SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) 

OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL 

YEAR ENDED DECEMBER 31, 2004

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE

TRANSITION PERIOD FROM TO

Commission file number: 1 - 10230

BENETTON GROUP S.p.A.

(Exact name of Registrant as specified in its charter)

REPUBLIC OF ITALY

(Jurisdiction of incorporation or organization)

VIA VILLA MINELLI 1, 31050 PONZANO VENETO (TV), ITALY

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each 												Name of each exchange

class 													on which registered

AMERICAN DEPOSITARY								NEW YORK STOCK EXCHANGE

SHARES EACH REPRESENTING 

TWO ORDINARY SHARES PAR 

VALUE EURO 1.30

Securities registered or to be registered pursuant to Section 12(g) of the Act: NONE

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE

Number of outstanding shares of each of the issuer's classes of capital or common stock as of December 31, 2003:

181,558,811 ORDINARY SHARES (PAR VALUE EURO 1.30)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 [X] Item 18 [ ]

Table of contents

PAGE		ITEM

3			Forward-Looking Statements

			References

4			Part I

5	 		1.	Identity of Directors, Senior Management and Advisers 

	 		2.	Offer Statistics and Expected Timetable

	 		3.	Key Information	

10	 		4.	Information on the Company

20	 		5.	Operating and Financial Review and Prospects

36	 		6.	Directors, Senior Management and Employees

48			7.	Major Shareholders and Related Party Transactions

50			8.	Financial Information

51			9.	The Offer and Listing.

53			10.	Additional Information.

64			11.	Quantitative and Qualitative Disclosures About Market Risk.

68			12.	Description of Securities Other than Equity Securities.

69			Part II

70			13.	Defaults, Dividend Arrearages and Delinquencies.	

14.	Material Modifications to the Rights of Security Holders and Use of Proceeds.

15.	Controls and Procedures.

16A. Audit Committee Financial Expert.

16B. Code of Ethics.	

71			16C. Principal Accountant Fees and Services.

16D. Exemptions from the Listing Standards for Audit Committee.

16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

72			Part III

73		17.	Financial Statements.

149		18.	Financial Statements.

19.	Exhibits.** 
				

Forward-Looking Statements**
Certain statements contained in this Form 20-F, including those statements contained under the captions "Information on the Company" and "Operating and Financial Review and Prospects" that are not statements of historical fact, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements can be generally identified by the use of terms such as "believes", "expects", "may", "will", "would", "could", "plans", or "anticipates", the negatives of such terms, or comparable terms. 

In addition to the statements contained in this Form 20-F, the Company (or directors or executive officers of the Company authorized to speak on behalf of the Company) from time to time may make forward-looking statements, orally or in writing, regarding the Company and its business, including press releases, oral presentations, filings under the Securities Act, the Exchange Act or securities laws of other countries, and filings with other stock exchanges.

Such forward-looking statements represent the Company's judgment or expectations regarding the future, and are subject to risks and uncertainties that may cause actual events and the Company's future results to be materially different than expected by the Company or indicated by such statements. Accordingly, no assurance can be given that the results anticipated by the Company, or indicated by any such forward-looking statements, will be achieved.
**References**
Unless the context otherwise requires, the term the "Company" refers to Benetton Group S.p.A. (the parent company), and the terms the "Group" and "Benetton" refer to Benetton Group S.p.A. and its consolidated subsidiaries.
** 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART**I

 

 

 

Item 1: Identity of Directors, Senior Management and Advisers. Not applicable.
**Item 2: Offer Statistics and Expected Timetable. Not applicable.
**Item 3: Key Information

A. Selected financial data**
The Company publishes its Consolidated Financial Statements in Euro. Financial data relating to years before 2001, which were originally published in Lire, have been translated into Euro using the fixed exchange rate of Euro 1.00=Lire 1,936.27. In this annual report, references to "Dollars" or "USD" are to currency of the United States of America, and references to "Lira", "Lire" or "Italian Lire" are to the former currency of Italy which, as of February 28, 2002, is no longer legal tender in Italy. 

The following table sets forth selected consolidated financial data of the Company for the years indicated and should be read in conjunction with the Company's consolidated Financial Statements and the Notes thereto included in "Item 17: Financial Statements" of this Form 20-F. The income statement data for the years ended December 31 2004, 2003 and 2002 and balance sheet data as of December 31 2004 and 2003 presented below have been derived from the Company's Consolidated Financial Statements, included elsewhere. The other income statement and balance sheet data presented below have been derived from the Company's Consolidated Financial Statements, not included elsewhere. Such Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in Italy ("Italian GAAP"), which differ in certain respects from accounting principles generally accepted in the United States ("U.S. GAAP"). For a discussion of the material differences between Italian GAAP and U.S. GAAP as they relate to Benetton's consolidated net income and shareholders' equity, see Note 30 of the Notes to Consolidated Financial Statements included in "Item 17: Financial Statements" of this Form 20-F. 

