1

CONTENTS
REPORT ON OPERATIONS

Significant events during the year

4

Statement of financial position

10

Investments

12

Economic performance

Derivative financial instruments
Data on treasury shares and any equity investments in the parent company

8

12
12

Risk analysis

13

Business outlook

13

Significant events after the end of the year
Relations with parent companies, affiliates and related parties
Environment, personnel and sector regulations
Conclusions and proposals
FINANCIAL STATEMENTS

13

13

13
14

Consolidated balance sheet

15

Consolidated statement of comprehensive income

18

Consolidated income statement

Statement of changes in shareholders' equity
Consolidated Cash flow statement

EXPLANATORY NOTESIntroduction

17
19
20
21
2

Accounting standards, amendments and mandatory interpretations adopted by theGroup
Accounting standards, amendments and interpretations not yet applicable and not
adoptedFinancial statement formats and classification criteria
Activities of Group companies

Significant events during the year

General preparation criteria and consolidation principles
Measurement criteria

Estimates and assumptions

22
24
24
25
26
27

31

Segment reporting

42

Derivative financial instruments

46

Risk management
Commitments

Transactions with related parties

Analysis and composition of the balance sheet

Analysis and composition of the income statement
Independent auditors ’report

44
46
46
47

48
60

3

MANAGEMENT REPORT

Dear Shareholders,

The year ending 30 June 2019 reported a consolidated profit of € 951,647, of which € 518,699
pertaining to the Group.

SIGNIFICANT EVENTS OCCURRING DURING THE YEAR

The context in which the year in question was carried out was characterised by thestrengthening of the signs of expansion of the market already highlighted last year. The

recovery was made possible by the maintenance of balanced stock levels along the entire

production-distribution chain, after the shocks triggered in recent years by the conversion ofmarket preferences from traditional bicycles to electric bicycles (Europe) and by the rapid
rise and equally sharp regression in bike sharing in the Chinese market. In contrast to a
generally more favourable situation, however, significant critical issues were recorded in theform of international tensions deriving from the prospects of a slowdown in global demand,the introduction of protectionist measures by the USA on Chinese produced goods anduncertainties over the results of the UK's exit from the European Union (also known as
Brexit).

Some comments on the main markets in which the Group operates are provided below:
EUROPE

Undoubtedly, 2018 was the year of the consecration of pedal-assisted bicycles in Europe, asconfirmed by the statistics made available by the various national associations in the sector.

Germany and the Netherlands were forerunners in adopting this type of bicycle, given the

traditional orientation towards using bicycles as a means of alternative mobility, leisure andalso travel. Although these were first-time adoption countries and therefore already had aconsiderably large fleet of bicycles in circulation, the growth rates recorded in 2018 were

extremely high: in Germany, 980,000 e -bikes were sold, marking growth of 36% in volumes
when compared to 2017 (source: ZIV). According to the same analysis, currently the market

share of this type of bicycle is close to 25% (23.5%) of total bicycles sold, with an estimatethat places them at 30% in the medium term and projects the share to be roughly 35% overthe long term. In the Netherlands, for the first time in history, more than 1 million bicycles
were sold, with market growth in value of 25%, which therefore exceeded € 1.2 billion. In this4context, the share of e-bikes, which has remained stable at around 30% in recent years, hasgrown to 40%, exceeding 400,000 units sold (with growth of 38% compared to 2017
volumes) (source: RAI Association).

France, the third most important continental country in the market, recorded a growth rate of+21% in electrically assisted pedal cycles, with over 330,000 units sold and a market value

exceeding € 500 million (source: French Bicycle Observatory). The fact that, in 2018, electricbikes held a market share of 13%, allows room for further opportunities for future growth.
Similar considerations also apply to other countries, such as Italy (+16.8% compared to 2017,with over 170,000 units sold; source: AICMA), Spain (+55% with over 110,000 units; source:AMBE), Belgium (over 250,000 units, up +14.3%; source: Velofollies) to name but a few.

Some of the reasons behind this generalised growth throughout Europe deserve to bementioned: numerous innovations in this product category have taken place in recent years;

the batteries and the gears are now integrated in the bicycles' frames, to the point that they

are sometimes difficult to distinguish from “human-powered” bicycles at a glance, hence witha marked improvement in their aesthetic look. Over the years, companies offering productswith differentiated brands, features and price points have grown to the point that, to date,there are virtually no bicycle brands that do not incorporate “e-” solutions in their range. Overthe years, in fact, after urban bicycles, electric versions of recreational models, mountain bikes

and, lastly, road racing bikes have gradually came on to the market. This expansion of theranges from a “horizontal” perspective, and of the price points in a “vertical” sense, havesignificantly expanded the market. Finally, many cities now offer solutions involving therental and/or sharing of electric bicycles; the same applies to holiday resorts, whether by thesea or in the mountains. This has enabled many potential consumers to test the bicycles
before purchase, thus stimulating further growth in demand.

The Selle Royal Group, traditional supplier of European assemblers or their partners in the
Far East, has undoubtedly benefited from this trend, thanks to its significant market shares.
AMERICAThe American cycle market continues to be the one in greatest difficulty in terms of advanced

countries in 2018, and physical stores continue to suffer in particular. Citing a report by the
Bicycle Product Suppliers Association (BPSA), sales of complete bicycles to retailers fell by

10% in terms of volume (from 2.3 million to 2.07 million units) while they recorded a +4%
5increase in value. The growth in the average sale price (from $ 467 to $ 537 at wholesale

values) was also driven by the expansion of e-bike volumes, which grew by 78% compared to2017; the average price of an electric bicycle in the USA exceeded $ 2,000. The othercategories of “non-e-” bicycles recorded decreases of varying degrees: from -28% for
mountain bikes (the biggest category in the market) to -2% for “road” bikes, whose decline
was mitigated by a strong performance by the “gravel” sub-category.

While stressing that the aforementioned data do not relate to sales to end consumers but sales
along the distribution chain and that the significant increase in the average price has made it

possible to greatly contain the market decline if measured in terms of value, they can still beconsidered indicative of a trend, which has already taken hold several years ago, which has

seen medium-large market operators get a foothold in the market, who can compete and coexist effectively with the on-line retail giants in terms of the depth of their offering and qualityof service.

In this complex and changing environment, the Group recorded a strong performance in thismarket, thanks to the ability to adapt and service its local subsidiaries, which were able toboost their market shares.
ASIA

As already mentioned, the Chinese market, in recent years, has been disrupted by the bikesharing phenomenon, which has helped to weaken a sector that had already experienced
stagnation previously. The first signs of a recovery in domestic consumption were seen in thelast quarter of 2018 and continued in the first half of 2019.

China, in addition to being a large consumer country, is also traditionally the main country forsupplying bicycles to the rest of the world. In recent months, however, there has been a

gradual migration of production volumes from mainland China to Taiwan and other countriesof the so-called “Pacific rim” (such as Cambodia and Vietnam), following both theconfirmation by the European Union of the additional anti-dumping duties on traditional
bicycles and the introduction of similar measures on electric bicycles, as well as for themeasures adopted by the USA, again to the detriment of Chinese production. As reported by

the Taiwan Bicycle Association, exports from the island increased by 44.9% in the first 7

months of 2018, reviving a sector that had suffered locally. It should also be noted that somecountries in the area (for example, Cambodia, Bangladesh and the Philippines) benefit fromthe status of developing country recognised by the European Union (the so-called GPS +6status) or have signed free trade agreements with the EU like Vietnam (the so-called“EVFTA”), thus ultimately benefiting from the trends described above. Cambodia wastherefore the largest exporter of traditional bicycles to Europe (835,000 in the first 6 monthsof 2019 alone), followed by Taiwan (546,000 in the same period) (source: Eurostat). The

situation in the Asian continent, at least understood as the “world's factory”, is certainly
evolving but, on the whole, it appears to be improving. The Group recorded positive results in

the Asian area, given its ability to capitalise on the commercial synergies deriving from its
global presence, with production sites both in the principal consumption and procurement
countries.

At corporate level, various events characterised the year in question.

Selle Royal S.p.A. acquired a 50% interest in the share capital of Royal Ciclo Industria deComponentes, Ltda., a Brazilian company based in Rio do Sul, in the state of Santa Catarina.

Royal Ciclo is the company established as a result of the merger of Selle Bras Ltda. andMetalciclo Ltda., the former originally founded in 1995 by the Selle Royal Group and dedicatedto the production of Selle Royal branded saddles based on the know-how and technologies of

the Italian parent company; the latter, instead, was owned by a local entrepreneur. To date,the saddles represent the most significant product line of the Company’s turnover and aredeveloped and produced according to Selle Royal guidelines.

In addition, Royal Ciclo manufactures pedals and cranks in its own factory, which it offers to

the local market and, to a lesser extent, other countries in South America. Royal Ciclo’s
customers are all major bicycle manufacturers in Brazil (OEM channel) and over 450

distributors and chains (aftermarket channel). For some years now, it has been expanding its

business with the direct distribution of its products to over 1,400 Brazilian retailers throughthe Royal Pro division. In addition to the in-house product range, Royal Pro supports thecommercial lines of the other brands of the Selle Royal Group as well as other selected

premium brands in the bicycle sector, some of which are in turn distributed by Group
companies also in other geographical areas.

On 24 September 2018, the parent company Selle Royal S.p.A. issued a new bond instrument,
listed on the ExtraMot PRO segment (“mini-bond”) for a nominal value of Euro 10,000,000.00.

This instrument, fully subscribed by a fund managed by Mediobanca SGR SpA, has an annualinterest rate of 4.95% with half-yearly coupons; the maturity date is December 2024 with anamortising repayments on a straight-line basis starting from December 2020.

7

On 9 November 2018, the procedure was completed for the full early repayment of theresidual nominal portion, equal to Euro 10,125,000.00, plus the associated interest, of thebond instrument originally issued in two tranches in 2014 for a total amount equal to Euro
13,500,000.00.

During the autumn of 2018, Selle Royal Vehicle (China) Co., Ltd. commenced the procedures todiscontinue the operations of its Tianjin branch. It should be noted that the production plant
located there was established in 2015 to exploit the potential of the local market, which has

always served Japan as well. At the time, the market in the area, traditionally “poor” andconcentrated on low-end bicycles, was beginning to evolve towards higher value products,

also intended for some Western countries. Serious environmental problems, combined with
the instability generated in the sector by the sudden advent and equally rapid collapse of thephenomenon of free float sharing bikes, which had a hugely negative impact on operators in
the area, have actually been disastrous for the previously expected growth. As a result, theGroup, which has always focused on brand and product innovation, opted to discontinue

activities and close the plant, which took place definitively during the first half of 2019, inview of the negative results recorded to date and the current future prospects.

Lastly, in June 2019, Selle Royal S.p.A. acquired the residual interests, equal to 10% of therespective share capital, of BROOKS England Ltd., a production company based in Smetwick-Birmingham (GB), and of the trading company Hong-Kong Royal Concept Co., Ltd. Following
these two transactions, Selle Royal S.p.A. now wholly owns them.
ECONOMIC PERFORMANCE

The following table shows the 2018/19 income statement, compared with the figures for theprevious year:

8

2018/19

2017/18

Revenues

130.637.239

115.565.745

13,0%Cost of sales

77.017.154

69.522.341

10,8%

GROSS MARGIN

53.620.085

46.043.404

16,5%Industrial costs

5.831.094

4.306.618

35,4%

Sales and promotion costs

10.629.833

9.009.878

18,0%

Costs of the management structure

14.295.336

13.475.243

6,1%

General and administrative costs

10.521.383

8.732.459

20,5%

263.833

686.153-61,5%EBITDA

12.606.273

11.205.358

12,5%

Amortisation/depreciation and write-downs of fixed ass

6.981.957

6.608.869

5,6%

EBIT

5.624.316

4.596.489

22,4%

Profits / (losses) from companies measured at equity

-

-

-

Gains / (losses) on disposal of financial assets

-

-

-

Other operating income and (expenses)% Change

Financial income / (charges)(3.639.820)(3.137.363)

16,0%

PRE-TAX RESULT

1.984.496

1.459.126

36,0%

Taxes for the year

1.032.849

426.001n.s.

NET INCOME

951.647

1.033.126-7,9%

Minority interests

432.948(308.078)

n.s.

NET INCOME PERTAINING TO THE GROUP

518.699

1.341.204-61,3%The year in question, which ended on 30 June 2019, recorded sales of Euro 130.6 million, up

compared to the turnover in the previous year, thanks to the consolidation of the recovery of
the sector in Europe, to the continuous growth of shares of the sports footwear market anddespite the criticalities of some markets, as described in the previous paragraph. The figure9also benefits from the first-time consolidation of Royal Cycle, as described above.

The performance in terms of percentage gross margins was extremely positive, thanks to theincreasing weight of sales in the aftermarket channel.

The increase in operating costs, in addition to the consolidation of the balances of Royal Cycle,

is due to some non-recurring operating items that negatively impacted EBITDA and, inparticular, cancelled out the growth in the percentage gross margin. Adjusted EBITDA, net ofthese non-recurring costs, amounted to € 13.6 million, with a percentage impact on turnoverof 10.4% and a growth of 21.0% compared to the previous year.

The increase in depreciation and amortisation is entirely attributable to the entry of Royal
Ciclo, a highly integrated and capital-intensive industrial entity, within the scope of the Group.

Net financial charges, net of the impact of Royal Cycle, were down due to both lower financial
charges on loans and the contribution of exchange rate differences, which were slightly

positive in the current year compared to € -0.2 million in the previous year. For further
details, please refer to the relevant section of the explanatory notes.

As anticipated, the year in question closed with a net result substantially in line with theprevious year.

