1

CONTENTS
REPORT ON OPERATIONS
Significant events during the year

4

The Selle Royal Group and the Coronavirus-19 pandemic

8

Economic performance10

Statement of financial position11

Derivative financial instruments

13

Investments

14

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

14

Risk analysis

14

Significant events after the end of the year

14

Business outlook

14

Relations with parent companies, affiliates and related parties

15

Environment, personnel and sector regulations

15

Conclusions and proposals

15

FINANCIAL STATEMENTS
Consolidated balance sheet

16

Consolidated income statement

18

Consolidated statement of comprehensive income

19Statement of changes in shareholders' equity

20

Consolidated Cash flow statement

21

2

EXPLANATORY NOTESIntroduction
Accounting standards, amendments and mandatory interpretations adopted by theGroup
Accounting standards, amendments and interpretations not yet applicable and not
adopted22
23
27

Financial statement formats and classification criteria

28

Activities of Group companies

29

Significant events during the year

29

General preparation criteria and consolidation principles

30

Measurement criteria

34

Estimates and assumptions

44

Segment reporting46

Derivative financial instruments

48

Risk management48

Commitments

48

Transactions with related parties

48

Analysis and composition of the balance sheet

50

Analysis and composition of the income statement

62

Independent auditors ’report3

MANAGEMENT REPORT

Dear Shareholders,
The year ending 30 June 2020 reported a consolidated profit of € 3,622,704, of which €2,582,357 pertaining to the Group.
SIGNIFICANT EVENTS OCCURRING DURING THE YEAR
“A cycling transformation is happening all across Europe, accelerating in the wake of covid-19. … As a
Dutchman and cycling enthusiast, this is very exciting. Cycling is a climate friendly, affordable, andhealthy alternative to society’s obsession with a private car. It is where the EU Green Deal and a fair,just transition come together.”Frans Timmermans (European Commissioner for Climate and the European Green Deal) - July
2020

This sentence, in which the European Commissioner Timmermans emphasises the “cyclingtransformation” under way in Europe, is a great snapshot of what is actually happening inEurope. It is also important to note that Timmermans correctly stresses that the phenomenon
has only “accelerated” since the onset of the Covid-19 pandemic, but it existed before and willcontinue after it.
It is clear, however, that the year in question was greatly impacted by the global healthemergency that shocked the entire world from January 2020.
It is important to underline that the dramatic consequences on the daily lives of billions ofindividuals have significantly and abruptly altered certain long-established social behaviours,with major repercussions in the sector in which the Group operates.
On an almost global scale, there has been a sharp increase in demand for bicycles both forphysical and mental well-being (instead of team sports and other activities, both indoor andoutdoor, restricted by the health emergency) and in terms of “Dolce” (alternative) mobility, as
an alternative to urban public transport. Many local administrations have quickly converted
hundreds of kilometres of roadways into temporary cycle paths, with the aim of structurally
rethinking urban mobility in the long term. In some countries, the regulatory codes for roadtraffic have also been amended in order to increase the safety of vulnerable users, i.e.
pedestrians and cyclists. Lastly, some countries such as Italy have established incentive
schemes for the purchase of two-wheeled means of transport that facilitate social distancing.
4As mentioned above, the cycle sector benefited from this trend and these measures, which
was correctly identified as one of the few able to effectively respond to the demand fornormality and, at the same time, for the safety called for by the period we are currently
experiencing. On the other hand, it is quite clear that the unfortunate onset of the Covid-19
pandemic has done nothing but accelerate a process already under way. For some years now,there have been signs of a change of attitude in public opinion in the main industrialised
countries, starting with European ones, regarding the fundamental role the bicycle can play inimproving everyone's quality of life. Individual health and well-being; environmental
protection and reduction of pollution; improvement in living conditions in urban centres androad safety. These are some of the areas in which the adoption of sustainable mobility,
possibly integrated between the use of two wheels and public transport, and therefore analternative to the use of polluting private vehicles, may be a winning formula to employ. For
this reason, the Selle Royal Group has always encouraged principled behaviour with targeted
campaigns based on the motto adopted by the brand of the same name, Support Cyclists.
For these reasons, much more profound and long-lasting than the impetus injected, albeit
positive, in the sector by the current health emergency, there are solid grounds for believingthat the expansion of the market can continue in the long-term, also after the effects of thepandemic start to tail off.
Even in a crisis that has affected almost all the reference markets globally and in a
substantially symmetrical manner, the Selle Royal Group, thanks to the geographicaldiversification of the various different distribution and product channels, has successfully
capitalised on the cycle market growth opportunities. Further details are available in thechapter dedicated to the impacts of the pandemic on the Group’s activities later in this Report,
to which reference is made.
Some comments on the main markets in which the Group operates are provided below:
EUROPE2019 was a year of further growth for pedal assisted bicycles in Europe, as confirmed by thestatistics 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 2019 were5

nonetheless extremely high: in Germany, 1,360,000 e -bikes were sold, marking growth of
39% in volumes when compared to 2018 (source: ZIV), on the back of growth of +36% in
2018. According to the same analysis, currently the market share of this type of vehicle isclose to 32% (31.5%) of the total cycles sold, with an estimate that places them at 40% in themedium-term and projects the share to be roughly 50% in the long-term; even more
surprising is the fact that the same projections drawn up in 2018 indicated the target of 30%
for the medium-term (and 35% for the long-term). In the Netherlands, a total of more than 1
million bicycles were sold (stable compared to 2018), with a market close to reaching € 1.3
billion (+2.6% compared to 2018). In this context, the share of e-bikes grew to over 50% of
the total, surpassing 500,000 units sold (they accounted for 40% of the market, in terms ofvolumes, just one year ago) (source: RAI Association).
France, the third most important continental country in the market, recorded a growth rate of+12% in electrically assisted pedal cycles, with over 388,000 units sold and a market value ofjust under € 700 million (source: French Bicycle Observatory). The fact that, in 2019, electricbikes held a market share of 15%, allows scope for further future growth opportunities.
Similar considerations also apply to other countries, such as Italy (+13% compared to 2018,with 195,000 units sold; source: AICMA), Spain (+ 28% to over 140,000 units and with amarket share of 11.3% in value; source: AMBE), Belgium (over 238,000 units, equal toapproximately 50% of the market, source: Velofollies) to name but a few.
From another point of view, the dynamism and importance of the e-bike segment are also
demonstrated by the data published by the European Association of bicycle manufacturers(CONEBI), according to which the growth of production in Europe of these bicycles increasedby almost 60% in 2019 (with an increase in total production of bicycles equal to +11%,
compared to the much more meagre +0.7% recorded in 2018 compared to the previous year).
This real boom in production is also a consequence of the introduction of import protectionist
measures aimed at protecting local producers with respect to Chinese production. Lastly, the“parts & accessories” market, in which the Group's aftermarket business is incorporated more
specifically, at local production value, now exceeds € 2 billion (source: CONEBI), withsignificant effects on employment (CONEBI estimates an increase in the number of jobs
created in the sector and downstream activities of +120,000 in 2019, +14.4% on 2018).
The Selle Royal Group, traditional supplier of European assemblers or their partners in the
Far East, as well as an important player in the aftermarket channel, has been a leading player
and has undoubtedly benefited from this trend, thanks to its significant presence on the6market and market shares acquired over time.
AMERICAThe American bicycle market has experienced highs and lows in recent years, with the latter
prevailing in the mountain-bike and road bike segments.
These difficulties led to a reduction in the overall offer in terms of the number of stores on themarket, also affected by the rebalancing of turnover from traditional stores to the e-commercechannel. Within this context of a natural reduction in stocks present along the chain,unpredictable growth in demand for bicycles (not just electric) was recorded in the spring of
2020, which brought a production-distribution chain to its knees that was already in difficulty
due to the reverberation of the effects of the closure of the production plants in the Far East in
the first part of the year. As proof of the magnitude of the phenomenon, NPD Group recorded
an increase in turnover of +75% in April in the bicycle sector, at retail prices, reaching arecord figure of 1 billion dollars in turnover in 30 days; according to available statistics, theturnover generated by the sector, at retail prices, in the past was usually around 550-575
million dollars in the same month (source: NPD Group).
More generally, in the first four months of the year, bicycle sales recorded double-digit growth
rates in all categories, including those that had suffered most in the recent past.
It is also interesting to note the increasing participation of bicycle operators (bothmanufacturers of bicycles and accessories, especially “wearables”) at the Consumer
Electronics Show in Las Vegas, the most important event in the world dedicated to consumer
electronics. This is evidence, on the one hand, of the innovative zest in the sector and, on theother hand, of the general public's ever-growing interest in this sector.
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 pointed out in the past, China, in addition to being a large consumer country, is also
traditionally the main country for supplying bicycles to the rest of the world.
As outlined, however, the introduction, in January 2019, of anti-dumping duties also on theimport of electric bicycles into Europe (they have been applied to traditional ones for several
years now) has gradually led to a migration of production volumes from continental China to
7