Amounts in accordance with Italian GAAP.

 *Year ended December 31,*Key operating data (millions of Euro) *2000*%*2001*%*2002*%*2003*%*2004*%
Revenues
2,018
100.0
2,098
100.0
1,992
100.0
1,859
100.0
1,686
100.0
Cost of sales
1,138
56.4
1,189
56.7
1,124
56.4
1,049
56.4
929
55.1
Gross operating income
880
43.6
909
43.3
868
43.6
810
43.6
757
44.9
Contribution margin 
740
36.7
776
37.0
744
37.3
696
37.4
653
38.7
Adjusted EBITDA (1)
400
19.8
398
19.0
376
18.8
335
18.0
317
18.8
Income from operations
309
15.3
286
13.6
243
12.2
232
12.5
217
12.9
Net income/(loss)
243
12.1
148
7.1
(10)
(0.5)
108
5.8
123
7.3
Earnings/(loss) per share (Euro) 
1.35
 
0.82
 
(0.05)
 
0.59
 
0.68
 
 

 

 

 *Year ended December 31,*Key financial data (millions of Euro)*2000*2001*2002*2003*2004
Total assets
2,875
2,821
2,643
2.697
2.624
Working capital (2)
772
811
798
729
688
Net financial debt
536
640
613
468
431
Shareholders' equity
1,175
1,241
1,141
1,174
1,230
Share capital
234
236
236
236
236
Capital expenditures (3)
305
311
169
151
152
Average number of shares outstanding
180,505,910
180,720,969
181,341,018
181,558,811
181,558,811
(1) Adjusted EBITDA consists of operating income before depreciation and amortization and does not include extraordinary income and any other financial income included in net income. Adjusted EBITDA is not a measurement of performance under generally accepted accounting principles and Adjusted EBITDA should not be considered an alternative to (a) operating income or net income (as determined in accordance with generally accepted accounting principles) as a measure of our operating performance, (b) cash flows from operating, investing and financing activities (as determined in accordance with generally accepted accounting principles) as a measure of our ability to meet cash needs or (c) any other measures of performance under generally accepted accounting principles. Adjusted EBITDA is a measure commonly reported and widely used by investors and other interested parties as a measure of a company's operating performance and debt servicing ability because it assists in comparing performance on a consistent basis without regard to depreciation and amortization, which can vary significantly depending upon accounting methods (particularly when acquisitions are involved) or nonoperating factors (such as historical cost). Accordingly, this information has been disclosed in this annual report to permit a more complete and comprehensive analysis of our operating performance relative to other companies and of our debt servicing ability. Because all companies do not calculate Adjusted EBITDA in the same manner, the presentation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. 

The following is a reconciliation of operating income to Adjusted EBITDA:
*(millions of Euro)*2000*2001*2002*2003*2004
Operating results
309 
286 
243 
232 
217 
Depreciation
50 
59 
66 
60 
59 
Amortization
41 
53 
67 
43 
41 
Adjusted EBITDA
400 
398 
376 
335 
317 
(2) Working capital is the sum of operating assets and operating liabilities: trade receivables net of allowance for doubtful accounts, inventories, trade payables and other operating receivables/payables (accrued income/expenses, deferred income and expenses, VAT and other tax receivables/payables).

(3) Capital expenditures: see "Item 4: Information on the Company A. History and Development of the Company".

 

Amounts in accordance with U.S. GAAP.
*(thousands of Euro except per share amounts and weighted average number of shares outstanding)*Year ended December 31,*2000*2001*2002*2003*2004
Net income/(loss)
240,411
154,678
65,513
126,542
106,972
Weighted average number of shares outstanding (2) 
180,505,910
180,720,969
181,341,018
181,558,811
181,558,811
Earnings/(Loss) per share (1) (2): Basic and diluted
1.33
0.86
0.36
0.70
0.59
Cash dividend per share (1) (2) paid in each year
1.03
0.46
0.41
0.35
0.38
Shareholders' equity 
1,053,369
1,099,388
1,096,791
1,150,513
1,191,420
(1) Since each ADS represents two Ordinary Shares, the ADS financial data may be computed by multiplying the per share data by two.

(2) The weighted average number of common shares outstanding in 2000 have been adjusted to reflect the one for ten reverse split of the Company's common shares approved by the Shareholders' Meeting of May 8, 2001.
**> Dividends declared and paid***Year*Dividend per Ordinary Share (Euro)
2005 (1)
0.34
2004
0.38
2003 
0.35
2002 
0.41
2001 (2)
0.46
2000 (2)
1.03
(1) Dividend paid on May 26, 2005.

