1

CONTENTS
REPORT ON OPERATIONS

Significant events during the year

4

The Selle Royal Group and the Coronavirus-19 pandemic

9

Economic performance

10

Derivative financial instruments

14Statement of financial position

11

Investments

14

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

14

Risk analysis

15

Significant events after the end of the year

18

Business outlook

19

Relations with parent companies, affiliates and related parties

19

Environment, personnel and sector regulations

19

Conclusions and proposals

20

FINANCIAL STATEMENTS

Consolidated income statement

21

Consolidated balance sheet

23

Consolidated statement of comprehensive income

22Statement of changes in shareholders' equity

25

Consolidated cash flow statement prepared using the indirect method

26

2

EXPLANATORY NOTESIntroduction

27

Accounting standards, amendments and mandatory interpretations adopted by theGroup
Accounting standards, amendments and interpretations not yet applicable and not
adopted28
31

IFRS standards and interpretations adopted by the IASB and not endorsed in Europe

32

2018-2020 annual improvements

35

Financial statement formats and classification criteria

36

Significant events during the year

39

Activities of Group companies

37

General preparation criteria and consolidation principles

39

Measurement criteria

43

Estimates and assumptions
Segment reporting55

Derivative financial instruments

59

58

Risk management

60

Transactions with related parties

60

Analysis and composition of the income statement

52

Analysis and composition of the balance sheet

68

Independent auditors ’report3

MANAGEMENT REPORT

Dear Shareholders,

the year ending 30 June 2021 reported a consolidated profit of € 18,539,926, of which €
14,917,555 pertaining to the Group.

SIGNIFICANT EVENTS OCCURRING DURING THE YEAR

During the year in question, the decisive recovery trend of the sector to which the Groupbelongs was consolidated and strengthened. As already pointed out in the financial statements
for the previous fiscal year, after the initial shock in demand that affected the entire world last

spring following the spread of the Covid-19 pandemic, and the consequent severe restrictions
adopted in the main end markets of the Group, there has been rapid and robust growth indemand for bicycles and accessories at global level. This trend is justified by three main factors:
growing ecological awareness; the need to identify alternative means to public transport tomaintain the necessary social distancing, particularly in urban centres; the renewed appeal of

cycling, in its most varied forms, as a tool for fitness and well-being, also in light of thelimitations suffered by other sports-recreational activities.

Another very important aspect that characterised the year in question was the “boom” in thebusiness-to-consumerchannel. The restrictions on movement have inevitably led to an increasein purchases viae-commerceportals, both general and specific (the latter, both for the sector andfor individual brands). In the case of the Selle Royal Group, the communication and promotion
activities with the end consumer as a reference undertaken in recent years and the digital

investments made have allowed the Group's brands to strengthen their market leadership in

the segments covered.

The year in question was also characterised not only by the persistence of the pandemic
emergency, but by two global phenomena that also posed great challenges for the cycling sector

and for the Selle Royal Group: the shortage of raw materials and the increase in their cost, on
the one hand, and the congestion of global logistics flows on the other.

As for the former, the Group’s production in Italy and Brazil was impacted by the scarcity of
raw materials (plastics, chemicals and ferrous materials in particular); in the case of the Royal

Ciclo plant, it was even necessary to reduce the number of work shifts during the spring withtemporary closures due to the impossibility of procuring the materials to be transformed; atthe Selle Royal SpA plant, the phenomenon was less disruptive, thanks to some targeted4activities that made it possible to qualify new suppliers and materials, limiting operational
criticalities. On the other hand, the production plants of the entire Group had to contend with arapid increase in procurement costs, also due to some major impromptu phenomena (just to
mention the main ones, the prolonged closure of large European chemical plants due to force

majeure; severe weather conditions in the Gulf of Mexico in late winter / early spring that

temporarily blocked the extraction of oil and natural gas; the Suez Canal crisis, with the blockingof the transit of container ships and oil tankers). To cite some data, the cost of polypropylene in
Italy increased from around € 1,000 per tonne at the end of 2020 to around € 2,000 startingfrom March 2021 (source: ChemOrbis); the cost of PVC, in the twelve months covered by thesefinancial statements, increased from around € 750 / ton to over € 1,500 / ton (source:

ChemOrbis), just to mention two categories of fundamental materials in the production of
saddles.

As for the second phenomenon mentioned above, the unexpected and rapid economic recovery
of some major world economies (starting with the USA and China) has severely impacted global

logistics, already severely tested by the effects of the pandemic. The congestion of the main
global ports, both in Europe and in the USA, followed by the blocking of transit through the Suez

Canal and the resurgence of CoViD-19 outbreaks in some areas of the Far East (Vietnam andCambodia in partial lock-down; significant reduction in activities in the Chinese port of Yantian

in late spring) reduced the daily availability of containers (expressed in TEUs), which, after the
first wave of the pandemic, had risen laboriously to around 19.5 million in September 2020 and

dropped to around 17.5 million in June 2021 (source: McKinsey, as cited by ChemOrbis in its
Plastics Outlook 2022 report).

Some comments on the main markets in which the Group operates are provided below:
EUROPE“If they had told me a year ago that I could have reserved Rue de Rivoli for bicycles, I would nothave believed it”.
-

Anne Hidalgo - Mayor of Paris and candidate in the presidential elections

Despite being one of the European capitals with the most extensive and widespread
metropolitan transport network, Paris is also known for its often congested traffic, even in thecentral boulevards; Rue de Rivoli, which, running parallel to the Seine, runs alongside the Musée5

du Louvre and the jardins de les Tuileries, was no exception, at least before the first town madean ecological turnaround. The phrase quoted at the beginning therefore encapsulates thestrength of a change epitomised by the French capital, but is certainly not unique on theEuropean continent.

Other signs of this shift in paradigm, which is cultural before it is still tangible, are coming froma sector apparently some way off that of the cycle, namely that of finance: the assets of ESG

funds (Environmental, Social and Governance), which have as theirbenchmark the 17 United

Nations Sustainable Development Goals, increased in the last year from € 28.6 billion to € 80.8
billion (source: Assogestioni, as cited by Wall Street Italia, 11 May 2021).

Despite the critical issues highlighted above, 2020 was a record year for the cycle sector:
according to what was reported by CONEBI (Confederation of the European Bicycle Industry)

in its Market Profile Report, a total of 22 million bicycles were sold for a value. total market of€ 18.3 billion (relating to EU 27 countries and the United Kingdom). Of these, € 10.6 billion(+52% compared to 2019) relate to sales of e-bikes, which now make up a substantial share of

the market in all the main European countries: Germany: 38.7% in terms of volumes (source:
ZIV); France: 56% in value (source: French Bicycle Observatory); Italy: 14% in volumes, but up

by +44% compared to 2019 (source: ANCMA); Spain: 14% in volumes and 42% in value(source: AMBE). Even more astonishing is the figure for the Netherlands, a country that has

been historically passionate about cycling, in relation to which market research estimates thatthe volume of e-bikes doubled in 2020 to over one million cycles sold (source: Multiscope, as
cited by Bike) Europe, 2 February 2021).

The “parts & accessories” segment, to which the Group belongs, also grew significantly, reachinga value of € 3 billion at continental level.

The cycle sector also testifies to its vitality from a production point of view: again according to

CONEBI, in Europe, approximately 155,000 people are employed directly and indirectly in the
sector (+30% of jobs created) in over 1,000 companies, many of which are SMEs. Of the 4.5
million e-bikes sold at continental level in 2020, 3.6 million were produced in Europe.

Moreover, local production has made it possible to reduce emissions by over 2 million tonnesof CO2 (source: CONEBI), a figure that explains the general interest of public opinion and thefinance world in the sector. The decoupling from geographically distant production operations

is a phenomenon that has already been observed for several years (as proof of this, also thedevelopment of the so-called “bike valley” in Portugal, and the investments made in Europe in
2020: € 1.5 billion, compared to € 1.0 billion in 2019; source: CONEBI) and which is likely to6continue in the years to come, also considering the challenges that the last few months haveentailed.

The Selle Royal Group, the main domestic supplier of saddles to European assemblers and a

reliable supplier also to their partners in the Far East thanks to its site in the People's Republicof China, has certainly contributed to the results achieved by the sector in 2020.
AMERICA“The trade pipeline is bursting at the seams”-

Soren Skou - CEO of Maersk

The remarks uttered in August 2021 by the CEO of Maersk, one of the main global operators inmaritime transport, has almost apocalyptic tones: global logistics are collapsing.

The United States is a country that, unlike Europe, relies almost exclusively on the import ofbicycles to meet domestic demand (over 96% of the total bicycles sold are imported, while theremainder is produced locally ). - US Dept. Of Commerce; import statistics as cited in an editorial
published on 14 June 2021 in the industry magazine Bicycle Retailer). In the eleven months up

to the end of November 2020, the statistics published by the US Department of Commerce (asreported by Bicycle Retailer on 7 January 2021) show an increase bicycle imports (electric andnon-electric) equal to 29.4% in terms of volumes and 12.2% in value.

A paradigmatic example of the difficulties that are ravaging the logistics sector is provided by
the ports of Los Angeles and Long Beach (both in Southern California): they are responsible forreceiving about 50% of total American imports and have been operating for several months

with a constant average back-log of over 50 container ships waiting to be unloaded. A Sea
Intelligence report, contained in the same periodical mentioned above, illustrates how thepercentage of reliability in the delivery times of containers fell from about 75% in July 2020 toabout 40% in March 2021. This figure is a clear reflection of the difficulties that operators in
the cycle sector have also encountered in planning their stocks and, likewise, that of the large
groups operating in the North American market in fulfilling the orders received.

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 to boost

their market shares, also by taking advantage of the favourable conditions of demand for parts
and accessories such as spare parts, also determined by the continuing shortage of new
bicycles.

7

ASIA

“The transformation of the Taiwanese industry from producing traditional bicycles… to e-bikes isin full swing”-

Michael Tseng - Chairman of the Taiwan Bicycle Association (2019)

Thanks to its proximity to China and the experience accumulated during previous epidemics(such as the so-called SARS in 2002-04), Taiwan has rigorously and efficiently managed tocontain the spread of the SARS-CoV-2 virus, benefitting its economy, the bicycle sector included.

Thanks to the traditional openness to Western economies and the know-how acquired in recent
decades, Taiwan is now a leading hub for the supply of e-bikes for Europe and, as reported in

the introduction to the paragraph, had long since undergone a transition towards the
production of these types of bicycles, whose exports grew by around +20% in 2020 to over 750

thousand units, and by a further +20% in the first five months of 2021, as reported by the local
customs authority (source: Bike Europe). In 2020, the European Union was the main
destination for local production, with the Netherlands and Germany leading in terms ofvolumes purchased (the former buying over 300 thousand bicycles and the latter more than 50
thousand).

Following the first wave of the epidemic, China was able to implement effective social andhealth control measures, minimising full lockdowns; at the same time, the state control of thecountry's main strategic industries, combined with considerable strategic stocks, meant thatthe “world's factory” suffered only in part from the shortage or even the absence of raw
materials that, on the contrary, affected the economies of many other countries. In a less criticalmacroeconomic context than elsewhere, it was the shortage of labour that characterised thetwelve months covered by these financial statements; this phenomenon is the result of therapid, and partly unexpected, economic recovery in which China has been the main driver.

The Chinese Bicycle Association (source: Bike Europe) reported growth of 14.2% in the
production of traditional bicycles in the first nine months of 2020 (to 32.2 million units), in

addition to growth of approximately 1.4% of exports of parts and accessories (for a total valueof around € 1.8 billion).

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.

With regard to the corporate structure, the current year saw, on 7 June 2021 to be precise, the8entry into the shareholding structure of the private equity fund called Wise Equity V, managed
by Wise Equity SGR SpA, with a minority interest equal to 33.3% of the share capital of theparent company Selle Royal SpA. This stake was acquired from the previous sole shareholder
Dec. 28, 1928 Holding SpA, which is still the majority shareholder with a stake of 66.7% of theshare capital. Therefore, the transaction in question did not entail the issue of new shares bySelle Royal S.p.A..

Furthermore, as already mentioned previously, the Group implemented a number ofrestructuring operations, in order to simplify the corporate structure and take advantage of
operating synergies deriving from a better use of common resources. In this case, during theyear ended 30 June 2021, the transactions for the sale of the equity investments and the merger

by incorporation of BROOKS England S.r.l. and FIAC S.r.l. into Selle Royal S.p.A. were completed

successfully, as well as the merger by incorporation of SR56, Inc. in Crank Brothers, Inc. Lastly,

the bodies in charge approved the liquidation of Royal Concept Co., Ltd., which has been inactive

as at 30 June 2021. As at the date of approval of this annual report, said liquidation process isunder way and it is reasonably expected to be completed by the end of the fiscal year that willend on 30 June 2022.

THE SELLE ROYAL GROUP and the CORONAVIRUS-19 PANDEMIC

As is well known, the fiscal year in question was characterised by the persistence of theemergency status connected to the global CoViD-19 pandemic.