Taiwan and other South-East Asian countries, as well as to local productions for the European
market (as highlighted above). In the first 9 months of 2019, almost 300,000 electric bicycles
were imported into Europe from Taiwan (+88%) and over 126,000 from Vietnam (+8%), tothe detriment of China, whose export volumes fell from more than 642,000 in the first 9
months of 2018 to just over 92,000 in the same period of 2019 (source: Eurostat).
Moreover, the introduction of significant protectionist measures on Chinese products
introduced by the Trump Administration further reduced the production volumes on site.
It should also be remembered that some countries in the area (for example, Bangladesh and
the Philippines) benefit from the status of developing country recognised by the European
Union (the so-called GPS + status) or have signed free trade agreements with the EU such as
the Vietnam (the so-called “EVFTA”), thus ultimately benefiting from the trends describedabove. Cambodia, despite having lost its GPS + status with effect from August 2020, was still
the largest exporter of traditional bicycles to Europe (over 1.1 million bicycles in the first 6
months of 2020 alone) (source: Eurostat). On the other hand, these figures only partiallyreflect the changed dynamics in the sector from the point of view of global supply chains, put
to the test by the impacts of the pandemic. It should also be noted that the considerations set
out above only partially impact the supply of component parts such as saddles.
In fact, 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 theprincipal consumption and procurement countries.
Lastly, from a corporate point of view, the Shareholders' Meeting of Selle Royal S.p.A., on the
proposal of the Board of Directors, and the respective corporate bodies of the othercompanies involved, approved a reorganisation operation aimed at the merger byincorporation of BROOKS England S.r.l. and FIAC S.r.l. in Selle Royal S.p.A. This transaction,
which was successfully concluded on 1 September 2020, the date of statutory effectiveness ofthe mergers, is aimed at the reorganisation, simplification and increased efficiency of thestructures of the three companies present in the production-logistics site of Pozzoleone (VI).
For further details, please refer to the paragraph dedicated to significant events after thereporting date of this Report on Operations.
THE SELLE ROYAL GROUP and the CORONAVIRUS-19 PANDEMIC

As is well known, the Covid-19 pandemic has spread throughout the world, for the sake of8

simplicity, from East to West, starting from January 2020. The Group, which boasts a
widespread global presence, was therefore hit by the effects of this health emergency at
different times. Also in terms of the attitude and measures adopted by the individual countries
to combat the recessionary effects of this situation, quite significant differences wereobserved, consequently affecting the context in which each company ended up operating.
Selle Royal Vehicle (China) Co., Ltd., located in the coastal province of Jiangsu (P.R.C.), was thefirst Group company to be affected by the initial spread of the Coronavirus epidemic. The
drastic social control measures implemented by the Government during the Chinese New Yearholidays allowed the uncontrolled replication of the virus to be effectively contained, even if
only once its spread beyond Chinese borders had become obvious. Ultimately, Selle Royal
China was subject to a halt in production lasting just two weeks, having gradually resumed
operations from 10 February, the first day on which a limited number of factories (located in
the Chinese provinces less affected by the health emergency) were authorised for reopen,
after having demonstrated that they had followed strict health protocols. The Taiwanesebranch of Crank Brothers Inc. also remained fully operational, and at an unchanged
employment level, during the entire period, also thanks to the highly effective measures put inplace by the local government to contain the epidemic on the island.
The Group’s European activities, on the other hand, were those most impacted by the
pandemic. After the first measures to prevent the spread of the virus within the company,
with the introduction of forms of remote flexible working as early as the first half of March,
Selle Royal S.p.A. and the other Italian companies have ceased all production and logistics
activities as from 25 March, in line with current regulations. At the same time, access to theforms of income support provided for in the Covid-19 wage guarantee fund was requested.
The introduction of severe lockdown measures throughout most of Europe led to thecancellation of orders from various domestic and foreign customers. Manufacturing activity
then resumed, according to legal requirements, when the first signs of a recovery in demandbegan became apparent, which were then strengthened and built on in the following months.
However, the month of total closure, combined with the naturally slow recovery in activities
following their resumption, made it impossible to achieve the turnover and profitability
targets initially set for the year in question. The UK plant of BROOKS England was also
temporarily closed, starting from 25 March until 11 May, due to the different dynamics of theepidemic in that country.
The American companies of the Group, while adopting the appropriate measures to prevent9the virus spreading in the workplace, have never suffered a genuine interruption in theiractivities. Furthermore, they did not request access to the funds allocated for furlough, i.e. aform of wage guarantee fund provided for by local labour law, maintaining full employment
for the entire emergency period. On the other hand, the North American market has not been
subject to forms of generalised lockdown such as those enforced in Europe. The different
cultural sensitivities saw economic issues take precedence over social-health issues and thelimited number of closures recorded occurred in the presence of specific clusters (e.g. New
York City). In addition, in the US, the activities carried out by stores in the sector wereclassified as essential activities (especially for repair and service), thereby stimulating
sustained growth of the business, as already mentioned previously.
Lastly, the Brazilian subsidiary Royal Ciclo used, during the month of April and until mid-May,a form of flexibility in the organisation of work that made it possible to reduce shifts and toalternate working weeks with weeks off, with income support for workers through theallocation of public funding. The same requests for alternative means of mobility describedabove have injected life into the sector in the country, helping the subsidiary post figures inline with expectations at the beginning of the fiscal year.
ECONOMIC PERFORMANCEThe 2019/20 income statement is shown below, compared with the figures for the previous
year; the comments below relate to the examination of the pro-forma 2019/20 figures, inorder to neutralise the distorting effects of the adoption of IFRS 16, in comparison with theprevious year (the latter not subject to restatement, as clarified in the Explanatory Notes, towhich reference is made):10

2019/20

2019/20 - proforma (*)

2018/19% of revenues% of revenues

Change% 2020
FP vs.

Revenues

130.193.776

100,0%

130.193.776

100,0%

130.637.239

100,0%-0,3%

Cost of sales

75.530.901

58,0%75.530.901

58,0%77.017.154

60,2%

-1,9%

GROSS MARGIN

54.662.875

42,0%54.662.875

42,0%53.620.085

39,8%

1,9%

Operating costs

38.728.181

29,7%40.157.294

30,8%41.013.812

30,1%

-2,1%

EBITDA

15.934.694

12,2%

14.505.581

11,1%

12.606.273

9,7%

15,1%

Amortisation/depreciation and write-downs of fixed assets

7.233.567

5,6%

5.949.049

4,6%

6.981.957

5,7%-14,8%

EBIT

8.701.127

6,7%

8.556.532

6,6%

5.624.316

4,0%

52,1%

Financial income/(charges) and other financial components (3.501.771)-2,7%(3.278.908)-2,5%(3.639.820)

-2,7%

-9,9%

PRE-TAX RESULT

5.199.356

4,0%

5.277.624

4,1%

1.984.496

1,3%

n.s.

Taxes for the year

1.576.652

1,2%

1.576.652

1,2%

1.032.849

0,4%

52,7%

NET INCOME

3.622.704

2,8%3.700.972

2,8%

951.647

0,9%

n.s.

Minority interests

1.040.347

0,8%

1.040.347

0,8%

432.948

-0,3%

n.s.

NET INCOME PERTAINING TO THE GROUP
2.582.357(*) Excluding the impacts deriving from the adoption of IFRS 162,0%2.660.625

2,0%518.699

1,2%

n.s.