STATEMENT OF FINANCIAL POSITION

The financial position of the Group as at 30 June 2019, compared with the situation reported
in the consolidated financial statements for the year ended 30 June 2018, is as follows:1030/06/2019

30/06/2018

Changein trade receivables
Inventories
Tax receivables
Other current assets
CURRENT ASSETS

15.857.700
23.230.417
2.239.425
2.229.125
43.556.666

15.173.076
18.968.202
1.986.523
1.885.311
38.013.112

684.623
4.262.215
252.901
343.8145.543.554

Trade payables
Tax payables
Other current liabilities
CURRENT LIABILITIES

17.132.366
1.928.798
9.081.409
28.142.573

12.574.613
732.596
6.053.390
19.360.599

4.557.753
1.196.202
3.028.019
8.781.974

NET WORKING CAPITAL

15.414.093

18.652.513(3.238.420)

Depreciation of tangible assets
Amortisation of intangible assets
Equity investments
Goodwill
Other non-current assets
NON-CURRENT ASSETS

25.394.668
22.376.937
1.919.221
10.428.649
1.669.506
61.788.981

17.905.273
22.696.922
1.761.521
8.641.717
2.336.099
53.341.531

7.489.395(319.984)
157.700
1.786.932(666.593)
8.447.450

Post-employment benefits and other provisions
Deferred taxes
Other non-current liabilities
NON-CURRENT LIABILITIES

5.157.946
982.791
12.017
6.152.755

5.125.017
464.568
11.0125.600.597

32.929518.2241.005
552.158

NET INVESTED CAPITAL

71.050.320

66.393.447

4.656.873

Short-term financial debt, net
Medium/long-term financial debt
NET FINANCIAL POSITION

14.715.248
21.139.543
35.854.791

15.107.660
16.076.638
31.184.298(392.413)
5.062.906
4.670.493

Share capital and other reserves
Group result for the year
GROUP SHAREHOLDERS' EQUITY

30.271.991
518.699
30.790.690

30.317.696
1.341.204
31.658.900(45.705)(822.504)(868.210)

Share capital and other reserves
Profit for the year pertaining to minority interests
MINORITY INTERESTS

3.971.891
432.9484.404.839

3.858.327(308.078)
3.550.249

113.563741.026854.589

The decrease in net working capital is primarily due to the increase in payables for (indirect)

taxes and other current liabilities, the latter linked to the purchase of the equity investment inRoyal Ciclo and the minority interest in BROOKS England Ltd. The increase in inventories,

11amounting to € 4.3 million, was accompanied by a similar increase in trade payables. As

outlined in more detail below, the figure was impacted not only by the inventories recorded in
the financial statements of Royal Ciclo, but the increase in inventories of raw materials in Selle
Royal S.p.A., which increased due to production flow management reasons.

The operating investments made by the various Group companies, for a total amount of € 5.3
million, are aimed both at product innovation, one of the key elements on which the Groupbases its future growth, and at the upgrading and improvement of the Group’s production
sites.

The increase in net debt is entirely attributable to the inclusion of Royal Ciclo in the Group’sbalances. The net financial position on a like-for-like basis was instead down to € 29.4 million,

with an extension of the average duration of existing loans. The self-financing generated byoperations allowed the coverage of technical investments, with a surplus of liquidity for the
benefit of financial management and investments for acquisitions.
DERIVATIVE FINANCIAL INSTRUMENTS

In compliance with the provisions of art. 2427-bis of the Italian Civil Code and in line with theinterpretations contained in document no. 3 issued by the Italian Accounting Body, the parent

company Selle Royal S.p.A. subscribed a derivative financial instrument, for the purpose ofhedging the risk of fluctuations in interest rates on a medium/long-term loan, recorded under
the item non-current "financial liabilities at fair value".

Since it is an instrument whose hedging was effective, the relative change in value wasallocated to a specific equity reserve (so-called “cash flow hedge reserve”). For further

information, please refer to the Explanatory Notes to these financial statements.
INVESTMENTS

As already outlined, during the year 2019, the company carried out operating investments ofapproximately € 5.3 million.

DATA on TREASURY SHARES and on any EQUITY INVESTMENTS in the PARENT COMPANY

Neither the parent company Selle Royal S.p.A. nor its associates and subsidiaries held sharesin the parent company at the reporting date.
RISK ANALYSIS
12

Credit risk
The financial assets of the Group companies must be considered to possess good credit
quality. There are no financial assets whose recoverability is deemed to be doubtful.
Liquidity risk
There are sufficient credit lines to meet liquidity requirements.
Policies related to the various hedging activities

The main risk classes are the exchange rate differences resulting from sales in the USA andpurchases in the Far East (mainly Taiwan and the People's Republic of China).
SIGNIFICANT EVENTS OCCURRING AFTER THE END OF THE YEAR

No significant events occurred after the close of the financial year in question.
BUSINESS OUTLOOKIt is reasonable to expect that, in the current year, the Group will achieve a positive net result.
RELATIONS WITH PARENT COMPANIES, ASSOCIATES AND RELATED PARTIESAs regards transactions with related parties, please refer to the Notes to these consolidated
financial statements.

ENVIRONMENT, PERSONNEL and SECTOR REGULATIONS

The production, manufacture and sale of Group products is not currently subject to specificsector regulations. However, in consideration of the use of certain substances, environmental

regulations are particularly important, especially for their treatment, emissions and waste
disposal.

The Group carefully monitors the risks deriving from environmental and personnel
regulations and any situations that may arise within the scope of operations are handled incompliance with the regulations.

With reference to personnel, the Selle Royal Group protects the health and safety of its
workers in compliance with current regulations on health and safety in the workplace.

The average number of employees in the current year was 1,105, an increase compared to the
966 employees in the previous year. The growth is attributable to the already mentioned
13

entry of Royal Ciclo Industria de Componentes Ltda. into the Group perimeter and despite thetermination of operations by the Tianjin branch of Selle Royal Vehicle (China) Co., Ltd.

CONCLUSIONS and PROPOSALS

We remain at your full disposal to provide any clarifications and information needed during
the Shareholders' Meeting.

Pozzoleone (VI), 29 November 2019

* * *The Chairman of the Board of Directors(Barbara Bigolin)

14

FINANCIAL STATEMENTS
Consolidated balance sheet(*)

30/06/2019

30/06/2018

ChangeCash and cash equivalents
Trade receivables
Inventories
Tax receivables
Other current assets
TOTAL CURRENT ASSETS

11.109.764
15.857.700
23.230.417
2.239.425
2.229.125
54.666.431

9.838.468
15.173.076
18.968.202
1.986.523
1.885.311
47.851.580

1.271.296
684.623
4.262.215
252.901
343.8146.814.850

Intangible assets
Tangible assets
Equity investments
Goodwill
Deferred tax assets
Financial assets at fair value
Other non-current assets
TOTAL NON-CURRENT ASSETS

22.376.937
25.394.668
1.919.221
10.428.649
1.095.227
510.726
63.55361.788.981

22.696.922
17.905.273
1.761.521
8.641.717
913.4811.422.617
53.341.531(319.984)
7.489.395
157.700
1.786.932
181.746510.726(1.359.065)
8.447.450

TOTAL ASSETS

116.455.412

101.193.111

15.262.301

ASSETS(*) The effects of transactions with related parties are described in the section “Transactions

with related parties”.

15

30/06/2019

30/06/2018

ChangeTrade payables
Tax payables
Short-term loans
Financial liabilities at fair value
Other current liabilities
TOTAL CURRENT LIABILITIES

17.132.366
1.928.798
25.825.012
9.081.409
53.967.585

12.574.613
732.596
24.946.128
1.114
6.052.277
44.306.728

4.557.753
1.196.202
878.884(1.114)3.029.132
9.660.858

Provisions for employees
Bonds
Medium / long-term loans
Provisions for risks and charges
Payables for deferred taxes
Financial liabilities at fair value
TOTAL NON-CURRENT LIABILITIES

2.039.763
9.516.854
11.622.690
3.118.183
982.791
12.01727.292.298

2.029.122
10.090.332
5.986.306
3.095.894
464.568
11.01221.677.234

10.641(573.478)
5.636.384
22.289518.224
1.005
5.615.064

TOTAL LIABILITIES

81.259.883

65.983.962

15.275.922

Share capital
Legal reserve
Translation reserve
Reserve for first-time adoption of IAS
Other reserves and undistributed profitsGroup profit / (loss) for the year
GROUP SHAREHOLDERS’ EQUITY

6.000.000
1.212.045
836.428
10.716.446
11.507.072
518.699
30.790.690

6.000.000
1.152.985
1.896.513
10.716.446
10.551.752
1.341.204
31.658.900

59.060(1.060.085)
955.320(822.504)(868.210)

Share capital and undistributed profits pertainin
Profit / (loss) for the year of minority interests
MINORITY INTERESTS

3.971.891
432.9484.404.839

3.858.327(308.078)
3.550.249

113.563741.026854.589

TOTAL LIABILITIES and SHAREHOLDERS’ EQUITY

116.455.412

101.193.111

15.262.302

LIABILITIESSHAREHOLDERS ’EQUITY

Consolidated income statement(*)

16

2018/19

2017/18

Revenues

130.637.239

115.565.745

13,0%Cost of sales

77.017.154

69.522.341

10,8%

GROSS MARGIN

53.620.085

46.043.404

16,5%Industrial costs

5.831.094

4.306.618

35,4%

Sales and promotion costs

10.629.833

9.009.878

18,0%

Costs of the management structure

14.295.336

13.475.243

6,1%

General and administrative costs

10.521.383

8.732.459

20,5%

263.833

686.153-61,5%EBITDA

12.606.273

11.205.358

12,5%

Amortisation/depreciation and write-downs of fixed ass

6.981.957

6.608.869

5,6%

EBIT

5.624.316

4.596.489

22,4%

Profits / (losses) from companies measured at equity

-

-

-

Gains / (losses) on disposal of financial assets

-

-

-

Other operating income and (expenses)% Change

Financial income / (charges)(3.639.820)(3.137.363)

16,0%

PRE-TAX RESULT

1.984.496

1.459.126

36,0%

Taxes for the year

1.032.849

426.001n.s.

NET INCOME

951.647

1.033.126-7,9%

Minority interests

432.948(308.078)

n.s.

NET INCOME PERTAINING TO THE GROUP

518.699

1.341.204-61,3%(*) The effects of transactions with related parties are described in the section “Transactions

with related parties”.

17Consolidated statement of comprehensive income
2018/19
Net profit

2017/18

951.647

1.033.126

109

4.731

Actuarial gains/(losses)(68.583)

10.070Changes in scope of consolidation(258.350)

Change infair value of hedging derivatives

Differences from translation of financial statements in forei
Total comprehensive profit/(loss) after tax(1.060.085)

61.413(435.262)

1.109.339

18

Statement of changes in shareholders' equity

Transfer ofBalance as at 30
previous year
June 2017
resultFair value IRS

Effect of
discounting of
Changes in scope
postof consolidation
employment
benefits

Other
consolidation
adjustments

Profit/(loss)
for the year

Balance as at
30 June 2018

Share capital
Legal reserve
Translation reserve
Reserve for first-time adoption of IAS
Other reserves and undistributed profitsGroup profit / (loss) for the year
TOTAL GROUP SHAREHOLDERS ’EQUITY

6.000.000
1.152.985
1.835.100
10.716.446
10.154.341
382.61130.241.482

382.611(382.611)
-

4.731
4.731

10.07010.070-61.41361.413

1.341.204
1.341.204

6.000.000
1.152.985
1.896.513
10.716.446
10.551.752
1.341.204
31.658.900

Share capital and undistributed profits pertaining to non-controlling interests
Profit / (loss) for the year of minority interests
TOTAL MINORITY INTERESTS

3.852.716
72.0373.924.753

72.037(72.037)
-

-

-

-

(66.425)(66.425)(308.078)(308.078)

3.858.327(308.078)
3.550.249

TOTAL SHAREHOLDERS' EQUITY

34.166.235

-

4.731

10.070-(5.012)

1.033.126

35.209.149

Other
consolidation
adjustments

Profit/(loss)
for the year

Balance as at
30 June 2019

Transfer ofBalance as at 30
previous year
June 2018
resultFair value IRS

Effect of
discounting of Changes in scope
postof consolidation
employment

Share capital
Legal reserve
Translation reserve
Reserve for first-time adoption of IAS
Other reserves and undistributed profitsGroup profit / (loss) for the year
TOTAL GROUP SHAREHOLDERS ’EQUITY

6.000.000
1.152.985
1.896.513
10.716.446
10.551.752
1.341.204
31.658.900

59.0601.282.144(1.341.204)
-

109
109

(68.583)(68.583)(258.350)(258.350)(1.060.085)(1.060.085)

518.699518.699

6.000.000
1.212.045
836.428
10.716.446
11.507.072
518.699
30.790.690

Share capital and undistributed profits pertaining to non-controlling interests
Profit / (loss) for the year of minority interests
TOTAL MINORITY INTERESTS

3.858.327(308.078)
3.550.249(308.078)
308.078---

1.490.090
1.490.090(1.068.449)(1.068.449)

432.948432.9483.971.891
432.9484.404.839

TOTAL SHAREHOLDERS' EQUITY

35.209.149-(68.583)

1.231.740(2.128.534)

951.647

35.195.529

109

19

Consolidated Cash flow statement
2018/19 financial year 2017/18 financial year

(Amounts in €)CASH FLOWS FROM OPERATING ACTIVITIES:
951.647

1.033.126

Adjustments relating to items with no effect on liquidity:
Amortisation
Increase/(Decrease) in provisions for employees
Allocation/(use) of provision for deferred taxes
Capital losses (capital gains) from disposal of assets
Total

6.981.957
10.640518.224
19.7558.482.223

6.608.869(43.531)(383.499)(29.537)
7.185.427

Changes in current assets and liabilities:
Receivables due from customers
Inventories
Tax receivables
Other current assets
Trade payables
Tax payables
Current financial liabilities at fair value
Other current liabilities
Total(684.623)(4.262.215)(252.901)(343.814)
4.557.753
1.196.202(1.114)3.029.132
3.238.420

2.245.852
2.244.317
32.809220.665(2.033.316)
109.352
1.114
130.640
2.951.432

Cash flows generated/(absorbed) by operations

11.720.643

10.136.859

Net (Investments)/Divestments in technical fixed assets(Increase)/decrease in intangible assets(Increase)/decrease in goodwill
Net (Increases)/decreases in fixed assets from acquisitions(Increase)/decrease in equity-accounted investments(3.959.429)(1.268.890)(1.739.876)(8.672.140)(157.700)(3.029.397)(1.331.813)(131.527)

Cash flows generated/(absorbed) by investment activities(15.798.035)(4.492.737)

7.950.000(10.454.597)
9.881.119(2.313.616)
109(68.583)
1.231.740
666.59323.2943.000.000(1.647.054)(6.997.887)
4.731
10.070(748.045)
53.075

Cash flows generated/(absorbed) by financing activities

6.916.059(6.325.112)

Differences from translation of financial statements in foreign currency(2.446.254)

114.629392.412(566.361)(OPENING SHORT-TERM NET BANK DEBT)

15.107.660

14.541.299(CLOSING SHORT-TERM NET BANK DEBT)

14.715.248

15.107.660

Profit/(loss) for the year

CASH FLOWS FROM INVESTMENT ACTIVITIES:CASH FLOWS FROM FINANCING ACTIVITIES:
Obtainment of medium/long-term loans
Extinguishment of 2014 bond (so-called mini-bond)
New bond issue (so-called mini-bond)(Repayment) of medium/long-term loans
Change in cash flow hedge reserve
Change in reserve for discounting of post-employment benefits
Other changes in shareholders' equity
Reduction/(increase) in other non-current assets
Increase/(reduction) in other non-current liabilities

NET CASH GENERATED/(ABSORBED) in the year

20

EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 JUNE
2019
FOREWORD

The consolidated financial statements as at 30 June 2019 of the Selle Royal S.p.A. Group wereprepared in compliance with the international accounting standards IFRS or International

Reporting Standards (also “IFRS”) issued by the IASB (International Accounting Standards
Board) and approved by the European Commission according to the procedure pursuant to
Article 6 of EC Regulation no. 1606/2002 of the European Parliament and Council of 19 July

2002 on the date of preparation of these financial statements as well as the provisions ofLegislative Decree 38/2005.