As regards the Selle Royal Group, the adoption of stringent prevention and control measures by
each of the companies in the perimeter (including, by way of example, the deployment of formsof remote work organisation, free periodic tests for employees and the restructuring of

personnel flows and work shifts in the production sites) have ensured that no outbreaks of thevirus have occur within the facilities, thus making it possible to increase the outputvolumes,

needed to deal with the increased demand from the various markets in which the Group
operates.

9ECONOMIC PERFORMANCE

The following table shows the 2020/21 income statement, compared with the figures for theprevious year:

2020/21% of revenues

2019/20% of revenues% Change

Revenues

205,090,143

100,0%

130,193,776

100,0%

57,5%

Cost of sales

117,039,940

57,1%

75,530,901

58,0%

55,0%

GROSS MARGIN

88,050,203

42,9%

54,662,875

42,0%

61,1%

Operating costs

51,699,182

25,2%

38,728,181

29,7%

33,5%

EBITDA36,351,021

17,7%

15,934,694

12,2%

n.s.

Amortisation/depreciation and write-downs of fixed

7,128,778

3,5%

7,233,567

5,6%

-1,4%

EBIT

29,222,243

14,2%

8,701,127

6,7%

n.s.

Financial income / (charges) and other financial comp(3,850,941)-1,9%(3,501,771)

-2,7%

10,0%

PRE-TAX RESULT

25,371,302

12,4%

5,199,356

4,0%

n.s.

Taxes for the year

6,831,377

3,3%

1,576,652

1,2%

n.s.

NET INCOME

18,539,926

9,0%

3,622,704

2,8%

n.s.

Minority interests

3,622,371

1,8%

1,040,347

0,8%

n.s.

NET INCOME PERTAINING TO THE GROUP

14,917,555

7,3%

2,582,357

2,0%

n.s.

The year in question, which ended on 30 June 2021, recorded sales of € 205.1 million,

substantially higher than the turnover of the previous year (+ 57.5%); please note that theprevious year had been negatively impacted by the onset and subsequent spread of thepandemic. On the other hand, the global presence of the Group both at production and sales

level had greatly limited this impact, to the point that the 2019-20 turnover had closed in linewith that of the previous year. From this perspective, the sales performance in the year inquestion is to be considered absolutely first-rate. In addition, during the period, the Group

recorded a substantial improvement in margins (from 42.0% to 42.9%), thus increasing thegross margin more than proportionally compared to turnover (+61.1%).

The increase in operating costs, and in particular in some industrial costs linked to production
volumes, was partly driven by the growth in turnover; to these, there are general andadministrative costs of a non-recurring nature. Overall, however, the Group greatly benefited
10

from significant operating leverage effect, which brought the EBITDA margin to 17.7% ofrevenues (compared to 12.2% in the year of comparison).

In absolute terms, this item reached € 36.4 million compared to € 15.9 million in the year ofcomparison.

AdjustedEBITDA, net of non-recurring items, was € 37.5 million, with a percentage impact onturnover of 18.3%, while in the year of comparison it was € 16.6 million, with a margin of
12.7%.

Depreciation and amortisation were substantially in line with the comparative figure, leading

the operating result to grow in proportion to EBITDA, with an additional leverage effect if
measured in percentage terms on turnover.

The financial charges, as such, are substantially in line with the previous year, also thanks tothe savings of over € 300 thousand in interest on bank loans and bonds. The overall figure,including exchange rate differences, was instead up by around € 300 thousand due to thegreater impact of the latter compared to the previous year (€ -962 thousand compared to € 416 thousand).

As outlined, the year in question closed with a very positive net result compared to the previous

year (€ 18.5 million and € 3.6 million, respectively), with an incidence of 9.0% on the turnover(7.3% considering solely the profit pertaining to the Group).
STATEMENT OF FINANCIAL POSITION

The financial position of the Group as at 30 June 2021, compared with the situation emerging
from the consolidated financial statements for the year ended 30 June 2020, is as follows:1130/06/2021

30/06/2020

Changein trade receivables
Inventories
Tax receivables
Other current assets
CURRENT ASSETS

28,453,316
26,318,545
2,266,907
1,480,397
58,519,166

15,710,086
21,744,437
1,811,203
1,145,637
40,411,362

12,743,230
4,574,109
455,704
334,760
18,107,803

Trade payables
Tax payables
Other current liabilities
CURRENT LIABILITIES

22,080,469
6,262,892
9,690,052
38,033,412

13,242,049
4,629,139
6,419,156
24,290,344

8,838,420
1,633,753
3,270,896
13,743,068

NET WORKING CAPITAL

20,485,753

16,121,018

4,364,735

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

30,529,614
21,142,693
2,060,638
10,320,071
2,050,345
66,103,361

31,301,359
22,034,087
2,038,869
10,470,259
2,383,444
68,228,019(771,745)(891,395)
21,769(150,188)(333,099)(2,124,658)

Post-employment benefits and other provisions
Deferred taxes
NON-CURRENT LIABILITIES

2,500,819
760,993
3,261,812

2,510,233
938,100
3,448,333(9,414)(177,107)(186,520)

NET INVESTED CAPITAL

83,327,302

80,900,705

2,426,598

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

3,770,491
38,353,309
42,123,800

9,526,720
33,764,726
43,291,446(5,756,228)
4,588,583(1,167,645)

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

17,621,302
14,917,555
32,538,857

30,149,412
2,582,357
32,731,770(12,528,110)
12,335,198(192,913)

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

5,042,274
3,622,371
8,664,645

3,837,143
1,040,347
4,877,490

1,205,131
2,582,024
3,787,155

The increase in net working capital (€ +4.4 million) was mainly driven by higher tradereceivables, while the increase in other items classified under current assets was more thanoffset by the higher balance of current liabilities compared to the year of comparison. The trend12

in these figures is clearly related to the growth in size of the Group and also shows an
improvement in terms of the incidence of net working capital on turnover, down from 12.4%
in the previous year to 10.0% in the year in question.

The operating investments made by the various Group companies, for a total amount of € 5.5

million (substantially stable compared to the previous year), are mainly aimed at productinnovation, one of the key elements on which the Group bases its future growth, at the

upgrading and improvement of production sites and the protection of intellectual property,
consisting in particular of the more than 70 product and / or process patents filed and thetrademarks under which the Group markets its products. Net invested capital rose by € 2.4
million to € 83.3 million.

Net financial indebtedness decreased by around € 1.2 million, amounting to € 42.1 million, witha significant increase in the medium / long-term portion to the detriment of the current portion,
as shown in the table below:

30/06/2021

30/06/2020

ChangeA
B
CD

Cash on hand
Cash and cash equivalents
Other current financial assets
Liquidity (A + B + C)

19,846,067
19,846,067

20,888,905
20,888,905(1,042,838)(1,042,838)

E
F
G

Current financial debt *Current portion of non-current financial debt **Current financial debt (E + F)

12,981,772
10,634,787
23,616,559

20,544,024
9,871,601
30,415,625(7,562,252)
763,185(6,799,067)

H

Net current financial debt (G-D)

3,770,491

9,526,720(5,756,228)

I.
J
K
L

Non-current financial debt ***Debt instruments
Trade payables and other non-current payables
Non-current financial debt (I + J + K)

32,477,712
5,875,597
38,353,309

25,985,766
7,778,960
33,764,726

6,491,946(1,903,363)
4,588,583

M
43,291,446
Net financial debt (H + L)
42,123,800(1,167,645)* Excluding current portion of non-current financial debt; includes the current financial liability atfair value (€ 1,452 and classified under other current liabilities)** Includes the current portion of bank loans and bonds as well as lease liabilities pursuant to IFRS 16*** Includes the non-current portion of mortgages and lease liabilities pursuant to IFRS 16 and the non-current financial liabi
at fair value

The significant operating cash flow generated in the twelve months allowed the payment of an
extraordinary dividend of € 15.5 million.

13

DERIVATIVE FINANCIAL INSTRUMENTS

The parent company Selle Royal S.p.A. subscribed a financial derivative instrument to hedge
the risk of fluctuations in interest rates on a medium / long-term loan. As at 30 June 2021, it
was recorded under “current financial liabilities at fair value” since the underlying loan maturesin May 2022.

Since it is an instrument whose hedging was effective, the relative change in value was allocatedto a specific equity reserve (so-called “cash flow hedge reserve”). For further information,please refer to the Explanatory Notes to these financial statements.
INVESTMENTS

As already mentioned, during the year 2021, the company made operating investments ofapproximately € 5.5 million, as shown in detail below:
Land and buildings
Rights of use - leased assets
Plant and machinery
Industrial and commercial equipment
Other assets
Work in progress and payments on accountSub-total - Investments in intangible assets

Research and development costs
Industrial patent rights and intellectual property rights
Concessions, licences, trademarks and similar rights
Other
Work in progress and payments on accountSub-total - Investments in intangible assets
TOTAL OPERATING INVESTMENTS

2020/2179,483
122,194
1,423,485
1,404,955
863,895
937,775
4,831,786

307,010291,643
26,670625,323
5,457,109

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 shares in
the parent company at the reporting date.

14

RISK ANALYSIS

The main financial and operational risks to which the Group is exposed are shown below:
Financial risks

Credit risk
The Group is exposed to credit risk deriving mainly from commercial relations with its
customers and, in particular, due to any delays or non-fulfilment of their payment obligations

according to the agreed terms and methods. On the other hand, some Group companies havetaken out insurance policies with a leading international institution to mitigate this risk. At thebalance sheet date, approximately 64% of the consolidated receivables (gross of the bad debt
provision) were covered by insurance.

Risks associated with changes in interest rates
As at 30 June 2021, approximately 76% of the Group’s consolidated gross financial debt was

floating rate, equal to € 41.8 million. In relation to a portion of this debt (approximately 0.7%of the total), the parent company Selle Royal SpA used a derivative financial instrument ( IRS,
interest rate swap) to hedge the risk of fluctuations in interest rates on a medium / long-termloan. The aggregate mark-to-market value of this derivative as at 30 June 2021 was a negative€ 1,452. The remaining part of the Group’s debt, equal to approximately 75% of the total, is nothedged by interest rate risk hedging instruments. Significant changes in interest rates could
result in an increase in financial charges relating to floating rate debt.

Liquidity risk

It should be noted that there are sufficient credit lines to meet the reasonably foreseeableliquidity requirements, also in view of the typical seasonality of the sector in which the Group
operates.

Risks associated with exchange rate trends
Part of the Group’s activities are carried out, also through subsidiaries, outside the Eurozone

and the fees for some orders and transactions are agreed in currencies other than the Euro,
mainly in US Dollars, Chinese Renminbi, Brazilian Real and Taiwanese Dollars. In this regard, itshould be noted that any fluctuations in currencies other than the Euro could have negative

effects on the Group’s operating margins. In addition, fluctuations in the exchange rates used to15

convert the financial statements of certain foreign companies of the Group, originally expressedin currencies other than the Euro, could affect the economic, equity and financial situation of

the Group, which prepares the consolidated financial statements in Euro. At the balance sheet
date, the Group does not adopt instruments to hedge exchange rate fluctuations on transactions
carried out in a currency other than the reference currency of the individual companies
belonging to it.

Operational risks

Risks associated with the operations of production plants
The Group is exposed to the risk of having to interrupt or suspend its production activities due
to events beyond its control, including the revocation of permits and authorisations,breakdowns, malfunctions, damage or natural disasters. This could have negative effects on theeconomic, equity and financial situation of the Group.

Risks associated with fluctuations in the price of raw materials and procurement difficulties, aswell as the congestion of global logistics flows.
As mentioned above, during the year, the purchase prices of some key raw materials in theGroup's production processes increased considerably and, in certain circumstances and limited
to some geographical areas, a major problem was also encountered from a procurement
perspective, which partly affected the normal operations of the plants, particularly in Brazil. In

the same way, the global logistics crisis, also mentioned at the beginning of the document, haspartly affected the normal operations of the Companies, both as regards the procurement ofcomponents and products marketed of Asian origin, and as regards shipments to Groupcustomers.

Risks related to relations with manufacturers and suppliers of products and services anddependence on a limited number of suppliers for certain product categories
The Group is exposed to the risk that the relationship with the main producers and suppliers ofgoods and services that it uses may be interrupted, dissolved or terminated, and/or that thelatter do not meet the contractually agreed quality standards and/or applicable regulations,putting at risk the Group's ability to meet the delivery of products to its customers according to

the pre-established objectives. On the other hand, the strategic decision to develop solid multiyear partnerships with the most critical suppliers also meets the need to maintain adequate

16

supervision in terms of quality control, both during the approval of new products and during
the mass production of previously approved products.

Risks related to the impossibility of realising the book value of the stocks and to the increase in theobsolescence of said stocks
The Group is exposed to the risk of inventory obsolescence, against which adjustment
provisions were deemed adequate by management.
Risks associated with dependence on Group brands

These risks may materialise in the form of both a loss of value of the Group's brands, as
perceived by the reference consumer communities, and in the difficulty of protecting anddefending the intellectual property that belongs to the Group in the event of violations by third
parties, including in foreign jurisdictions.

Risks associated with labour shortage and any increase in related costs
The Group is exposed to risks deriving from any increase in labour turnover rates and fromdifficulties in sourcing skilled and unskilled labour to an extent that satisfies the trend indemand for Group products.