The year in question, which ended on 30 June 2020, recorded sales of € 130.2 million, in linewith the turnover of the previous year. Considering the highly adverse impact recorded inmany of the most important markets for the Group (Europe in particular) due to the Covid-19
health emergency, and the fact that the most devastating effects of the emergency havereverberated in the months that represent the best season for the bicycle sector, the Group’s
performance can only be viewed in an extremely positive light.
The performance in terms of percentage gross margins was also very positive, which, forsome years, has continued to grow thanks to the increasing weight of sales in the aftermarket
channel.
The decrease in operating costs, even before some negative non-recurring components, is due
to cost-cutting measures undertaken by the Group companies during the emergency phase of
the pandemic, to counteract the negative impacts of the expected decrease in sales, which
partly materialised.
Despite revenues in line with the previous year, EBITDA increased sharply compared to theprevious year (+15.1%), reaching € 14.5 million, with an incidence on revenues of 11.1%.
Adjusted EBITDA, net of non-recurring items, amounted to € 15.2 million, with a percentage
impact on turnover of 11.6% and growth of 11.5% compared to the previous year (when itwas € 13.6 million).
11

The decrease in amortisation and depreciation compared to 2018/19, once the impacts
deriving from the adoption of IFRS 16 were removed, is a consequence of the review of theinvestment policy undertaken in recent years and aimed at favouring a lower overall numberof projects, selecting those with higher expected profitability and a lower payback period.
Net financial charges were down due to lower interest on loans and despite the negative
impact of exchange rate differences and financial charges recognised in accordance with theprovisions of the new accounting standard mentioned in the previous paragraph. For further
details, please refer to the relevant section of the explanatory notes.
As outlined, the year in question closed with substantial growth in net profit compared to theprevious year.
STATEMENT OF FINANCIAL POSITION

The financial position of the Group as at 30 June 2020, compared with the situation reported
in the consolidated financial statements for the year ended 30 June 2019, is as follows:1230/06/2020

30/06/2019

Changein trade receivables
Inventories
Tax receivables
Other current assets
CURRENT ASSETS

15.710.086
21.744.437
1.805.683
1.145.637
40.405.842

15.857.700
23.230.417
2.239.425
2.229.125
43.556.666(147.614)(1.485.980)(433.742)(1.083.489)(3.150.824)

Trade payables
Tax payables
Other current liabilities
CURRENT LIABILITIES

13.242.049
2.012.693
6.419.156
21.673.898

17.132.366
1.928.798
9.081.409
28.142.573(3.890.317)
83.895(2.662.253)(6.468.675)

NET WORKING CAPITAL

18.731.944

15.414.093

3.317.851

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

31.301.359
22.034.087
2.038.869
10.470.259
2.388.964
68.233.539

25.394.668
22.376.937
1.919.221
10.428.649
1.669.506
61.788.981

5.906.691(342.850)
119.648
41.611
719.4586.444.558

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

5.126.679
938.100
5.287,68
6.070.066

5.157.946
982.791
12.017
6.152.755(31.267)(44.692)(6.729)(82.688)

NET INVESTED CAPITAL

80.895.417

71.050.320

9.845.097

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

6.511.780
28.579.583
35.091.363

14.715.248
21.139.543
35.854.791(8.203.468)
7.440.040(763.428)

Current liabilities for leased assets
Non-current liabilities for leased assets
LIABILITIES FOR LEASED ASSETS

1.139.155
7.055.640
8.194.795-

1.139.155
7.055.640
8.194.795

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

30.149.412
2.582.357
32.731.770

30.271.991
518.699
30.790.690(122.579)
2.063.658
1.941.079

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

3.837.143
1.040.347
4.877.490

3.971.891
432.9484.404.839(134.748)
607.399472.651

13

The growth in net working capital was mainly driven by the drop in payables to suppliers(mainly due to the interruption of purchases in the periods of full or partial lockdown that
affected some Group companies during the spring) and the payment of residual payables at 30
June 2019 for the purchase of the equity investments in Royal Ciclo and BROOKS. Inventories
were down, with specific reference to finished and marketed products, due to the vigorous
recovery in demand, especially in the last two months of the year.
The operating investments made by the various Group companies, for a total amount of € 5.7
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 net invested capital and, in particular, tangible fixed assets, were affected by the
first-time application of IFRS 16 (for a balance of € 8.1 million as at 30 June 2020), whichmakes provision for the recognition of a right of use under fixed assets, the latter an
expression of the present value of future lease payments relating to leases (financial andoperating) and rental and hire contracts. For further details, please refer to the Explanatory
Notes.
The net financial position was instead down to € 35.1 million, with an extension of theaverage duration of existing loans. The self-financing generated by operations allowed thecoverage of technical investments, with a surplus of liquidity for the benefit of financial
management.
Lastly, the payable for leased assets (equal to € 8.2 million), recorded as a contra-entry to theright of use mentioned above, is reported.
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 assets 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.

14

INVESTMENTS

As already outlined, during the year 2020, the company carried out operating investments ofapproximately € 5.7 million. This figure excludes the increase in the item tangible fixed assets
following the recognition of rights of use for leased assets for a total of € 9.4 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

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

On 3 August 2020, a complex reorganisation of the Group’s corporate structure was carriedout, as resolved by the competent corporate bodies in 2019/20, which led to the merger byincorporation of the companies BROOKS England S.r.l. and FIAC S.r.l. in Selle Royal S.p.A.
BUSINESS OUTLOOKGiven the uncertainty relating to the evolution of the CoViD-19 pandemic in the various
countries in which the Group is present, predicting the economic and financial performancefor the fiscal year 2020-21 is extremely difficult. Excluding these considerations, it is clearthat the bicycle sector is experiencing a buoyant period, following a trend that took holdbefore the appearance of the CoViD-19 virus and, to a certain extent, strengthened by thechanges in social behaviour it brought about.

15

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 1,016, a slight decrease comparedto the 1,075 employees in the previous year. The decrease is fully attributable to factory
personnel.

CONCLUSIONS and PROPOSALS

We remain at your full disposal to provide any clarifications and information needed during
the Shareholders' Meeting.
* * *Pozzoleone (VI), 18 November 2020
The Chairman of the Board of Directors(Barbara Bigolin)

16

FINANCIAL STATEMENTS
Consolidated balance sheet(*)

30/06/2020

30/06/2019

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

20.888.905
15.710.086
21.744.437
1.805.683
1.145.637
61.294.748

11.109.764
15.857.700
23.230.417
2.239.425
2.229.125
54.666.431

9.779.141(147.614)(1.485.980)(433.742)(1.083.489)
6.628.318

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

22.034.087
31.301.359
2.038.869
10.470.259
1.279.955
427.050681.961
68.233.540

22.376.937
25.394.668
1.919.221
10.428.649
1.095.227
510.726
63.55361.788.981(342.850)
5.906.691
119.648
41.610184.728(83.676)618.4086.444.559

TOTAL ASSETS

129.528.288

116.455.412

13.072.876

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

with related parties”.

17LIABILITIES
Trade payables
Tax payables
Short-term loans
Current liabilities for leased assets
Other current liabilities
TOTAL CURRENT LIABILITIES

13.242.049
2.012.693
27.400.685
1.139.155
6.419.156
50.213.738

17.132.366
1.928.798
25.825.012
9.081.409
53.967.585(3.890.317)
83.8951.575.673
1.139.155(2.662.253)(3.753.847)

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

1.972.904
9.654.745
18.924.839
3.153.774
938.100
5.288
7.055.640
41.705.290

2.039.763
9.516.854
11.622.690
3.118.183
982.791
12.01727.292.298(66.858)
137.891
7.302.149
35.591(44.691)(6.729)7.055.640
14.412.993

TOTAL LIABILITIES

91.919.028

81.259.883

10.659.146

6.000.000
1.261.051
393.372
10.716.446
11.778.544
2.582.357
32.731.770

6.000.000
1.212.045
836.428
10.716.446
11.507.072
518.699
30.790.690

49.006(443.057)
271.473
2.063.658
1.941.080

Share capital and undistributed profits pertaining to3.837.143
non-controlling3.971.891
interests
Profit / (loss) for the year of minority interests 1.040.347
432.948
MINORITY INTERESTS
4.877.490
4.404.839(134.748)
607.399472.651TOTAL LIABILITIES and SHAREHOLDERS’ EQUITY 129.528.288

13.072.877

SHAREHOLDERS ’EQUITY
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

116.455.412

Consolidated income statement(*)

18

2019/20

2018/19

Revenues

130.193.776

130.637.239-0,3%

Cost of sales

75.530.901

77.017.154-1,9%

GROSS MARGIN

54.662.875

53.620.085

1,9%Industrial costs

4.186.936

5.831.094-28,2%

Sales and promotion costs

10.647.069

10.629.833

0,2%

Costs of the management structure

14.114.295

14.295.336-1,3%

General and administrative costs

10.738.749

10.521.383

2,1%

958.868

263.833

n.s.

