Development corp

USD
USD
USD
USD
CAD
USD
USD

14,400
301
70
400
300
85
42,221

100,00100.00100.0055.00
100.00100.00100.00

Delaware, U.S.A.
New York, U.S.A.
New York, U.S.A.
Honolulu, U.S.A.
Toronto, Canada
New York, U.S.A.
New York, U.S.A.

Sub-holding company/
Production/Distribution
Trademark owner
RetailRetailNorth America

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT

Services / Distribution/
RetailRetailRetailService company
Duty free stores
Distribution/Retail
RetailReal estate

PRADA Group 101

Entity

Asia-Pacific and Japan
PRADA Asia Pacific ltd
PRADA Taiwan ltd
Space HK Retail ltd

Share capital(000s of local
currency)%interest

Registered office

Main business

HKD
TWD

3,000
3,800

100.00100.00Hong Kong
Hong Kong

Retail / Wholesale company
RetailLocal
currency

HKD

1,000

100.00Hong Kong

RetailPRADA Retail Malaysia Sdn.
Bnd.
PRADA China ltd
TRS Hong Kong
PRADA Singapore Pte. ltd
TRS Singapore
PRADA Korea ltd
PRADA (Thailand) Co.. ltd
PRADA Japan Co.. ltd

MYR

1,000

100.00

Malaysia

Retail

HKD
HKD
SGD
SGD
KOW
BTH
JPY

7,000
500
1,000
500
8,125,000
172,000
200,000

100.0055.00
100.0055.00
100.00100.00100.00Hong Kong
Hong Kong
Singapore
Singapore
Seoul, Korea
Bangkok, Thailand
Tokyo, Japan

RetailDuty free stores
RetailDuty free stores
RetailRetailRetailTRS Guam Partnership

USD

1,095

55.00

Guam

Duty free stores

TRS Saipan Partnership
TRS New Zealand ltd
PRADA Australia Pty. ltd
TRS Australia ltd

USD
NZD
AUD
AUD

1,405
100
3,500
600

55.00
55.00
100.0055.00

SaipanDuty free stores
Auckland, New Zealand Duty free stores
Sydney, Australia
RetailSydney, Australia
Duty free stores

PRADA Trading (Shanghai)

RMB

1,653

100.00Shanghai, China

RetailTRS Okinawa KK
PRADA Fashion Commerce(Shanghai) Co. ltd
Church Japan Co.. ltd
Church Hong Kong Retail ltd

JPY

10,000

55.00

Tokyo, Japan

Duty free stores

RMB

48,966100.00Shanghai, China

Retail

JPY
HKD

3,050
1,000

100.00100.00Tokyo, Japan
Hong Kong

RetailRetailChurch Singapore Pte., ltd.

SGD

500

100.00Singapore

RetailCar Shoe Singapore ltd.

SGD

500

100.00Singapore

RetailCar Shoe Hong Kong ltd.

HKD

3,000

100.00Hong Kong

Retail(*) Companies owned directly by PRADA spa(**) Share capital less than a thousand of local currency

The following table shows the companies not included in the consolidation area
and the related consolidation method:
Percentage direct interest
as atJanuary 31 2011

Percentage directinterest as atJanuary 31 2010

PAC srl

49.00

Fragrance & Skincare sl

50.00

Company

NoteConsolidation method

49.00

Associate

Equity method

50.00

Joint-venture

Fair Value

42. Events after the reporting period
On February 23, 2011, 2011 PRADA spa sold to Puig sl its investment in Fragrance& Skincare sl, a joint-venture created with Puig sl in 2003. The relationship with the
Spanish fragrance producer will continue under the licensing agreement with
Fragrance & Skincare sl that has been extended until 2020.
On March 16, 2011, PRADA spa sold the Genny brand to third parties.
With reference to the recent events in Japan, the Group has not pointed out any
significant damage to its retail network. The shops that on March 11, 2011, havebeen closed mainly as a consequence of the electric power rationing have been
fully operating again since 23 March.

102 PRADA GroupNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – 2010 ANNUAL REPORT

Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT – 2010 ANNUAL REPORTPRADA Group 103

104 PRADA GroupINDEPENDENT AUDITORS’ REPORT – 2010 ANNUAL REPORT