Risks related to the consequences of the effects of the CoViD-19 pandemic
During the years 2020 and 2021, the Group had to comply with the restrictions put in place by

the national governments of the individual countries in which the Group companies operate, todeal with the CoViD-19 health emergency, which caused a major international economic crisis,characterised by a significant contraction in demand on the main markets and in global grossdomestic product. The bicycle sector does not fall under the sectors hardest hit by the
pandemic, so much so that the Group in the year ended 30 June 2020 recorded substantiallystable revenues compared to the previous year (€ 130.1 million in the year ended 30 June 2020)

compared to Euro 130.6 million in the year ended 30 June 2019, equal to -0.3%), and asustained growth during the year ended 30 June 2021 (revenues of € 205.1 million, equal to+58% compared to the previous year). Nevertheless, if the COVID-19 pandemic, whose

evolution is still uncertain, should persist or worsen, leading to the adoption of more
restrictions by the competent national authorities of the countries in which the Group operates,
the latter could be exposed to the risk of a slowdown or decrease in sales of its products.

17

SIGNIFICANT EVENTS OCCURRING AFTER THE END OF THE YEAR

On 6 July 2021, Jiangyin Selle Royal Cycling China, Co. Ltd. was incorporated, a Chinese company
68.29% owned by the Selle Royal Group, through the Hong Kong holding company Selle Royal

Asia Ltd., and for the remaining part by a Chinese holding company (the shareholding structureis the same of Selle Royal Vehicle (China) Co., Ltd.). This company is currently involved in thenegotiations for the concession of a plot of land for industrial use within the urban perimeterof Jiangyin City, the same municipality in which Selle Royal Vehicle (China) Co., Ltd. operates.

This activity became necessary following the notification, formally issued on 23 September
2021, regarding the future expropriation of the concession of the land on which the production
site of the latter stands. At the moment, the date on which this expropriation will actually takeplace has not been defined, as a complex valuation will first be necessary of the assets that standon this area of land and the subsequent definition of a settlement agreement with the relevant
local authorities by way of compensation for what will be subject to expropriation.

At the date of presentation of these financial statements, a plot of land was also identified on

which to build the future headquarters of Selle Royal Cycling China Co., Ltd. and the negotiationsof the terms of the relative concession are at an advanced stage.

Given the structuring of the two transactions and the fact that they are carried out
independently of each other, it is currently too early to be able to provide indications on thepossible impact that these activities could have in the future on the normal performance of thebusiness. At the same time, however, there are currently no detailed indications that could leadto a forecast of a significant adverse impact in the future, which will be readily accounted forwhen they materialise.

On 16 July 2021, the plan was drafted for the merger by incorporation of SR84 Srl, the company

that manages some of the Group’s brands, into Selle Royal SpA. At the state of the art, it isconsidered reasonable that the merger can be finalised by the end of 2021.
BUSINESS OUTLOOKGiven the uncertainty relating to the evolution of the CoViD-19 pandemic in the various

countries in which the Group is present, the continuing turbulence in the global markets ofsome strategic raw materials and the critical issues which the global logistics sector has been

experiencing for several months, predicting the economic and financial performance for the

fiscal year 2021-22 is extremely difficult. Excluding these considerations, it is clear that a18

context of sustained demand continues to characterise the cycle sector, following a trend thattook hold before the appearance of the CoViD-19 virus and, to a certain extent, strengthened by
the changes in social behaviour it brought about.

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 in compliance withthe 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 1,153, a significant increase

compared to the 1,070 employees in the previous year. The increase is mainly attributable tofactory personnel (+84 units), as shown in the table below:
Average workforce

Executives
Employees
Workers
Others
Total

Financial Year

Financial Year

Change

25,5
227,2
899,5
1,0
1,153,2

21,0
233,2
815,2
1,0
1,070,5

4,5
(6,1)
84,3
82,7

19

CONCLUSIONS and PROPOSALS

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

Pozzoleone (VI), 28 September 2021

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

20

FINANCIAL STATEMENTS
Consolidated income statement(*)
Revenues
Cost of sales

2020/21
NOTES
17 205,090,143

130,193,776

57,5%

18 117,039,940

75,530,901

55,0%

88,050,203

54,662,875

61,1%

GROSS MARGIN

2019/20% Change

Industrial costs

19

6,582,481

4,186,936

57,2%

Sales and promotion costs

20

13,771,565

10,647,069

29,3%

Costs of the management structure

21

17,806,989

14,114,295

26,2%

General and administrative costs

22

14,534,680

10,738,749

35,3%

Other operating income and (expenses)

23

996,534

958,868

3,9%

EBITDA36,351,022

15,934,694

n.s.

Amortisation, depreciation and write-downs of fixed assets

7,128,778

7,233,567-1,4%

OPERATING PROFIT (EBIT)

29,222,244

8,701,127

n.s.

-

-

-

19,173--

Profits / (losses) from companies measured at equity
Gains / (losses) on disposal of financial assets
Financial income / (charges)

24(3,870,114)(3,501,771)

10,5%

25,371,303

5,199,356

n.s.

6,831,377

1,576,652

n.s.

NET PROFIT

18,539,926

3,622,704n.s.

Minority interests

3,622,371

1,040,347

n.s.

NET INCOME PERTAINING TO THE GROUP

14,917,555

2,582,357

n.s.

PRE-TAX RESULTTaxes for the year25(*) The effects of transactions with related parties are described in the section “Transactions

with related parties”.

21Consolidated statement of comprehensive income
2020/212019/20

18,539,926

3,622,704

3,835

6,729

Actuarial gains / (losses)(33,276)(4,950)Translation differences of foreign financial statements

418,970(443,057)

18,929,456

3,181,427

Net profit
Change infair value of hedging derivatives

Total comprehensive profit / (loss) after tax

NOTES

22

Consolidated balance sheet(*)

30/06/2021

30/06/2020

Change26, 4027
28
29
30

19,846,067
28,453,316
26,318,546
2,266,907
1,480,397
78,365,233

20,888,905
15,710,086
21,744,437
1,811,203
1,145,637
61,300,268(1,042,838)
12,743,230
4,574,109
455,704
334,760
17,064,965

31
32
33
34
35
36, 4037

21,142,693
30,529,614
2,060,638
10,320,071
871,708
509,813668,824
66,103,361

22,034,087
31,301,359
2,038,869
10,470,259
1,274,435
427,050
681,961
68,228,020(891,395)(771,745)
21,769(150,188)(402,726)
82,763(13,137)(2,124,659)

144,468,594

129,528,288

14,940,306

ASSETSNOTESCash and cash equivalents
Trade receivables
Inventories
Tax receivables
Other current assets
TOTAL CURRENT ASSETS
Intangible assets
Tangible assets
Equity investments
Goodwill
Deferred tax assets
Financial assets at fair value
Other non-current assets
TOTAL NON-CURRENT ASSETSTOTAL ASSETS(*) The effects of transactions with related parties are described in the section “Transactions

with related parties”.

23

30/06/2021

30/06/2020

Change22,080,469
06,262,892
1,903,363
20,630,896
0
1,452
1,080,847
9,690,052
61,649,971

13,242,049
0
4,629,139
1,875,785
27,400,685
1,139,155
6,415,595
54,702,408

8,838,420
01,633,753
27,578(6,769,789)
0
1,452(58,308)
3,274,457
6,947,563

1,874,444
5,875,597
26,731,370
626,375
760,9935,746,342
041,615,121

1,972,904
7,778,960
18,924,839
540,889
938,100
5,288
7,055,640
37,216,619(98,460)(1,903,363)
7,806,531
85,486(177,107)(5,288)(1,309,297)
4,398,501

103,265,092

91,919,028

11,346,064

6,000,000
1,244,082
388,420
10,716,446
11,800,466
2,582,357
32,731,770-

51

6,000,000
1,244,082
807,389
10,716,446(1,146,615)
14,917,555
32,538,857

0418,970(12,947,081)
12,335,198(192,913)

Share capital and undistributed profits pertaining to no
Profit / (loss) for the year of minority interests
MINORITY INTERESTS
51

5,042,274
3,622,371
8,664,645

3,837,143
1,040,347
4,877,490

1,205,131
2,582,024
3,787,155

144,468,594

129,528,288

14,940,306

LIABILITIES
Trade payables
Payables to other Group companies
Tax payables
Bonds - Portion falling due within 12 months
Short-term loans
Provisions for risks and charges
Financial liabilities at fair value
Current liabilities for leased assets
Other current liabilities
TOTAL CURRENT LIABILITIESProvisions for employees
Bonds - Portion maturing beyond 12 months
Medium / long-term loans
Provisions for risks and charges
Payables for deferred taxes
Financial liabilities at fair value
Non-current liabilities for leased assets
Other non-current liabilities
TOTAL NON-CURRENT LIABILITIES38
39
40, 4640, 4140, 424344

4540, 4640, 4748
49
50

TOTAL LIABILITIESSHAREHOLDERS ’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’ EQUITYTOTAL LIABILITIES and SHAREHOLDERS’ EQUITY

24

Statement of changes in shareholders' equity
Transfer ofBalance as at 30
previous year
June 2019
resultFair value IRS

Effect of
discounting of
postemployment
benefits

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

32,036486,663(518,699)
-

6,729
6,729

(4,950)(4,950)(200,000)(200,000)(448,009)
4,952(443,057)

2,582,359
2,582,359

6,000,000
1,244,081
388,420
10,716,446
11,800,466
2,582,359
32,731,771

Share capital and undistributed profits pe
Profit / (loss) for the year of minority inte
TOTAL MINORITY INTERESTS

3,971,891
432,948
4,404,839

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)

3,622,706

37,609,261

Profit / (loss)
for the year

Balance as at
30 June 2021-

0418,970418,970

14,917,555
14,917,555

6,000,000
1,244,082
807,389
10,716,446(1,146,615)
14,917,555
32,538,857

164,785
164,785

3,622,371
3,622,371

5,042,274
3,622,371
8,664,645

583,755

18,539,926

41,203,502

Transfer ofBalance as at 30
previous year
June 2020
resultFair value IRS

Effect of
discounting of
postemployment

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
1,244,081
388,420
10,716,446
11,800,466
2,582,359
32,731,771

2,582,359(2,582,359)
-

3,835
3,835

(33,276)(33,276)

Share capital and undistributed profits pe
Profit / (loss) for the year of minority inte
TOTAL MINORITY INTERESTS

3,837,143
1,040,347
4,877,490

1,040,347(1,040,347)---

TOTAL SHAREHOLDERS 'EQUITY

37,609,261

3,835(33,276)-

Dividend
distribution(15,500,000)(15,500,000)(15,500,000)

Other
consolidation
adjustments

25Consolidated cash flow statement prepared using the indirect method

2020/212019/20

Profit before taxes
Adjustments for+/non-monetary elements
Depreciation of tangible fixed assets
Amortisation of intangible assets
Amortisation of Right Of Use
Net financial charges
Minor independent works(Gains) / losses on the sale of property, plant and equipment and financial assets
Change in the bad debt provision
Changes in deferred taxes, provisions and employee benefits
Change in cash flow hedge reserve
Change in actuarial reserves

25,371,303

5,199,356

4,762,167
1,098,663
1,267,949
3,834,970(186,043)
9,601
95,418(1,124,234)
3,835(28,366)4,668,566
1,280,484
1,284,517
3,496,636(418,315)(1,943)(14,813)
175,553
6,729(4,950)Cash and cash equivalents generated by transactions before working capital

35,105,263

15,671,819+/+/+/+/+/+/-

change in working capital
Change in inventories
Change in trade receivables
Change in trade payables
Change in other current assets
Change in other current liabilities(4,219,174)(13,244,196)
10,561,861(334,760)
2,711,478

1,479,797
162,427(3,781,786)
1,083,488(735,259)

Cash and cash equivalents generated by transactions

30,580,472

13,880,487+-

363,097(3,210,239)(4,208,792)

155,737(2,191,657)(1,105,030)

Net cash and cash equivalents from operating activities (A)23,524,538

10,739,536

STATEMENT OF CASH FLOWS FROM INVESTMENT ACTIVITIESPayments for acquisitions of property, plant, machinery and other tangible fixed assets+
Collections (consideration obtained) for the sale of property, plant, machinery and other tangible fixed assets
Payments for acquisitions of intangible assets and capitalised costs
Payments for the granting of advances or loans to third parties+
Collections for repayment of advances or loans to third parties
Payments for derivatives+
Collections from financial instruments
Payments for acquisitions of investments in subsidiaries and associates in joint ventures+
Collections (consideration obtained) for the sale of subsidiaries and associates in joint ventures+
Interest and dividends collected(4,523,549)
35,295(625,323)(1,324,121)
0(4,120)000(4,324,198)
64,062(920,122)(810,905)
0(5,135)0(2,302,838)00

Net cash and cash equivalents from / used in investing activities (B)(6,441,817)(8,299,136)

28,437,427(1,662,301)

34,702,834(1,339,082)

Interest collectedInterest paid
Taxes paid

STATEMENT OF CASH FLOWS FROM FINANCING ACTIVITIES+Collections from the issue of shares or other equity securities
Payments for the acquisition of treasury shares+
Collections from obtaining loans
Payments for rents that fall under the application of IFRS 16+
Bond issue (so-called mini-bond)(Redemption) bond loan (known as mini-bond)
Loan repayments
Dividends paid-

(2,000,000) (27,400,685)(15,500,000)(25,825,012)(200,000)

Net cash from / used in financing activities (C)(18,125,559)

7,338,741

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (D) = (A + B + C)

(1,042,838)

9,779,141

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR (E)20,888,905

11,109,764

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR (F) = (D + E)

19,846,067

20,888,905

26

EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 30 JUNE
2021
1. FOREWORD

The consolidated financial statements as at 30 June 2021 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 approvalof the consolidated financial statements for the year ended 30 June 2021, have been subject toendorsement by the European Union in accordance with the procedure envisaged byRegulation (EC) no. 1606/2002 by the European Parliament and Council of 19 July 2002.