EBITDA

15.934.694

12.606.273

26,4%

Amortisation/depreciation and write-downs of fixed assets

7.233.567

6.981.957

3,6%

EBIT

8.701.127

5.624.316

54,7%

Profits / (losses) from companies measured at equity

-

-

-

Gains / (losses) on disposal of financial assets

-

-

-

Other operating income and (expenses)% Change

Financial income / (charges)(3.501.771)(3.639.820)-3,8%

PRE-TAX RESULT

5.199.356

1.984.496

n.s.

Taxes for the year

1.576.652

1.032.849

52,7%

NET INCOME

3.622.704

951.647

n.s.

Minority interests

1.040.347

432.948n.s.

NET INCOME PERTAINING TO THE GROUP

2.582.357

518.699n.s.

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

with related parties”.

19Consolidated statement of comprehensive income
2019/20
Net profit

2018/193.622.704

951.647

Change infair value of hedging derivatives

6.729

109

Actuarial gains / (losses)(4.950)(68.583)-(258.350)

Translation differences of foreign financial statements(443.057)(1.060.085)

Total comprehensive profit / (loss) after tax

3.181.427(435.262)

Changes in scope of consolidation

20

Statement of changes in shareholders' equity
Transfer ofBalance as at 30
previous year
June 2018
resultFair value IRS

Effect of
discounting of Changes in scope
postof consolidation
employment

Other
consolidation
adjustments

Profit/(loss)
for the year

Balance as at
30 June 2019

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

Transfer ofBalance as at 30
previous year
June 2019
result109

Fair value IRS

Effect of
discounting of
postemployment

Dividend
distribution

Other
consolidation
adjustments

Profit / (loss)
for the year

Balance as at
30 June 2020

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
1.212.045
836.428
10.716.446
11.507.072
518.699
30.790.690

49.006469.693(518.699)
-

6.729
6.729

(4.950)(4.950)(200.000)(200.000)(443.057)(443.057)

2.582.357
2.582.357

6.000.000
1.261.051
393.372
10.716.446
11.778.544
2.582.357
32.731.770

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

3.971.891
432.9484.404.839

432.948(432.948)
-

-

-

-

(567.696)(567.696)

1.040.347
1.040.347

3.837.143
1.040.347
4.877.490

TOTAL SHAREHOLDERS 'EQUITY

35.195.528

-

6.729

(4.950)(200.000)(1.010.752)

3.622.704

37.609.260

21

Consolidated Cash flow statement
Financial Year 2019/20 Financial Year 2018/19(Values in €)CASH FLOWS FROM OPERATING ACTIVITIES:Profit/(loss) for the year

3.622.704

951.647

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

7.233.567(66.858)(44.692)(1.943)10.742.778

6.981.957
10.640518.224
19.7558.482.223

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

147.6141.485.980
433.7421.083.489(3.890.317)
83.895(2.662.253)(3.317.851)(684.623)(4.262.215)(252.901)(343.814)
4.557.753
1.196.202(1.114)3.029.132
3.238.420

7.424.927

11.720.643

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(14.021.297)(920.121)(119.648)(3.959.429)(1.268.890)(1.739.876)(8.672.140)(157.700)

Cash flows generated/(absorbed) by investment activities(15.061.067)(15.798.035)

Obtainment of medium/long-term loans
Bond issue
Extinguishment of 2014 bond (so-called mini-bond)Effect of amortised cost on medium/long-term loans(Repayment) of medium/long-term loans
Change in cash flow hedge reserve
Change in reserve for discounting of post-employment benefits
Dividend distribution
Other changes in shareholders' equity
Reduction/(increase) in other non-current assets
Increase/(reduction) in other non-current liabilities
Change from adoption of IFRS 16
Cash flows generated/(absorbed) by financing activities

13.731.884
137.891(6.429.735)
6.729(4.950)(200.000)(719.458)
28.8628.194.795
14.746.018

7.950.000
10.000.000(10.454.597)(118.881)(2.313.616)
109(68.583)
1.231.740
666.59323.2946.916.059

Differences from translation of financial statements in foreign currency

1.093.590(2.446.254)

NET CASH GENERATED/(ABSORBED) in the year

8.203.468

392.412(OPENING SHORT-TERM NET BANK DEBT)

14.715.248

15.107.660(CLOSING SHORT-TERM NET BANK DEBT)

6.511.780

14.715.248

Cash flows generated / (absorbed) by operating activities
CASH FLOWS FROM INVESTMENT ACTIVITIES:CASH FLOWS FROM FINANCING ACTIVITIES:22

EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 JUNE
2020
FOREWORD

The consolidated financial statements as at 30 June 2020 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 2020 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.
23

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 2020 are the same as those adopted to draft theconsolidated financial statements in the previous year, with the exception of the following
accounting standard.

Description

IFRS 16 (Leases), replacing IAS 17

Expected effective dateFinancial years beginning on or after 1 January
2019

The other newly drafted accounting standards, interpretations and clarifications issued by the IASB
adopted and entered into force during the last twelve months did not have a significant impact on
the financial statements in question.
IFRS 16 - Leases
The new accounting standard, published by the IASB in 2016 to replace IAS 17, equates theaccounting treatment of different types of contracts such as finance leases, operating leases,
rental contracts and hire contracts.
The Group has chosen to adopt IFRS 16 according to the modified retrospective approach,based on which the cumulative effect of the adoption of the standard was recognised at therelevant effective date of 1 July 2019, without restating the comparative data as at 30 June
2019. The tables below show the impacts deriving from the adoption, to facilitate comparison
with historical data.
This new standard was applied to lease contracts in place as at 1 July 2019 (or stipulated at alater date), with a residual duration on the same date of more than 12 months and with a24material unit value. Cases of rental contracts whose substance entails the purchase of services
were also excluded.
The adoption of IFRS 16 led to the recognition in the balance sheet, on 1 July 2019, of a rightof use equal to the discounted sum of the contractually envisaged fees to maturity and, as acontra-entry, a corresponding lease liability. If there is a reasonable expectation of renewal on
expiry, the longer time horizon is considered.
The rate used for discounting is equal to the weighted average rate of long-term loans
subscribed by the Group companies or, failing that, by a similar market rate.
The asset determined in that way was posted to non-current assets under the item tangible
fixed assets. During the year, it was amortised according to the residual useful life of therespective contracts.
The liability, determined as above, was recorded under “current/non-current liabilities forleased assets”.
The rents, previously recognised as an operating cost in the income statement, are now
separated into two components: a principal repayment portion and an interest portion,according to a “French” repayment plan, i.e. with a capital repayment portion increasing overtime.
In the consolidated financial statements, all the cases that do not meet the above-mentioned
criteria for recognition in accordance with the provisions of IFRS 16 are still represented asrental/leasing costs, without the recognition of the payable for the future instalments
provided for in the contract.