IFRS also means all the revised international accounting standards (“IAS”) and all theinterpretations of the International Financial Reporting Interpretations Committee (“IFRIC”),

previously called the Standing Interpretations Committee (“SIC”) which, at the date of
approval of the consolidated financial statements for the year ended 30 June 2019, have been
subject to endorsement by the European Union in accordance with the procedure envisaged
by Regulation (EC) no. 1606/2002 by the European Parliament and Council of 19 July 2002.

The 2019 Consolidated Financial Statements consist of the Balance Sheet, the Income

Statement, the Statement of Changes in Shareholders' Equity, the Cash Flow Statement andthe Explanatory Notes that follow.

These consolidated financial statements have been prepared on the basis of the best

knowledge of IFRS and taking into account the best academic literature on the subject; any
future guidelines and interpretative updates will be reflected in subsequent years, according
to the methods envisaged from time to time by the reference accounting standards.

All amounts included in these financial statements are presented in Euro, which represents

the currency of the main economic environment in which the Group operates, unlessindicated otherwise.

The Consolidated Financial Statements were prepared on the basis of the going concern

assumption, as the directors verified the absence of financial, operational or other indicatorsthat could indicate critical issues regarding the Group’s ability to meet its obligations in theforeseeable future, and, in particular, in the next 12 months.

The consolidated financial statements were prepared using as a basis the financial statementsof the Group companies approved by their respective Boards of Directors.

21

The reference date of the consolidated financial statements coincides with the closing date of

the financial year of the Parent Company and of the other companies included in the scope of
consolidation.

Lastly, it should be noted that the financial statements of the Italian and foreign companies
included in the scope of consolidation, drawn up in accordance with local standards, havebeen amended in accordance with IAS / IFRS for the sole purpose of the consolidated financial
statements.

ACCOUNTING STANDARDS, AMENDMENTS AND MANDATORY INTERPRETATIONS ADOPTED BY
THE GROUP

The accounting standards adopted by the Group for the preparation of the Consolidated financial
statements as at 30 June 2019 are the same as those adopted to draft the consolidated financial
statements in the previous year, with the exception of the following accounting standards,
amendments and interpretations.
Description

IFRS 15 (Revenue from Contracts with Customers) including theamendments to IFRS 15 issued on 11 September 2015
Clarifications to IFRS 15 (Revenue from Contracts with Customers)
issued on 12 April 2016
IFRS 9 (Financial instruments)

IFRIC 22 – Foreign currency transactions and advance consideration

Expected effective dateFinancial years beginning on or after 1 January 2018
Financial years beginning on or after 1 January 2018

Financial years beginning on or after 1 January 2018
Financial years beginning on or after 1 January 2018

IFRS 15 – Revenue from Contracts with Customers

On 28 May 2014, the IASB published the standard “IFRS 15 - Revenue from Contracts with

Customers”, which replaced the standards “IAS 18 - Revenue” and “IAS 11 - Construction

Contracts”, as well as some related IFRIC interpretations.

The new standard specifies the method of recognition of revenues, in addition to requiring

more supporting information to be provided. The proposed revenue recognition model isdivided into the following 5 phases:a) Identification of the contract with the customer;b) Identification of the individual performance obligations within the contract;c) Determination of the transaction price;d) Allocation of the transaction price to the individual performance obligations;e) Recognition of revenues in line with the fulfilment of individual performance obligations.

22

The fulfilment of the performance obligations, and therefore the simultaneous recognition of

the revenue, occurs when the control of the good/service is transferred, since the verificationof the transfer of the risks and benefits connected to the ownership of the asset subject to saleis no longer relevant (as envisaged by IAS 18). Considering the nature of the business and therelated sales transactions, the significant changes introduced by the new IFRS 15 did not leadto changes in the method of recognition of revenues by Group companies.

Moreover, on 12 April 2016, the IASB published the amendments “Clarification to IFRS 15 -Revenue from Contracts with Customers”, also applicable from the first financial year

following the one in progress as at 31 December 2017. The aforementioned amendments aim
to clarify the methods by which to identify the company as a “principal” or as an “agent” andto determine whether any license revenues must be deferred for the duration of the same.

“Principal” means a party that has full control of the entire cycle linked to the purchase andsubsequent sale of the goods (by way of example, but not limited to, the search for customers,

the negotiation of the price and the conditions of sale, the purchase of goods and the risk on
stock,…). By “agent”, on the other hand, we mean a subject that does not enjoy the sameautonomy as the “principal” and, usually, benefits from a simple brokerage margin for its

services. Based on the above, it is clear that the Group companies always operate as“principals”, also with reference to the product categories not produced internally.
IFRS 9 - Financial Instruments

This new accounting standard, published on 24 July 2014 and in force as from 1 January 2018,

incorporates the results of the project conducted by the International Accounting Standards
Board and aimed at replacing the standard “IAS 39 - Financial Instruments”.

In particular, IFRS 9 introduces new criteria for the classification and measurement offinancial assets and liabilities and a new hedge accounting model.

Although of greatest interest to the Group, the new standard also requires the estimate oflosses on receivables to be made on the basis of the model of expected future losses (and noton the losses incurred, as envisaged by the previous IAS 39) using easily obtainable historical,
current and prospective data.

Emphasising that trade receivables are usually covered by insurance against the risk of
insolvency of the counterparties, the value of the provisions allocated against potential future

non-collectability for the uncovered portion are consistent with the potential future losses

23estimated using the simplified approach.
ACCOUNTING STANDARDS, AMENDMENTS AND INTERPRETATIONS NOT YET APPLICABLE AND
NOT ADOPTED IN ADVANCE BY THE GROUP

Below are the international accounting standards, interpretations, amendments to existingaccounting standards and interpretations, or specific provisions contained in the standards
and interpretations approved by the IASB that have not yet been endorsed for adoption in
Europe at the date of this financial report or were not adopted early.
Description

Approved
as at thedate of thisdocument

Amendments to IFRS 4 (Applying IFRS 9 Financial
Instruments with IFRS 4 Insurance Contracts)

Yes

Amendments to IFRS 9: Prepayment Features with Negative
Compensation

Yes

IFRS 16 (Leases)

Yes

Amendments to IAS 40: Transfer of Investment Properties

Yes

IFRIC 23 - Uncertainty over income tax treatments

Yes

Amendments to IFRS 2: Classification and Measurement of
Share-based Payment Transactions
Amendments to IAS 28 - Long term interests in associates
and joint ventures

Yes
Yes

Expected effective dateFinancial years beginning on or after 1 January
2019
Financial years beginning on or after 1 January
2019
Financial years beginning on or after 1 January
2019
Financial years beginning on or after 1 January
2019
Financial years beginning on or after 1 January
2019
Financial years beginning on or after 1 January
2019
Financial years beginning on or after 1 January
2019

The Group is currently analysing the standards indicated and assessing whether theiradoption will have a significant impact on its consolidated financial statements.
FINANCIAL STATEMENT FORMATS AND CLASSIFICATION CRITERIAWhen preparing the formats of the documents that make up the financial statements, theCompany adopted the following criteria:- Balance Sheet

The assets and liabilities shown in the financial statements have been separately classified as
current and non-current in compliance with the provisions of IAS 1.

In particular, an asset must be classified as current when it meets one of the following criteria:(a) it will be realised, or held for sale or consumption, in the normal course of theentity’s operating cycle;(b) it is held primarily for the purpose of trading;(c) it is expected to be realised within twelve months of the reporting date;(d) these are cash and cash equivalents.

24All other assets were classified as non-current.

A liability must be classified as current when it meets one of the following criteria:(a) it is expected to be settled in the normal operating cycle of an entity;(b) it is held primarily for the purpose of trading;(c) it must be settled within twelve months from the reporting date;(d) the entity does not have an unconditional right to defer settlement of the liability
for at least twelve months from the reporting date.

All other liabilities were classified as non-current.

Moreover, on the basis of the provisions of IFRS 5, those assets (and related liabilities) whosebook value will be recovered mainly through a sale transaction rather than continuous use areclassified, where they exist, as “Assets held for sale” and “Liabilities related to assets held forsale”.

- Income statement

The classification of costs was carried out on the basis of the criterion of their destination,
which is considered more representative, as well as adhering to the criteria of the reportingused by the management of the Group Companies in determining the strategic direction andthe execution of the related business plans.

- Statement of changes in shareholders’ equity

The statement was prepared by showing the items in individual columns with a reconciliationof the opening and closing balances of each item that makes up Shareholders' equity.
- Cash flow statement

The cash flows from operating activities are presented using the indirect method as permitted
by IAS 7, as this criterion was considered the most appropriate to the business sector in which

the company operates. By means of this criterion, the result for the year was adjusted for theeffects of non-monetary transactions, operating, investing and financial activities.
ACTIVITIES OF THE GROUP COMPANIESThe companies that make up the Selle Royal Group produce and sell saddles, sports shoes andcycle accessories.

The structure of the Group as at the date of these consolidated financial statements is shown
below, with an indication of the equity investment percentages.

25This structure has changed with respect to the composition of the Group as at 30 June 2018

due to the aforementioned entry of Royal Ciclo into the Group scope and, to a lesser extent, tothe effect of the acquisition of minority interests in BROOKS England Ltd. and Royal Concept
Co., Ltd.

SIGNIFICANT EVENTS OCCURRING DURING THE YEAR

Thanks to the strengthening of the recovery in Europe and despite the persistence of complex
general market conditions in some geographical areas, such as North America, consolidated
turnover increased compared to the previous year, reaching more than € 130 million; thecontribution deriving from the inclusion of Brazilian company Royal Ciclo Industria deComponentes, Ltda in the Group’s scope of consolidation made a significant contribution tothis performance.

The sales figures recorded by fi'zi:k brand sports shoes, which continue to increase their shareof the global market and confirm their position at the top of the category in terms of

performance and level of appreciation, from both professional athletes and enthusiasts, wereonce again largely positive. The choice made in recent years to directly cover some key

markets, especially in a context in which customer service is ever more a success factor, isproving to be an increasingly more strategic and successful one. For a more in-depth

examination of the elements characterising the tax year under review, including significant
events from a corporate point of view, please refer to the Report on Operations.

26

GENERAL PREPARATION CRITERIA AND CONSOLIDATION PRINCIPLES

Consolidation is carried out using the line-by-line method. The criteria adopted for theapplication of this method are mainly the following:- the book value of the equity investments held by the Parent Company or by the othercompanies subject to consolidation is eliminated against the relative shareholders' equity
against the assumption of the assets and liabilities of the investee companies;- any higher book value of the equity investments with respect to the shareholders' equity

pertaining to the acquisition is allocated, where possible, to the assets of the companies

included in the scope of consolidation up to the current value of the same and, for the residual
part, to the item “Goodwill”;- significant transactions between consolidated companies are eliminated, as well as

receivables and payables and unrealised profits deriving from transactions between groupcompanies, net of any tax effect;- the portion of shareholders' equity pertaining to minority shareholders is shown in thespecific item of consolidated shareholders’ equity, while the portion pertaining to minority
interests of the result for the year is shown separately in the consolidated income statement;- the equity investments acquired during the year are included in the scope of consolidationfrom the date of acquisition.

Subsidiaries are those in which the Group simultaneously has:-decision-making power, i.e. the ability to direct the relevant activities of the investee,i.e. those activities that have a significant influence on the investee's returns;--

the right to variable (positive or negative) results from its investment in the entity;

the ability to use its decision-making power to determine the amount of the returns

deriving from its investment in the entity.

Control can be exercised either by virtue of the direct or indirect ownership of the majority ofshares with voting rights, or by virtue of contractual or legal agreements, also regardless ofshareholder relations. In assessing the existence of control, the Company also considers its

own and third-party potential voting rights to determine whether it has power. “Potential
voting rights” are rights to obtain voting rights of an investee, such as those deriving fromconvertible financial instruments or options. These rights are considered only if they aresubstantial.

The existence of control is verified every time that facts or circumstances indicate a change in
one or more of the three elements qualifying the control.