(2) Restated to reflect the reverse split of the Company's common shares approved by the Shareholders' Meeting of May 8, 2001.
**> Exchange rates**
The following table sets forth, for each of the years indicated, the high, low, average and year-end exchange rate for converting United States Dollars into Euro based on the Noon Buying Rate in New York City for cable transfers in Euro as certified for customs purposes by the Federal Reserve Bank of New York. The Noon Buying Rates are expressed in USD per Euro 1.00.

  
*Year ended December 31,*High*Low*Average (*)*End of Year
2000
0.83
1.03
0.92
0.94
2001
0.95
0.84
0.90
0.89
2002
1.05
0.86
0.95
1.05
2003
1.26
1.04
1.13
1.26
2004
1.36
1.18
1.24
1.35
(*) The average of the Noon Buying Rates on the last day of each month during the year. 

The following table sets forth, for each month during the previous six months, the high and low exchange rate for United States Dollars into Euro based on the Noon Buying Rate in New York City for cable transfers in Euro as certified for customs purposes by the Federal Reserve Bank of New York. The Noon Buying Rates are expressed in USD per Euro 1.00.
*High*Low
December 2004
1.36
1.32
January 2005
1.35
1.30
February 2005
1.33
1.28
March 2005
1.35
1.29
April 2005
1.31
1.28
May 2005
1.29
1.23** B. Risk factors 
*> Benetton's business is subject to competitive pressures. Benetton operates in the highly competitive apparel sector. Competition in these sectors may increase because there are few barriers to entry. Benetton competes with local, national and global department stores, specialty retailers, independent retail stores and manufacturing companies. In addition to traditional store-based retailers, Benetton also competes with direct marketers who target customers through catalogs. Benetton competes for customers principally on the basis of quality, assortment and presentation of merchandise, customer service, store ambience, sales and marketing programs and value. In addition to competing for sales, Benetton competes for favorable store locations and lease and purchase terms for its stores. Increased competition could result in pricing pressure and loss of market share, either of which could have a material adverse effect on the Group's financial condition and results of operations. 
***> Success of Benetton's strategies depends on the response of the commercial network. The Group has established an important policy of incentives for its network of partners, in line with the business model. The objective of this policy is to encourage Benetton's partners to increase their investment capacity, open new stores and renew existing ones as well as increase their ability to compete on price to the final customer. The success of this strategy depends on the capacity of Benetton to involve and incentivize the network, setting specific objectives and monitoring the achieved results at regular intervals. If Benetton's sales partners are not incentivized to increase their investments, this could result in a loss of market share, which could have a material adverse effect on the Group's financial condition and results of operations. Futhermore linked to the present model of business, there could be significant risks of delayed payments from customers or difficulties in the collection of receivables.
**> *Benetton's future performance depends on the Group's ability to develop its business in emerging markets*. Benetton is currently implementing new commercial strategies, emphasizing development of selected emerging markets, such as China and India. This is being accomplished through agreements with local large-scale retailers to open "store within a store" facilities within large stores in the main cities in these markets. New emerging markets initiatives also include setting up new joint ventures to manage and develop commercial activities. If Benetton fails to implement its strategy for emerging market growth, it could have a material adverse effect on the Group's financial condition and results of operations.
**> *Benetton manufactures apparel in a very competitive environment.*Manufacturing in the clothing industry is highly competitive and includes a large number of manufacturers. Competition has increased significantly over the past few years as companies manufacturing in low-cost countries have begun to play an important role. In this context the admission of China to the World Trade Organization and the recent termination of the multi-fiber agreement that for forty years has restricted imports in the textile and apparel sectors has increased the competitive risk for all European textile manufacturers. To respond to this risk, the Group is maintaining its strategic focus on policies of production and organizational efficiency, emphasizing decentralization of production, completion of production cycles in overseas units and organizational cost reduction actions. The increased competition could result in pricing pressure that would have a material adverse effect on Benetton's financial condition and results of operations.
**>*Benetton's business is sensitive to changes in consumer spending patterns.* Benetton's business is sensitive to changes in consumer spending patterns and may be affected by, among other factors, business conditions, interest rates, taxation, local economic conditions, uncertainties regarding future economic prospects and shifts in discretionary spending towards other goods and services. Customer preferences and economic conditions may differ or change from time to time in each market in which Benetton operates. Benetton's future performance will be subject to such factors, which are beyond its control, and there can be no assurance that such factors would not have a material adverse effect on the Group's results of operations. 
***> Benetton's success depends on its ability to anticipate fashion trends. Benetton's sales and earnings depend to a significant extent upon its ability to anticipate and adjust to changes in fashion trends and consumer preferences in a timely manner. If Benetton were to experience unsatisfactory customer acceptance of its merchandise, the Group would have lower than planned sales, greater than planned markdowns and lower gross margins earned on goods sold. Although Benetton is constantly reviewing emerging lifestyle and consumer preferences, any failure by Benetton to identify and respond to such trends in a timely manner could have a material adverse effect on the Group's business and results of operations. 