25

Initial registration as at 1 July 201930/06/2019(A)

Eff. IFRS 16(B)

01/07/2019(C=A+B)ASSETSTOTAL CURRENT ASSETS

54.666.431-

54.666.431

TOTAL NON-CURRENT ASSETS

61.788.981

9.347.160

71.136.141

TOTAL ASSETS

116.455.412

9.347.160

125.802.572

TOTAL CURRENT LIABILITIESTOTAL NON-CURRENT LIABILITIES

53.967.585
27.292.298

2.065.144
7.282.016

56.032.729
34.574.314

TOTAL LIABILITIES

81.259.883

9.347.160

90.607.043

GROUP SHAREHOLDERS' EQUITYMINORITY INTERESTS

30.790.690
4.404.839-

30.790.690
4.404.839

TOTAL LIABILITIES and SHAREHOLDERS’ EQUITY

116.455.412

9.347.160

125.802.572

LIABILITIESSHAREHOLDERS’ EQUITY

26

Consolidated balance sheet as at 30 June 2020
30/06/2020(A)

Eff. IFRS 16(B)

30/06/2020 Pro-forma(C=A+B)

30/06/2019

Change 2020
pro-forma vs.
2019

61.294.748

54.666.431

6.628.318

ASSETSTOTAL CURRENT ASSETS

61.294.748

TOTAL NON-CURRENT ASSETS

68.233.540(8.052.061)

60.181.480

61.788.981(1.607.501)

TOTAL ASSETS

129.528.288(8.052.061)

121.476.228

116.455.412

5.020.816

TOTAL CURRENT LIABILITIES

50.213.738(1.085.270)

49.128.469

53.967.585(4.839.117)

TOTAL NON-CURRENT LIABILITIES

41.705.290(7.055.640)

34.649.650

27.292.298

7.357.352

TOTAL LIABILITIES

91.919.028(8.140.910)

83.778.118

81.259.883

2.518.235

GROUP SHAREHOLDERS' EQUITY

32.731.770

88.85032.820.620

30.790.690

2.029.930

MINORITY INTERESTS

4.877.490-

4.877.490

4.404.839

472.651

121.476.228

116.455.412

5.020.816-

LIABILITIESSHAREHOLDERS’ EQUITYTOTAL LIABILITIES and SHAREHOLDERS’ EQUITY

129.528.288(8.052.060)

27

Consolidated income statement for the 2019/20 financial year
2019/20 (A)Eff. IFRS 16(B)

2019/20 proforma (C=A+B)

2018/19

Change % 19/20
FP vs. 18/19

Revenues

130.193.776-

130.193.776

130.637.239-0,3%

Cost of sales

75.530.901-

75.530.901

77.017.154-1,9%

GROSS MARGIN

54.662.875-

54.662.875

53.620.085

1,9%Operating costs

38.728.181

1.429.113

40.157.294

41.013.811-2,1%

EBITDA

15.934.694(1.429.113)

14.505.581

12.606.273

15,1%

Amortisation/depreciation and write-downs of fixed assets 7.233.567(1.284.517)

5.949.049

6.981.957-14,8%

EBIT

8.701.127(144.595)

8.556.532

5.624.316

52,1%

Financial income/(charges)(3.501.771)

222.863(3.278.908)(3.639.820)-9,9%

PRE-TAX RESULT

5.199.356

78.2675.277.624

1.984.496

n.s.

Taxes for the year

1.576.652-

1.576.652

1.032.849

52,7%

NET INCOME

3.622.704

78.2673.700.972

951.647

n.s.

Minority interests

1.040.347-

1.040.347

432.948n.s.

NET INCOME PERTAINING TO THE GROUP

2.582.357

78.2672.660.625

518.699

n.s.

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

IFRS 17 (Insurance contracts)

Yes

Amendment to IFRS 16 Covid 19-Related Rent Concessions

Yes

Amendments to IFRS 3 Business Combinations

Yes

Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark
ReformYes

Amendments to IAS 1 and IAS 8: Definition of Material

Yes

Amendments to References to the Conceptual Framework in IFRSStandards

Yes

Expected effective dateFinancial years beginning on or after 1
January 2020
Financial years beginning on or after 1
January 2020
Financial years beginning on or after 1
January 2020
Financial years beginning on or after 1
January 2020
Financial years beginning on or after 1
January 2020
Financial years beginning on or after 1
January 2020

28

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.
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

29

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.

This structure has not changed compared to the composition of the Group as at 30 June 2019.

SIGNIFICANT EVENTS OCCURRING DURING THE YEAR

As outlined in detail in the Report on Operations, the fiscal year in question was greatly
impacted by the Covid-19 pandemic which characterised the late winter and spring months,
i.e. the best season of the bicycle sector. With an initial decidedly adverse effect, dynamics
subsequently emerged that favoured a recovery in sales in the last part of the fiscal year.
For a more in-depth examination of the elements characterising the year under review,
including significant corporate events, please refer to the Report on Operations.

30

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
group companies, 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 tominority 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
consolidation from 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 in31one or more of the three elements qualifying the control.
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 theassumption of the assets and liabilities of the investees;-according to the provisions of IFRS 3, subsidiaries acquired by the Group are accounted
for using the acquisition method, according to which the consideration transferred in abusiness combination is measured at fair value, calculated as the sum of the fair value ofthe assets transferred and liabilities assumed by the Group at the acquisition date and of
the equity instruments issued in exchange for control of the acquired company.
Accessory charges to the transaction are recognised in the income statement at the timethey 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 assets of
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 have taken place
between the consolidated companies;-

dividends distributed among group companies are eliminated, as are the coverage oflosses and write-downs of equity investments in consolidated companies;-

the portions of shareholders' equity and profit for the year pertaining to minority
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 theshareholders' 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

equitytransactions;

therefore,

any

difference

betweentheacquisition/disposal cost and the relative portion of shareholders' equity acquired/sold32

is recorded as an 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 recognition of a liability whose fair value is reclassified fromshareholders' equity. If the contract expires without a delivery, the accounting amountof the liability is transferred to shareholders' equity. The contractual obligation for theacquisition of own equity instruments gives rise to a liability for the present value of theredemption amount even if the obligation is subordinated to the exercise by thecounterparty 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 reporting
date;

-

costs and revenues are converted at the average exchange rate for the year;-

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 fromthe 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
British Pound (GBP)US Dollar (USD)
Hong Kong Dollar (HKD)
Chinese Yuan Renminbi (RMB)
Brazilian Real (BRL)

Exact exchange rate as at 30 June
Appreciation /20202019 (deprec.)0,9124
1,11988,67887,92196,11180,8966
1,13808,8866
7,8185
4,3511-1,74%
1,63%
2,39%-1,31%-28,81%

Average exchange rate for the year
Appreciation /2019/20 2018/19 (deprec.)0,8782
1,10598,62037,7761
4,93910,8817
1,1412
8,9474
7,7884
4,4077

0,39%
3,19%
3,79%
0,16%
-10,76%The consolidated financial statements as at 30 June 2020 include the data of the parent

33

company Selle Royal S.p.A. and those of the subsidiaries in which it holds, directly or
indirectly, the majority of votes that can be exercised at the Shareholders' Meeting or in which
it 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.
In particular, the scope of consolidation is broken down as follows:▪

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

▪

Brooks England Limited, acquired in 2002, with registered office in SmethwickBirmingham, United Kingdom, share capital of GBP 240,000, equal to approximately €301,799, wholly-owned by Selle Royal S.p.A.

▪

SR84 S.r.l.: with registered office in Pozzoleone (VI) and share capital of € 2,000,000;
the company is 100% 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 S.p.A. Also in 2006, a
joint venture was established with a leading German operator for the direct distributionof 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 thebalance sheet date was € 2.026.423.

▪

Royal Concept Company Limited, with registered office in Hong Kong and sharecapital of HK $ 1,000, equal to approximately € 91. The company is wholly-owned bySelle Royal S.p.A.

▪

Crank Brothers Inc., with share capital of USD 1,000, equal to approximately € 901,
wholly-owned by Selle Royal S.p.A.

▪

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 Jiangyin Justek Vehicle Co., Ltd.; theacquisition, completed in February 2010, was effective retroactively from 1 January
2010. The interest in Selle Royal S.p.A., through its wholly-owned subsidiary Selle Royal
Asia Ltd., grew in 2014/15 from 51.86% of the share capital held since the acquisition to68.29%. currently held, following a corporate restructuring. Lastly, it should be notedthat the aforementioned company Selle Royal Asia Ltd. is a pure holding company that34

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 at the reporting date.

▪

Pannier Ltd., with registered office in Smethwick-Birmingham, United Kingdom, sharecapital of GBP 100.00 (corresponding to approximately EUR 120), fully subscribed andpaid in by the subsidiary Brooks England Ltd. It should be noted that this company is
exempted from the requirements of the Companies Act with reference to the audit ofindividual 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;
the company is wholly-owned by Brooks England Ltd at the reporting date.