27

Subsidiaries are consolidated on a line-by-line basis from the date on which control is actuallyacquired and cease to be consolidated from the date on which control is transferred to third
parties. The criteria adopted for line-by-line consolidation are as follows:-

the book value of the equity investments in the companies included in the scope of

consolidation is eliminated against the relative shareholders' equity against the assumption of
the assets and liabilities of the investees;-according to the provisions of IFRS 3, subsidiaries acquired by the Group areaccounted for using the acquisition method, according to which the considerationtransferred in a business combination is measured at fair value, calculated as the sumof the fair value of the assets transferred and liabilities assumed by the Group at theacquisition date and of the equity instruments issued in exchange for control of theacquired company. Accessory charges to the transaction are recognised in the income-

statement at the time they are incurred;

the excess of the acquisition cost over the market value of the Group’s share of net
assets is accounted for as goodwill;

if the acquisition cost is lower than the fair value of the Group’s share in the net assetsof the acquired subsidiary, the difference is recognised directly in the income
statement;

profits and losses not yet realised with third parties, deriving from transactions

between Group companies, are eliminated as well as receivables, payables, costs,

revenues, margins on products in inventory and all significant transactions that havetaken place between the consolidated companies;-

dividends distributed among group companies are eliminated, as are the coverage of-the portions of shareholders' equity and profit for the year pertaining to minority

losses and write-downs of equity investments in consolidated companies;

interests are shown separately, respectively, in a specific item of the consolidatedbalance sheet and income statement; pursuant to IFRS 10, the total loss is attributed tothe shareholders of the parent company and to the minority interests, even when the-shareholders' equity attributable to the minority interests presents a negative balance;

acquisitions of non-controlling interests relating to entities for which control alreadyexists or the sale of non-controlling interests that do not entail the loss of control areconsidered equity transactions; therefore, any difference between the acquisition / disposal
cost and the relative portion of shareholders' equity acquired / sold is recorded as an
28

adjustment to the Group’s shareholders’ equity. Any obligation, relating to a forward contract,

to purchase its own equity instruments for cash and cash equivalents entails the recognitionof a liability whose fair value is reclassified from shareholders' equity. If the contract expires

without a delivery, the accounting amount of the liability is transferred to shareholders'equity. The contractual obligation for the acquisition of own equity instruments gives rise to aliability for the present value of the redemption amount even if the obligation is subordinatedto the exercise by the counterparty of the redemption right.

The financial statements of subsidiaries are prepared using the currency of the primaryeconomic environment in which they operate. The rules for the translation of the financial
statements of companies expressed in currencies other than the Euro are as follows:-

the assets and liabilities are converted using the exchange rates in force at the-costs and revenues are converted at the average exchange rate for the year;

reporting date;-the “translation reserve” included among the items of the statement of comprehensive
income includes both the exchange differences generated by the conversion of theeconomic items at an exchange rate different from the closing one and those generated
by the conversion of the opening shareholders' equity at a different exchange rate from-the one at the end of the reporting period;

goodwill, if any, and fair value adjustments related to the acquisition of a foreign entity

are treated as assets and liabilities of the foreign entity and converted at the closing exchange
rate for the period.

The exchange rates adopted for the conversion of these financial statements are shown in thefollowing table:
Currency

Exact exchange rate as at 30 June
Appreciation /20192018 (deprec.)Average exchange rate for the year
Appreciation /2018/19 2017/18 (deprec.)British Pound (GBP)US Dollar (USD)
Hong Kong Dollar (HKD)
Chinese Yuan Renminbi (RMB)

0,8966
1,13808,8866
7,81850,8861
1,16589,1468
7,7170-1,17%
2,44%
2,93%-1,30%

0,8817
1,1412
8,9474
7,7884

0,8863
1,19309,33507,7606

0,52%
4,54%
4,33%
-0,36%

Brazilian Real (BRL) (*)

4,3511

4,48763,14%

4,4077

4,1801-5,16%(*) 2018 figures shown for comparison purposes only

The consolidated financial statements as at 30 June 2019 include the data of the parent

company Selle Royal S.p.A. and those of the subsidiaries in which it holds, directly or29

indirectly, the majority of the votes that can be exercised at the Shareholders' Meeting.
In particular, the scope of consolidation is broken down as follows:

Selle Royal S.p.A., Parent company, with registered office in Pozzoleone (VI), share capitalof € 6,000,000.


Brooks England Limited, acquired in 2002, with registered office in Smethwick-Birmingham, United Kingdom, share capital of GBP 240,000, equal to approximately €301,799, wholly-owned by Selle Royal S.p.A. and consolidated on a line-by-line basis.


SR84 S.r.l.: with registered office in Pozzoleone (VI) and share capital of € 2,000,000; thecompany is wholly-owned by Selle Royal S.p.A.
Selle Royal USA Inc. (previously known as Hi-Move Inc.), established in 2006, withregistered office in Olney, USA, 1909 Miller Drive, share capital of USD 1,000, equal toapproximately € 901. The company is wholly-owned by Selle Royal SpA and is consolidated

on a line-by-line basis. Also in 2006, a joint venture was established with a leading German

operator for the direct distribution of products on the US market. To this end, Highway Two

Llc. was established, based in the USA, currently 50% owned by Selle Royal USA Inc. In these
consolidated financial statements, Highway Two Llc. is measured using the equity method.
The value at the balance sheet date was € 1,902,715.
Royal Concept Company Limited, with registered office in Hong Kong and share capital of

HK $ 1,000, equal to approximately € 91. The company is wholly-owned by Selle Royal S.p.A.
and is consolidated on a line-by-line basis.
Crank Brothers Inc., with share capital of USD 1,000, equal to approximately € 901,

wholly-owned by Selle Royal S.p.A. This company is consolidated on a line-by-line basis.

SR56 Inc., with registered office in Ogden (UT) in the USA and share capital of USD 1,000,

equal to approximately € 901, is wholly-owned by Selle Royal S.p.A.
Selle Royal Vehicle (China) Co. Ltd.: formerly called Jiangyin Justek Vehicle Co., Ltd.; theacquisition, completed in February 2010, was effective retroactively from 1 January 2010. Theinterest in Selle Royal S.p.A., through its wholly-owned subsidiary Selle Royal Asia Ltd., grewin 2014/15 from 51.86% of the share capital held since the acquisition to 68.29% currently

held, following a corporate restructuring. Lastly, it should be noted that the aforementioned

company Selle Royal Asia Ltd. is a pure holding company that holds exclusively the equity
investment in Selle Royal Vehicle (China) Co. Ltd and does not carry out any activities.



Brooks England S.r.l.: with registered office in Pozzoleone (VI) and share capital of €100,000; the company is wholly-owned by Brooks England Ltd.

30

Pannier Ltd., with registered office in Smethwick-Birmingham, United Kingdom, sharecapital of GBP 100.00 (corresponding to approximately EUR 120), fully subscribed and paid inby the subsidiary Brooks England Ltd. It should be noted that this company is exempted fromthe requirements of the Companies Act with reference to the audit of individual financial
statements, as envisaged by Section 479A.


F.I.A.C. S.r.l., with registered office in Pozzoleone (VI) and share capital of € 100,000; thecompany is wholly-owned by Brooks England Ltd.

Royal Ciclo Industria de Componentes, Ltda., with registered office in Rio do Sul, in theState of Santa Catarina, Brazil. The share capital, amounting to Brazilian Real 11,601,802 , is50% owned by Selle Royal S.p.A. as a result of the transactions better described previously.
This company is consolidated on a line-by-line basis.
MEASUREMENT CRITERIA

The measurement criteria and the accounting standards and the financial statements drafting
principles, adopted according to a prudent approach and on a going concern basis, were as
follows.

Intangible fixed assets••

Goodwill and other assets with an indefinite useful life
Other intangible assets.

These are non-monetary assets, identifiable even if they have no physical substance, fromwhich it is probable that future economic benefits will flow. Intangible assets are recognised
at cost, represented by the purchase price and any direct cost incurred to prepare the asset

for use, net of accumulated amortisation, for intangible fixed assets with a limited useful life,
and impairment losses.

If there is objective evidence that an individual asset may have suffered a reduction in value, acomparison is made between the carrying amount of the asset and its recoverable value, equal

to the higher of the fair value, less costs to sell, and the related value in use, intended as thepresent value of future cash flows that are expected to originate from the asset. Any value
adjustments are recognised in the income statement.

Intangible assets with an indefinite useful life are not amortised. For these assets, the bookvalue is compared annually with the recoverable value. If the book value is higher than therecoverable value, a loss equal to the difference between the two values is recognised in the31income statement.

In the case of reversal of the value of intangible assets, excluding goodwill, previously written

down, the increased net book value cannot exceed the book value that would have been
determined if no impairment loss had been recognised for the asset in the previous years.

An intangible asset is derecognised from the balance sheet upon disposal or when no future
economic benefits are expected from its use or disposal.

IAS 38 defines as intangible assets those identifiable non-monetary assets without physicalsubstance. The main characteristics to meet the definition of an intangible asset are:-identifiability;

control of the resource in question;

existence of future economic benefits.

In the absence of one of the above characteristics, the expense to acquire or generate the sameinternally is considered as a cost in the year in which it was incurred.

With reference to trademarks owned by the Group, it should be noted that they are classified

among intangible assets with an indefinite life, and therefore not amortised, since:-

they play a key role in the Group’s strategy and constitute a primary value driver;the corporate structure, in its concept of organised tangible assets and organisation ina broad sense, is heavily committed, at the moment, to the dissemination and development of
the brands on the markets for the products marketed by the Group, although theaforementioned brands may represent assets that may be freely used in markets adjacent tothose of consolidated entities;-

the trademarks are owned and are correctly registered and constantly protected froma regulatory perspective, with options for renewing the legal protection at the end of theregistration periods that are inexpensive, easy to implement and without external
impediments;-

the products marketed by the Group under these brands are not subject to particulartechnological obsolescence in consideration of the development activities carried out by theGroup that allow them to qualify in the luxury market for the categories of cycling productsthat are subject to marketing and in which the Group is perceived by the market;-

in fact, the brands are considered by their consumers as constantly innovative and on

trend, so much so that they become models to be imitated or inspired by;-

the brands are distinguished, in the typical national and/or international context foreach of them, by market positioning and reputation such as to ensure their pre-eminence in32the respective market segments, being constantly associated and compared to products ofabsolute reference;-in the reference competitive context, it can be stated that the investments to maintainthe brands are proportionally limited, compared to the substantial and favourable cash flows
expected.
Goodwill

Goodwill recognised in the financial statements is that paid for a business combination, i.e. forthe acquisition of control of a company or business unit. It is not subject to amortisation, but
to an impairment test to be carried out at least annually. If the purchasing company candemonstrate that it is able to achieve the value creation objectives implicit in the acquisition
price, it does not make any adjustments to the goodwill recorded; otherwise, it must record an

impairment loss in accordance with IAS 36. The goodwill generated internally by the company

is not recognised. In accordance with IAS 36, the impairment test is based on the discountingof cash flows.

Tangible fixed assets
Property, plant and equipment are recognised according to the cost criterion and recognised

at the purchase price or at the cost of production, revalued if necessary in accordance with thelaw, including directly attributable accessory costs necessary to make the assets ready for use.

Financial charges directly attributable to the acquisition, construction or production of atangible asset are recognised in the income statement at the time they are incurred if they do
not refer to a qualifying asset. The Group does not hold assets for which a certain period oftime normally elapses to make the asset ready for use (qualifying asset).

The expenses incurred for ordinary and/or cyclical maintenance and repairs are directly
charged to the income statement in the year in which they are incurred. The capitalisation of

costs relating to the expansion, modernisation or improvement of structural elements owned
or used by third parties is carried out exclusively to the extent that they meet therequirements to be separately classified as an asset or part of an asset by applying the“Component approach”.

Property, plant and equipment, with the exception of land, are systematically depreciatedeach year on a straight-line basis over the estimated useful life in relation to the remaining
useful life of the assets. If the asset being depreciated is composed of distinctly identifiable33

elements whose useful life differs significantly from that of the other parts that make up theasset, depreciation is carried out separately for each of the parts that make up the asset inapplication of the “component approach” principle.

Amortisation begins when the asset is available for use, taking into account the actual
moment in which this condition occurs.

The depreciation amounts charged to the income statement are calculated on the basis of theresidual possibility of use, taking into account the use, the destination and the economic-

technical duration of the assets. This criterion is considered well represented by the following
rates:









Land

0%

Generic plants

10% -12.50%

Buildings

Machinery

Equipment

Office furniture and equipment

Electronic office equipment

10%-12.50%
10%-35%12%

18% -20%

Motor vehicles and internal transport vehicles

25%


3%

Light constructions

20%

-

10%

The depreciation rates of property, plant and equipment are reviewed and updated, where
necessary, at least at the end of each year.

If, regardless of the depreciation already recorded, there is an impairment loss, the tangible
asset is written down; if in subsequent years the reasons for the write-down no longer apply,
the original value is restored.

The residual values and the useful life of the assets are reviewed at each reporting date and, if
deemed necessary, the appropriate adjustments are made.
Impairment losses

IAS 36, in the presence of indicators, events or changes in circumstances that suggest theexistence of impairment, requires intangible assets and tangible assets be subjected to theimpairment test, in order to ensure that they are not recognised as assets at a value higher

than the recoverable amount. This test is performed at least annually for assets and goodwill
with an indefinite useful life, in the same way as for tangible and intangible assets not yet in

34

use.

The certification of the recoverability of the values recorded in the financial statements is

obtained by comparing the book value at the reference date and the fair value net of costs tosell (if available) or the value in use. The value in use of a tangible or intangible asset isdetermined on the basis of the estimated future cash flows expected from the asset,

discounted through the use of an after-tax discount rate, which reflects the current market
valuation of the present value of money and risks related to the Group’s activities, as well as
cash flows deriving from the disposal of the asset at the end of its useful life. If it is notpossible to estimate an independent cash flow for an individual asset, the smallest operating
unit (cash generating unit) to which the asset belongs and to which it is possible to associate

future cash flows that can be objectively determined and independent from those generated

by others is identified. The identification of the cash generating units was carried out in linewith the organizational and operating architecture of the Group.