The 2021 Consolidated Financial Statements consist of the Income Statement, the Balance
Sheet, the Statement of Changes in Shareholders' Equity, the Cash Flow Statement and the
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 themethods envisaged from time to time by the reference accounting standards.

All amounts included in these financial statements are presented in Euro, which represents thecurrency of the main economic environment in which the Group operates, unless indicatedotherwise.

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.

27

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, have been
amended in accordance with IAS / IFRS for the sole purpose of the consolidated financial
statements.

2. ACCOUNTING STANDARDS, AMENDMENTS AND OBLIGATORY INTERPRETATIONS ADOPTEDBY THE GROUP

The accounting standards adopted by the Group for the preparation of the Consolidated Reportas at 30 June 2021 are the same as those adopted for the preparation of the consolidated

financial statements as at 30 June 2020, with the exception of the following accounting
standards, amendments and interpretations:

Amendments to References to the Conceptual Framework in IFRS Standards
The amendments to the Conceptual Framework, issued by the IASB in March 2018, include:-

a new chapter on measurement;

some indications on financial performance reporting;

improved definitions of assets and liabilities and guidelines to support these definitions;clarifications in some important areas, such as the roles of administration, prudence andmeasurement uncertainty in financial reporting.

The IASB also updated the process of References to the IFRS Conceptual Framework to support

the transition to a revised Conceptual Framework for companies that develop accounting
policies that use the Conceptual Framework when no IFRS standard applies to a given

transaction. The amendments were issued on 29 March 2018 by the IASB and are mandatoryfrom 1 January 2020. The amendments had no significant impact on the Group’s consolidated
financial statements.

Amendments to IAS 1 and IAS 8: Definition of Material
The amendments to IAS 1 and IAS 8 clarified the definition of materiality for the financial
statements and the application methods for the definition of materiality. In particular, the new
definition provides that information is relevant if it is expected that its omission, incorrect

measurement or its concealment could reasonably influence the decisions that the primary28

users of the financial statements prepared for general purposes envisage on the basis of thesefinancial statements. The amendments were issued on 31 October 2018 by the IASB and aremandatory from 1 January 2020. The amendments had no significant impact on the Group’s
consolidated financial statements.

Amendments to IFRS 3 Business Combinations
These amendments were issued following the post-implementation review of IFRS 3 to assist

companies in determining whether an acquisition is a business or a group of assets. The mainchanges made refer to:-

updating of the businessdefinition,

the addition of a concentration test (optional), andthe addition of a supplementary guide, including new illustrative examples.

In particular, the definitions of ‘outputs’ and ‘business activities’ are restricted, focusing onrevenues from the sale of products and services to customers, rather than on a reduction incosts. In addition, it is clarified that, to be considered a business, the set of acquired assets andactivities must include, at a minimum, an 'input' and a 'substantive process' that together

significantly contribute to the ability to create. An optional 'concentration test' was also added
as a simplification to conclude that certain types of acquisitions are not business combinations.

Finally, the guidance on inputs, processes and outputs (paragraph B7 of IFRS 3) is adjusted toadapt it to the new definition of business combination and broad guidance has been provided
on what is meant by “substantive process”. The amendments were issued on 22 October 2018

by the IASB and are mandatory from 1 January 2020. The amendments had no significant
impact on the Group’s consolidated financial statements.

Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform
The amendments refer to some specific accounting requirements for hedging transactions. In
particular, these amendments were designed to support the provision of useful financial

information by the companies during the period of uncertainty deriving from the gradualelimination of the reference parameters on interest rates such as the interbank rates offered(IBOR). In addition, the amendments require companies to provide additional information toinvestors regarding their hedging relationships that are directly affected by these

uncertainties. The amendments were issued on 26 September 2019 by the IASB and aremandatory from 1 January 2020. The amendments had no significant impact on the Group’s

29

consolidated financial statements.
Amendment to IFRS 16 Covid 19-Related Rent Concessions
IFRS 16 was amended in order to provide lessees with an exemption from the obligation todetermine whether a concession on lease payments related to the spread of COVID-19 was amodification of the lease agreement. If the exemption is applied by the lessees, theseconcessions on the rents must be treated without changing the conditions of the originalcontract. The satisfaction criteria necessary in order to apply the envisaged exemption were
included in the same standard. The amendment was issued on 28 May 2020 and was approvedon 9 October 2020. The amendments had no significant impact on the Group’s consolidated
financial statements.

Amendment to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Phase 2
Issued on 27 August 2020 and approved on 13 January 2021, it implemented a collection ofamendments to the IFRS standards relating to the reform of the interbank rates offered (IBOR)
and other interest rate reference parameters. The amendments are intended to help entities

provide investors with useful information on the effects of the reform on entities' financial

statements. The amendments focus on the effects on the financial statements when an entity
replaces the old benchmark of the interest rate with an alternative reference rate following thereform. The changes, in this final phase, concern:•changes to contractual cash flows - an entity will not have to eliminate or adjust the bookvalue of financial instruments following the changes required by the reform, but will

have to update the effective interest rate to reflect the change in the alternative•reference rate;

hedge accounting - an entity must not stop accounting for hedging transactions justbecause it makes the changes required by the reform to the hedging documentation, if•

the hedge continues to meet the other hedge accounting criteria;

disclosure: an entity will be required to disclose information on the new risks derivingfrom the reform and on how it manages the transition to alternative reference rates.

The amendments had no significant impact on the Group’s consolidated financial statements.

30

3. 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 andinterpretations 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.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a new comprehensive

standard relating to insurance contracts that covers recognition and measurement,

presentation and disclosure. When it comes into force, IFRS 17 will replace IFRS 4 Insurance
Contracts, issued in 2005. IFRS 17 applies to all types of insurance contracts (e.g. life, non-life,

direct insurance, reinsurance) regardless of the type of entity that issues them, as well as tocertain guarantees and financial instruments with discretionary participation features. For thispurpose, limited exceptions will be applied. The general objective of IFRS 17 is to present an

accounting model for insurance contracts that is more useful and consistent for insurers. In

contrast to the provisions of IFRS 4, which are largely based on the maintenance of previous
accounting policies, IFRS 17 provides a complete model for insurance contracts that covers all
relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by:•

A specific adaptation for contracts with direct participation features (the variable fee
approach)•

A simplified approach (the premium allocation approach) mainly for short-term
contracts.

IFRS 17 will be in force for years beginning on or after 1 January 2023, and will require thepresentation of comparative balances. Early application is permitted, in which case the entity
must also have adopted IFRS 9 and IFRS 15 at the date of first-time application of IFRS 17 or

earlier. No material impacts are expected for the Group’s consolidated financial statements withreference to this amendment.

4. IFRS and INTERPRETATIONS APPROVED by the IASB and NOT APPROVED in EUROPE

Below are the international accounting standards, interpretations, amendments to existing31

accounting standards and interpretations, or specific provisions contained in the standards andinterpretations approved by the IASB that have not yet been endorsed for adoption in Europe
at the date of these financial statements. .

Amendments to IAS 1: Classification of Liabilities as Current or Non-current
In January 2020, the IASB published amendments to paragraphs 69 to 76 of IAS 1 to specify therequirements for classifying liabilities as current or non-current. The amendments clarify:••

what is meant by the right to postpone the expiry;•that the right of postponement must exist at the end of the year;•

right of postponement;

the classification is not affected by the probability with which the entity will exercise its
only if an embedded derivative in a convertible liability is itself an equity instrument
does the liability's maturity have no impact on its classification.

The amendments will be effective for years beginning on or after 1 January 2023, and must be

applied retrospectively. No material impacts are expected for the Group’s consolidated financial
statements with reference to this amendment.

Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2:
Disclosure of Accounting Policies
Presented in February 2021, these amendments are intended to help the drafter of the financial
statements in deciding which accounting policies to present in their financial statements. In

particular, the entity is required to make the disclosure of the accounting policies material,rather than the significant accounting policies and several paragraphs are introduced thatclarify the process of defining the material policies, which could be such by their very nature,even if the related amounts may be intangible. An accounting policy is material if the users offinancial statements need it to understand other information included in the financial
statements.

Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definitionof Accounting Estimates
From February 2021, changes were introduced to the definition of accounting estimates,32

replacing the concept of changing them. According to the new definition, accounting estimates
are monetary amounts subject to measurement uncertainty. The Board clarifies that a change

in the accounting estimate that results from new information or new developments is not thecorrection of an error. Moreover, the effects of a change in the inputs or in the measurement

technique used to develop an accounting estimate are changes in estimates unless they result

from the correction of errors of previous years. A change in an accounting estimate may affectonly the profit (or loss) for the current period or, alternatively, for both the current period andfuture periods. These amendments will be applicable, subject to approval, from 1 January 2023.

No material impacts are expected for the Group’s consolidated financial statements withreference to this amendment.

Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from aSingle Transaction
Issued in May 2021, IAS 12 requires the recognition of deferred taxes whenever there aretemporary differences, i.e. taxes due or recoverable in the future. In particular, it wasestablished that companies, in specific circumstances, may be exempted from recognisingdeferred tax when they recognise assets or liabilities for the first time. This provisionpreviously raised some uncertainty as to whether the exemption would apply to transactions
such as leasing and dismantling obligations, transactions for which the companies recogniseboth an asset and a liability. With the amendment to IAS 12, the IFRS clarifies that theexemption does not apply and that companies are required to recognise deferred tax on thesetransactions. The objective of the amendments is to reduce the diversity in the reporting ofdeferred taxes on lease agreements and dismantling obligations. The amendments are effective

for years starting on 1 January 2023 and early application is envisaged. No material impacts are
expected for the Group’s consolidated financial statements with reference to this amendment.
Amendment to IFRS 16 - Leases: Covid-19-Related Rent Concessions beyond 30 June 2021

Issued on 31 March 2021, it should have been effective from 1 April 2021, but was approved on

30 August 2021. With this amendment, the IASB further amended IFRS 16 to extend the time

limit of one of the criteria that the lessor must comply with in order to apply the practical
expedient to the concessions received (exemption to lessees from the obligation to determine
whether a concession in terms of leases is a change to the lease), i.e. that any reduction in lease
payments could only affect payments originally due by 30 June 2021.

33

Reference to the Conceptual Framework - Amendments to IFRS 3
In May 2020, the IASB published the amendments to IFRS 3 Business Combinations - Reference

to the Conceptual Framework. The amendments were approved on 28 June 2021. The Board

added an exception to the measurement standards of IFRS 3 to avoid the risk of potential losses

or profits “of the day after” deriving from liabilities and contingent liabilities that would fallwithin the scope of IAS 37 or IFRIC 21 Levies, if contracted separately. At the same time, theBoard decided to clarify that the existing guidance in IFRS 3 for contingent assets will not be

impacted by the update of the references to the Framework for the Preparation and Presentationof Financial Statements. The amendments will be effective for the years starting on 1 January2022 and apply prospectively. No material impacts are expected for the Group’s consolidated
financial statements with reference to this amendment.

Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16
In May 2020, the IASB published Property, Plant and Equipment - Proceeds before Intended Use,
which prohibits the entity from deducting from the cost of property, plant and equipment any

revenue deriving from the sale of items produced while the company is preparing the asset for

its use in testing. These revenues must be recognised in the income statement under income
from sales as well as the related costs. The amendments were approved on 28 June 2021. The

amendment will be effective for years beginning on or after 1 January 2022 and must be applied
retrospectively to items of property, plant and equipment made available for use at or after thestart date of the period prior to the period in which the entity applies this amendment for the
first time. No material impacts are expected for the Group with reference to these changes.
Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37

In May 2020, the IASB published amendments to IAS 37 to specify which costs must be
considered by an entity when assessing whether a contract is onerous or loss-making. The

amendments were approved on 28 June 2021. The amendment provides for the application of
a “directly related cost approach”. Costs that refer directly to a contract for the supply of goods

or services include both incremental costs and costs directly attributed to the contractual
activities. General and administrative expenses are not directly related to a contract and are
excluded unless they are explicitly recharged to the counterparty on the basis of the contract.
The amendments will be effective for years beginning on or after 1 January 2022. The Groupwill assess the impacts of these changes in the event of contracts for which it has not yet

34satisfied all its obligations at the beginning of the year of first application.
5. 2018-2020 ANNUAL IMPROVEMENTSIFRS 1 First-time Adoption of International Financial Reporting Standards - Subsidiary as a firsttime adopter
As part of the 2018-2020 annual improvements process of the IFRS standards, the IASB

published an amendment to IFRS 1 First-time Adoption of International Financial ReportingStandards. This amendment allows a subsidiary that chooses to apply paragraph D16 (a) of IFRS
1 to account for the cumulative translation differences on the basis of the amounts recorded by
the parent company, considering the date of transition to IFRS by the parent company. This

amendment also applies to associates or joint ventures that choose to apply paragraph D16 (a)of IFRS 1. The amendment will be effective for years beginning on or after 1 January 2022, andearly application is permitted. . No material impacts are expected for the Group’s consolidated
financial statements with reference to this amendment.