▪

Royal Ciclo Industria de Componentes, Ltda., with registered office in Rio do Sul, in
the State of Santa Catarina, Brazil. The share capital, amounting to Brazilian Real
11,601,802, is 50% owned by Selle Royal S.p.A.

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.
35

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 theincome 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 in a
broad sense, is heavily committed, at the moment, to the dissemination anddevelopment of the brands on the markets for the products marketed by the Group,
although the aforementioned brands may represent assets that may be freely used inmarkets adjacent to those of consolidated entities;-

the trademarks are owned and are correctly registered and constantly protected from a
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
the Group that allow them to qualify in the luxury market for the categories of cycling
products that are subject to marketing and in which the Group is perceived by themarket;36

-

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 preeminence in the respective market segments, being constantly associated and compared
to products of absolute 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 the37

“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 identifiable
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 economictechnical duration of the assets. This criterion is considered well represented by the following
rates:
▪

Land

0%

▪

Buildings

3%▪

Generic plants

10% -12.50%▪

Machinery

10%-12.50%▪

Equipment

10%-35%▪

Office furniture and equipment

12%▪

Electronic office equipment

18% -20%▪

Motor vehicles and internal transport vehicles

20%

-

25%
▪

Light constructions

10%▪

Leasehold improvements

Duration of the contract on the underlying asset▪

Rights of use

Duration of the lease

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.

38

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 inuse.
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 fixed assets
Other equity investments are recognised at purchase or subscription cost, adjusted if
necessary for impairment.

39

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 ofwrite-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:-

it is probable that there is a current legal or implicit obligation deriving from a past
event;-

it is probable that the fulfilment of the obligation will be onerous;40-

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 of
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.
41

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 beable 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
42

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/IFRS
The 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
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.
43

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.
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 and44

subjective 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 abovementioned 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:-

Non-current assets: the Group periodically reviews the carrying amount of property,
plant and equipment, intangible assets, investments in joint ventures and associates andother non-current assets, when facts and circumstances require such revision in order todetermine their recoverable value. The recoverability analysis of the book value isgenerally carried out using estimates of expected cash flows from the use or sale of theasset and appropriate discount rates to calculate the present value. When the book valueof a non-current asset is impaired, the Group recognises a write-down equal to theexcess between the book value of the asset and its recoverable value through the use orsale of the same, determined with reference 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 tothe extent that it is probable that future taxable income will be available against which
they can be 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 isbased on prudent tax planning.
45-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 account therisk 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 of wages and considers the probability of occurrence of potential future events
through the use of demographic parameters such as, for example, employee mortality
rates and resignation or retirement 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 notes to the financial statements. The lawsuits may concern complex legal
and tax issues, subject to a different degree of uncertainty against which it is possiblethat the value of the provisions may change as a result of future developments in theongoing proceedings. The Group monitors the status of pending cases and consults with
its legal advisors and experts.

-

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 inthetimingoftheamortisation

process,

as

well

as

on

the

amountofdepreciation/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
estimates in determining the taxable income and the deductible and taxable temporary
differences between the carrying amounts and taxable amounts.

46

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 SpA 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 tonational/regional distributors) channels with direct sales to retailers in Italy, France andAustria, 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.

47

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 2019-2020 and 2018-2019.
2019/20

2018/19EUROPEAMERICAASIAEUROPEAMERICA

ASIA

Revenues

66.521.596

42.706.375

20.965.805

69.505.718

38.951.446

22.180.075

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

32.176.801
39.192.384
26.756.714
37.205.006

16.951.348
21.630.448
17.926.979
4.442.603

12.166.599
7.410.707
5.530.045
57.68026.792.805
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
58.443

DERIVATIVE FINANCIAL INSTRUMENTS

As at 30 June 2020, 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”).
This derivative financial instrument is found to be a hedge from the effectiveness test48

conducted 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 Management Report.
TRANSACTIONS with RELATED PARTIESThe main transactions with related parties are described below:-

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, the payablebalances for IRES of the Italian companies of the Group that participated in the tax
consolidation, for which Dec28, 1928 Holding S.p.A. is the parent company, aretransferred to it.

-

Dec. 28, 1928 Real Estate S.r.l.: the parent company Selle Royal S.p.A., by virtue of a lease
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 determined as a fixed amount and provides for an
adjustment, to be determined each year on the basis of financial parameters. Dec. 28,
1928 Real Estate S.r.l. is also the lessor of an office space where the secondary office of
Selle Royal SpA is located.

The amounts shown as current and non-current liabilities, with counterparty Dec. 28, 1928
Real Estate S.r.l., refer to the residual payables at the balance sheet date for future lease
payments on the aforementioned properties and recorded in accordance with the provisionsof IFRS 16.
The economic and financial relations held during the 2019-2020 financial year are
summarised in the following table:

49

COUNTERPARTY
Dec. 28, 1928 Holding S.p.A.
Dec. 28, 1928 Real Estate S.r.l.
Directors
TOTAL RELATED PARTIES

GENERAL and
ADMINISTRA
TIVE C.
80.000525.000
605.000

OTHER NONCURRENTASSETS
625.200
625.200

CURRENT
LIABILITIES
29.403
833.290862.693

NONCURRENT
LIABILITIES
6.374.942
6.374.942

50

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 2020, equal to € 20,888,905 (of which € 7,689,409 in the financial
statements of Selle Royal S.p.A., € 5,892,684 in Selle Royal China, and € 2,861,077 in BROOKSEngland, the latter two with a positive net financial position), is up compared to the previous
year due to the trend in collections, as well as a temporary excess of liquidity.
As at 30 June 2020 and 2019, 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:

Trade receivables
Bad debt provision
TRADE RECEIVABLES, net

30/06/2020

30/06/2019

Change16.526.874(816.788)
15.710.086

16.689.301(831.601)
15.857.700(162.426)
14.813(147.614)

For receivables of uncertain collectability, for which legal procedures for collection have 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.
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 € 1,540,317; the Chinese subsidiary Selle Royal Vehicle (China) Co., Ltd.
completed a similar transaction for a value of € 673,353. During the previous year, thecumulative value of the assignments of receivables without recourse made by the same
companies was equal to € 2,633,131.
INVENTORIESThe breakdown of this item, broken down by type of stock and with details of the provisions
51

recorded against the risk of potential obsolescence, is shown in the table below:
30/06/2020

30/06/2019

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

8.796.944
3.642.547
11.387.371
1.381.164
25.208.026

8.140.728
656.216
3.968.316 (325.769)
14.179.402 (2.792.030)
1.544.969 (163.806)
27.833.415 (2.625.388)

Provision for obsolescence
Provision for unrealised intra-Group margin(2.522.944)(940.646)(2.516.760)(2.086.238)

INVENTORIES

21.744.437

23.230.417 (1.485.980)

Change(6.184)1.145.593

The decrease in this item is mainly attributable to the category of finished products, whose
inventories were down drastically compared to 30 June 2019, especially due to the sudden
recovery in global demand for cycling-related products, as already highlighted above.
TAX RECEIVABLES

Tax receivables decreased compared to the balance as at 30 June 2019, as detailed below:
30/06/2020

30/06/2019

Change1.000.050
218.150
192.518
1.410.717

761.817529.117186.788
1.477.722

238.232(310.967)
5.730(67.005)

Current deferred tax assets

394.966

761.703(366.737)

TOTAL TAX RECEIVABLES

1.805.683

2.239.425(433.742)

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

The increase in direct tax receivables mainly refers to receivables recorded by some Group
companies for invention and research activities, as well as the net balance of IRAP receivables
recorded by the parent company.
The decrease in receivables for indirect taxes is mainly due to the lower balance present inalmost all the financial statements of the Group companies due to the increased sales in thelast two months of the year.
Deferred tax assets were recognised by taking into account that there is a reasonablecertainty that positive results will be achieved in future years to allow the use of deferred tax
assets allocated to assets. The decrease is essentially due to the tax effect on the adjustment of52

the provision for the intra-Group margin not realised at the reporting date.
For an examination of the change in current deferred tax assets, please refer to the relevant
section of these notes.
OTHER CURRENT ASSETS