If the impairment test shows an impairment loss on an asset, its book value is reduced to therecoverable value, through direct recognition in the income statement, unless the asset ismeasured at revalued value, in which case the write-down is charged to the revaluation
reserve. When the reasons for a write-down no longer apply, the book value of the asset (or of
the cash-generating unit), with the exception of goodwill, is increased to the new value

deriving from the estimate of its recoverable value, but not beyond the net book value that theasset would have had if the write-down for impairment had not been made. The write-back ischarged to the income statement immediately, unless the asset is measured at the revalued
amount, in which case the write-back is charged to the revaluation reserve.
Financial leasing transactions
In line with the recommendations contained in IAS 17, financial leasing transactions are

represented by comparing them to financing transactions and recognised according to the socalled “financial method”.

This method provides for: the recognition of the original value of the leased assets in therelated category of fixed assets; the recognition of the corresponding residual principal
payable to the leasing company under liabilities and the recognition in the income statementof the depreciation of the assets if with a finite useful life, as well as the portion of interest for
the year included in the instalments paid to the leasing company.

The balances shown in these financial statements do not incorporate the effects deriving from35

the application of the new international accounting standard “IFRS 16 - Leases”, whose

adoption is mandatory starting from the first financial year after 1 January 2019. For the sakeof completeness, it should be noted that the new accounting standard provides for therecognition, under balance sheet assets, of an amount equal to the future instalments
envisaged by the rental, operating and financial lease agreements in the form of “right of use”,
matched by the recognition of a liability of the same amount. As highlighted, the new
accounting standard no longer differentiates between leases and operating leases on the one

hand, and finance leases on the other, aiming to provide evidence of the substantive aspect of

the underlying transactions. It is possible to opt for non-recognition only with reference toshort-term leases (whose maturity is within twelve months) or low-value contracts.

A summary quantitative representation of the impacts deriving from the adoption of IFRS 16
by the Group is provided in the following paragraph “COMMITMENTS”.
Financial fixed assets
Other equity investments are recognised at purchase or subscription cost, adjusted if
necessary for impairment.
Inventories
Raw materials, auxiliary materials and finished products are recorded at purchase or
production cost, including accessory charges, or at the realisable value based on market
trends, if lower.

The cost configuration used is that of the “weighted average cost”.

Production costs include the expenses incurred to bring the assets to the state in which they

are found in the financial statements; they include both the specific costs of the individual
assets and the overall costs incurred in the activities carried out for their preparation.

Obsolete and slow-moving stocks are valued in relation to their possibility of use andrealisation, with reference to the average duration of the production cycle, with the allocationof a specific write-down both directly and through the establishment of a provision to adjust
their value.

Receivables
Receivables are recorded at their presumed realisable value, which corresponds to thedifference between the nominal value of the receivables and the amounts allocated by way of36

write-down of the receivables. The value of the receivables is, in fact, adjusted by a specificbad debt provision set up over the years that takes into account the general economic andsector conditions, and also the country risk, as well as by a residual provision to cover badloans for the part not covered by insurance. The value of the receivables, thus determined,
adequately approximates the fair value.
Cash and cash equivalents
Cash and cash equivalents are represented by cash and current account deposits not subject
to significant risks of changes in value.
Provisions for risks and charges
Provisions for risks and charges relate to costs and charges of a certain nature and of certainor probable existence that at the end of the year are undetermined in terms of amount or dateof occurrence. Allocations to these provisions are recognised when:-

event;--

it is probable that there is a current legal or implicit obligation deriving from a past
it is probable that the fulfilment of the obligation will be onerous;
the amount of the obligation can be reliably estimated.

Provisions are recognised at the value representing the best estimate of the amount that thecompany would reasonably pay to extinguish the obligation or to transfer it to third parties atthe end of the year. When the financial effect of time is significant and the payment dates ofthe obligations can be reliably estimated, the provision is determined by discounting back the
expected cash flows determined taking into account the risks associated with the obligation;
the increase in the provision related to the passage of time is recognises in the income
statement under “financial income” or “financial charges”.

The provisions are periodically updated to reflect changes in cost estimates, realisation times

and the discount rate; revised estimates are charged to the same income statement item that
previously included the provision.

The existence of contingent liabilities, represented by obligations:-

possible, but not probable, arising from past events, the existence of which will be

confirmed only upon the occurrence or otherwise of one or more uncertain future events not
fully under the control of the company; or-current events, as they derive from past events, for which, however, the possibility of37

incurring charges in the future is considered remote, or the amount of which cannot be
reliably estimated;

it does not give rise to the recognition of liabilities recorded in the financial statements, but is
illustrated in a special note to the financial statements.
Provisions for employees
The liability relating to defined benefit plans, net of any assets serving the plan, is determinedon the basis of actuarial assumptions and is recognised on an accrual basis in line with thework services necessary to obtain the benefits.

The valuation of the liability was carried out by independent actuaries using the projected
unit credit method.

Gains and losses deriving from the actuarial calculation are recognised in the statement ofcomprehensive income. The amount reflects not only the payables accrued at the reporting
date, but also future salary increases and the related statistical trends.

The benefits guaranteed to employees through defined contribution plans (also by virtue ofrecent changes in national pension legislation) are recognised on an accrual basis and at thesame time give rise to the recognition of a liability measured at nominal value.
Current and deferred taxation
Provisions for income taxes for the year made by the individual companies included in thescope of consolidation are calculated in accordance with the current tax regulations of thecountry where the companies are based and are recorded under “tax payables”, net of any tax
credits legally offset during the subsequent tax period.

Deferred taxes are calculated on the cumulative amount of all temporary differences between

the value of an asset or a liability determined according to statutory criteria and the value
attributed to that asset or liability for tax purposes, applying the presumed tax rate in force at
the moment in which the temporary differences will reverse, as well as the tax effect of thetypical consolidation adjustments.

It should also be noted that no deferred taxes have been allocated against the revaluation

reserves subject to taxation recognised under shareholders’ equity since, at present, it isbelieved that no transactions are carried out that would result in taxation.

Deferred tax assets deriving from losses that can be carried forward for tax purposes are also

recognised if the conditions of reasonable certainty of obtaining taxable income that will be38able to absorb the losses carried forward and the losses in question derive from wellidentified circumstances and it is reasonably certain that these circumstances will not be
repeated.
PayablesPayables are stated at their nominal value, modified in the event of returns or invoicing
adjustments. This measurement approximates the fair value in an appropriate manner.

The bond payable is recognised on the basis of the amounts collected, net of the transaction
costs and subsequently measured at amortised cost, using the effective interest rate method.
Derivative contracts

Derivative contracts can be considered trading or hedging contracts and, based on IAS rules,
must be recognised in the financial statements and measured at fair value regardless of theirdestination and classification. The hedging transaction must also be attributable to apredefined risk management strategy, must be consistent with the risk management policies

adopted, must be documented and effective in effectively neutralising the risk to be hedged.
This principle of consistency can be maintained only in the presence of effective hedging
contracts. Hedging transactions can be divided into fair value and cash flow hedges of specificfinancial statement items.
Share capital
The item is represented by the subscribed and paid-in capital.
Reserve for first-time adoption of IAS / IFRSThe item includes the total amount of IAS / IFRS adjustments recognised directly in equity at
the time of First Time Adoption (1 July 2014).
Other equity reserves

Among other things, the item includes the cash flow hedge reserve, where changes in the fairvalue of hedging derivatives are recognised directly in equity net of the related taxes.

It also includes the employee severance indemnity discounting reserve, where the effects ofchanges in the employee severance indemnity provision of employees of the Italiancompanies of the Group are accounted for, as resulting from the actuarial analysis carried out

39

by professionals enrolled in the professional register to which the data in question are
subjected on an annual basis.

Revenues, income, costs and charges
Revenues and income, costs and charges, including all taxes and duties not charged to income,are recorded in the financial statements net of returns, discounts, allowances and premiums,
as well as taxes directly related to the sale of products and the provision of services.

The revenues deriving from the sale of goods are recognised at the time of transfer ofownership, which generally coincides with the time of delivery or shipment, unless thedelivery terms are such as to cause significant risks and benefits to pass to the purchasing

counterparty at a later time than the aforementioned delivery or shipment of the good, inwhich case, on the basis of the average delivery time, the sales revenues and the related costs
are deferred to the following year.

Revenues from the provision of services are considered to have been achieved on the date on

which the services are completed. Revenues of a financial nature and those deriving from theprovision of continuous services are recognised on an accrual basis.
Costs are recognised on an accrual basis.
Income taxes
Taxes are allocated on the basis of the rates in force applied to taxable income, taking into

account the regulations in force at the time of preparation of the financial statements, incompliance with the accrual principle.

Taxes for the period include current and deferred taxes. Income taxes are generally
recognised in the income statement, except when they relate to items recorded directly inequity. In this case, income taxes are also charged directly to shareholders' equity.

Current taxes are the taxes that are expected to be paid on the taxable income for the year andare calculated in compliance with the regulations in force in the various countries in which
the Selle Royal Group operates.

Deferred taxes are calculated using the liability method on the temporary differences between

the amount of assets and liabilities in the consolidated financial statements and thecorresponding values recognised for tax purposes. Deferred taxes are calculated on the basisof the tax rate that is expected to be in force at the time the asset is realised or the liability is
extinguished.

40Deferred tax assets are recognised only if it is probable that sufficient taxable income will be
generated in subsequent years for the realisation of these assets.

Income taxes relating to previous years include charges and income recognised in the year forincome taxes relating to previous years.

Receivables and payables in foreign currency and liquid funds in foreign currency at the endof the accounting period are stated in the financial statements at the exchange rate in force on
the date of the financial statements.

Profits and losses deriving from the translation of individual receivables and payables and of
liquid funds in foreign currency, at the exchange rate in force on the date of the financial
statements, are credited and debited respectively to the income statement as financial income

components. If a net profit emerges from their conversion at the exchange rate in force at theend of the year, when the financial statements are approved, this net profit is recorded in a
non-distributable reserve for the part not absorbed by any loss for the year.
ESTIMATES AND ASSUMPTIONS

The preparation of the consolidated financial statements requires the directors to apply

accounting standards and methods which, in certain circumstances, are based on difficult andsubjective assessments and estimates based on historical experience and assumptions thatare considered reasonable and realistic from time to time depending on the relevant
circumstances.

The application of these estimates and assumptions affects the amounts shown in the financial
statements, such as the statement of financial position, the income statement and the cash
flow statement, as well as the information provided.

The final results of the items in the consolidated financial statements for which the above-

mentioned estimates and assumptions were used, may differ from those reported in thefinancial statements of the individual companies due to the uncertainty that characterises theassumptions and the conditions on which the estimates are based.

The estimates and assumptions are reviewed periodically and the effects of each change arereflected in the income statement of the period in which the estimate is revised.

Below is a summary of the financial statement items that require greater subjectivity thanothers on the part of the directors in preparing the estimates and for which a change in theconditions underlying the assumptions used could have a significant impact on the financial
statements:41

-Non-current assets: the Group periodically reviews the carrying amount of property,

plant and equipment, intangible assets, investments in joint ventures and associates and othernon-current assets, when facts and circumstances require such revision in order to determine
their recoverable value. The recoverability analysis of the book value is generally carried out

using estimates of expected cash flows from the use or sale of the asset and appropriate
discount rates to calculate the present value. When the book value of a non-current asset isimpaired, the Group recognises a write-down equal to the excess between the book value ofthe asset and its recoverable value through the use or sale of the same, determined withreference the cash flows inherent in the most recent business plans.
-Deferred tax assets: the Group has deferred tax assets on deductible temporary

differences and theoretical tax benefits for losses carried forward that are recognises to theextent that it is probable that future taxable income will be available against which they canbe recovered. The valuation of the recoverability of deferred tax assets, recognised in relation

to both tax losses usable in subsequent years and deductible temporary differences, takes into
account the estimate of future taxable income and is based on prudent tax planning.

-

Provision for inventory obsolescence: reflects the Company management's estimate of

expected impairment losses in relation to inventories, determined on the basis of pastexperience. Any anomalous trends in market prices could have repercussions in future
inventory write-downs.
-

Bad debt provision: the recoverability of receivables is measured taking into accountthe risk of non-collectability, their age and losses on receivables recognised in the past forsimilar types of receivables.
-

Employee-related provisions: provisions for employee benefits and net financial

charges are measured using an actuarial method that requires the use of estimates andassumptions to determine the net value of the obligation. The actuarial methodology
considers financial parameters such as, for example, the discount rate and the growth rates ofwages and considers the probability of occurrence of potential future events through the useof demographic parameters such as, for example, employee mortality rates and resignation orretirement rates.
-

Contingent liabilities: the Group ascertains a liability for pending disputes and lawsuits

when it deems it probable that a financial outlay will occur and when the amount of theresulting losses can be reasonably estimated. In the event that a financial outlay becomes

possible but the amount cannot be determined, this fact is reported in the explanatory notes42to the financial statements. The lawsuits may concern complex legal and tax issues, subject toa different degree of uncertainty against which it is possible that the value of the provisions

may change as a result of future developments in the ongoing proceedings. The Group

monitors the status of pending legal proceedings and consults with its legal advisors andexperts.
-

Depreciation/amortisation: changes in the economic conditions of the markets, intechnology and in the competitive scenario could significantly affect the useful life ofproperty, plant and equipment and of intangible assets and could result in a difference in thetiming of the amortisation process, as well as on the amount of depreciation/amortisation

costs.
-

Income taxes: determined in each country in which the Group operates according to a

prudent interpretation of current tax regulations. This sometimes involves complex estimatesin determining the taxable income and the deductible and taxable temporary differences
between the carrying amounts and taxable amounts.
SEGMENT REPORTING

The segment reporting of the Selle Royal Group, in application of IFRS 8, is provided withreference to the geographical areas in which the Group operates based on the availability offinancial statement information and in line with the main method with which the results are

periodically reviewed by management for performance assessment purposes. Morespecifically, the Group’s areas of activity can be broken down as follows:
EUROPE
This area is represented, from a corporate point of view, by the Parent Company Selle Royal
S.p.A. and its direct and indirect subsidiaries, whose registered office and whose operating
activities are mainly concentrated in the European Union.