***> Benetton's expansion and growth strategy has increased fixed costs and operating expenses. Although Benetton traditionally distributed its products through independent sales representatives worldwide, in order to strengthen its image and market shares, Benetton has in the last few years invested to sell its products directly through its own stores. As a result, Benetton operates over 200 retail store locations appropriate for demographics and retail environment. These direct operations have led to increases in Benetton's fixed costs and operating expenses. In addition, these investments expose Benetton directly to any failure to correctly predict, or to changes in, the demographic or retail environment at any store location. Failure or changes in any areas in which the Group has stores could have a material adverse effect on the Group's business and results of operations. 
***> Benetton is subject to risks associated with its strategies. As a part of its growth strategy, Benetton plans to revitalize its existing commercial network and to differentiate its brands. Benetton's growth will be adversely affected if it is unable to (i) identify suitable markets and sites for new stores, (ii) maintain levels of service that are expected by customers, (iii) avoid reducing sales and profitability at existing third-party owned stores selling Benetton's products when opening directly-owned megastores in the same region or market area, (iv) manage inventory on an effective basis and (v) deliver products on a timely basis. Moreover, there can be no assurance that this strategy should be successful or that the Group's overall net revenues should increase as a result of a revitalization in the existing commercial network and the differentiation of its brands. If the Group is unable to manage its expansion effectively and increase sales, its business and results of operations could be adversely affected. 
***> Benetton's sales and operating results are subject to fluctuations in foreign currency exchange rates. As a result of its international operations, the Group's sales and operating results are, and will continue to be, affected by the impact of fluctuations in foreign currency exchange rates on product prices, cost of good sold and operating expenses. Fluctuations in the exchange rates of certain foreign currencies relative to the Euro may have an adverse effect on the Group's sales and operating income and on the international competitiveness of its operations in its own facilities. The appreciation of the Euro relative to other currencies has generally had, an adverse effect on the Group's sales and operating incomes. While Benetton engages in foreign exchange hedging transactions to manage its foreign currency exposure, there can be no assurance that its hedging strategy will adequately protect its operating results from the effects of future exchange rate fluctuations.
***> Benetton is exposed to the impact of changes in interest rates. Benetton holds a variety of interest rate sensitive assets and liabilities to manage the liquidity and cash needs of its day-to-day operations. These interest rate sensitive assets and liabilities are subject to interest rate risk, which is only, to some extent, reduced by the use of derivative financial instruments. 
***> Benetton is exposed to risks associated with its international operations. Benetton is exposed to risks associated with its international operations including risks relating to delayed payments from customers in certain countries or difficulties in the collection of receivables generally. Benetton's business is also subject to political and economic instability in the countries in which it does business, changes in regulatory requirements, language and other cultural barriers, tariffs and other trade barriers and price or exchange controls. If the Group's international operations were not successful, its business and results of operations would be adversely affected. 
***> Benetton's ADS holders may face disadvantages compared to an ordinary shareholder when attempting to exercise voting rights. Holders of our ADSs may instruct the depositary to vote the ordinary shares underlying the ADSs. For the depositary to follow the voting instructions, it must receive them on or before the date specified in our voting materials. The depositary must try, as far as practical, subject to Italian law and our Articles of Association, to vote the ordinary shares as instructed. Also, the depositary is not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that ADS holders may not be able to exercise their right to vote and there may be nothing they can do if their ordinary shares or other deposited securities are not voted as requested.
** Item 4: Information on the Company

A. History and development of the Company**
Benetton Group S.p.A. is a limited liability company (Società per Azioni) organized under the laws of Italy. It was established on March 2, 1965 as a partnership by the Benetton family in Ponzano Veneto, Italy. It was reorganized as a limited liability company in 1978. The Company adopted the name Benetton Group S.p.A. in a corporate reorganization effective in December 1985. Prior to June 1986, the Company was wholly owned by the Benetton family. In June 1986, shareholders affiliated with the Benetton family sold shares representing approximately 11% of the Ordinary Shares to the public in Europe. (The Company received no proceeds from such offering.) The Benetton family initiated the public offering of such Ordinary Shares in order to establish a liquid public market for the Company's Ordinary Shares and to facilitate the Company's access to the international capital markets. 

In June 1989, the Company made a public offering of 7,000,000 American Depositary Shares ("ADS"), each representing the right to receive two Ordinary Shares and listed the ADSs on the New York Stock Exchange. A public offer of 11,000,000 newly issued shares was made in a 1994 global offering.

 Capital expenditures
*Year ended December 31,*(thousands of Euro)*2002*2003*2004
Tangible fixed assets:
- commercial network and real estate
62,097
84,352
89,486
- production facilities***********************************************************************************