The breakdown of this item and the comparison with the previous year are as follows:
30/06/2020

30/06/2019

Change52.94530.538675.071387.082
1.145.637

347.900
535.809684.161661.255
2.229.125(294.955)(505.271)(9.090)(274.173)(1.083.488)

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

The decrease in this item is attributable to: lower costs advanced for the cancellation ofpromotional events usually held at the end of the financial year and relating to thepresentation and promotion of product ranges on sale in the following financial year; thesame item also decreased due to the fact that costs were not incurred for participation inindustry trade fairs and shows typically planned for the first few months of the following tax
year but cancelled due to the health emergency. The decrease in the item “IRAP refund
application” is due to the actual collection, during the year, of a large portion of theoutstanding balance.
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
Balance as at Increases Decreases (- Reclassificat
Translation
Amortisation (-)
at 30 June
30 June 2019
(+)
)
ion
diff.
2020
Research and development costs

70.984---(70.645)104

443

Industrial patent rights andintellectual property rights

2.200.309

349.061-

33.829(635.298)

19.995

1.967.896

Concessions, licenses, trademarks and similar rights

19.356.590

367.781-401.781(511.181)(12.037) 19.602.934

Others

94.41041.212--(63.359)(632)

71.631

Fixed assets in progress and payments on account654.644

162.068-(435.611)-

10.082391.183

22.376.937

920.122-(0)

Total intangible assets(1.280.484)

17.512 22.034.087

The item “Research and development costs” refers to the capitalisation of costs incurred for53the implementation and realisation of new projects. The above-mentioned costs were almost
fully amortised during the year. The item “Industrial patent rights” mainly includes thecorresponding item recorded in the financial statements of the subsidiary Crank Brothers, Inc.
at the time of the acquisition of the same 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 usefullife on which to calculate the depreciation; higher values are recorded in the financial
statements of Crank Brothers Inc. for 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 wasrecorded 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 € 18.363.391; 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 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:

54

Balance as at
30 June 2019Land and buildings

Increases Decreases (- Reclassificat
Translation
Amortisation (-)
(+)
)
ion
diff.

Balance as
at 30 June
2020

9.443.244

400.535(7.340)958(911.180)(383.941)

8.542.276-

9.347.160--(1.284.517)(10.582)

8.052.061

Plant and machinery

9.613.477

935.612(38.873)-(1.064.014)(1.506.831)

7.939.371

Industrial and commercial equipment

4.145.723

2.274.837-

508.785(2.193.620)(213.513)

4.522.212

Other assets

1.274.601

338.622(20.220)(4)(499.751)(37.146)

1.056.102

917.624792.906--(11.453)

1.189.338(2.163.466)

31.301.359

Right of use of leased assets

Fixed assets in progress and payments on accountTotal tangible assets

25.394.668 14.089.673(509.739)(66.433)0(5.953.083)

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 item “rights of use of leased assets” represents the discounted value recorded in thefinancial statements following the adoption of IFRS 16, and relates to the premises leased bySelle Royal SpA and the offices of Crank Brothers Inc. (both in Laguna Beach, USA and in
Taichung, Taiwan) and of SR56 Inc. (in Ogden, USA).
The increases in other items, and in particular “plant and machinery”, “industrial andcommercial 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 € 508,785, 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 € 2,026,423, 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 € 12,446 relates to minority interests held by Selle
Royal S.p.A. (€ 723) and the subsidiary Royal Ciclo (€ 11,723).
GOODWILL

This item had a balance at the reporting date of € 10,470,259.

55

This item includes the goodwill recorded in the financial statements of the subsidiary CrankBrothers Inc., as well as the higher value recognised at the time of acquisition of the shares inthe same American subsidiary, in the Chinese subsidiary Selle Royal Vehicle (China) Co. Ltd.
and the Brazilian subsidiary Royal Ciclo Industria de Componentes Ltda.
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:
30/06/2020
TEMPORARY DIFFERENCES

30/06/2019
TAX EFFECTTEMPORARY DIFFERENCESTAX EFFECT

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

9.649
89.286114.2171.026.693
439.904
20.092
1.699.841

2.692
29.51124.792259.169
74.7844.018
394.966

46.361106.985289.432
2.115.033
673.22334.4733.265.506

12.93530.85466.978529.593114.4486.895
761.703

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

115.730
1.354.725
693.1702.401.547
1.979.614
23.0006.567.786

32.289341.741
141.040504.325
255.0425.520
1.279.955

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

TOTAL DEFERRED TAX ASSETS

8.267.627

1.674.921

8.660.745

1.856.930

Non-current deferred tax assets:

The change in the current portion of deferred tax assets is mainly related to the decrease in
the value of taxes allocated on the unrealised margin in intra-group transactions following adecrease in the provision itself.
The increase in non-current deferred tax assets allocated against previous tax losses is
attributable to the negative result achieved by the subsidiary Selle Royal USA, Inc.
FINANCIAL ASSETS AT FAIR VALUEThis item includes, for an amount of € 427,050, the value of a financial asset recognised in thefinancial statements of the subsidiary Royal Ciclo and refers to the amounts paid by the latter56

to a financing consortium in which it participates.
OTHER NON-CURRENT ASSETSThis item, amounting to € 681,961, mainly relates to security deposits relating to lease
contracts of Selle Royal S.p.A., Crank Brothers, Inc. and SR56, Inc.
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 € 13,242,049, up compared to the previous year due to a different
timing of purchases, which led to a decrease 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:
30/06/2020 30/06/2019
Direct taxes
Indirect taxes
Local taxes
Withholding taxes on employees and others
TOTAL TAX PAYABLES

344.136
1.037.259
45.104586.1932.012.693

41.761
1.371.000
38.471477.566
1.928.798

Change302.375(333.740)
6.633
108.627
83.895The balance is substantially unchanged compared to the previous year, with a different trend
between the higher payables for direct taxes (as a result of the profits recorded in somecompanies) and various withholdings and the marked decrease in the balance of indirect
taxes.
SHORT-TERM LOANS

The balance of the item in question, as at 30 June 2020, amounting to € 27,400,685, 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.
57

CURRENT LIABILITIES FOR LEASED ASSETS

The balance of this item expresses the discounted value of the lease payments subject torecognition in accordance with IFRS 16 and falling due by 30 June 2021.
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

30/06/2020

30/06/2019

Change4.786.093
632.742202.962
136.761
24.365636.232
6.419.156

4.849.113
615.214226.048212.753433.4802.744.800
9.081.409(63.020)
17.528(23.086)(75.992)(409.115)(2.108.568)(2.662.253)

The decrease in the balance is mainly linked to the payment, during the year in question, ofthe payables as at 30 June 2019 relating to the purchase of the remaining 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;58

- 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 0,30% based on the average financial durationof the liabilities to employees;- annual rate of increase in employee severance indemnity: as envisaged by art. 2120 of the
Italian Civil Code, is determined as 75% of the inflation rate plus 1.5%;- annual inflation rate: estimated at 1.20% over the time horizon considered.
The relative changes are shown in the following table:
Balance as at
30 June 2019

Provisions (+)

Uses (-)

Interest cost

Actuarial (gains) / Translation Balance as at
lossesdiff.
30 June 2020

Provisions for employees

2.039.763

81.760(160.700)

13.5034.950(6.372)

1.972.904

TOTAL

2.039.763

81.760(160.700)

13.5034.950(6.372)

1.972.904

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

1,724,312-1% on the turnover rate

1,756,210+1/4% on the annual inflation rate

1,762,542-1/4% on the annual inflation rate

1,716,783+1/4% on the annual discount rate

1,703,061-1/4% on the annual discount rate

1,777,168

OBLIGATIONSThis item includes the value of the liability in the books of the parent company Selle Royal
S.p.A. relating to the bond loan (so-called mini-bond) listed on the Pro3 segment of theExtraMOT list managed by Borsa Italiana S.p.A., and issued on 24 September 2018 for anominal amount equal to € 10,000,000.00.
The payable recorded therein, in compliance with the provisions of IAS 39, is recognised on
the basis of the amounts collected, net of the transaction costs and subsequently measured atamortised cost, using the effective interest rate method.