From a business point of view, this sub-scope includes both industrial activities, carried out inthe factories of Selle Royal S.p.A. in Pozzoleone (VI) and of Brooks England Ltd. in Smethwick(GB), as well as purely commercial activities. The latter consist of the sale and distribution ofown-brand products, the result of both internal production and pure marketing, and the

distribution of third-party brand products. With specific reference to the latter aspect, it isrecalled that the parent company Selle Royal S.p.A. has, for years now, augmented traditionalsales in the OEM (so-called original equipment) and aftermarket (sales of spare products to43

national/regional distributors) channels with direct sales to retailers limited to Italy andFrance, under the brand name A4 Selection.
AMERICAThis area is represented, from a corporate point of view, by the subsidiaries whose registeredoffice and operating activities are mainly concentrated in North America and by Royal Ciclo,
whose registered office and reference market are in Brazil.

The activities carried out by the companies belonging to this sub-perimeter are varied andmainly include the design, development and marketing of hardware products (defined, forsimplicity, as all those “non-saddles” and “non-sports shoes” products); the production of

saddles and other accessories in the Brazilian plant and the marketing of the Group’s brands
and selected third-party brands on the American, Canadian and Brazilian markets, throughthe retail channel and selected specialised chains.
ASIA

This area is represented, from a corporate point of view, by the subsidiaries whose registeredoffice and whose operating activities are mainly concentrated in Asia.

These are mainly industrial activities carried out in the Chinese plants of Selle Royal Vehicle(China) Co., Ltd., whose products are intended for both the domestic market and the export

market. The main sales channel that includes these products is the so-called “OEM” channel, in

which the Group's direct customers are bicycle assemblers, who operate both on their own
behalf and on behalf of third parties. In the latter case, the Group exploits its relations and its

sales force by negotiating supplies with Western brands (mainly European and American),which then decide to allocate production to its own and/or third-party plants, mainly inEurope or in the Far East.

Overall, it should be emphasised that the global presence, both in production and commercial
terms, and the portfolio of own brands, which is also accompanied by a service for thedevelopment of specific products at the request of customers, make the Selle Royal Group a

privileged counterparty for the large groups/agglomerations of brands that have formed over
the years in the cycle sector.

The following tables present the data on revenues and on certain balance sheet items relating
to the Group’s business segments for the years 2018-2019 and 2017-2018.

44

2018/19

2017/18

EUROPEAMERICAASIAEUROPEAMERICA

ASIA

Revenues

69.505.718

38.951.446

22.180.075

70.004.107

22.599.124

22.962.514

Current assets
Non-current assets
Current liabilities
Non-current liabilities

26.792.805
32.401.739
30.614.354
21.260.641

16.654.772
21.271.662
16.801.062
5.973.214

11.218.854
8.115.580
6.552.168
58.44325.635.995
32.568.829
25.256.475
21.194.793

10.149.862
11.297.804
10.557.688
423.230

12.065.723
9.474.898
8.492.565
59.211DERIVATIVE FINANCIAL INSTRUMENTS

As at 30 June 2019, the parent company Selle Royal S.p.A. holds a derivative financial

instrument, subscribed with a leading Italian credit institution, for the purpose of hedging
against interest rate volatility (known as the so-called “IRS”).

The effectiveness test carried out shows that this derivative financial instrument is a hedge

and, as a result, the effects relating to the change in its value were reflected in a specific equity
reserve (so-called “cash flow hedge reserve”).
RISK MANAGEMENT

In relation to financial and other risks, please refer to the Report on Operations.
COMMITMENTS
Below is a summary representation of the financial impact deriving from the application of
the new international accounting standard “IFRS 16 - Leases” which, as outlined in the
introductory notes, will take place starting from the 2019/20 financial year.
COMMITMENTS from LEASE CONTRACTS

Some Group companies are counterparties in multi-year lease agreements relating, typically,to the properties in which they have their registered office and/or secondary appurtenances.
The following table shows the future lease payments set forth in the contracts in place as at 30

June 2018 and 2019, including the lease payments expected in the cases in which it isreasonably foreseeable that the contracts will be renewed upon expiry:
TOTAL FUTURE LEASE CONTRACTS

30/06/2019

30/06/2018

10.452.379

10.539.538

TRANSACTIONS with RELATED PARTIESThe main transactions with related parties are described below:45-Dec. 28, 1928 Holding S.p.A.: parent company of Selle Royal S.p.A., receives

emoluments as a member of the Board of Directors of Selle Royal S.p.A.; in addition, thepayable balances for IRES of the Italian companies of the Group that participated in the tax

consolidation, for which Dec 28, 1928 Holding S.p.A. is the parent company, are transferred toit.
-Dec. 28, 1928 Real Estate S.r.l.: the parent company Selle Royal S.p.A., by virtue of alease contract signed in June 2013 and with a duration of 8 years, manages the property

leased from Dec. 28, 1928 Real Estate S.r.l. in which the production and sales activities of Selle

Royal S.p.A. and the other Italian companies of the Group are carried out. The consideration

for the lease is involves a fixed portion and a variable portion to be determined on the basis ofpurely financial parameters from year to year. Dec. 28, 1928 Real Estate S.r.l. is also the lessorof an office space where the secondary office of Selle Royal SpA is located.

The amounts shown as current liabilities, with counterparties at Dec. 28, 1928 Real Estate

S.r.l. and shareholders, refer to the residual payables at the date of the financial statements
relating to the purchase of the equity investment and the minority shares already describedabove.

The economic and financial relations held during the 2018-2019 financial year are
summarised in the following table:
COUNTERPARTY
Dec. 28, 1928 Holding S.p.A.
Dec. 28, 1928 Real Estate S.r.l.
Shareholders
Directors
TOTAL RELATED PARTIES

GENERAL and
INDUSTRIAL
ADMINISTRA
COSTSTIVE C.
977.564977.56480.000525.000
605.000

OTHER NONCURRENTASSETS
25.20025.200

CURRENT
LIABILITIES
212.753756.171
1.546.667
2.515.591

46

ANALYSIS and COMPOSITION of the BALANCE SHEETCURRENT ASSETSCASH AND CASH EQUIVALENTS

This item refers to the positive balances in the bank current accounts and postal deposits of
the Group Companies, together with a limited amount of cash held by each Company to meetcurrent needs.

The balance as at 30 June 2019, equal to € 11,109,764, was up compared to the previous year
due to higher collections in the last part of the year.

As at 30 June 2019 and 2018, there are no restrictions or limitations on the use of the Group's
cash and cash equivalents.
TRADE RECEIVABLES

The breakdown of this item, expressed in the financial statements net of allocations to the bad
debt provision carried out prudentially on the portion of receivables not covered byinsurance, is as follows:

30/06/2019

30/06/2018

ChangeTrade receivables
Bad debt provision
TRADE RECEIVABLES, net

16.689.301(831.601)
15.857.700

15.746.319(573.242)
15.173.076

942.982(258.359)
684.623

For receivables whose collectability is uncertain, for which legal action for collection has been
initiated, and for some receivables from customers with a potential lower degree ofcollectability, specific provisions for write-downs have been allocated up to the presumed
realisable value.

The growth in this item is attributable to the entry of Royal Ciclo into the scope of
consolidation.

It should be noted that the parent company Selle Royal S.p.A. transferred receivables fromcertain customers, primarily domestic, through a non-recourse factoring transaction, to aleading bank for € 1,996,492; the Chinese subsidiary Selle Royal Vehicle (China) Co., Ltd.

completed a similar transaction for a value of € 636,639. During the previous year, thecumulative value of the assignments of receivables without recourse made by the same
companies was equal to € 2,254,003.
INVENTORIESThe breakdown of this item, broken down by type of stock and with details of the provisions
47

recorded against the risk of potential obsolescence, is shown in the table below:
30/06/2019

30/06/2018

ChangeRaw materials, supplies and consumables
Work in progress and semi-finished products
Finished products and goods
Goods in transit
Gross inventories

8.140.728
3.968.316
14.179.402
1.544.969
27.833.415

6.213.917
3.834.329
12.748.314
228.430
23.024.991

1.926.810
133.987
1.431.087
1.316.539
4.808.423

Provision for obsolescence
Provision for unrealised intra-Group margin(2.516.760)(2.086.238)(2.467.414)(1.589.376)(49.346)(496.863)

INVENTORIES

23.230.417

18.968.202

4.262.215

The growth of this item is due both to the effect of consolidation of the balances of Royal Ciclo
and to an increased volume of stocks of raw materials in Selle Royal S.p.A. to bring forward

part of the production to July, in view of the extraordinary maintenance planned in the firstfew months of the following tax year.
TAX RECEIVABLES

Tax receivables increased compared to the balance as at 30 June 2018, as detailed below:
30/06/2019

30/06/2018

Change761.817529.117186.788
1.477.722

963.186351.523
107.795
1.422.504(201.369)
177.59478.99355.218Current deferred tax assets

761.703564.019

197.684

TOTAL TAX RECEIVABLES

2.239.425

1.986.523

252.901

Current tax receivables:
For direct taxes
For indirect taxes
For other withholdings
Subtotal current taxes

The reduction in receivables for direct taxes mainly refers to the better results obtained bysome Group companies.

The increase in receivables for indirect taxes mainly relates to the increase in the VAT credit
due to Selle Royal S.p.A. and deriving from the payments made at the reporting date.

Deferred tax assets were recognised taking into account that there is a reasonable certainty
that positive results will be achieved in future years to allow the use of deferred tax assets
allocated to assets.

For an examination of the change in current deferred tax assets, please refer to the relevant
48section of these notes.

OTHER CURRENT ASSETS

The breakdown of this item and the comparison with the previous year are as follows:
30/06/2019

30/06/2018

Change347.900
535.809684.161661.255
2.229.125

225.657
535.809882.773241.073
1.885.311

122.244(198.612)
420.183
343.814

Advance costs
IRAP refund application
Accrued income and prepaid expenses
Sundry receivables
TOTAL CURRENT ASSETS

The increase in sundry receivables is due to the change in the scope of consolidation alreadymentioned, as well as to a receivable of Selle Royal S.p.A. from the Italian Revenue Agency.
NON-CURRENT ASSETSINTANGIBLE ASSETS

Details of the item and the changes that have taken place since the previous year are shown in
the table below:

Balance as at Acquisitions
30 June 2018(+)

Balance as
Increases Decreases (- Reclassificat
Translation
Amortisation (-)
at 30 June
(+)
ion
)
diff.
2019

237.362---322.293(488.667)(4)

70.984

Industrial patent rights andintellectual property rights

2.315.123-

435.474--(583.703)

33.4152.200.309

Concessions, licenses, trademarks and similar rights

19.191.626

19.639576.467--(419.571)(11.570) 19.356.590

Others

162.263-

53.589--(139.220)17.77894.410

Fixed assets in progress and payments on account790.548-241.631-(360.563)-(16.971)654.644

22.696.922

19.6391.307.160-(38.270)

Research and development costs

Total intangible assets(1.631.161)

22.648 22.376.937

The item “Research and development costs” refers to the capitalisation of costs incurred forthe implementation and realisation of new projects. The aforementioned costs are deemed tobe recoverable through the revenues that will be generated in the future from theimplementation of the above-mentioned projects and, as they are reasonably related to a
useful life span over several years, a multi-year benefit has been recognised.

The item “Industrial patent rights” mainly includes the corresponding item recorded in thefinancial statements of the subsidiary Crank Brothers, Inc. at the time of the acquisition of thesame company by Selle Royal S.p.A.; the value was also tested on the basis of valuations issued

by independent experts who also indicated the useful life on which to calculate thedepreciation; higher values are recorded in the financial statements of Crank Brothers Inc. for49

a total of USD 7,694,000, allocated for USD 4,780,500 to the item “Industrial patent rights”,

amortised over 15 years. The residual portion was recorded under “Goodwill”, as shown
below.

The item “Concessions, licenses, trademarks and similar rights” refers to the value of the

trademark portfolio held by the Group companies, for a value of € 18.301.801; the remainder
relates to the concession rights of the land on which the Selle Royal China plant stands and tolicenses and costs for the implementation of non-proprietary management software.

Trademarks are considered “with an indefinite useful life” and are therefore subject to annual

impairment tests. The analyses carried out confirm the recoverability of the book value atwhich they are recorded in the financial statements through the analysis and estimate of the
cash flows that are estimated will be generated in the future.

The item “Other” refers to the recognition of intangible assets that meet the requirements of
IAS 38 for their recognition in the financial statements.

Intangible assets in progress and advances mainly relate to expenses incurred by the Group in

relation to projects for the development of new products and product lines, as well as
supporting software and applications, not yet operational at the end of the year.
TANGIBLE FIXED ASSETS

Details of the item and the changes that have taken place since the previous financial
statements are shown in the following table:

Balance as at Acquisitions Increases Decreases (- Reclassificat
Translation
Amortisation (-)
30 June 2018
(+)
(+)
)
ion
diff.

Balance as
at 30 June
2019

Land and buildings

7.294.091

2.673.744

286.703--(873.687)

62.3929.443.244

Plant and machinery

4.373.248

5.168.978

1.040.908(65.982)

52.379(1.098.348)

142.2939.613.477

Industrial and commercial equipment

3.689.758

680.449

1.547.216(12.133)

973.978(2.760.925)

27.3804.145.723

Other assets

1.429.167

76.951376.198(31.359)

31.601(603.772)(4.184)1.274.601

Fixed assets in progress and payments on account

1.119.010

52.379759.852

-

-

6.070

917.624

Total tangible fixed assets

17.905.273

8.652.502

4.010.877(109.474)

233.952

25.394.668(1.019.688)
38.270(5.336.732)

The balances shown in the “Acquisitions” column relate to the assets owned by Royal Ciclo at
the effective date of the acquisition.

The increases in the item “land and buildings” relate to improvements made by Selle RoyalSpA and by some of its subsidiaries on properties used for production and commercial
activities.