IFRS 9 Financial Instruments - Fees in the '10 per cent 'test for derecognition of financial liabilities
As part of the 2018-2020 annual improvements process of the IFRS standards, the IASB
published an amendment to IFRS 9. This amendment clarifies the fees that an entity includes indetermining whether the conditions of a new or amended financial liability are substantiallydifferent with respect to the terms of the original financial liability. These fees include only

those paid or received between the debtor and the lender, including those paid or received by
the debtor or the lender on behalf of others. An entity applies this amendment to financial
liabilities that are amended or exchanged after the date of the first financial year in which theentity applies the amendment for the first time. The amendment will be effective for years

beginning on or after 1 January 2022, and early application is permitted. The Group will apply
this amendment to financial liabilities that are amended or exchanged subsequently or at thedate of the first financial year in which the entity applies this amendment for the first time. No
material impacts are expected for the Group’s consolidated financial statements with reference
to this amendment.

6. FINANCIAL STATEMENTS AND CLASSIFICATION CRITERIAWhen preparing the formats of the documents that make up the financial statements, theCompany adopted the following criteria:

35

- Income statement

The classification of costs was carried out on the basis of the criterion of their destination, whichis considered more representative, as well as adhering to the criteria of the reporting used by

the management of the Group Companies in determining the strategic direction and theexecution of the related business plans.
- 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 the entity’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 forat 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”.

- Statement of changes in shareholders’ equity

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

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

the company operates. By means of this criterion, the result for the year was adjusted for the36

effects of non-monetary transactions, operating, investing and financial activities.
7. ACTIVITIES OF THE COMPANIES BELONGING TO THE GROUP

The 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.
Selle Royal S.p.A.

SR84 Srl

Brooks England
Ltd.

100%

100%

Crank Brothers
Inc.
100%

Pannier Ltd
100%

Selle Royal USA
Inc.

Royal Concept
Company Ltd.

100%

(in liquid.)
100%

Highway Two
Inc.
50%*

Selle Royal
Asia Ltd.
100%

Royal Ciclo Industriade Componentes
50%

Selle Royal
Vehicle (China)
Co. Ltd
68,29%* Consolidated using the equity method

This structure changed with respect to the composition of the Group as at 30 June 2020, due tothe corporate restructuring operations described above, and resulted in the mergers by
incorporation of BROOKS England Srl and FIAC Srl into Selle Royal SpA and of SR56 Inc. into

Crank Brothers Inc. Finally, as reported in the Management Report, Royal Concept Co., Ltd.
prepared its liquidation financial statements at the end of November 2020 and is currently
inactive and awaiting formal closure, expected by the end of the fiscal year as at 30 June 2022.

The consolidated financial statements as at 30 June 2021 include the data of the parent
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 Smethwick-Birmingham, United Kingdom, share capital of GBP 239,100, equal to approximately €
37




301,799, 100% owned by Selle Royal S.p.A.

SR84 S.r.l.: with registered office in Pozzoleone (VI) and share capital of € 2,000,000; thecompany 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 Chicago (Illinois), share capital of USD 1,000, equal to approximately€ 901. The company is 100% owned by Selle Royal S.p.A. Also in 2006, a joint venture wasestablished with a leading German operator for the direct distribution of products on the

US market. To this end, Highway Two Llc. was established, based in the USA, currently
50% owned by Selle Royal USA Inc. In these consolidated financial statements, Highway

Two Llc. is measured using the equity method. The value at the balance sheet date was €

2,045,238.

Royal Concept Company Limited, with registered office in Hong Kong and share capitalof HK $ 1,000, equal to approximately € 91. The company is 100% owned by Selle Royal

S.p.A. This company is currently inactive and in liquidation.

Crank Brothers Inc., with share capital of USD 2,000, equal to approximately € 1,802,100% 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 noted thatthe aforementioned company Selle Royal Asia Ltd. is a pure holding company that holds
exclusively the equity investment in Selle Royal Vehicle (China) Co. Ltd and does not carryout any activities.

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 of

individual financial statements, as envisaged by Section 479A.

Royal Ciclo Industria de Componentes, Ltda., With registered office in Rio do Sul, in theState of Santa Catarina, Brazil. The share capital, amounting to 11,601,802 Brazilian Real,is 50% owned by Selle Royal S.p.A. It is included in the scope of consolidation incompliance with the provisions of accounting standard IFRS 10, par. 7, letter c) on the38basis of which an investor controls an entity if it has the ability to exercise its power overthe investee to affect the amount of its returns.

8. SIGNIFICANT EVENTS OCCURRING DURING THE YEARAs detailed extensively in the Report on Operations, the fiscal year in question wascharacterised by the persistence of the CoViD-19 pandemic, which was offset by the sustained

economic recovery of some of the major global economies (US and Chinese, first of all); thisphenomenon, largely unexpected, triggered huge shocks on the raw material markets andsignificant compromising of global logistics chains. In this complex and changing
macroeconomic context, the cycle sector has nevertheless proved to be extremely dynamic.

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

9. GENERAL BASIS OF PREPARATION 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 consolidationfrom the date of acquisition.

39

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 from convertible
financial instruments or options. These rights are considered only if they are substantial.

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

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

the book value of the equity investments in the companies included in the scope of
consolidation is eliminated against the relative shareholders' equity against the-assumption of the assets and liabilities of the investees;according to the provisions of IFRS 3, subsidiaries acquired by the Group 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 time they are-

incurred;-is accounted for as goodwill;-

the excess of the acquisition cost over the market value of the Group’s share of net assets
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,

40

margins on products in inventory and all significant transactions that have taken place-

between the consolidated companies;-

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

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

interests are shown separately, respectively, in a specific item of the consolidated balance

sheet and income statement; pursuant to IFRS 10, the total loss is attributed to theshareholders of the parent company and to the minority interests, even when the-shareholders' equity attributable to the minority interests presents a negative balance;

acquisitions of non-controlling interests relating to entities for which control alreadyexists or the sale of non-controlling interests that do not entail the loss of control areconsidered equity transactions; therefore, any difference between the acquisition /disposal cost and the relative portion of shareholders' equity acquired / sold is recorded
as an 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 therecognition of a liability whose fair value is reclassified from shareholders' equity. If thecontract expires without a delivery, the accounting amount of the liability is transferredto shareholders' equity. The contractual obligation for the acquisition of own equity

instruments gives rise to a liability for the present value of the redemption amount even

if the obligation is subordinated to the exercise by the counterparty of the redemption
right.

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

the assets and liabilities are converted using the exchange rates in force at the 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 from the-one at the end of the reporting period;

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

41

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

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

Exact exchange rate as at
30 June30 June Appreciation /2021
2020 (depreciati

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

0,8581
1,1884
9,2293
7,6742
5,90500,9124
1,11988,67887,92196,11186,34%-5,77%-5,96%
3,23%
3,50%

Average exchange rate for the year
Appreciation
2020/21 2019/20 (deprec.)0,8865
1,19289,25197,89686,4236

0,8782
1,10598,62037,7761
4,9391-0,93%-7,29%-6,83%-1,53%-23,11%

10. 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.

Revenues, income, costs and charges

On the basis of the five-step model introduced by IFRS 15, the company recognises revenues

after identifying the contracts with its customers and the related performance obligations to besatisfied (transfer of goods and / or services), determined the consideration to which it expects

to be entitled in exchange for the fulfilment of each of these performance obligations, as well as
assessed the manner of satisfaction of these performance obligations (fulfilment at a given

point in time versus fulfilment over time). In particular, the Company recognises revenues only
if the following requirements are met (so-called requirements for identifying the “contract”
with the customer):a) the parties to the contract have approved the contract (in writing, orally or in compliancewith other usual commercial practices) and have undertaken to fulfil their respective

obligations; there is therefore an agreement between the parties that creates enforceable rights
and obligations regardless of the form in which said agreement is expressed;b) the Company may identify the rights of each party with regard to the goods or services to betransferred;c) the Company may identify the payment terms for the goods or services to be transferred;42d) the contract has commercial substance; ande) it is likely that the Company will receive the consideration to which it is entitled in exchange
for the goods or services that will be transferred to the customer.

If the above requirements are not met, the related revenues are recognised when: (i) the

Company no longer has any obligation to transfer goods and/or provide services to thecustomer and all, or almost all, of the consideration promised by the customer has been

received and is not refundable; or (ii) the contract was terminated and the consideration that
the Company received from the customer is not refundable.

If the above requirements are met, the revenues deriving from the sale of goods are recognised
at the time of transfer of ownership, which generally takes place at the time of delivery or

shipment, unless the delivery terms are such as to cause significant risks and benefits to passto the purchasing counterparty at a later time than the aforementioned delivery or shipment of

the asset, in which case, on the basis of the average delivery time, the sales revenues and therelated 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.
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 recognisedin the income statement, except when they relate to items recorded directly in equity. In thiscase, 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 theSelle 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 basis of
the tax rate that is expected to be in force at the time the asset is realised or the liability is43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.

Criteria for the translation of currency items
Receivables and payables in foreign currency and liquid funds in foreign currency at the end of

the accounting period are stated in the financial statements at the exchange rate in force on thedate 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 nondistributable reserve for the part not absorbed by any loss for the year.
Fair value measurement

In compliance with IFRS 13 - Fair value measurement, the Group measures financial

instruments like derivatives at fair value at each reporting date. Fair value is the price thatwould be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The measurement of fair value is basedon the presumption that the transaction to sell the asset or transfer the liability takes place inthe main market or, in the absence of a main market, in the most advantageous market for theasset or liability.

The Group uses valuation techniques that are appropriate to the circumstances and for which
sufficient data are available to measure the fair value, maximising the use of relevant

observable inputs and minimising the use of unobservable inputs. All assets and liabilities forwhich the fair value is measured or disclosed in the financial statements are classified in thefair value hierarchy, described below, based on the lowest level input that is significant for themeasurement of fair value in its complex:- Level 1 - Listed (unadjusted) market prices in active markets for identical assets or liabilities;- Level 2 - Valuation techniques for which the lowest level input that is significant for the44measurement of fair value is directly or indirectly observable;- Level 3 - Valuation techniques for which the lowest level input that is significant for themeasurement of fair value is unobservable.
Cash and cash equivalents
The item consists of cash and current account deposits, recognised at nominal value,corresponding to the fair value. Cash and cash equivalents are short-term investments, highly
liquid and readily convertible into cash, which are subject to an insignificant risk of change invalue.

Trade receivables
Trade receivables are measured on the basis of the impairment model introduced by IFRS 9 on

the basis of which the Group measures receivables by adopting an expectedloss approach,replacing the IAS 39 framework based on the measurement of observed losses (Incurred Loss).

The Group has applied a simplified approach in the calculation of Expected Credit Losses (“ECL”),

therefore it does not keep track of changes in credit risk, but recognises a provision for losses

based on “ECL” calculated over the entire life of the loan (known as lifetimeECL) at eachreference date, based on its historical experience of credit loss, adjusted for specific forward-

looking factors of the debtors and the economic context. The amount of the receivables is shownin the statement of financial position net of the related bad debt provision. The write-downs

reported pursuant to IFRS 9 (including write-backs or write-backs) are recognised in theincome statement under the item other operating income and charges.
Inventories
Inventories of raw materials, semi-finished products and finished products are measured at thelower of cost and net realisable value.

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 adjust45

their value.
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 of timenormally 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 the requirements
to be separately classified as an asset or part of an asset by applying the “Component approach”.

Property, plant and equipment, with the exception of land, are systematically depreciated eachyear on a straight-line basis over the estimated useful life in relation to the remaining useful lifeof 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 the asset,

depreciation is carried out separately for each of the parts that make up the asset in applicationof the “component approach” principle.

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

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

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

Land

0%

Generic plants

10% -12.50%

Buildings

Machinery

Equipment

Office furniture and equipment

3%

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

46




Electronic office equipment

Motor vehicles and internal transport vehicles

25%




18% -20%

Light constructions

Leasehold improvements

Rights of use

20%

-

10%

Duration of the contract on the underlying asset

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.
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 atcost, represented by the purchase price and any direct cost incurred to prepare the asset foruse, net of accumulated amortisation, for intangible fixed assets with a limited useful life, andimpairment losses.

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

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

Intangible assets with an indefinite useful life are not amortised. For these assets, the bookvalue is compared annually with the recoverable value. If the book value is higher than therecoverable value, a loss equal to the difference between the two values is recognised in 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 been47

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 and developmentof the brands on the markets for the products marketed by the Group, although theaforementioned brands may represent assets that may be freely used in markets adjacent-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 the market;

in fact, the brands are considered by their consumers as constantly innovative and on
trend, so much so that they become models to be imitated or inspired by;

the brands are distinguished, in the typical national and/or international context for eachof them, by market positioning and reputation such as to ensure their pre-eminence in therespective 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 maintain the48

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 toan 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 discounting of
cash flows.