59

MEDIUM-LONG-TERM LOANS

This item, amounting to € 18,924,839, up by € 7,302,149 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 essentiallyattributable to the signing of an unsecured mortgage backed by a SACE guarantee, according
to the methods and terms set forth in the emergency decrees issued by the Italian government
to boost companies' liquidity.
PROVISIONS for RISKS and CHARGESThe breakdown and changes in this item are shown below:
Balance as at 30
June 2019
Provision for supplementary customer indemnities
Provision for payment of foreign agents
End of mandate indemnity
Other provisions for risks
TOTAL

Provisions (+)

54.116115.372
332.250
2.616.446
3.118.183

16.791
17.13823.00056.929Uses (-)(11.164)(16.780)(27.944)

IAS adjustment

Balance as at
30 June 2020

6.606
6.606

66.349115.730355.250
2.616.446
3.153.774

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:
30/06/2020
TEMPORARY DIFFERENCES

Intangible assets
Tangible assets
TOTAL DEFERRED TAXES

30/06/2019
TAX EFFECT

734.4482.299.990
3.034.438

TEMPORARY DIFFERENCES

254.486683.614938.100

1.002.755
2.119.029
3.121.784

TAX EFFECT

299.322683.468
982.791

NON-CURRENT FINANCIAL LIABILITIES AT FAIR VALUEThis item, amounting to € 5,288, 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
maturing in May 2022.
This derivative, maturing in May 2022, has the following characteristics:

60

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:

61

30 June 2020
Shareholders’ equity
Profit for the year

30 June 2019
Shareholders’ equity
Group result for the year

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

26.453.650(975.783)

27.627.654

967.387

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

10.604.405-

8.554.066-

Pro-rata results achieved by consolidated subsidiaries-

2.784.853-

64.194

Application of financial methodology for leased assets

24.152(57)

24.209(11.446)(705.483)

859.195(1.564.678)(372.647)

Other consolidation differences(3.644.954)(85.850)(3.850.561)(128.789)

Shareholders ’equity and profit for the year pertaining to the Group32.731.770

2.582.357

30.790.690

518.699

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

4.877.490

1.040.347

4.404.839

432.948

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

37.609.260

3.622.704

35.195.529

951.647

Elimination of intercompany profits included in inventories

62

ANALYSIS and COMPOSITION of the INCOME STATEMENTREVENUES

Revenues for the current year deriving from the Group’s ordinary operations amounted to €130.193.776 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 2020

30 June 2019

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

71.931.825
51.155.112
14.624.345
1.491.703
140.079139.343.064

75.425.119
49.785.169
12.603.792
1.485.310
168.875
139.468.265(3.493.294)
1.369.943
2.020.552
6.393(28.796)(125.201)

Unconditional discounts
Returns
Price changes and others
Sales tax
Year-end bonus
Total revenue from sales(5.357.110)(938.348)(39.514)(2.559.973)(254.343)
130.193.776(4.364.946)(956.239)(67.875)(3.040.255)(401.710)
130.637.239(992.164)17.89128.362480.282
147.367(443.463)

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 2020

30 June 2019

Change56.890.727
2.505.751
4.284.231
14.545.183(2.694.991)
75.530.901

55.328.323
1.493.816
4.552.845
15.666.487(24.317)77.017.154

1.562.405
1.011.935(268.614)(1.121.304)(2.670.674)(1.486.253)

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”.

6330 June 2020

30 June 2019

Change1.130.020
1.086.692
437.145452.558
109.107284.978686.436
4.186.936

1.157.387
1.595.246
413.789576.878
1.155.989
287.676644.128
5.831.094(27.367)(508.555)
23.356(124.320)(1.046.882)(2.698)42.308(1.644.158)

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 2020

30 June 2019

Change4.782.399
3.235.134
1.815.424
50.302517.611246.198
10.647.069

5.098.389
3.090.435
1.604.840
37.442476.387322.341
10.629.833(315.990)
144.699210.584
12.86041.225(76.143)
17.236COSTS of the MANAGEMENT STRUCTURE

This item, which amounts to €14.114.295 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.

64

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
Bank charges
Other general and administrative costs
Total general and administrative costs

30 June 2020

30 June 2019

Change3.603.706
978.157645.088
62.618326.429194.100
452.178760.397853.975
350.893408.596
2.102.613
10.738.749

2.885.351
1.563.226
647.666
60.362314.336286.616450.568
723.910845.628666.356
2.077.362
10.521.383

718.355(585.070)(2.578)2.256
12.092(92.516)1.609
36.4878.347(315.463)
408.59625.251217.366

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 2020

30 June 2019

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

418.315154.6824.314
434.90766
407.201
1.419.485

202.294210.4216.041
313.53649
259.508
991.849

216.021(55.739)(1.728)121.37117
147.693427.636

Operating expenses:
Provisions for obsolescence
Allocation to provision for credit risks
Losses on receivables
Capital losses
Contingent liabilities and other charges
Total operating expenses(130.006)(58.488)(135.143)(2.371)(134.609)(460.618)(235.753)(195.180)(20.617)(25.797)(250.669)(728.016)

105.746136.692(114.526)
23.426116.060
267.398

TOTAL OPERATING INCOME/(EXPENSES)

958.868

263.833

695.034

The net balance of this item was positive by € 958,868, up compared to the previous year. Thechange is explained by the presence of a higher value of minor, independent works for theinternal development of a new line of products. An increase was also recorded in tax
65

concessions relating to expenses incurred for research & development activities carried out
by Selle Royal S.p.A. and some US subsidiaries.
OTHER FINANCIAL INCOME and EXPENSES

The breakdown of interest and other financial charges is provided in the table below:
30 June 2020
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
Fees on loans
Other financial charges
Total financial charges
Net exchange rate differences
TOTAL FINANCIAL INCOME/(EXPENSES)

56.561480
73.130130.171

30 June 2019 Change

31.671
4.421
28.27064.36124.890(3.941)44.86065.810(632.899)(1.577.081)(13.503)(483.590)(285.365)(223.601)(3.216.039)(693.737)
60.838(1.856.424) 279.342(25.167)
11.664(548.984)
65.394(623.050) 337.685(223.601)(3.747.362) 531.323(415.903)

43.180 (459.083)(3.501.771)(3.639.820)

138.049

This item, negative for € 3,501,771, was affected by various phenomena: the drop in interest
expense to service the debt subscribed by some Group companies; the recognition of financial
charges of € 223,601 related to the adoption of IFRS 16, as well as a more accuratepresentation of bank commissions, currently attributed to financial charges for the portion
relating to the accessory costs to the subscription and/or repayment of loans with theremainder allocated to general and administrative costs.
By contrast, the impact of the net exchange rate differences was considerably worse, which,overall, were negative in the year in question for € -415,903 (compared to a positive balanceof € 43,180 in the previous year). This item includes both exchange gains and losses realised
as at 30 June 2020, and latent exchange gains and losses as at the same date deriving from thealignment of foreign 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.

66

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.
30 June 2020
Current taxes
Deferred tax (assets)/liabilities
TOTAL TAXES FOR THE YEAR

1.634.783(58.132)
1.576.652

30 June 2019 Change
1.297.532(264.683)
1.032.849

337.251206.551543.802

The increase in current taxes is attributable to the better results achieved by some Group
Companies. The decrease in the balance relating to deferred tax assets, as already mentioned
above, is mainly due to the trend in the provision for the intra-Group margin not realised at
the reporting date.
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 2020 and correspond to theresults of the accounting records.
***

Pozzoleone (VI), 18 November 2020
The Chairman of the Board of Directors(Barbara Bigolin)67Selle Royal S.p.A.

Independent Auditors’ Report
Consolidated Financial Statements as at 30 June 2020

CCN/AZN/cpt – RC015932020BD0581

Tel: +39 02582010
www.bdo.it

Viale Abruzzi, 94
20131, Milan

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 2020, 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 2020, 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.

Selle Royal S.p.A. – Independent Auditors’ ReportReport on other legal and regulatory provisions
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 2020, 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 2020and 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 2020 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, 30 November 2020
BDO Italia S.p.A.
Carlo Consonni
Shareholder[signature]

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