The increases in other items, and in particular “plant and machinery”, “industrial and50

commercial equipment” and “work in progress and advances” mainly refer to investments ofan industrial nature, made mainly by the parent company and the production subsidiaries.
The reclassification from the item “work in progress and advances” to the item “industrial andcommercial equipment”, amounting to € 973,978, refers to the successful completion ofdevelopment processes, including multi-year, of new products during the year in question.
EQUITY INVESTMENTS

The balance reflects the cost incurred for the acquisition of equity investments in companies
not consolidated on a line-by-line basis and relates, for € 1,918,498, to the equity investment
in Highway Two Llc., with registered office in Olney (USA) and share capital of USD 241,648,
over which indirect joint control of 50% is exercised. This investment is measured using theequity method. The residual amount of € 723 relates to minority interests held by Selle Royal
S.p.A.

GOODWILL

This item had a balance at the reporting date of € 10,428,649. The increase compared to thebalance as at 30 June 2018 is due to the residual portion, not allocated to other assets of thetarget company, of the higher value recognised at the time of acquisition of the interest in
Royal Ciclo compared to the corresponding portion of shareholders' equity.

For the sake of completeness, it should be noted that this item includes the goodwill recordedin the financial statements of the subsidiary Crank Brothers Inc., as well as the higher value

recognised at the time of acquisition of the shares in the same US subsidiary and in the
Chinese subsidiary Selle Royal Vehicle (China) Co. Ltd.

In line with the provisions of IAS 36, goodwill is not subject to amortisation but to an

impairment test. The analysis carried out by comparing the value of the goodwill recorded in
the financial statements and the present value of the cash flows that it is reasonably expected
will be generated by the three companies justifies the values represented.
DEFERRED TAX ASSETS

Details of the item in question is shown in the following table:51

30/06/2019
TEMPORARY DIFFERENCES

30/06/2018
TAX EFFECTTEMPORARY DIFFERENCESTAX EFFECT

Current deferred tax assets:
Estimate of customer bonuses
Employee bonuses
Accrued leave for employees
Bad debt provision
Inventories
Unrealised margin on intra-Group sales
Tangible assets
Other temporary differences
Subtotal current deferred tax assets

46.361106.985289.432
2.115.033
673.22334.4733.265.506

12.93530.85466.978529.593114.4486.895
761.70369.566109.208
101.115
46.122348.1671.501.078
265.2262.440.481

19.40925.14022.062
10.52374.451406.4815.953
564.019

Allocation to agents' provision
Provision for write-down of finished products
Intangible assets
Tangible assets
Prior tax losses - Federal taxes
Prior tax losses - State taxes
Other temporary differences
Subtotal non-current deferred tax assets

115.372
1.293.693
58.9971.241.470
1.382.652
1.280.055
23.0005.395.238

32.189319.247
16.460251.564290.357
179.890
5.520
1.095.227

115.372
843.598130.038
30.1782.326.799
762.59932.189215.19736.281
6.765
464.423
158.627

4.208.584

913.481TOTAL DEFERRED TAX ASSETS

8.660.745

1.856.930

6.649.065

1.477.501

Non-current deferred tax assets:

The change in the current portion of deferred tax assets is mainly related to the increase in
the value of taxes allocated on the unrealised margin in intra-group transactions following an

increase in the provision itself. Deferred tax assets relating to fixed assets increased, both forthe current and non-current portion, following the inclusion of Royal Ciclo in the scope of
consolidation.

The decrease in non-current deferred tax assets allocated against previous tax losses is

attributable to the positive results achieved by the subsidiaries Crank Brothers, Inc. and Selle
Royal Vehicle (China) Co., Ltd.

FINANCIAL ASSETS AT FAIR VALUEThis item, amounting to € 510,726, is recognised in the financial statements of the subsidiary Royal
Ciclo and refers to the amounts paid by the Company to a financing consortium in which it
participates.
OTHER NON-CURRENT ASSETSThis item, amounting to € 63,553, mainly concerns security deposits relating to lease
contracts of Selle Royal S.p.A., Crank Brothers, Inc. and SR56, Inc.

52

CURRENT LIABILITIESTRADE PAYABLES“Trade payables” are recognised net of trade discounts and any advances paid to suppliers;

cash discounts are instead recognised at the time of payment. The nominal value of thesepayables was adjusted, in relation to returns or allowances (invoicing adjustments), to theextent corresponding to the amount defined with the counterparty.

The balance amounts to € 17,132,366, up compared to the previous year due to a different

timing of purchases, which led to an increase in the balance at the reporting date. This
performance is reflected in the trend in inventories discussed above.
TAX PAYABLES

The item in question is detailed below:

30/06/2019 30/06/2018

Direct taxes
Indirect taxes
Local taxes
Withholding taxes on employees and oth
TOTAL TAX PAYABLES

41.761
1.371.000
38.471477.566
1.928.798

111.20390.10840.211491.075732.596

Change(69.441)1.280.891(1.739)(13.509)
1.196.202

The increase in the balance compared to 30 June 2018 is attributable to the higher debt forindirect taxes pertaining to Royal Ciclo.
SHORT-TERM LOANS

The balance of the item in question, as at 30 June 2019, amounting to € 25,825,012, a modest

increase compared to the previous year, expresses the actual payable for principal, interest
and accessory charges accrued and payable and includes both credit lines whose duration
does not exceed 12 months and the current portion of the medium/long-term loans.
FINANCIAL LIABILITIES AT FAIR VALUEThis item has a balance of zero, as the instrument came to maturity during the year, at thesame time as the underlying to which it referred.

53

OTHER CURRENT LIABILITIESThe item in question, compared with the balance as at the reporting date of the previous year,
is detailed as follows:

Payables to employees
Payables to social security institutions
Payables to sales agents
Payables for tax consolidation
Accrued expenses and deferred income
Sundry payables
TOTAL CURRENT LIABILITIES

30/06/2019

30/06/2018

Change4.849.113
615.214226.048212.753433.4802.744.800
9.081.409

4.501.484
511.315223.573
87.491462.846265.568
6.052.277

347.629103.8992.475
125.262(29.366)
2.479.232
3.029.132

The increase in the balance is mainly linked to the residual payables to previous shareholders
for the purchase of shares in Royal Ciclo and BROOKS England Ltd.
NON-CURRENT LIABILITIESPROVISIONS FOR EMPLOYEESThis item mainly includes the employee severance indemnity provision of the Italiancompanies of the Group.

The value of the employee severance indemnity provision was correctly determined by theGroup by applying actuarial methods. The valuation of the liability was carried out by
independent actuaries using the projected unit credit method, which determined the value on
the basis of the following fundamental assumptions:- mortality rate: these data were taken from the actuary technician on the basis of the RG48
mortality tables published by the State General Accounting Office;- disability rate: the annual probabilities of elimination from the service due to incapacity
were inferred on the basis of what was published by INPS in 2000;- annual probability of elimination from the service for other reasons: this was assumed to be
0.5%, determined on the basis of the historical trend of this parameter within the company;- annual probability of request for severance pay advances: this was assumed to be 3.0%,
based on the historical trend of this parameter within the company;- annual discount rate: this was assumed to be 0.77% based on the average financial durationof the liabilities to employees;- annual inflation rate: estimated at 1.5% over the time horizon considered.
The relative changes are shown in the following table:

54

Balance as at
30 June 2018

Changes inscope ofconsolidation

Provisions for employees

2.029.122

7.440

72.038(162.061)

25.16768.583(526)

2.039.763

TOTAL

2.029.122

7.440

72.038(162.061)

25.16768.583(526)

2.039.763

Provisions (+)

Uses (-)

Interest cost

Actuarial (gains) / Translation Balance as at
lossesdiff.
30 June 2019

In compliance with the provisions of IAS 19 revised, the possible effects on the employee

severance indemnity provision deriving from fluctuations in the main parameters used in theactuarial estimate are given below:
VariableValue-1% on the turnover rate

1,823,739+1% on the turnover rate
+1/4% on the annual inflation rate
-1/4% on the annual inflation rate

+1/4% on the annual discount rate
-1/4% on the annual discount rate

1,794,531
1,832,852
1,784,341
1,769,861
1,848,305

OBLIGATIONSAs already mentioned above, during the year in question, the parent company Selle Royal
S.p.A. carried out two separate transactions that impacted said balance sheet liability item.

Firstly, on 24 September 2018, Selle Royal S.p.A. issued a new bond instrument listed on the
ExtraMot PRO segment (“mini-bond”) for a nominal value of € 10,000,000.00. This

instrument, fully subscribed by the Italian reserved and closed-end fund “Mediobanca Fondo

per le Imprese 2.0” managed by Mediobanca SGR S.p.A., has an annual interest rate of 4.95%
with half-yearly coupons, expires in December 2024, and involves amortising repayments on
a straight-line basis starting from December 2020.

The payable, in compliance with the provisions of IAS 39, is recognised on the basis of theamounts collected, net of the transaction costs and subsequently measured at amortised cost,using the effective interest rate method.

The objective of the second transaction, completed on 9 November 2018, was the full early

repayment of the residual nominal amount, equal to € 10,125,000.00, plus the related
interest, of the bond instrument originally issued in two tranches, in June and December 2014,

for a total amount of € 13,500,000.00. For the sake of completeness, note that this instrument
would expire naturally in June 2019.

55

MEDIUM-LONG-TERM LOANS

This item, amounting to € 11,622,690, up by € 5,636,384 compared to the same period of theprevious year, relates to the portion falling due beyond the next year of medium/long-termloans (mainly unsecured loans) taken out, for the most part by the parent company Selle

Royal S.p.A. with leading credit institutions. The increase in the balance is attributable to thehigher volume of new unsecured mortgages taken out with respect to the instalments fallingdue, as can also be seen from the details provided in the cash flow statement.
PROVISIONS for RISKS and CHARGESThe breakdown and changes in this item are shown below:
Balance as at 30
June 2018

Provision for supplementary customer indemnities
Provision for payment of foreign agents
End of mandate indemnity
Other provisions for risks
TOTAL

Provisions (+)

54.827115.372309.250
2.616.446
3.095.894

14.17623.00037.176

Uses (-)-

IAS adjustment

Balance as at
30 June 2019(14.887)(14.887)

54.116115.372
332.250
2.616.446
3.118.183

The provision for severance indemnity refers to the pension fund set up by the parent
company Selle Royal S.p.A. in compliance with the resolutions of the Shareholders' Meeting.
DEFERRED TAXESThe balance and breakdown of this item are broken down as follows:
30/06/2019

TEMPORARY DIFFERENCES

Bond issue
Intangible assets
Tangible assets
Gains from equity investments
Other temporary differences
TOTAL DEFERRED TAXESTAX EFFECT

1.002.755
2.119.029
3.121.784

299.322683.468
982.791

30/06/2018

TEMPORARY DIFFERENCES

34.6671.423.522
467.319181.619101.704
2.208.831

TAX EFFECT

9.672
301.21992.80733.87526.995464.568

This item was also affected by the effects of the first consolidation of Royal Ciclo, which can befound in the row relating to deferred taxes on assets.
FINANCIAL LIABILITIES AT FAIR VALUEThis item, amounting to € 12,017, relates to the market value of a hedging derivative
instrument with respect to the risk of fluctuations in interest rates (“IRS”) subscribed by Selle
Royal S.p.A. in June 2017 as collateral to the taking out a multi-year floating rate loan

56

maturing in May 2022.

This derivative, maturing in May 2022, has the following characteristics:
Interest Rate Swap;
Purpose: hedging;

Underlying financial risk: interest rate risk;
Date of trading: 05/06/2017;
Notional value: € 2,000,000;

Liability hedged: medium-term loan;
Initial date: 05/06/2017;
End date: 31/05/2022;

Debtor Selle Royal S.p.A.: basic product index rate actual/360 paid at the end of the quarter -3-month Euribor at the beginning of the period;

Bank borrower: basic contractual fixed rate act/360 paid at the end of the quarter contractual fixed rate -0.21%;

Periodic expiry date: quarterly.

Since the hedge is effective, the change in the fair value of this derivative instrument occurred

during the year in question was recorded in a special reserve in shareholders’ equity (socalled “cash flow hedge reserve”).
SHAREHOLDERS’ EQUITY

The share capital is composed as follows:
SharesNumberNominal Value ( € )Ordinary Shares

6.000.000

1

Total

6.000.000

The reconciliation between shareholders' equity and profit for the year of the parent company

and shareholders’ equity and consolidated shareholders' equity is shown in the following
table:

57

30 June 2019
Shareholders’ equProfit for the year

30 June 2018
Shareholders’ equGroup result for the year

Selle Royal S.p.A. as per the financial statements

27.627.654

967.387

26.728.739

1.155.490

Difference between book value and pro-rata value
shareholders' equity of consolidated companies

8.554.066-

9.889.561-

Pro-rata results achieved by consolidated subsidiaries-

64.194-937.622

Application of financial methodology for leased assets

24.209(11.446)35.655(3.605)

Elimination of intercompany profits included in inventories(1.564.678)(372.647)(1.192.030)(156.239)

Other consolidation differences(3.850.561)(128.789)(3.803.025)(592.065)

Shareholders ’equity and profit for the year pertaining to the Group

30.790.690

518.69931.658.900

1.341.204

Shareholders' equity and profit for the year attributable to non-controlling interests

4.404.839

432.9483.550.249(308.078)

Shareholders' equity and profit for the year as reported in the consolidated financial statements

35.195.529

951.647

35.209.149

1.033.126

58

ANALYSIS and COMPOSITION of the INCOME STATEMENTREVENUES

Revenues for the current year deriving from the Group’s ordinary operations amounted to €130.637.239 and were generated by the sale of saddles, pedals and other accessories, and by
the provision of services. The breakdown of revenues from sales and services by businesscategory is shown in the following table:

30 June 201930 June 2018

ChangeRevenues from sales of saddles
Revenues from the sale of accessory components
Revenues from the sale of pedals
Revenues from the sale of sundry materials
Revenue from services
Total gross revenues

75.425.119
49.785.169
12.603.792
1.485.310
168.875
139.468.265

68.038.195
43.034.852
7.464.454
2.009.878
63.796
120.611.176

7.386.924
6.750.317
5.139.338(524.567)
105.07918.857.090

Unconditional discounts
Returns
Price changes and others
Sales tax
Year-end bonus
Total revenue from sales(4.364.946)(956.239)(67.875)(3.040.255)(401.710)
130.637.239(3.868.403)(604.011)(116.726)(456.291)
115.565.745(496.544)(352.229)
48.851(3.040.255)
54.58115.071.494

COST OF SALES

The components of the cost of sales are shown below, compared with the previous year:
Purchase of raw materials
Ancillary charges on RM purchases
Outsourcing
LabourChange in inventories
Total cost of sales

30 June 201930 June 2018

Change55.328.323
1.493.816
4.552.845
15.666.487(24.317)77.017.154

47.960.108
1.914.016
5.166.769
13.804.745
676.704
69.522.341

7.368.215(420.199)(613.923)
1.861.742(701.021)
7.494.813

INDUSTRIAL COSTSThis item includes ancillary production process costs, although not directly variable withrespect to production volumes, and therefore can be classified under the item “cost of sales”.