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 withan indefinite useful life, in the same way as for tangible and intangible assets not yet in use.

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

obtained by comparing the book value at the reference date and the fair value net of costs tosell (if available) or the value in use. The value in use of a tangible or intangible asset isdetermined on the basis of the estimated future cash flows expected from the asset, discounted
through the use of an after-tax discount rate, which reflects the current market valuation of thepresent value of money and risks related to the Group’s activities, as well as cash flows derivingfrom the disposal of the asset at the end of its useful life. If it is not possible 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 beobjectively determined and independent from those generated by others is identified. The
identification of the cash generating units was carried out in line with the organizational andoperating architecture of the Group.

If theimpairment 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 is49measured 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 theestimate of its recoverable value, but not beyond the net book value that the asset would have
had if the write-down for impairment had not been made. The write-back is charged to theincome statement immediately, unless the asset is measured at the revalued amount, in whichcase the write-back is charged to the revaluation reserve.

Leasing

The Group assesses at the beginning of the contract whether a contract is, or contains, a lease.
This occurs if the contract transfers, in exchange for consideration, the right to control the useof an identified asset for a period of time.

According to IFRS 16 - Leases, the Group applies a recognition and measurement approach for

all leases, with the exception of short-term leases and leases of low-value assets. Consequently,

the lease payments for short-term leases and the leases of low-value assets are recognised as

expenses on a straight-line basis for the duration of the lease.

The Group recognises the lease liabilities that represent the obligations to pay the lease
payments and the right-of-use assets that represent the right of use for the underlying assets.

The Group recognises the right-of-use assets at the start date of the lease and measures themat cost, less accumulated depreciation and impairment, and adjusted for any re-measurementof lease liabilities. Right-of-use assets are measured at cost, which includes the following: (i)the amount of the initial measurement of the lease liability; (ii) any lease payment made on or
before the commencement date, less any lease incentive received; (iii) any initial direct costs
and, if applicable, (iv) restoration costs. Right-of-use assets are depreciated on a straight-line

basis for the shorter of the lease term and the estimated useful life of the assets.
Financial fixed assets

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

Provisions for risks and charges
Provisions for risks and charges relate to costs and charges of a certain nature and of certain or50

probable existence that at the end of the year are undetermined in terms of amount or date ofoccurrence. 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;
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 of theobligations 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; orcurrent 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.
Employee benefits
The Group has defined benefit pension plans with employees. Defined benefit pension plans
typically define the amount of benefit that employees will receive at the time of retirement andwhich, usually, depends on one or more factors such as age, years of service and compensation.

The liability recognised in the statement of financial position in respect of defined benefit
pension plans is equal to the present value of the pension obligation at the end of the period,
also including any adjustment deriving from unrecognised costs relating to past benefits, lessthe fair value of pension assets (“Plan asset”). The pension obligation is calculated annually,51

with the help of external actuaries, using the “Projected Unit Credit Method”. The present valueof the pension obligation is calculated by discounting the disbursements expected in the futureon the basis of the interest rate applied to bonds issued by leading companies in the same
currency in which the benefits will be paid and which have a maturity similar to that of thepension obligation. Actuarial gains and losses relating to defined benefit plans deriving fromchanges in the actuarial assumptions used or from changes in the plan conditions arerecognised in the statement of comprehensive income in the year in which they occur. The

amount reflects not only the payables accrued at the reporting date, but also future salary
increases and the related statistical trends. Costs relating to services provided in previous
periods are recognised immediately in the income statement.

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

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

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

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

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

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

recognised if the conditions of reasonable certainty of obtaining taxable income that will beable to absorb the losses carried forward and the losses in question derive from well-identified
circumstances and it is reasonably certain that these circumstances will not be repeated.
Trade and other payables52

Trade payables are obligations to pay for goods or services that have been acquired fromsuppliers in the course of ordinary activities. Trade payables are classified as current liabilities
if payment is due within one year or less from the reference date. Otherwise, they are presented
as non-current liabilities.

Trade payables 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 Group recognises payables from other taxes and social security and other non-financial
payables at the amount payable on the due date.
Payables to banks and other lenders
Payables to banks and other lenders are initially recognised at fair value net of directly

attributable accessory costs and are subsequently measured at amortised cost, applying theeffective interest rate method. If there is a change in the expected cash flows and/or the internalrate of return initially determined, the value of the liabilities is recalculated to reflect thischange. Payables to banks and other lenders are classified under current liabilities, unless theGroup has an unconditional right to defer their payment for at least 12 months after thereference date. Payables to banks and other lenders are removed from the financial statements
when they are extinguished, i.e. when all risks and charges relating to the instrument aretransferred, derecognised or settled. The bond payable is recognised on the basis of theamounts collected, net of the transaction costs and subsequently measured at amortised cost,using the effective interest rate method.
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 a predefinedrisk managementstrategy, must be consistent with the risk management policies adopted, must
be documented and effective in effectively neutralising the risk to be hedged. This principle ofconsistency can be maintained only in the presence of effective hedging contracts. Hedging

transactions can be divided into fair value and cash flow hedges of specific financial statement
items.

Share capital
53

The item is represented by the subscribed and paid-in capital.
Reserve for first-time adoption of IAS / IFRSThe item includes the total amount of IAS / IFRS adjustments recognised directly in equity at
the time of First Time Adoption (1 July 2014).
Other equity reserves

Among other things, the item includes the cash flow hedgereserve, 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 Italian companiesof 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.

11. ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated financial statements requires the directors to apply

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

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

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

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

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

Below is a summary of the financial statement items that require greater subjectivity thanothers on the part of the directors in preparing the estimates and for which a change in theconditions underlying the assumptions used could have a significant impact on the financial
statements:54-

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 inthe-timingoftheamortisation

depreciation/amortisation costs.

process,

as

well

as

on

the

amountofIncome 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.

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. The company uses a simplified approach to calculate the ECL(Expected Credit Loss) for trade receivables and contractual assets, initially based on thehistorical default rates observed . The Company adjusts the historical experience of credit

loss with forward-looking information. At each reporting date, the historical default rates
observed are updated and changes in forward-looking estimates are analysed. The

assessment of the correlation between the historical default rates observed, the expectedeconomic conditions and the “ECLs” is a significant estimate. The amount of the “ECL” issensitive to changes in circumstances and expected economic conditions. The company's
historical experience of credit loss and the forecast of economic conditions may not be-

representative of the actual default of the customer in the future.

Non-current assets: the Group periodically reviews the carrying amount of property, plantand equipment, intangible assets, investments in joint ventures and associates and othernon-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 the excess

between the book value of the asset and its recoverable value through the use or sale of55

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 is-based on prudent tax planning.

Employee benefits: provisions for employee benefits and net financial charges aremeasured using an actuarial method that requires the use of estimates and assumptions
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 possible that the value ofthe provisions may change as a result of future developments in the ongoing proceedings.

The Group monitors the status of pending cases and consults with its legal advisors andexperts.

12. 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:56

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, through theretail channel and selected specialised chains.
ASIA
This area is represented, from a corporate point of view, by the subsidiaries whose registeredoffice and whose operating activities are mainly concentrated in Asia.

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

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

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

57

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 in Europe
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 2020-21 and 2019-20.
2020/212019/20EUROPEAMERICAASIAEUROPEAMERICA

ASIA

Revenues

104,397,649

68,447,906

32,244,588

66,521,596

42,706,375

20,965,805

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

32,570,097
38,290,469
35,786,701
38,417,919

25,938,873
20,423,318
18,289,299
3,137,661

19,856,263
7,389,573
7,573,971
59,541

32,176,801
39,192,384
31,245,384
32,716,336

16,951,348
21,630,448
17,926,979
4,442,603

12,166,599
7,410,707
5,530,045
57,68013. DERIVATIVE FINANCIAL INSTRUMENTS

As at 30 June 2021, 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 test
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 hedgereserve”).
14. RISK MANAGEMENT

In relation to financial and other risks, please refer to the Management Report.
15. 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., received emoluments
as a member of the Board of Directors of Selle Royal S.p.A. until 7 June 2021; in addition,
the payable balances for IRES of the Italian companies of the Group that participated in58

-the tax consolidation are transferred 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. 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 lease agreement was renegotiated with effect from 1 July 2021 and for a further 6
years.

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 provisions of
IFRS 16.

The economic and financial relations entertained during the 2020-21 financial year are
summarised in the following table:
CONTROPARTE
Wise Equity SGR
Dec. 28, 1928 Holding S.p.A.
Dec. 28, 1928 Real Estate S.r.l.
Azionisti
Amministratori
TOTALE PARTI CORRELATE

C. GENERALIed AMM.VI
13.80856.7242.042.807
2.113.339

PROVENTI/(ONERI)FINANZIARI
1.027
1.027

ATTIVITA'CORRENTI
1.027
1.027

ALTRE
PASSIVITA'
ATTIVITA' NON
CORRENTICORRENTI
625.200
625.200

13.8101.339.644
833.290
2.227
2.188.971

PASSIVITA'NONCORRENTI
5.270.876
5.270.876

59

ANALYSIS and COMPOSITION of the INCOME STATEMENT
16. SEGMENT REPORTING

An additional level of analysis used by management in ordinary operations and in determining
strategic initiatives is provided below:
SELLE ROYAL

2020/21FIZIKBROOKSCRANK
BROTHERSOTHER / NOT
ALLOCATED (*) CONSOLIDATEDRevenues

68,390,557

37,485,616

18,859,383

35,547,990

44,806,597

205,090,143

Gross margin

32,585,297
47,6%

18,903,207
50,4%

10,921,093
57,9%

16,395,355
46,1%

9,245,251n.s.

88,050,203
42,9%

2019/20

SELLE ROYAL
Revenues

42,248,995

FIZIK

BROOKS

24,576,812

12,938,500

CRANK
BROTHERS
20,028,818

OTHER / NOT
ALLOCATED (*) CONSOLIDATED
30,400,652

130,193,776

Gross margin

19,575,357
12,461,107
6,911,921
9,939,148
5,775,341
54,662,875
46,3%
50,7%
53,4%
49,6%
n.s.
42,0%
(*) Revenues represent the turnover of brands that do not exceed the materiality thresholds set for separate exposure,as envisaged by par. 13 of IFRS 8, as well as non-core turnover. The gross margin instead represents the net balance between the marginof “other” turnover and cost of sales elements not directly attributable to a specific brand.

17. REVENUES

Revenues for the current year deriving from the Group’s ordinary operations amounted to €205,090,143 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:

60

2020/21

2019/20

Change108,011,066
94,836,435
2,823,722
224,934
205,896,157

69,421,745
59,434,106
1,491,703
140,079
130,487,633

38,589,321
35,402,329
1,332,018
84,85575,408,524

Price changes and others
Year-end bonus
Revenue adjustments(118,458)(687,555)(806,013)(39,514)(254,343)(293,857)(78,944)(433,212)(512,156)

Total revenue from sales

205,090,143

130,193,776

74,896,368

205,090,143
205,090,143

130,193,776
130,193,776

74,896,368
74,896,368

Revenues from sales of saddles
Revenues from the sale of accessory c
Revenues from the sale of sundry mat
Revenue from services
Total gross revenues

RECOGNITION of REVENUES
Realised at a specific point in time
Realised over time
Total revenue from sales
18. 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

2020/212019/20

Change84,965,430
4,398,552
6,298,710
21,305,407
71,842
117,039,940

56,890,727
2,505,751
4,284,231
14,545,183(2,694,991)
75,530,901

28,074,703
1,892,801
2,014,479
6,760,224
2,766,833
41,509,039

19. 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”.

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

2020/212019/20

Change1,447,793
1,633,289
666,216774,002
128,345902,968
1,029,866
6,582,481

1,130,020
1,086,692
437,145452,558
109,107284,978
686,436
4,186,936

317,773546,598
229,071
321,444
19,238617,990
343,430
2,395,545

20. 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.

2020/212019/20

ChangeCommercial and advertising costs
Transports on sales
Commissions
Royalties
Gifts
Other commercial and promotion costs
Total sales and promotion costs

5,096,298
5,295,475
2,657,573
13,360397,413
311,447
13,771,565

4,782,399
3,235,134
1,815,424
50,302517,611
246,198
10,647,069

313,8992,060,340
842,149(36,942)(120,199)
65,2493,124,496

21. COSTS of the MANAGEMENT STRUCTURE

This item, which amounts to €17,806,989 for the year in question, includes the cost of theclerical and managerial structures of the various Group companies.
22. GENERAL and ADMINISTRATIVE COSTS

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

62

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

2020/212019/20

Change5,842,995
261,955
2,056,615
48,308322,094
166,058
431,054
1,113,562
945,230
306,307565,916
2,474,586
14,534,680

3,603,706
978,157
645,088
62,618326,429
194,100
452,178
760,397
853,975
350,893
408,596
2,102,613
10,738,749

2,239,289(716,202)
1,411,527(14,310)(4,335)(28,041)(21,123)
353,165
91,255(44,585)
157,320
371,973
3,795,932

As previously mentioned, this item includes some non-recurring costs linked to the positive
outcome of the corporate restructuring that saw the entry into the shareholding structure of
Selle Royal SpA by Wise Equity SGR, through its own fund called Wise Equity V.

23. 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 and negative
income components.

63

2020/21

2019/20

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

186,043
836,155
11,935479,28938
261,3431,774,804

418,315
154,6824,314
434,90766
407,201
1,419,485(232,272)
681,472
7,621
44,383(28)(145,858)
355,318

Operating expenses:
Provisions for obsolescence
Allocation to provision for credit risks
Losses on receivables
Capital losses
Contingent liabilities and other charges
Total operating expenses(251,980)(271,269)(6,196)(21,536)(227,289)(778,270)(130,006)(58,488)(135,143)(2,371)(134,609)(460,618)(121,974)(212,781)
128,947(19,165)(92,680)(317,652)

TOTAL OPERATING INCOME / (EXPENSES)

996,534

958,868

37,666

The net balance of this item was substantially unchanged compared to the previous year andwas positive for € 996,534. The most significant changes relate to the decrease in the item
“minor independent works”, positively impacted in the previous year by minor independentworks for the internal development of a new product line. Tax concessions relating to expenses
incurred for research & development activities carried out by Selle Royal S.p.A. and some US
subsidiaries also fell.

On the other hand, the item “reimbursements and miscellaneous income” bucks the trend,
whose growth is influenced, among other things, by the recognition as non-repayable

contributions of the incentives disbursed to the American companies of the Group during

2019/20 in the form of loans to support the maintenance of employment levels (so-called“paycheck protection program”). In greater detail, it should be noted that this program wasissued by the US Administration to support small and medium-sized enterprises that had not

reduced their workforce, by 30 June 2020, due to the effects of the CoViD-19 pandemic. Since
Crank Brothers Inc., Selle Royal USA, Inc. and SR56, Inc. demonstrated compliance with theconditions necessary to obtain the conversion of the loans into grants, during the year inquestion income was recorded for a total of € 387,911, subject to obtainment the formal waiverof the repayment obligation from the lending institutions.

6424. OTHER FINANCIAL INCOME and EXPENSES

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

2020/212019/20 Change

115,3814,684
250,866
370,932

56,561
480
73,130130,171

58,821
4,204
177,737
240,761(569,715)(1,307,210)(2,525)(859,168)(302,253)(238,081)(3,278,951)(632,899)
63,184(1,577,081) 269,872(13,503)
10,978(483,590) (375,578)(285,365) (16,888)(223,601) (14,480)(3,216,039) (62,912)(962,095)(415,903) (546,191)(3,870,114)(3,501,771) (368,343)

This item, negative for € 3,870,114, was positively affected by the decrease in interest expense
to service the debt subscribed by some Group companies, as well as lower interest on the bondloan issued by Selle Royal SpA. The item “other financial charges” includes the recognition offinancial charges related to the adoption of IFRS 16.

On the other hand, the item relating to cash discounts increased significantly, in line with theincrease in turnover.

Lastly, the impact of the net exchange rate differences was considerably worse, which, overall,

was negative in the year in question for € -962,095 (compared to a negative balance of € -415,903 in the previous year). This item includes both exchange gains and losses realised as at
30 June 2021, 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.
25. TAXES FOR THE YEAR

The following table details the tax burden emerging at the level of the individual companies
65belonging to the Group perimeter and any income adjustment items related to theconsolidation.

2020/212019/20 Change

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

6,669,049
162,327
6,831,377

1,634,783 5,034,266(58,132) 220,459
1,576,652 5,254,725

The increase in current taxes is attributable to the better results achieved by the Group
companies. The decrease in the balance relating to deferred tax assets is mainly due to lower
deferred tax assets recognised during the period.

66

ANALYSIS and COMPOSITION of the BALANCE SHEETCURRENT ASSETS

26. CASH AND CASH EQUIVALENTS

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

The balance as at 30 June 2021, amounting to € 19,846,067 (of which € 7,702,004 in Selle Royal

S.p.A. and € 9,620,850 in Selle Royal China, the latter with a positive net financial position), wasdown compared to the previous year, mainly due to the cash outlay related to the distributionof the extraordinary dividend mentioned above.

As at 30 June 2021 (similar to 30 June 2020) there are no restrictions or limitations on the useof the Group's cash and cash equivalents.
27. 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 by insurance,
is as follows:

30/06/2021

30/06/2020

ChangeTrade receivables
Bad debt provision
TRADE RECEIVABLES, net

29,365,523(912,207)
28,453,316

16,526,874(816,788)
15,710,086

12,838,648(95,418)
12,743,230

Receivables insured at the date of the Report amounted to € 18.8 million, compared to € 12.8
million at 30 June 2020.

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 foreign and domestic customers, through a non -recoursefactoring transaction, to aleading bank for € 2,947,761; the Chinese subsidiary Selle Royal Vehicle (China) Co., Ltd.

completed a similar transaction for a value of € 1,066,741. During the previous year, thecumulative value of the assignments of receivables without recourse made by the same67

companies was equal to € 2,213,670.

Finally, the change in the bad debt provision during the year in question is shown below:
Balance as at 30
June 2020

Provisions (+)

Releases (-)

Uses (-)

Translation diff.

Balance as at 30
June 2021

Bad debt provision

816,788281,716(10,448)(176,558)

707

912,207

TOTAL BAD DEBT PROVISION

816,788281,716(10,448)(176,558)

707

912,207

28. INVENTORIESThe breakdown of this item, broken down by type of stock and with details of the provisions
recorded against the risk of potential obsolescence, is shown in the table below:
30/06/2021

30/06/2020

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

9,767,182
4,631,511
12,649,871
2,378,635
29,427,199

8,796,944
3,642,547
11,387,371
1,381,164
25,208,026

970,238
988,964
1,262,500
997,4714,219,173

Provision for obsolescence
Provision for unrealised intra-Group margin(2,210,367)(898,287)(2,522,944)(940,646)

312,577
42,359INVENTORIES

26,318,546

21,744,437

4,574,109

The growth of this item can be seen in each inventory category and is conducive to the higher
business volumes. On the other hand, the index relating to inventory days, calculated bycomparing inventories to the cost of goods sold, shows a marked decrease from 105 days as at
30 June 2020 to 82 days as at 30 June 2021.

Lastly, the change in provisions for adjusting the value of stocks during the year in question isshown below:

Provisions for obsolescence
Provision for unrealised intra-Group margin
TOTAL ADJUSTMENT PROVISIONS of INVENTORIE

Balance as at 30
June 2020
2,522,944
940,6463,463,590

Provisions (+)
265,855
171,625
437,479

Releases (-)(213,983)(213,983)

Uses (-)(559,170)(559,170)

Translation diff.

Balance as at 30
June 2021(19,261)(19,261)

2,210,367
898,287
3,108,654

29. TAX RECEIVABLES

Tax receivables increased compared to the balance as at 30 June 2020, as detailed below:

6830/06/2021

30/06/2020

Change1,555,585
137,865
149,963
1,843,413

1,000,050
218,150
192,518
1,410,717

555,535(80,285)(42,555)
432,695

Current deferred tax assets

423,494

400,486

23,009TOTAL TAX RECEIVABLES

2,266,907

1,811,203

455,704

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

The increase in receivables for direct taxes refers entirely to the Brazilian subsidiary which,following the favourable outcome of a tax dispute, recorded a receivable for direct taxes thatcan be offset against future tax payables.

The other items did not undergo substantial changes during the period.

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

30. OTHER CURRENT ASSETS

The breakdown of this item and the comparison with the previous year are as follows:
Advance costs
IRAP refund application
Accrued income and prepaid expenses
Sundry receivables
TOTAL CURRENT ASSETS

30/06/2021

30/06/2020

Change154,547
598,724
727,126
1,480,397

52,94530,538675,071
387,082
1,145,637

101,602(30,538)(76,347)
340,044334,760

The higher costs advanced mainly relate to expenses incurred close to the end of the tax year

and relating to promotional events or activities to be held in the following year; in this regard,
it should be noted that the comparison figure is abnormally low due to the cancellation of all
sector events and internal promotion in the third and fourth quarter of 2020, due to thepandemic.

The residual balance as at 30 June 2020 of the item “IRAP refund application” was prudentiallyreversed during the year, as it was considered at risk in terms of possible collectability.

Lastly, the growth in the item “sundry receivables” relates to a financial lease transaction for a

new production plant that will be installed at the Selle Royal SpA facility during the following
69

year and aimed at increasing production capacity. as well as the expected improvement inefficiency.

NON-CURRENT ASSETS
31. INTANGIBLE ASSETS

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

Research and development costs

Balance as at Increases Decreases (- Reclassificat
Translation Balance as at
Amortisation (-)
30 June 2020
(+)
)
ion
diff.
30 June 2021
443

-

-

-

(455)

12

-

Industrial patent rights andintellectual property rights

1,967,896

307,010--(632,974)(53,578)

1,588,355

Concessions, licenses, trademarks and similar rights

19,602,934

291,643(3,059)-(418,699)

5,003

19,477,822

Others

71,631---(46,535)

456

25,552

Fixed assets in progress and payments on account391,183

26,670-(365,506)-(1,382)50,96422,034,087

625,323(3,059)(365,506)(49,490)

21,142,693

Total intangible assets(1,098,663)

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

by independent experts who also indicated the useful life on which to calculate thedepreciation; higher values are recorded in the financial statements of Crank Brothers Inc. fora total of USD 7,694,000, allocated for USD 4,780,500 to the item “Industrial patent rights”,

amortised over 15 years. The residual portion was recorded under “Goodwill”, as shown below.
The item “Concessions, licenses, trademarks and similar rights” refers to the value of the

trademark portfolio held by the Group companies, for a value of € 18,258,042; 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 in70

relation to projects for the development of new products and product lines not yet operationalat the end of the year.

32. TANGIBLE FIXED ASSETS

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

Balance as at
Decreases (- Reclassificat
Translation
Increases (+)
Amortisation (-)
30 June 2020
)
ion
diff.

Balance as
at 30 June
2021

Land and buildings

8,542,276

79,483--(992,282)(65,087)7,564,390

Right of use of leased assets

8,052,061

122,194--(1,267,949)(52,782)

6,853,524

Plant and machinery

8,125,287

1,423,485

(969)

-

(1,200,345)

190,108

8,537,565

Industrial and commercial equipment

4,336,295

1,404,955(2,227)

1,306,078(2,200,701)(19,970)

4,824,429

Other assets

1,056,101

863,895(34,636)(97,679)(368,839)

38,167

1,457,009

Fixed assets in progress and payments on account

1,189,338

937,775-(842,893)

-

8,477

1,292,697

Total tangible assets

31,301,359

4,831,786(37,832)

365,506

98,91230,529,614(6,030,116)

The increases in the item “land and buildings” relate to improvements made by Selle Royal SpA
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.; in this regard, the office in Ogden, USA,previously managed by SR56, Inc., is still active as a secondary office of Crank Brothers, Inc.

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 items “work in progress and advances” (both tangible and intangible)
to the item “industrial and commercial equipment”, amounting to € 1,306,078, refers to thesuccessful completion of development processes, including multi-year, of new products during
the year in question.

33. 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 € 2,045,238, to the equity investment

in Highway Two Llc., with registered office in Olney (USA) and share capital of USD

71241,648.,over which indirect joint control of 50% is exercised. This investment is measured
using the equity method. The residual amount of € 15,400 relates to minority interests held bySelle Royal S.p.A. (€ 723) and the subsidiary Royal Ciclo (€ 14,677).

Below are some economic indicators of Highway Two Llc., relating to the first half of the 2021

fiscal year, as well as the balance sheet figures as at 30 June 2021, and related comparative data.
For the sake of completeness, the tax year of the joint venture coincides with the calendar year.
30/06/2021

Highway 2 Llc:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Shareholders’ equity

$
$
$
$
$

Group interest (50%)$

23,813,171
1,043,037-19,918,573-63,4444,874,191

$
$
$
$
$

30/06/2020

Change21,244,119
1,184,613-17,801,337-71,972
4,555,423$ 2,569,053$ -141,577$ -2,117,236$
8,528$ 318,768

2,437,095 $2,277,711 $

159,384

Carrying amount of the investment
in Highway 2 Llc. (in €)2,045,238

2,026,423

18,815

Other equity investments (in €)Total equity investments

15,4002,060,638

12,4462,038,869

2,954
21,769

1st half of 2021

1st half of 2020

Revenues
Cost of sales
Operating and financial costs
Net profit

$
$
$
$

$
$
$
$

Group interest (50%)$

Highway 2 Llc:

13,144,730-7,566,926-5,441,840
135,964

67,982 $

4,926,192-4,478,079-291,624
156,489

Change$ 8,218,538$ -3,088,847$ -5,150,216$ -20,525

78,244 $-10,262

34. GOODWILLThis item had a balance at the reporting date of € 10,320,071.

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 in72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.
35. DEFERRED TAX ASSETS

Details of the item in question is shown in the following table:
30/06/2021

TEMPORARY DIFFERENCESTAX EFFECT

30/06/2020
TEMPORARY 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

18,818
133,686
247,858
989,788
243,538
106,959
1,740,647

5,250
40,481
52,857250,100
41,401
33,403
423,494

9,649
89,286114,217
1,026,693
439,904
43,092
1,722,841

2,692
29,511
24,792
259,169
74,784
9,538
400,486

Provision for supplementary customer indemnities
Inventory write-down provision
Intangible assets
Tangible assets
Prior tax losses - Federal taxes
Prior tax losses - State taxes
Subtotal non-current deferred tax assets

144,961
1,685,361
580,859
227,614566,552
1,296,687
4,502,033

40,444
394,650
162,060
30,652
118,976
124,926
871,708

115,730
1,354,725
693,170
2,401,547
1,979,614
6,544,786

32,289341,741
141,040
504,325
255,042
1,274,435

TOTAL DEFERRED TAX ASSETS

6,242,681

1,295,202

8,267,627

1,674,921

Non-current deferred tax assets:

The change in the current portion of deferred tax assets is mainly related to the deferred tax
effect on the higher value of the bad debt provision.