5930 June 201930 June 2018

Change1.157.387
1.595.246
413.789576.878
1.155.989
287.676644.128
5.831.094

902.916292.384491.901531.683
1.201.326
203.505
682.9034.306.618

254.4711.302.862(78.111)45.195(45.337)
84.171(38.775)
1.524.476

Electricity
Consumables
Minor equipment
Maintenance
Rents
Research and development costs
Other industrial costs
Total industrial costs

COMMERCIAL AND PROMOTION COSTS

The balance of the item “sales and promotion costs”, which is composed of costs directly
related to sales activities, is shown below.
Commercial and advertising costs
Transports on sales
Commissions
Royalties
Gifts
Other commercial and promotion costs
Total sales and promotion costs

30 June 201930 June 2018

Change5.098.389
3.090.435
1.604.840
37.442476.387322.341
10.629.833

4.295.842
2.584.868
1.239.185
71.775286.382
531.827
9.009.878

802.547505.567
365.655(34.333)
190.004(209.486)
1.619.955

COSTS of the MANAGEMENT STRUCTURE

This item, which amounts to € 14,295,336 for the year in question, includes the cost of theclerical and managerial structures of the various Group companies.
GENERAL and ADMINISTRATIVE COSTS

The item in question is detailed below, mainly consisting of services purchased by the various
Group companies.

60

Consulting
Travel expenses
Board of Directors' emoluments
Board of Statutory Auditors' emoluments
Utilities
Entertainment and hospitality expenses
Motor vehicles
Fees and IT support
Insurance
Rents
Other general and administrative costs
Total general and administrative costs

30 June 201930 June 2018

Change2.885.351
1.563.226
647.666
60.362314.336286.616450.568
723.910845.628666.356
2.077.362
10.521.383

2.660.608
1.124.496
605.000
58.076245.690253.347396.931556.492
789.113514.8121.527.893
8.732.459

224.744438.730
42.6662.286
68.64633.26853.637167.41856.515151.544549.469
1.788.924

OTHER OPERATING INCOME and EXPENSES

The table below provides details of other operating income and expenses that cannot beclassified in other items of the income statement, including extraordinary positive andnegative income components.

30 June 201930 June 2018

ChangeOperating income:Minor independent works
Repayments and sundry income
Capital gains
Contingent assets and other income
Royalty income
Research & development
Total operating income

202.294210.4216.041
313.53649
259.508
991.849

54.459672.963
30.051133.552
1.172
819.546
1.711.743

147.834(462.542)(24.010)179.983(1.123)(560.038)(719.895)

Operating expenses:
Provisions for obsolescence
Allocation to provision for credit risks
Losses on receivables
Capital losses
Contingent liabilities and other charges
Total operating expenses(235.753)(195.180)(20.617)(25.797)(250.669)(728.016)(558.614)(244.376)(91.692)(514)(130.396)(1.025.591)

322.86249.19671.074(25.283)(120.274)
297.575

TOTAL OPERATING INCOME / (EXPENSES)

263.833

686.153(422.319)

The net balance of this item was positive by € 263,833, down compared to the previous year.

The change is mainly due to the presence of a non-recurring component in the 2018 balance
relating to the item research & development, which included a portion of the tax benefit

recognised on the development activities carried out by some US companies also in previous
61years.

OTHER FINANCIAL INCOME and EXPENSES

The breakdown of interest and other financial charges is provided in the table below:
30 June 2019

Financial income:Bank and postal interest
Dividends
Other financial income
Total financial income
Financial charges:
Interest on bonds
Interest expense
Interest cost provision for employee severance indemnity
Discounts
Bank charges
Total financial charges

31.671
4.421
28.27064.361(693.737)(1.856.424)(25.167)(548.984)(623.050)(3.747.362)

Net exchange rate differences
TOTAL FINANCIAL INCOME / (EXPENSES)

43.180(3.639.820)

30 June 2018 Change

18.141
3.685
21.82513.5304.421
24.58542.536(719.665)
25.928(1.072.066) (784.358)(29.408)4.241(504.304) (44.680)(589.054) (33.996)(2.914.496) (832.865)(244.692)

287.872(3.137.363) (502.458)

The growth of this item is essentially attributable to the effects deriving from the inclusion ofRoyal Ciclo in the Group perimeter. On a like-for-like basis, interest expense decreased
substantially by € 137,589, as did the other main cost items.

The impact of the net exchange rate differences also improved which, on the whole, werepositive in the year in question for € 43,180 (compared to a negative balance of € -244,692 in

the previous year). This item includes both exchange gains and losses realised as at 30 June
2019, and latent exchange gains and losses as at the same date deriving from the alignment offoreign currency balances with the current exchange rates at the end of the year, in addition
to exchange differences resulting from the elimination of the intragroup items.
TAXES FOR THE YEAR

The following table details the tax burden emerging at the level of the individual companies

belonging to the Group perimeter and any income adjustment items related to theconsolidation.

62

Current taxes
Deferred tax (assets)/liabilities
TOTAL TAXES FOR THE YEAR

30 June 201930 June 2018 Change

1.297.532(264.683)
1.032.849

575.718 721.814(149.717) (114.966)
426.001 606.848

The increase in current taxes is attributable to the better results achieved by some Group
companies, plus the taxes present in the financial statements of Royal Ciclo.

These consolidated financial statements, consisting of the Balance Sheet, the Income

Statement and the Explanatory Notes, provide a true and fair view of the equity and financial
position as well as the economic result for the year ended 30 June 2019 and correspond to theresults of the accounting records.

Pozzoleone (VI), 29 November 2019
The Chairman of the Board of Directors(Barbara Bigolin)

*

*

*

63

Selle Royal S.p.A.
Independent Auditors’ Report
Consolidated Financial Statements as at 30 June 2019

CCN/FBL/cpt – RC015932019BD0539

Tel: +39 02582010 Viale Abruzzi, 94
Fax: +39 0258201401
20131, Milanwww.bdo.it

Independent Auditors’ Report
Pursuant to art. 14 of Legislative Decree no. 39 of 27 January 2010
To the Shareholder of Selle Royal S.p.A.
Report on the audit of the consolidated financial statements
OpinionWe have audited the consolidated financial statements of the Selle Royal S.p.A. Group (the Group),
comprising the consolidated statement of financial position as at 30 June 2019, the consolidated
income statement, the consolidated statement of comprehensive income, the statement ofchanges in shareholders’ equity, the consolidated cash flow statement for the year ending on thatdate and the explanatory notes.
In our opinion, the financial statements give a true and fair view of the financial position of the Groupas at 30 June 2019, and of its economic result and cash flows for the year ended as at said date, incompliance with the International Financial Reporting Standards adopted by the European Union.
Elements forming the basis of our opinion
We have conducted the audit in compliance with the international standards on auditing (ISA Italy).
Our responsibilities pursuant to these standards are described further in the section “Responsibilitiesof the independent auditors for the audit of the consolidated financial statements” in this report. We
are independent from the Company in compliance with the regulations and principles governing ethics
and independence applicable in the Italian legal system to the auditing of financial statements. We
believe we have obtained sufficient and appropriate evidence on which to base our opinion.
Responsibilities of the Board of Directors and the Board of Statutory Auditors for the
consolidated financial statements
The Directors are responsible for the preparation of the consolidated financial statements that provide
a true and fair view in compliance with the Italian regulations that govern their drafting criteria and,within the terms prescribed by law, for the part of the internal control deemed necessary by these toallow the drafting of financial statements that do not contain material errors due to fraud or unintentional
behaviour or events.
The Directors are responsible for assessing the Group’s capacity to continue to operate as a going
concern and, in drafting the consolidated financial statements, for the appropriateness of the going
concern assumption and for adequate relevant disclosure. The Directors apply the going concern
assumption in drafting the consolidated financial statements unless they have evaluated that theconditions exist for the liquidation of the parent company Selle Royal S.p.A. or for the suspension ofbusiness or they do not have realistic alternatives to these choices.
The Board of Statutory Auditors is responsible for monitoring, in accordance with the terms prescribedby law, the process of preparation of the Group’s financial disclosures.

Bari, Bergamo, Bologna, Brescia, Cagliari, Florence, Genoa, Milan, Naples, Padua, Palermo, Pescara, Rome, Turin, Treviso, Trieste, Verona, Vicenza

BDO Italia S.p.A. - Registered office: Viale Abruzzi, 94 20131 Milan - Share capital EUR 1,000,000, fully paid-in
Tax Code, VAT no. and Registration no. in the Milan Register of Companies 07722780967 – Milan R.E.A. (economic and administrativeindex) 1977842
Enrolled in the Register of Auditors at no. 167911 under Ministerial Decree of 15/03/2013 Official Gazette no. 26 of 02/04/2013
BDO Italia S.p.A., Italian joint-stock company, member of BDO International Limited, UK company (company limited by guarantee), andpart of the international BDO network, network of independent companies.

Responsibility of the independent auditors for the audit of the consolidated financial statements
Our objectives are to acquire reasonable certainty that the consolidated financial statements, as awhole, are free of material errors, due to fraud or unintentional behaviour or events, and the issuing of
an audit report, which includes our opinion. By reasonable certainty, we mean a high level of certainty
that, however, does not provide the guarantee that an audit conducted in compliance with theinternational audit standards (ISA Italy) always identifies a material error, if it exists. Errors may result
from fraud or unintentional behaviour or events and are considered significant if they are reasonably
expected, both individually and as a whole, to be able to influence the economic decisions taken byusers based on the consolidated financial statements.
As part of the audit conducted in compliance with the international audit standards (ISA Italy), we
exercised our professional judgment and maintained our professional scepticism for the duration of theaudit. In addition:- we identified and evaluated the risks of material errors in the consolidated financial statements,
due to fraud or unintentional behaviour or events; we defined and performed the audit
procedures in response to said risks; we obtained sufficient and appropriate evidence on which
to base our opinion. The risk of not identifying a material error due to fraud is higher than therisk of not identifying a material error deriving from unintentional behaviour or events, sincefraud may imply the existence of collusion, falsifications, intentional omissions, misleading
representations or forcing of internal control;- we acquired an understanding of the relevant internal control system for the purposes of theaudit, in order to define the appropriate audit procedures in the circumstances and not to express
an opinion on the effectiveness of the Group’s internal control system;- we evaluated the appropriateness of the accounting standards used as well as the reasonablenessof the accounting estimates prepared by the directors, including the relevant information;- we reached a conclusion on the appropriateness of the directors’ use of the going concern
assumption and, based on the supporting elements acquired, on the existence of significant
uncertainty regarding the events or circumstances that may gave rise to major doubts over theGroup’s ability to continue to operate as a going concern. In the presence of significant
uncertainty, we are required to draw attention, in the audit report, to the relevant financial
statements information, i.e. if said information is inadequate, or to reflect this circumstance inthe formulation of our opinion. Our conclusions are based on the supporting elements acquired
until the date of this report. However, subsequent events or circumstances may cause the Groupto cease operating as a going concern.
- we evaluated the presentation, structure and content of the consolidated financial statements as
a whole, including the information, and whether the consolidated financial statements correctly
represent the underlying transactions and events- we acquired sufficient and appropriate evidence on the financial information of the companies
and of the difference economic activities carried out within the Group in order to express an
opinion on the consolidated financial statements. We are responsible for the management,
supervision and performance of the Group’s audit engagement. We are sole party responsible
for the audit opinion on the consolidated financial statements.
We informed the managers of governance activities, identified at an appropriate level as
required by ISA Italy, including other aspects, of the planned scope and timescales for the audit
and the significant results that emerged, including any significant gaps in the internal control
system identified during our audit.
Report on other legal and regulatory provisions

Selle Royal S.p.A. – Independent Auditors’ ReportOpinion pursuant to art. 14, paragraph 2, letter e) of Legislative Decree 39/10
The Directors of Selle Royal S.p.A. are responsible for the preparation of the report on operations of
the Selle Royal S.p.A. Group as at 30 June 2019, including its consistency with the relevant consolidated
financial statements and its compliance with the legal provisions.
We carried out the procedures set out in accounting standard (SA Italy) no. 720B in order to express an
opinion on the consistency of the report on operations with the consolidated financial statements of theSelle Royal S.p.A. Group as at 30 June 2019 and on its compliance with the legal provisions, as well as
issuing a declaration on any material errors.
In our opinion, the report on operations referred to above is consistent with the consolidated financial
statements of the Selle Royal S.p.A. Group as at 30 June 2019 and is drafted in compliance with thelegal provisions.
With reference to the declaration pursuant to art. 14, paragraph 2, letter e) of Legislative Decree 39/10,
issued on the basis of the knowledge and understanding of the company and the relevant context
acquired during the audit, we have nothing to report.
Milan, 3 December 2019
BDO Italia S.p.A.
Carlo Consonni
Shareholder[signature]

Selle Royal S.p.A. – Independent Auditors’ Report