The decrease in non-current deferred tax assets, allocated against previous tax losses, relates
to the relative use in light of the profits achieved by the companies to which they referred.
36. FINANCIAL ASSETS AT FAIR VALUEThis item includes, for an amount of € 509,813, the value of a financial asset recognised in thefinancial statements of the subsidiary Royal Ciclo and refers to the amounts paid by the latterto a financing consortium in which it participates.

37. OTHER NON-CURRENT ASSETSThis item, amounting to € 668,824, mainly relates to security deposits relating to lease
contracts of Selle Royal S.p.A. and Crank Brothers, Inc.

73

CURRENT LIABILITIES
38. TRADE 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 amounted to € 22,080,469, a significant increase compared to the previous year
due to the increase in business.
39. TAX PAYABLES

The item in question is detailed below:
Direct taxes
Indirect taxes
Local taxes
Withholding taxes on employees and oth
Payables from tax disputes
TOTAL TAX PAYABLES

30/06/2021 30/06/2020
1,175,186
931,773
54,327
1,485,159
2,616,446
6,262,892

344,136
1,037,259
45,104
586,1932,616,446
4,629,139

Change831,049(105,486)
9,223
898,966
1,633,753

The higher payables for direct taxes are attributable to the significant profits recorded by theGroup companies; the increase in payables for withholding taxes, almost entirely borne by theparent company Selle Royal SpA, reflects the portion withheld by the employer as withholding
agent for the higher performance bonuses recognised by virtue of the extremely positive results
achieved.

During the current year, steps were taken to reclassify under this item the payables from tax

disputes, against which a provision for risks had already been allocated. For a better

representation and comparability of the data, as required by IFRIC 21, the balance as at 30 June
2020 was restated accordingly.

40. MEASUREMENTS AT FAIR VALUEIFRS 13 establishes a three-level hierarchy useful for categorising assets/liabilities measured

at fair value on the basis of increasingly less certain inputs; these levels, shown in descendingorder of priority, can be described as follows:74

Level 1: Level 1 inputs are quoted prices (not adjusted) in active markets for identical assets

or liabilities, which the entity can access at the measurement date. A price quoted in an active
market provides the most reliable proof of fair value and, when available, must be used without

any adjustment to measure the fair value. A Level 1 input will be available for many financial
assets and liabilities, some of which may be traded in different active markets (for example, on

different stock exchanges). Therefore, in Level 1 the focus is on the determination of thefollowing elements:-

the main market for the asset or liability or, in the absence of a main market, the-the possibility for the entity to carry out a transaction with the asset or liability

most advantageous market for the asset or liability; andat the price of that market at the measurement date.

Level 2: Level 2 inputs are inputs other than the listed prices included in Level 1 observabledirectly or indirectly for the asset or liability. If the asset or liability has a certain (contractual)
duration, a Level 2 input must be observable for substantially the entire duration of the asset
or liability. Level 2 inputs include:-

quoted prices for similar assets or liabilities in active markets;-data other than the quoted prices observable for the asset or liability, for-quoted prices for identical or similar assets or liabilities in non-active markets;
example:o interest rates and yield curves observable at commonly quoted intervals;
o implied volatility;-o credit spreads;

inputs corroborated by the market.

Level 3: Level 3 inputs are unobservable inputs for the asset or liability. The non-observable inputs must be used to measure the fair value to the extent that the relevant

observable inputs are not available, therefore allowing situations of low market activity for theasset or liability at the measurement date. However, the purpose of the fair value measurement
remains the same, i.e. a closing price at the measurement date from the perspective of a market

operator who owns the asset or liability. Therefore, unobservable inputs must reflect theassumptions that market participants would use in determining the price of the asset or
liability, including assumptions about risk.

75

The following tables summarise the financial assets and liabilities measured at fair value shownin the financial statements and the related measurement criteria adopted:
As at 30 June 2021

Cash and cash equivalents
Equity investments
Financial assets at fair value
TOTAL ASSETS
Loans
Bonds
Derivative financial instruments
TOTAL LIABILITIESAs at 30 June 2020
Cash and cash equivalents
Equity investments
Financial assets at fair value
TOTAL ASSETS
Loans
Bonds
Derivative financial instruments
TOTAL LIABILITIES

Notes

Total

fair value measurements
Level 1
Level 226, 4033
36, 4019,846,067
2,060,638
509,813
22,416,519

19,846,067
19,846,067

40, 41, 50
40, 4640, 4247,362,266
7,778,960
1,452
55,142,678

-

-

-

Level 3-2,060,638
509,8132,570,452

47,362,266
7,778,960
1,452
55,142,678--

fair value measurements
Level 1
Level 2

-

Notes

Total

26, 4033
36, 4020,888,905
2,038,869
427,050
23,354,825

20,888,905
20,888,905--

2,038,869
427,050
2,465,920

40, 41, 50
40, 4640, 42

46,325,523
9,654,745
5,288
55,985,556-

46,325,523
9,654,745
5,288
55,985,556-

Level 3

41. SHORT-TERM LOANS

The balance of this item, as at 30 June 2021, amounting to € 20,630,896, a marked decrease
compared to the previous year, expresses the actual payable for principal, interest andaccessory charges accrued and payable and includes both credit lines whose duration does notexceed 12 months and the current portion of the medium/long-term loans. The decrease isessentially attributable to the non-use of short-term credit lines by Selle Royal SpA at thebalance sheet date.

42. CURRENT FINANCIAL LIABILITIES AT FAIR VALUEThis item, amounting to € 1,452, relates to the market value of a hedging derivative instrument76

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:
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 (so-called“

cash flow hedge reserve ”).

43. 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 2022.
44. 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

30/06/2021

30/06/2020

Change6,099,043
825,331305,035
1,339,644
168,747
952,253
9,690,052

4,725,475
632,742
202,962
136,761
24,365693,290
6,415,595

1,373,568
192,589
102,073
1,202,883
144,382258,9633,274,457
77

All components of this nature were up compared to the previous year; the most significant

changes concern payables to employees, which include the amount due for the month's salaryfor June (typically paid in the following month), holidays accrued and thirteenth month's pay(where this entitlement or other similar payments are present) and payables for bonuses on
the following results that are allocated on an accrual basis. The higher value of payables for tax

consolidation corresponds to the higher IRES balance transferred by Selle Royal SpA to Dec. 28,
1928 Holding SpA, the latter a lead company in the national tax consolidation, by virtue of the
profit achieved by the parent company in the year object.
NON-CURRENT LIABILITIES
45. EMPLOYEE BENEFITSThis item mainly includes the employee severance indemnity provision of the Italian companiesof 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 wereinferred on the basis of what was published by INPS in 2000;- annual probability of elimination from the service for other reasons: this was assumed to be
0.5%, determined on the basis of the historical trend of this parameter within the company;- annual probability of request for severance pay advances: this was assumed to be 3.0%, basedon the historical trend of this parameter within the company;- annual discount rate: this was assumed to be 0.25% 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% and equal to 2.10%;- annual inflation rate: estimated at 0.80% over the time horizon considered.
The relative changes are shown in the following table:78

Balance as at 30
June 2020

Provisions (+)

Uses (-)

Interest cost

Actuarial (gains) / Translation Balance as at
lossesdiff.
30 June 2021

Provisions for employees

1,972,904

37,883(168,996)

2,525

28,366

1,762

1,874,444

TOTAL

1,972,904

37,883(168,996)

2,525

28,366

1,762

1,874,444

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

1,826,420+1% on the turnover rate

1,787,986+1/4% on the annual inflation rate
-1/4% on the annual inflation rate

1,833,337+1/4% on the annual discount rate
-1/4% on the annual discount rate

1,779,188
1,762,882
1,850,859

The above-mentioned sensitivity analysis on employee severance indemnity is based onreasonable changes in the key assumptions that occur at the end of the year, while maintaining
all other assumptions constant.

This analysis may not be representative of an actual change in the provision for employee

benefits, as it is unlikely that the changes in the assumptions will occur independently of eachother.

Lastly, the expected future disbursements are shown below, based on the assumptions
presented above:

YEARS
1
2
3
4
5

EXPECTED PAY-OUTS

131,908
164,692
68,46475,694
97,37479

46. OBLIGATIONS

The amount due for bonds is represented in current liabilities, in relation to the portion due
within twelve months from the date of the financial statements, and in non-current liabilities
for the residual portion.

These items refer to the value of the liability in the books of the parent company Selle RoyalSpA relating to the bond loan (so-called mini-bond) listed on the Pro3 segment of the ExtraMOT
list managed by Borsa Italiana SpA, and issued on 24 September 2018 for a nominal amountequal to € 10,000,000.00.

The payable recorded therein, in compliance with the provisions of IAS 39, is recognised on thebasis of the amounts collected, net of the transaction costs and subsequently measured atamortised cost, using the effective interest rate method.

During the year, the first repayment instalment of € 2,000,000 was paid. For a more adequate
representation, the portion repaid during the period in question was reclassified to theappropriate item of current liabilities.
47. MEDIUM-LONG-TERM LOANS

This item, amounting to € 26,731,370, up by € 7,806,531 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 essentially attributable tothe signing of some unsecured mortgages backed by a government guarantee, according to themethods and terms set forth in the emergency decrees issued by the Italian government tosupport the liquidity of companies.

48. PROVISIONS for RISKS and CHARGESThe breakdown and changes in this item are shown below:
Balance as at 30
June 2020

Provision for supplementary customer
Provision for payment of foreign agent
End of mandate indemnity
TOTAL

69,910115,730
355,250
540,889

Provisions (+)

9,259
29,23151,00089,490Uses (-)-

IAS adjustment

Balance as at
30 June 2021

(4,005)(4,005)75,164
144,961
406,250
626,375

The provision for severance indemnity refers to the pension fund set up by the parent company

80

Selle Royal S.p.A. in compliance with the resolutions of the Shareholders' Meeting.
49. DEFERRED TAXESThe balance and breakdown of this item are broken down as follows:
30/06/2021

TEMPORARY DIFFERENCES

Intangible assets
Tangible assets
Other temporary differences
TOTAL DEFERRED TAXESTAX EFFECT

423,877
2,379,229
65,123
2,868,228

30/06/2020

TEMPORARY DIFFERENCES

97,121
650,196
13,676760,993734,448
2,299,990
3,034,438

TAX EFFECT

254,486
683,614938,100

50. NON-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 after 30 June 2022.
51. SHAREHOLDERS’ EQUITY

The share capital is composed as follows:

Ordinary shares - 6,000,000.00 (with no par value)
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:
30 June 2021
Shareholders’ equProfit for the year

30 June 2020
Shareholders’ equGroup result for the year

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

21,372,116

10,144,396

26,453,650(975,783)

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

5,214,939-

10,604,405-

Pro-rata results achieved by consolidated subsidiaries-

11,415,016

Application of financial methodology for leased assets-

Elimination of intercompany profits included in inventories-

2,784,853-

24,152(57)(673,714)

31,769(705,483)

859,195

Other consolidation differences

6,625,516(6,673,626)(3,644,954)(85,850)

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

32,538,857

14,917,555

32,731,770

2,582,357

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

8,664,645

3,622,371

4,877,490

1,040,347

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

41,203,502

18,539,926

37,609,260

3,622,704

These consolidated financial statements, consisting of the Income Statement, the Balance Sheet,
the Cash Flow 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 2021 and81correspond to the results of the accounting records.
Pozzoleone (VI), 28 September 2021
The Chairman of the Board of Directors(Barbara Bigolin)

*

*

*

82

Selle Royal S.p.A.
Independent Auditors’ Report
Consolidated Financial Statements as at 30 June 2021

CCN/FBL/AZN/cpt – RC015932021BD0462

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 2021, the consolidated income
statement, the consolidated statement of comprehensive income, the statement of changes inshareholders’ equity, the consolidated cash flow statement for the year ending on that date 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 2021, 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 company’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 company’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 theaudit 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 2021, 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 2021 and on its compliance with the legal provisions, as well
as issuing a declaration on any material errors.
In our opinion, the report on operations referred to above is consistent with the consolidated financial
statements of the Selle Royal S.p.A. Group as at 30 June 2021 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, 26 October 2021
BDO Italia S.p.A.
Carlo Consonni
Shareholder[signature]

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